As filed with the Securities and Exchange Commission on January 14, 1997
Registration No. 333-________
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
ORION NEWCO SERVICES, INC.
(Exact name of registrant as specified in its charter)
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<CAPTION>
<S> <C> <C>
Delaware 4899 52-2008654
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
---------------
2440 Research Boulevard
Suite 400
Rockville, Maryland 20850
(301) 258-8101
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
---------------
Richard H. Shay, Esq.
2440 Research Boulevard
Suite 400
Rockville, Maryland 20850
(301) 258-8101
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
---------------
Copy to:
Steven M. Kaufman, Esq.
Hogan & Hartson L.L.P.
555 Thirteenth Street, N.W.
Washington, D.C. 20004
(202) 637-5600
---------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered in
connection with the formation of a holding company, check the following box. [ ]
---------------
CALCULATION OF REGISTRATION FEE
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<CAPTION>
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Proposed maximum
Title of each class of Amount to Proposed maximum aggregate offering Amount of
securities to be registered be registered (1) offering price per Share price(2) registration fee (3)
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par value 11,097,758 shares Not applicable $160,917,491 $48,762
- ------------------------------------------------------------------------------------------------------------------------------------
Series A Preferred Stock 13,871 shares Not applicable $ 15,820,460 $ 4,794
- ------------------------------------------------------------------------------------------------------------------------------------
Series B Preferred Stock 4,298 shares Not applicable $ 4,718,526 $ 1,430
====================================================================================================================================
</TABLE>
(1) This Registration Statement relates to securities of the registrant
issuable to holders of common stock and preferred stock of Orion Network
Systems, Inc., a Delaware corporation ("Orion" ), in the proposed merger of
a wholly-owned subsidiary of Registrant with and into Orion.(the "Merger").
(2) Pursuant to Rule 457(f), the registration fee was computed on the basis of
(i) the market value of Orion common stock to be exchanged in the Merger,
computed in accordance with Rule 457(c) on the basis of the average of the
high and low prices per share of such stock as reported by the Nasdaq
National Market System on January 9, 1997 and (ii) the book value of the
Series A Preferred Stock and Series B Preferred Stock as of September 30,
1996 computed in accordance with Rule 457(f)(2)
(3) Of the $54,996 total registration fee, $29,346 has been previously paid
in connection with a Schedule 14A filed by Orion on November 27, 1996.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE>
ORION NETWORK SYSTEMS, INC.
2440 RESEARCH BOULEVARD, SUITE 400
ROCKVILLE, MARYLAND 20850
January 15, 1997
Dear Stockholder:
You are cordially invited to attend a special meeting of stockholders (the
"Special Meeting") of Orion Network Systems, Inc. ("Orion" or the "Company"), to
be held on Thursday, January 30, 1997 at 9:00 a.m., local time, at 2440 Research
Boulevard, Suite 400, Rockville, Maryland.
As described in the accompanying Proxy Statement/Prospectus, at the Special
Meeting, Orion stockholders will be asked to consider and act upon the following
proposals:
(1) Ratification of the Agreement and Plan of Merger (the "Merger
Agreement"), dated as of January 8, 1997, among Orion, Orion Newco Services,
Inc., a newly formed Delaware corporation with no significant assets or
liabilities and a wholly owned subsidiary of Orion ("Orion Newco"), and Orion
Merger Company, Inc., a newly formed Delaware corporation and a wholly owned
subsidiary of Orion Newco ("Orion Merger Subsidiary"), and the transactions
contemplated thereby.
(2) Approval and adoption of the Section 351 Exchange Agreement and Plan of
Conversion (the "Exchange Agreement"), dated as of June 1996, as amended, among
Orion, Orion Satellite Corporation, a Delaware corporation ("OrionSat") that is
a wholly owned subsidiary of Orion and the sole general partner of International
Private Satellite Partners, L.P., a Delaware limited partnership ("Orion
Atlantic"), and each of the existing limited partners of Orion Atlantic other
than Orion (the "Exchanging Partners," and together with Orion, the "Limited
Partners") and the transactions contemplated thereby.
(3) Approval of the transactions (the "Debenture Investments") contemplated
by the Debenture Purchase Agreement (the "Debenture Agreement"), dated as of
January 13, 1997, among Orion, Orion Newco and each of British Aerospace
Holdings, Inc. (collectively, with British Aerospace Public Limited Company and
its affiliates, "British Aerospace") and Matra Marconi Space UK Limited ("Matra
Marconi Space").
The refinancing of $210 million of existing indebtedness of Orion Atlantic to
release the existing commitments of the Limited Partners and their affiliates
supporting such indebtedness is a condition to the Merger, the Exchange and the
Debenture Investments, as discussed below.
Merger. Pursuant to the Merger Agreement, Orion Merger Subsidiary will be
merged with and into Orion in a tax-free reorganization (the "Merger"). Orion
will be the surviving corporation in the Merger and will become a wholly owned
subsidiary of Orion Newco. In the Merger, each share of Orion's common stock,
par value $.01 per share (the "Orion Common Stock"), Orion's Series A 8%
Cumulative Redeemable Convertible Preferred Stock (the "Orion Series A Preferred
Stock") and Series B 8% Cumulative Redeemable Convertible Preferred Stock (the
"Orion Series B Preferred Stock," and together with the Orion Series A Preferred
Stock, the "Orion Senior Preferred Stock") will be converted, without any action
on the part of the holder thereof, into the right to receive one share of Orion
Newco's common stock, par value $.01 per share (the "Orion Newco Common Stock"),
Orion Newco's Series A 8% Cumulative Redeemable Convertible Preferred Stock (the
"Orion Newco Series A Preferred Stock") and Orion Newco's Series B 8% Cumulative
Redeemable Convertible Preferred Stock (the "Orion Newco Series B Preferred
Stock," and together with the Orion Newco Series A Preferred Stock, the "Orion
Newco Senior Preferred Stock"), respectively. It is expected that approximately
10,974,121 shares of Orion Newco Common Stock, 13,871 shares of Orion Newco
Series A Preferred Stock and 4,298 shares of Orion Newco Series B Preferred
Stock will be issued to the stockholders of Orion in the Merger in exchange for
their shares of Orion Common Stock, Orion Series A Preferred Stock and Orion
Series B Preferred Stock, respectively. Such shares of Orion Newco Series A
Preferred
<PAGE>
Stock and Orion Newco Series B Preferred Stock will be convertible as of the
issuance date into an aggregate of approximately 2,053,255 shares of Orion Newco
Common Stock, or approximately 7.9% of the shares of Orion Newco Common Stock
outstanding on a fully diluted basis, assuming a closing of the Merger as of
January 30, 1997.
Orion Newco will have, after the Merger, a certificate of incorporation,
bylaws, management and capital structure (before the issuance of Orion Newco
Series C Preferred Stock described below) substantially identical in all
material respects to those of Orion. As a result of the Merger, (i) Orion Newco
will become a public holding company owning all of the capital stock of Orion,
which will continue its business and operations, and (ii) the stockholders of
Orion Newco will have substantially the same securities and rights in Orion
Newco that they had in Orion, except that their percentage ownership of Orion
Newco will be diluted as a result of the Exchange (as defined below). Approval
of the Merger Agreement also will constitute the approval of the specific terms
therein and the transactions contemplated thereunder, including the Merger.
Prior to voting on the Merger, Orion stockholders should review carefully the
Merger Agreement, a copy of which is attached to the accompanying Proxy
Statement/Prospectus as Attachment A.
Exchange. Pursuant to the Exchange Agreement, Orion has agreed, among other
things, to have Orion Newco issue shares of Orion Newco's Series C 6% Cumulative
Redeemable Convertible Preferred Stock (the "Orion Newco Series C Preferred
Stock") for the Exchanging Partners' limited partnership interests in Orion
Atlantic and other rights relating thereto (the "Exchange" and together with the
Merger, the "Merger Transactions"). As a result of the Exchange, which will be
consummated concurrently with the Merger, Orion Newco will become the owner of
all the partnership interests in Orion Atlantic (through Orion Newco and Orion
as the sole limited partners and OrionSat as the sole general partner of Orion
Atlantic). In addition, Orion Newco will acquire certain rights currently held
by the Exchanging Partners, including the Exchanging Partners' rights to receive
repayment of various advances (aggregating approximately $37.5 million at
September 30, 1996) made to Orion Atlantic. The 121,988 shares of Orion Newco
Series C Preferred Stock expected to be issued in the Exchange will be
convertible as of the issuance date into approximately 6,970,740 shares of Orion
Newco Common Stock, or approximately 27% of the shares of Orion Newco Common
Stock outstanding on a fully diluted basis, assuming a closing of the Merger
Transactions as of January 30, 1997 (the number of shares could increase if the
closing occurs after that date). As a result of the Exchange, certain of the
Exchanging Partners will be principal stockholders of Orion Newco. Prior to
voting on the Exchange, Orion stockholders should review carefully the Exchange
Agreement, a copy of which is attached to the accompanying Proxy
Statement/Prospectus as Attachment B.
Debenture Investments. Pursuant to the Debenture Agreement, Orion Newco has
agreed, among other things, to issue to British Aerospace and Matra Marconi
Space $50 million and $10 million, respectively, of convertible junior
subordinated debentures (the "Debentures"). The Debentures will mature 15 years
following the date of issuance and will bear interest at rate of 8.75% per annum
to be paid semi-annually in arrears solely in Orion Newco Common Stock at prices
of between $10.21 and $14.00 per share. The Debentures to be issued to British
Aerospace and Matra Marconi Space will be convertible as of the issuance date
into approximately 3,571,429 and 714,286 shares of Orion Newco Common Stock,
respectively, or approximately 13.8% and 2.8% of the shares of Orion Newco
Common Stock outstanding on a fully diluted basis, assuming a closing of the
Debenture Investments as of January 30, 1997. As a result of the Debenture
Investments (and the other transactions, including the Exchange, in which
British Aerospace and an affiliate of Matra Marconi Space are acquiring
securities of Orion Newco), British Aerospace will be the largest stockholder of
Orion Newco on both an actual and a fully diluted basis and Matra Marconi Space
will be one of the principal stockholders of Orion Newco. The consummation of
the Debenture Investments is a condition to the Exchange.
Reasons for Merger Transactions and Debenture Investments. Orion's principal
objective for the Merger Transactions is to simplify Orion's organizational
structure and improve its access to the capital markets. Orion believes that the
Merger Transactions will enable it to: (i) consolidate outside investor
ownership at the Orion Newco level, (ii) improve the speed and efficiency of its
decision making, (iii) provide Orion Newco with 100% ownership of all of its
material subsidiaries, (iv) allow Orion
<PAGE>
Newco to pursue independently its business plans and financings for all of its
satellites, (v) eliminate (in exchange for Orion Newco stock) approximately
$37.5 million of obligations Orion Atlantic owes to the Exchanging Partners and
(vi) increase Orion's overall market capitalization. Orion's principal reason
for the issuance of $50 million of Debentures to British Aerospace is to raise
additional capital for initial payments with respect to the Orion 2 satellite,
of which approximately $49.4 million of payments are due during 1997. The sale
of $10 million of Debentures to Matra Marconi Space will involve a re-investment
by Matra Marconi Space of $10 million of the $13 million of satellite incentive
payments Matra Marconi Space will receive as manufacturer of the Orion 1
satellite upon consummation of the Notes Offering described below.
Access to the capital markets is necessary for Orion to achieve its business
plan to construct and launch two additional satellites, Orion 2 (with coverage
of Europe, Russia, the eastern United States and Latin America) and Orion 3
(with coverage of the Asia Pacific region). With this plan in mind, Orion and
Orion Newco have been pursuing and will continue to pursue the following
transactions:
(i) Notes Offering: a financing consisting of units of senior notes and
common stock warrants (the "Notes Offering") in the amount of approximately $347
million with expected gross proceeds of approximately $275 million, excluding
approximately $72 million of overfunding of interest due on such notes. The
principal purpose of the Notes Offering is to refinance the indebtedness of
Orion Atlantic outstanding under the existing Credit Agreement (together with
any related documents and agreements, the "Orion 1 Credit Facility") dated
December 6, 1991 among Orion Atlantic, the Banks named therein and Chase
Manhattan Bank (National Association), as Agent, and release the existing
commitments of the Limited Partners and their affiliates under the Communication
Satellite Capacity Agreements, the Contingent Communications Satellite Capacity
Agreements and various guarantees or other commitments supporting the Orion 1
Credit Facility. Such release is a condition to the Exchange.
(ii) Orion 2 Construction Contract: a satellite procurement contract with
Matra Marconi Space for Orion 2, under which the manufacturer is to proceed with
construction based upon initial payments of $25 million and further payments
through December 1997 limited to approximately $25 million. Orion expects to
commence the construction of Orion 2 immediately following completion of the
Notes Offering.
(iii) Orion 3 Construction Contract: a satellite procurement contract with
Hughes Space and Communications International, Inc. for Orion 3, under which the
manufacturer is to proceed with construction based upon initial payments through
January 31, 1997 of approximately $15 million, with further payments through
March 31, 1998 being limited to $35 million, payable in approximately equal
quarterly installments. The majority of the amounts due under the contract are
payable in the second and third quarters of 1998. Orion commenced construction
of Orion 3 in mid-December 1996 under an authorization to proceed, and expects
to enter into a definitive satellite contract in January 1997.
In addition to the Merger, the Notes Offering and the Debenture Investments,
the Exchange is indirectly conditioned on, among other things, the acquisition
by Orion of the only outstanding minority interest in Asia Pacific Space and
Communications, Ltd. from British Aerospace for approximately 86,000 shares of
Orion Common Stock, which has occurred or is in the process of occurring. See
information under the captions "Pro Forma Condensed Consolidated Financial
Statements" and "The Merger, the Exchange and the Debenture Investments --
Reasons for the Merger Transactions and the Debenture Investments" in the
accompanying Proxy Statement/Prospectus.
The accompanying Proxy Statement/Prospectus provides a detailed description
of the Merger Transactions and the Debenture Investments, including Orion's
reasons for entering into the Merger Transactions and the Debenture Investments
and the effect of the transactions on Orion and Orion Newco and their
stockholders, and of the business and financial condition of Orion and Orion
Newco. I urge you to read the accompanying Proxy Statement/Prospectus carefully.
The matters to be considered and voted upon at the Special Meeting are of
great importance to your investment and the future of Orion. Your Board of
Directors has carefully reviewed and considered the terms and conditions of the
Merger Transactions and the Debenture Investments and recom-
<PAGE>
mended unanimously (with the British Aerospace Board representative recusing
himself) that stockholders vote for ratification of the Merger Agreement and the
transactions contemplated thereby, for approval and adoption of the Exchange
Agreement and the transactions contemplated thereby, and for approval of the
Debenture Investments. Your Board of Directors also has received the opinion of
its financial advisor, Salomon Brothers Inc, to the effect that the
consideration to be paid by Orion in connection with the Exchange is fair from a
financial point of view to Orion. A copy of that opinion is attached to the
accompanying Proxy Statement/Prospectus as Attachment D.
Each proposal to be considered at the Special Meeting will be voted upon
separately by the Orion stockholders. However, failure by the Orion stockholders
to approve the Exchange Agreement will result in termination of the Merger
Agreement by Orion, Orion Newco and Orion Merger Subsidiary. The Merger is a
condition to the Exchange and is being proposed to enable the Exchange to occur.
If the Merger were to cease to be necessary to consummate the Exchange (which is
not expected to occur), the Board of Directors would cause Orion to proceed with
the Exchange but not the Merger. In such event, Orion (instead of Orion Newco)
would issue shares of Series C 6% Cumulative Redeemable Convertible Preferred
Stock for the Exchanging Partners' limited partnership interests in Orion
Atlantic and other rights relating thereto and Orion (instead of Orion Newco)
would issue the Debentures, but all other aspects of these transactions would
remain the same. Since the rights of stockholders of Orion Newco will be
substantially the same as the rights of stockholders of Orion, Orion believes
that consummation of the Exchange would have the same effect on stockholders
whether or not the Merger occurs. The Merger and the Exchange are conditions to
the Debenture Investments, and waivers of these conditions are not expected to
occur. Repayment of the Orion 1 Credit Facility is a condition to the Exchange
and the Debenture Investments, and this condition is not expected to be waived.
Regardless of your plans for attending in person, it is important that your
shares be represented and voted at the Special Meeting. Accordingly, you are
requested to complete, sign, date and return the enclosed proxy card in the
enclosed postage paid envelope. Signing this proxy will not prevent you from
voting in person should you be able to attend the Special Meeting, but will
assure that your vote is counted if, for any reason, you are unable to attend.
We hope that you can attend the Special Meeting of Stockholders. Your
interest and support in the affairs of Orion Network Systems, Inc. are
appreciated.
Sincerely,
W. NEIL BAUER
President and Chief Executive Officer
Rockville, Maryland
January 15, 1997
<PAGE>
ORION NETWORK SYSTEMS, INC.
2440 RESEARCH BOULEVARD, SUITE 400
ROCKVILLE, MARYLAND 20850
(301) 258-8101
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON JANUARY 30, 1997
NOTICE IS HEREBY GIVEN that a special meeting of stockholders (the "Special
Meeting") of Orion Network Systems, Inc. ("Orion") will be held on Thursday,
January 30, 1997 at 9:00 a.m., local time, at 2440 Research Boulevard, Suite
400, Rockville, Maryland, to consider and act upon the following proposals:
1. Ratification of the Agreement and Plan of Merger (the "Merger
Agreement"), dated as of January 8, 1997, among Orion, Orion Newco
Services, Inc., a newly formed Delaware corporation with no
significant assets or liabilities and a wholly owned subsidiary of
Orion ("Orion Newco"), and Orion Merger Company, Inc., a newly formed
Delaware corporation and a wholly owned subsidiary of Orion Newco
("Orion Merger Subsidiary"), and the transactions contemplated
thereby. Pursuant to the Merger Agreement, which was entered into by
Orion under Section 251(g) of the Delaware General Corporation Law,
Orion Merger Subsidiary will be merged with and into Orion (the
"Merger"), Orion will become a wholly owned subsidiary of Orion Newco
and each share of Orion capital stock issued and outstanding at the
effective time of the Merger will be converted into the right to
receive one share of substantially identical Orion Newco capital
stock.
2. Approval and adoption of the Section 351 Exchange Agreement and Plan
of Conversion (the "Exchange Agreement"), dated as of June 1996, as
amended, among Orion, Orion Satellite Corporation, a Delaware
corporation that is a wholly owned subsidiary of Orion and the sole
general partner of International Private Satellite Partners, L.P., a
Delaware limited partnership ("Orion Atlantic"), and each of the
existing limited partners of Orion Atlantic other than Orion (the
"Exchanging Partners"), and the transactions contemplated thereby.
Pursuant to the Exchange Agreement, Orion Newco will issue shares of
Orion Newco's Series C 6% Cumulative Redeemable Convertible Preferred
Stock for the Exchanging Partners' limited partnership interests in
Orion Atlantic and other rights relating thereto (the "Exchange").
3. Approval of the transactions (the "Debenture Investments")
contemplated by the Debenture Purchase Agreement (the "Debenture
Agreement"), dated as of January 13, 1997, among Orion, Orion Newco
and each of British Aerospace Holdings, Inc. (collectively, with
British Aerospace Public Limited Company and its affiliates, "British
Aerospace") and Matra Marconi Space UK Limited ("Matra Marconi
Space"). Pursuant to the Debenture Agreement, Orion Newco will issue
to British Aerospace and Matra Marconi Space $50 million and $10
million, respectively, of convertible junior subordinated debentures,
convertible as of the issuance date into approximately 3,571,429 and
714,286 shares of Orion Newco common stock, respectively, assuming a
closing of the Debenture Investments as of January 30, 1997.
4. Transaction of such other business as may properly come before the
Special Meeting or any adjournments or postponement thereof.
The Board of Directors has carefully considered the terms of the Merger
Agreement, the Exchange Agreement and the Debenture Agreement and the respective
transactions contemplated thereby, and believes that the Merger, the Exchange
and the Debenture Investments are in the best interests of Orion and its
stockholders. The Board of Directors has unanimously approved (with the British
Aerospace Board representative recusing himself) the matters being submitted by
Orion for stockholder approval or ratification at the Special Meeting and
recommended that stockholders vote FOR ratification of the Merger Agreement and
the transactions contemplated thereby, FOR approval and adoption of the
<PAGE>
Exchange Agreement and the transactions contemplated thereby, and FOR approval
of the Debenture Investments. Orion anticipates that all members of the Board of
Directors and companies they represent (who held, in the aggregate,
approximately 38% of Orion's voting stock outstanding as of September 30, 1996)
will enter into written agreements to vote for each of the foregoing proposals
to be considered at the Special Meeting.
The Board of Directors has fixed the close of business on December 23, 1996
as the record date for the determination of stockholders entitled to notice of
and to vote at the Special Meeting. Only holders of Orion common stock and Orion
preferred stock of record at the close of business on that date will be entitled
to notice of and to vote at the Special Meeting or any adjournment thereof,
unless a new record date is fixed for any adjourned meeting. A list of Orion's
stockholders entitled to vote at the Special Meeting will be open to the
examination of any stockholder for any purposes germane to the Special Meeting
during ordinary business hours for a period of ten days before the Special
Meeting at Orion's offices.
By Order of the Board of Directors
RICHARD H. SHAY
Secretary
Rockville, Maryland
January 15, 1997
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. THEREFORE, WHETHER OR NOT
YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE COMPLETE, DATE, SIGN AND RETURN
THE ENCLOSED PROXY CARD IN THE ENCLOSED ENVELOPE, WHICH REQUIRES NO POSTAGE IF
MAILED IN THE UNITED STATES. YOU MAY, IF YOU WISH, REVOKE YOUR PROXY AT ANY TIME
PRIOR TO THE TIME IT IS VOTED.
<PAGE>
TABLE OF CONTENTS OF
ORION NETWORK SYSTEMS, INC. PROXY STATEMENT/
ORION NEWCO SERVICES, INC. PROSEPCTUS
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AVAILABLE INFORMATION.................................................................... 6
SUMMARY.................................................................................. 7
RISK FACTORS............................................................................. 20
Risks Relating to Merger, Exchange and Debenture Investments............................ 20
Merger, Exchange and Debenture Investments Dependent on Orion 1 Credit Facility
Refinancing........................................................................... 20
Certain Terms of Notes Offering Not Yet Determined..................................... 20
Risks in Implementation of Merger, Exchange and Debenture Investments.................. 20
Substantial Change in Ownership of Stock............................................... 21
Risks Relating to Holding Company Structure............................................ 21
Risks Relating to Orion Newco Series C Preferred Stock and Debentures.................. 21
Risks Relating to Orion's Business...................................................... 22
Limited Operations; History of Losses and Negative EBITDA; Expectation of Future
Losses................................................................................ 22
Need for Substantial Additional Capital................................................ 22
Substantial Leverage; Secured Indebtedness............................................. 23
Risks of Satellite Loss or Reduced Performance......................................... 23
Launch of Orion 2 and Orion 3 Subject to Significant Uncertainties..................... 25
Risks Relating to Potential Lack of Market Acceptance and Demand; Ground Operations.... 25
Risks Concerning Ability to Manage Growth.............................................. 26
Potential Adverse Effects of Competition............................................... 26
Approvals Needed; Regulation of Industry............................................... 27
Uncertainties Relating to Backlog...................................................... 28
Technological Changes.................................................................. 29
Risks of Conducting International Business............................................. 29
Dependence of Orion on Key Personnel................................................... 29
Risks Relating to Capital Stock ........................................................ 29
Control of Orion Newco by Principal Stockholders....................................... 29
Risks Relating to Orion Senior Preferred Stock......................................... 29
Limitations on Dividends on Orion and Orion Newco Common Stock......................... 30
Potential Adverse Effect of Shares Eligible for Future Sale............................ 30
Anti-Takeover and Other Provisions of the Certificate of Incorporation................. 30
THE SPECIAL MEETING...................................................................... 32
Introduction............................................................................ 32
Voting Rights and Related Matters....................................................... 32
Votes Required.......................................................................... 32
No Dissenters' Rights................................................................... 33
Proxies................................................................................. 33
THE MERGER, THE EXCHANGE AND THE DEBENTURE INVESTMENTS................................... 34
Background of the Merger Transactions and the Debenture Investments..................... 34
Reasons for the Merger Transactions and the Debenture Investments....................... 37
The Merger Agreement.................................................................... 38
The Exchange Agreement.................................................................. 40
Description of the Orion Newco Series C Preferred Stock................................. 46
Registration Rights..................................................................... 48
Certain Transfer Restrictions........................................................... 49
The Debenture Investments............................................................... 50
Corporate Structure After the Transactions.............................................. 53
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Effect of the Exchange on the Capital Structure of Orion Newco.......................... 54
Recommendation of the Board of Directors of Orion....................................... 54
Opinion of Orion's Financial Advisor.................................................... 54
Approvals............................................................................... 58
Fees and Expenses....................................................................... 58
Certain Federal Income Tax Consequences................................................. 58
Security Ownership of Certain Beneficial Owners Prior to and Following the Transactions. 61
THE RELATED TRANSACTIONS................................................................. 66
The Notes Offering/Orion 1 Credit Facility Refinancing.................................. 66
OAP Acquisition......................................................................... 67
INFORMATION ABOUT ORION NEWCO............................................................ 68
DESCRIPTION OF ORION NEWCO CAPITAL STOCK................................................. 68
Orion Newco Common Stock................................................................ 68
Orion Newco Preferred Stock............................................................. 68
Orion Newco Senior Preferred Stock...................................................... 69
Orion Newco Series C Preferred Stock.................................................... 70
Warrants and Options.................................................................... 70
Registration Rights..................................................................... 71
Certain Anti-Takeover Effects........................................................... 71
Listing................................................................................. 73
Transfer Agent.......................................................................... 73
ORION NEWCO SHARES ELIGIBLE FOR FUTURE SALE.............................................. 73
COMPARATIVE RIGHTS OF ORION STOCKHOLDERS AND ORION NEWCO STOCKHOLDERS.................... 74
INFORMATION ABOUT ORION'S BUSINESS....................................................... 75
Overview................................................................................ 75
The Orion Strategy...................................................................... 77
Industry Overview....................................................................... 78
Data Networking......................................................................... 79
Orion Market Opportunity................................................................ 80
Orion Services.......................................................................... 83
Private Communications Network Services................................................ 83
Internet Backbone and Access Services.................................................. 84
Video Distribution and Other Satellite Transmission Services........................... 85
Customers and Backlog................................................................... 86
SELECTED ORION CUSTOMERS................................................................ 86
Sales and Marketing..................................................................... 88
Network Operations; Local Ground Operators.............................................. 89
Migration Plan for New Markets.......................................................... 90
Implementation of the Orion Satellite System............................................ 90
Orion 1................................................................................ 91
Orion 2................................................................................ 92
Orion 3................................................................................ 94
Orbital Slots........................................................................... 96
Insurance............................................................................... 98
Competition............................................................................. 99
Service Providers...................................................................... 99
Satellite Capacity..................................................................... 99
Terrestrial Capacity................................................................... 101
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Regulation.............................................................................. 101
Regulatory Overview.................................................................... 101
Authority to Construct, Launch and Operate Satellites.................................. 102
Consultation with INTELSAT and EUTELSAT................................................ 102
International Telecommunication Union.................................................. 102
United States Regulatory Restrictions.................................................. 103
International Regulation............................................................... 104
Human Resources......................................................................... 104
Legal Proceedings....................................................................... 104
MANAGEMENT OF ORION AND ORION NEWCO...................................................... 106
Directors and Executive Officers........................................................ 106
Background of Directors and Executive Officers.......................................... 106
Committees of the Board of Directors.................................................... 109
Limits on Liability; Indemnification.................................................... 110
Executive Compensation.................................................................. 111
Summary Compensation Table.............................................................. 111
Option Grants in Last Fiscal Year....................................................... 111
Option Exercises in Last Fiscal Year and Year-end Option Values......................... 112
Compensation of Directors............................................................... 112
Employment Agreements and Termination of Employment and Change in Control Arrangements.. 112
Compensation Committee Interlocks and Insider Participation............................. 112
Stock Option Plans...................................................................... 112
Other Stock Options..................................................................... 114
Other Employee Benefit Plans............................................................ 115
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.................................... 117
SELECTED CONSOLIDATED FINANCIAL AND OPERATIONAL DATA OF ORION............................ 124
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF
ORION................................................................................... 126
General................................................................................. 126
Overview................................................................................ 126
Results of Operations................................................................... 127
Liquidity and Capital Resources......................................................... 130
Taxes................................................................................... 132
Effect of Inflation..................................................................... 133
Effect of Recently Issued Financial Accounting Standards................................ 133
PRICE RANGE OF ORION COMMON STOCK AND DIVIDEND POLICY.................................... 134
CERTAIN TRANSACTIONS..................................................................... 135
FORWARD-LOOKING STATEMENTS............................................................... 137
OTHER MATTERS............................................................................ 138
LEGAL MATTERS............................................................................ 138
EXPERTS.................................................................................. 138
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS OF ORION NETWORK SYSTEMS, INC. ............... F-1
GLOSSARY................................................................................. G-1
ATTACHMENTS
ATTACHMENT A -- AGREEMENT AND PLAN OF MERGER
ATTACHMENT B -- SECTION 351 EXCHANGE AGREEMENT AND PLAN OF CONVERSION
ATTACHMENT C -- FORM OF CERTIFICATE OF DESIGNATIONS FOR ORION NEWCO SERIES C
PREFERRED STOCK
ATTACHMENT D -- FAIRNESS OPINION OF SALOMON BROTHERS INC
</TABLE>
iii
<PAGE>
ORION NETWORK SYSTEMS, INC.
2440 RESEARCH BOULEVARD, SUITE 400
ROCKVILLE, MARYLAND 20850
ORION NEWCO SERVICES, INC.
2440 RESEARCH BOULEVARD, SUITE 400
ROCKVILLE, MARYLAND 20850
ORION NETWORK SYSTEMS, INC. PROXY STATEMENT/
ORION NEWCO SERVICES, INC. PROSPECTUS
SPECIAL MEETING OF STOCKHOLDERS
OF ORION NETWORK SYSTEMS, INC.
TO BE HELD ON JANUARY 30, 1997
This Proxy Statement/Prospectus ("Proxy Statement/Prospectus") is furnished
to stockholders of Orion Network Systems, Inc. ("Orion" or the "Company") in
connection with the solicitation by the Board of Directors of Orion of proxies
to be used at a special meeting of stockholders of Orion (the "Special Meeting")
and at any adjournments thereof. The Special Meeting will be held on Thursday,
January 30, 1997 at 9:00 a.m., local time, at 2440 Research Boulevard, Suite
400, Rockville, Maryland. This Proxy Statement/Prospectus and form of proxy are
first being sent or given to stockholders on or about January 15, 1997.
At the Special Meeting, Orion stockholders will be asked to consider and act
upon the following proposals:
(1) Ratification of the Agreement and Plan of Merger (the "Merger
Agreement"), dated as of January 8, 1997, among Orion, Orion Newco Services,
Inc., a newly formed Delaware corporation with no significant assets or
liabilities and a wholly owned subsidiary of Orion ("Orion Newco"), and Orion
Merger Company, Inc., a newly formed Delaware corporation and a wholly owned
subsidiary of Orion Newco ("Orion Merger Subsidiary"), and the transactions
contemplated thereby.
(2) Approval and adoption of the Section 351 Exchange Agreement and Plan of
Conversion (the "Exchange Agreement"), dated as of June 1996, as amended, among
Orion, Orion Satellite Corporation, a Delaware corporation ("OrionSat") that is
a wholly owned subsidiary of Orion and the sole general partner of International
Private Satellite Partners, L.P., a Delaware limited partnership ("Orion
Atlantic"), and each of the existing limited partners of Orion Atlantic other
than Orion (the "Exchanging Partners," and together with Orion, the "Limited
Partners") and the transactions contemplated thereby.
(3) Approval of the transactions (the "Debenture Investments") contemplated
by the Debenture Purchase Agreement (the "Debenture Agreement"), dated as of
January 13, 1997, among Orion, Orion Newco and each of British Aerospace
Holdings, Inc. (collectively, with British Aerospace Public Limited Company and
its affiliates, "British Aerospace") and Matra Marconi Space UK Limited ("Matra
Marconi Space").
The refinancing of $210 million of existing indebtedness of Orion Atlantic to
release the existing commitments of the Limited Partners and their affiliates
supporting such indebtedness is a condition to the Merger, the Exchange and the
Debenture Investments, as discussed below.
Merger. Pursuant to the Merger Agreement, which was entered into under
Section 251(g) of the Delaware General Corporation Law, Orion Merger Subsidiary
will be merged with and into Orion in a tax-free reorganization (the "Merger").
Orion will be the surviving corporation in the Merger and will become a wholly
owned subsidiary of Orion Newco. In the Merger, each share of Orion's common
stock, par value $.01 per share (the "Orion Common Stock"), Orion's Series A 8%
Cumulative Redeemable Convertible Preferred Stock (the "Orion Series A Preferred
Stock") and Series B 8% Cumulative Redeemable Convertible Preferred Stock (the
"Orion Series B Preferred Stock," and together with the Orion Series A Preferred
Stock, the "Orion Senior Preferred Stock") will be converted,
<PAGE>
without any action on the part of the holder thereof, into the right to receive
one share of Orion Newco's common stock, par value $.01 per share (the "Orion
Newco Common Stock"), Orion Newco's Series A 8% Cumulative Redeemable
Convertible Preferred Stock (the "Orion Newco Series A Preferred Stock") and
Orion Newco's Series B 8% Cumulative Redeemable Convertible Preferred Stock (the
"Orion Newco Series B Preferred Stock," and together with the Orion Newco Series
A Preferred Stock, the "Orion Newco Senior Preferred Stock"), respectively. It
is expected that approximately 10,974,121 shares of Orion Newco Common Stock,
13,871 shares of Orion Newco Series A Preferred Stock and 4,298 shares of Orion
Newco Series B Preferred Stock will be issued to the stockholders of Orion in
the Merger in exchange for their shares of Orion Common Stock, Orion Series A
Preferred Stock and Orion Series B Preferred Stock, respectively. Such shares of
Orion Newco Series A Preferred Stock and Orion Newco Series B Preferred Stock
will be convertible as of the issuance date into an aggregate of approximately
2,053,255 shares of Orion Newco Common Stock, or approximately 7.9% of the
shares of Orion Newco Common Stock outstanding on a fully diluted basis,
assuming a closing of the Merger as of January 30, 1997.
Orion Newco will have, after the Merger, a certificate of incorporation,
bylaws, management and capital structure (before the issuance of Orion Newco
Series C Preferred Stock described below) substantially identical in all
material respects to those of Orion. As a result of the Merger, (i) Orion Newco
will become a public holding company owning all of the capital stock of Orion,
which will continue its business and operations, and (ii) the stockholders of
Orion Newco will have substantially the same securities and rights in Orion
Newco that they had in Orion, except that their percentage ownership of Orion
Newco will be diluted as a result of the Exchange (as defined below). Approval
of the Merger Agreement also shall constitute the approval of the specific terms
therein and the transactions contemplated thereunder, including the Merger.
Prior to voting on the Merger, Orion stockholders should review carefully the
Merger Agreement, a copy of which is attached to this Proxy Statement/Prospectus
as Attachment A.
Exchange. Pursuant to the Exchange Agreement, Orion has agreed, among other
things, to have Orion Newco issue shares of Orion Newco's Series C 6% Cumulative
Redeemable Convertible Preferred Stock (the "Orion Newco Series C Preferred
Stock") for the Exchanging Partners' limited partnership interests in Orion
Atlantic and other rights relating thereto (the "Exchange" and together with the
Merger, the "Merger Transactions"). As a result of the Exchange, which will be
consummated concurrently with the Merger, Orion Newco will become the owner of
all the partnership interests in Orion Atlantic (through Orion Newco and Orion
as the sole limited partners and OrionSat as the sole general partner of Orion
Atlantic). In addition, Orion Newco will acquire certain rights currently held
by the Exchanging Partners, including the Exchanging Partners' rights to receive
repayment of various advances (aggregating approximately $37.5 million at
September 30, 1996) made to Orion Atlantic. The approximately 121,988 shares of
Orion Newco Series C Preferred Stock expected to be issued in the Exchange will
be convertible as of the issuance date into approximately 6,970,740 shares of
Orion Newco Common Stock, or approximately 27% of the shares of Orion Newco
Common Stock outstanding on a fully diluted basis, assuming a closing of the
Merger Transactions as of January 30, 1997 (the number of shares could increase
if the closing occurs after that date). As a result of the Exchange, certain of
the Exchanging Partners will be principal stockholders of Orion Newco. Prior to
voting on the Exchange, Orion stockholders should review carefully the Exchange
Agreement, a copy of which is attached to this Proxy Statement/Prospectus as
Attachment B.
Debenture Investments. Pursuant to the Debenture Agreement, Orion Newco has
agreed, among other things, to issue to British Aerospace and Matra Marconi
Space $50 million and $10 million, respectively, of convertible junior
subordinated debentures (the "Debentures"). The Debentures will mature 15 years
following the date of issuance and will bear interest at a rate of 8.75% per
annum to be paid semi-annually in arrears solely in Orion Newco Common Stock at
prices of between $10.21 and $14.00 per share. The Debentures to be issued to
British Aerospace and Matra Marconi Space will be convertible as of the issuance
date into approximately 3,571,429 and 714,286 shares of Orion Newco Common
Stock, respectively, or approximately 13.8% and 2.8% of the shares of Orion
Newco Common Stock outstanding on a fully diluted basis, assuming a closing of
the Debenture Investments as of January 30, 1997. As a result of the Debenture
Investments (and the other transactions, including the Ex-
2
<PAGE>
change, in which British Aerospace and an affiliate of Matra Marconi Space are
acquiring securities of Orion Newco), British Aerospace will be the largest
stockholder of Orion Newco on both an actual and a fully diluted basis and Matra
Marconi Space will be one of the principal stockholders of Orion Newco. The
consummation of the Debenture Investments is a condition to the Exchange.
Reasons for Merger Transactions and Debenture Investments. Orion's principal
objective for the Merger Transactions is to simplify Orion's organizational
structure and improve its access to the capital markets. Orion believes that the
Merger Transactions will enable it to: (i) consolidate outside investor
ownership at the Orion Newco level, (ii) improve the speed and efficiency of its
decision making, (iii) provide Orion Newco with 100% ownership of all of its
material subsidiaries, (iv) allow Orion Newco to pursue independently its
business plans and financings for all of its satellites, (v) eliminate (in
exchange for Orion Newco stock) approximately $37.5 million of obligations Orion
Atlantic owes to the Exchanging Partners and (vi) increase Orion's overall
market capitalization. Orion's principal reason for the issuance of $50 million
of Debentures to British Aerospace is to raise additional capital for initial
payments with respect to the Orion 2 satellite, of which approximately $49.4
million of payments are due during 1997. The sale of $10 million of Debentures
to Matra Marconi Space will involve a re-investment by Matra Marconi Space of
$10 million of the $13 million of satellite incentive payments Matra Marconi
Space will receive as manufacturer of the Orion 1 satellite upon consummation of
the Notes Offering described below.
Access to the capital markets is necessary for Orion to achieve its business
plan to construct and launch two additional satellites, Orion 2 (with coverage
of Europe, Russia, the eastern United States and Latin America) and Orion 3
(with coverage of the Asia Pacific region). With this plan in mind, Orion and
Orion Newco have been pursuing and will continue to pursue the following
transactions:
(i) Notes Offering: a financing consisting of units of senior notes (the
"Notes") and common stock warrants (the "Notes Offering") in the amount of
approximately $347 million with expected gross proceeds of approximately $275
million, excluding approximately $72 million of overfunding of interest due on
such notes. The principal purpose of the Notes Offering is to refinance the
indebtedness of Orion Atlantic outstanding under the existing Credit Agreement
(together with any related documents and agreements, the "Orion 1 Credit
Facility") dated December 6, 1991 among Orion Atlantic, the Banks named therein
(the "Banks") and Chase Manhattan Bank (National Association), as Agent
("Chase"), and release the existing commitments of the Limited Partners and
their affiliates under the Communication Satellite Capacity Agreements, the
Contingent Communications Satellite Capacity Agreements and various guarantees
or other commitments supporting the Orion 1 Credit Facility (collectively, the
"Orion 1 Credit Facility Support"). Such release is a condition to the Exchange.
(ii) Orion 2 Construction Contract: a satellite procurement contract with
Matra Marconi Space for Orion 2 (the "Orion 2 Satellite Contract"), under which
the manufacturer is to proceed with construction based upon initial payments of
$25 million and further payments through December 1997 limited to approximately
$25 million. Orion expects to commence the construction of Orion 2 immediately
following completion of the Notes Offering.
(iii) Orion 3 Construction Contract: a satellite procurement contract with
Hughes Space for Orion 3 (the "Orion 3 Satellite Contract"), under which the
manufacturer is to proceed with construction based upon initial payments through
January 31, 1997 of approximately $15 million, with further payments through
March 31, 1998 being limited to $35 million, payable in approximately equal
quarterly installments. The majority of the amounts due under the contract are
payable in the second and third quarters of 1998. Orion commenced construction
of Orion 3 in mid-December 1996 under an authorization to proceed, and expects
to enter into a definitive satellite contract in January 1997.
In addition to the Merger, the Notes Offering and the Debenture Investments,
the Exchange is indirectly conditioned on, among other things, the acquisition
by Orion of the only outstanding minority interest in Asia Pacific Space and
Communcations, Ltd. ("Orion Asia Pacific") from British Aerospace for
approximately 86,000 shares of Orion Newco Common Stock (the "OAP Acquisition"),
which has occurred or is in the process of occurring. The pro forma financial
information included in this Proxy Statement/Prospectus gives effect to Merger,
the Exchange and the Debenture Investments, and the
3
<PAGE>
transactions on which they are conditioned (the Merger Transactions and the
Debenture Investments collectively with such other tranactions, the
"Transactions"), including the Notes Offering, the OAP Acquisition, the
application of the net proceeds of the Notes Offering to effect the Orion 1
Credit Refinancing and repayment of amounts owed to STET, a former Limited
Partner, and the use of the proceeds of the Debenture Investments to make
initial payments on Orion 2 (initial payments on Orion 3 are to be made from
cash on hand). See "Pro Forma Condensed Consolidated Financial Statements" and
"The Merger, the Exchange and the Debenture Investments -- Reasons for the
Merger Transactions and the Debenture Investments" and "The Related
Transactions."
Each proposal to be considered at the Special Meeting will be voted upon
separately by the Orion stockholders. However, failure by the Orion stockholders
to approve the Exchange Agreement will result in termination of the Merger
Agreement by Orion, Orion Newco and Orion Merger Subsidiary. The Merger is a
condition to the Exchange and is being proposed to enable the Exchange to occur.
If the Merger were to cease to be necessary to consummate the Exchange (which is
not expected to occur), the Board of Directors would cause Orion to proceed with
the Exchange but not the Merger. In such event, Orion (instead of Orion Newco)
would issue shares of Series C 6% Cumulative Redeemable Convertible Preferred
Stock for the Exchanging Partners' limited partnership interests in Orion
Atlantic and other rights relating thereto and Orion (instead of Orion Newco)
would issue the Debentures, but all other aspects of these transactions would
remain the same. Since the rights of stockholders of Orion Newco will be
substantially the same as the rights of stockholders of Orion, Orion believes
that consummation of the Exchange would have the same effect on stockholders
whether or not the Merger occurs. The Merger and the Exchange are conditions to
the Debenture Investments, and waivers of these conditions are not expected to
occur. Repayment of the Orion 1 Credit Facility is a condition to the Exchange
and the Debenture Investments, and this condition is not expected to be waived.
This Proxy Statement/Prospectus provides a detailed description of the Merger
Transactions and the Debenture Investments, including Orion's reasons for
entering into the Merger Transactions and the Debenture Investments and the
effect of the Transactions on Orion and Orion Newco and their stockholders, and
of the business and financial condition of Orion and Orion Newco. This Proxy
Statement/Prospectus also constitutes the prospectus for the shares of Orion
Newco Common Stock, Orion Newco Series A Preferred Stock and Orion Newco Series
B Preferred Stock under the Securities Act of 1933, as amended (the "Securities
Act"). Orion Newco has filed a Registration Statement on Form S-4, of which this
Proxy Statement/Prospectus is a part, with the Securities and Exchange
Commission (the "Commission") with respect to the registration of such shares.
SEE "RISK FACTORS" BEGINNING ON PAGE 20 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY ORION STOCKHOLDERS.
4
<PAGE>
THE SECURITIES TO BE ISSUED IN THE MERGER HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROXY
STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE BOARD OF DIRECTORS OF ORION HAS RECOMMENDED UNANIMOUSLY (WITH THE BRITISH
AEROSPACE BOARD REPRESENTATIVE RECUSING HIMSELF) THAT STOCKHOLDERS VOTE FOR
RATIFICATION OF THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY,
FOR ADOPTION AND APPROVAL OF THE EXCHANGE AGREEMENT AND THE TRANSACTIONS
CONTEMPLATED THEREBY, AND FOR APPROVAL OF THE DEBENTURE INVESTMENTS, AS
DESCRIBED IN THIS PROXY STATEMENT/PROSPECTUS. ORION ANTICIPATES THAT ALL MEMBERS
OF ITS BOARD OF DIRECTORS AND COMPANIES THEY REPRESENT (WHO HELD, IN THE
AGGREGATE, APPROXIMATELY 38% OF ORION'S VOTING STOCK OUTSTANDING AS OF SEPTEMBER
30, 1996) WILL ENTER INTO WRITTEN AGREEMENTS TO VOTE FOR EACH OF THE FOREGOING
PROPOSALS TO BE CONSIDERED AT THE SPECIAL MEETING.
The date of this Proxy Statement/Prospectus is January 15, 1997.
5
<PAGE>
AVAILABLE INFORMATION
Orion is subject to the informational requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"). In accordance with the Exchange
Act, Orion files proxy statements, reports and other information with the
Commission. This filed material can be inspected and copied at the public
reference facilities maintained by the Commission in Washington, D.C. and at the
Regional Offices of the Commission at 7 World Trade Center, Suite 1300, New
York, NY 10048, and Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of such material can be obtained at prescribed
rates from the Public Reference Room of the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549. The Commission maintains a Web site at
http://www.sec.gov containing reports, proxy and information statements and
other information regarding registrants, including Orion and Orion Newco. The
Orion Common Stock is quoted on the Nasdaq National Market under the symbol
"ONSI," and such reports, proxy statements and other information concerning
Orion and Orion Newco also can be inspected at the offices of Nasdaq Operations,
1735 K Street, N.W., Washington, D.C. 20006.
Orion Newco has filed with the Commission a registration statement on Form
S-4 (herein, together with all amendments and exhibits, referred to as the
"Registration Statement") under the Securities Act with respect to the Orion
Newco Common Stock, Orion Newco Series A Preferred Stock and Orion Newco Series
B Preferred Stock. This Proxy Statement/Prospectus does not contain all the
information set forth in the Registration Statement, certain parts of which are
omitted in accordance with the rules and regulations of the Commission. For
further information, reference is hereby made to the Registration Statement and
the exhibits filed therewith. Statements contained in this Proxy
Statement/Prospectus relating to the contents of any contract or other document
referred to herein are not necessarily complete, and in each instance reference
is made to the copy of such contact or other document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference.
6
<PAGE>
SUMMARY
The following is a summary of certain information contained elsewhere in this
Proxy Statement/Prospectus and/or the Attachments hereto. Reference is made to,
and this Summary is qualified in its entirety by, the more detailed information
contained in this Proxy Statement/Prospectus and such Attachments. Except as
otherwise indicated, information herein concerning the number of shares of Orion
capital stock issued and outstanding prior to completion of the Transactions is
as of December 15, 1996. See "Glossary" beginning at page G-1 for definitions of
certain defined terms and certain technical terms used in this Proxy
Statement/Prospectus.
THE MERGER
The Merger Agreement..... The Agreement and Plan of Merger (the "Merger
Agreement"), dated as of January 8, 1997, among
Orion Network Systems, Inc. ("Orion"), Orion Newco
Services, Inc. ("Orion Newco") and Orion Merger
Company, Inc. ("Orion Merger Subsidiary"),
pursuant to which Orion Merger Subsidiary will be
merged with and into Orion in a tax-free
reorganization, and Orion will become a wholly
owned subsidiary of Orion Newco under Section
251(g) of the Delaware General Corporation Law
(the "Merger"). See "The Merger, the Exchange and
the Debenture Investments -- The Merger Agreement
-- Terms of the Merger Agreement."
Parties to the Merger..... Orion was organized as a Delaware corporation in
1982. Orion's principal executive offices are
located at 2440 Research Boulevard, Suite 400,
Rockville, Maryland 20850 and its telephone number
is (301) 258-8101. See "Information About Orion's
Business."
Orion Newco is a Delaware corporation and a wholly
owned subsidiary of Orion organized in 1996 by
Orion for the purpose of effecting the Merger and
the Exchange. Orion Newco's principal executive
offices are located at 2440 Research Boulevard,
Suite 400, Rockville, Maryland 20850 and its
telephone number is (301) 258-8101. After the
Merger, the certificate of incorporation, bylaws,
management and capital structure (before issuance
of the Orion Newco Series C Preferred Stock) of
Orion Newco will be substantially identical in all
material respects to those of Orion. Orion Newco
has no material assets and has not engaged in any
activities except in connection with the Merger.
See "Information About Orion Newco."
Orion Merger Subsidiary is a Delaware corporation
and a wholly owned subsidiary of Orion Newco
organized in 1996 by Orion for the purpose of
effecting the Merger. Orion Merger Subsidiary has
no material assets and has not engaged in any
activities except in connection with the Merger.
See "The Merger, the Exchange and the Debenture
Investments-- The Merger Agreement -- Terms of the
Merger Agreement."
The Merger -- Structure..... Orion Merger Subsidiary will be merged with and
into Orion and Orion will become a wholly owned
subsidiary of Orion Newco. Each share of Orion
Common Stock, Orion Series A Preferred Stock and
Orion Series B Preferred Stock outstanding
immediately prior to consummation of the Merger
will be converted,
7
<PAGE>
without any action on the part of the holder
thereof, into the right to receive one newly
issued share of Orion Newco Common Stock, Orion
Newco Series A Preferred Stock and Orion Newco
Series B Preferred Stock, respectively. The Merger
will become effective upon the filing of the
Delaware Merger Certificate (as defined in the
Merger Agreement) with the Delaware Secretary of
State, which is expected to occur following
ratification or approval of the Merger
Transactions and the Debenture Investments by the
requisite vote of the Orion stockholders and the
satisfaction or waiver of the other conditions set
forth in the Merger Agreement and the Exchange
Agreement. See "The Merger, the Exchange and the
Debenture Investments -- The Merger Agreement --
Terms of the Merger Agreement."
Conditions to Consummation of
the Merger............... The respective obligations of each party to effect
the Merger are subject to satisfaction or waiver
of certain conditions set forth in the Merger
Agreement, including, among others: (i) the
ratification of the Merger Agreement by Orion
stockholders, (ii) the receipt of all
authorizations, consents and approvals of any
Governmental Entity (as such term is used in the
Merger Agreement) necessary for consummation of
the Merger, (iii) the effectiveness of the
Registration Statement, (iv) the receipt of an
opinion relating to the tax treatment of the
Merger, (v) the continued accuracy of the
representations and warranties made by each party
in the Merger Agreement and (vi) consummation of
the Exchange concurrently with the Merger. See
"The Merger, the Exchange and the Debenture
Investments -- The Merger Agreement -- Conditions
to Obligations to Effect the Merger."
Board of Directors after the
Merger.................... As provided in the Merger Agreement, upon the
consummation of the Merger, the Board of Directors
of Orion Newco will consist of the current
directors of Orion. See "The Merger, the Exchange
and the Debenture Investments -- The Merger
Agreement -- Terms of the Merger Agreement."
Management after the Merger. As provided in the Merger Agreement, upon the
consummation of the Merger, the management of
Orion Newco will consist of the current members of
Orion management. See "The Merger, the Exchange
and the Debenture Investments -- The Merger
Agreement -- Terms of the Merger Agreement."
Accounting Treatment........ The Merger will be accounted for as a
reorganization of entities under common control.
As a result, the assets and liabilities
transferred pursuant to the Merger will be
accounted for at historical cost in a manner
similar to a pooling of interests.
Regulatory Approval......... Orion is aware of no governmental approvals
required for consummation of the Merger, other
than compliance with federal securities laws and
state securities or "Blue Sky" laws.
Certain Federal Income
Tax Consequences of
the Merger................ In the opinion of Ernst & Young LLP, tax advisor
to Orion, Orion stockholders whose stock of Orion
is converted into the
8
<PAGE>
right to receive stock of Orion Newco pursuant to
the Merger (the "Transferors") will qualify for
tax-free treatment pursuant to Sections 354 and
368 of the Internal Revenue Code of 1986, as
amended (the "Code"), assuming certain
requirements, such as continuity of interest, are
met. Provided the conversion qualifies for
tax-free treatment, each Transferor's tax basis in
the shares of Orion Newco capital stock it
receives will be equal to its tax basis in the
Orion stock it transferred to Orion Newco. All
Orion stockholders should consult their own tax
advisors concerning the tax consequences of the
Merger. See "The Merger, the Exchange and the
Debenture Investments -- Certain Federal Income
Tax Consequences."
Consequences of the Merger.. Upon the consummation of the Merger, all shares of
Orion Common Stock and Orion Senior Preferred
Stock shall no longer be outstanding and shall
automatically be retired, and each holder of a
certificate representing any shares of Orion
Common Stock and Orion Senior Preferred Stock
shall cease to have any rights with respect
thereto, except the right to receive the shares of
Orion Newco Common Stock and Orion Newco Senior
Preferred Stock to be issued in exchange therefor.
See "The Merger, the Exchange and the Debenture
Investments -- The Merger Agreement -- No Exchange
of Certificates." Effective upon consummation of
the Merger, Orion will be a wholly owned
subsidiary of Orion Newco, Orion will change its
name to Orion Oldco Services, Inc. and, as soon as
practicable thereafter, Orion Newco will change
its name to Orion Network Systems, Inc. Orion
Newco will be a holding company following
consummation of the Merger, Orion will have
limited operations, and subsidiaries of Orion,
particularly Orion Atlantic (as defined below),
will be the principal operating companies within
the consolidated group. The structure of Orion
Newco after the Merger Transactions is set forth
below under the caption "The Merger, the Exchange
and the Debenture Investments -- Corporate
Structure After the Transactions."
THE EXCHANGE
The Exchange Agreemen....... The Section 351 Exchange Agreement and Plan of
Conversion (the "Exchange Agreement"), dated as of
June 1996, as amended, among Orion, Orion
Satellite Corporation, a Delaware corporation
("OrionSat") that is a wholly owned subsidiary of
Orion and the sole general partner of
International Private Satellite Partners, L.P., a
Delaware limited partnership ("Orion Atlantic"),
and each of the existing limited partners of Orion
Atlantic other than Orion (the "Exchanging
Partners"). See "The Merger, the Exchange and the
Debenture Investments."
Parties to the Exchange..... The parties to the Exchange are Orion, Orion
Newco, OrionSat and Orion Atlantic (collectively,
the "Orion parties") and the Exchanging Partners.
See "The Merger, the Exchange and the Debenture
Investments -- The Exchange Agreement -- Parties."
9
<PAGE>
Structure of the Exchange... Pursuant to the Exchange Agreement, Orion has
agreed, among other things, to have Orion Newco
issue shares of Orion Newco Series C Preferred
Stock for the Exchanging Partners' limited
partnership interests in Orion Atlantic and other
rights relating thereto. In addition, Orion Newco
will acquire certain rights currently held by the
Exchanging Partners, including the Exchanging
Partners' rights to receive repayment of various
advances made to Orion Atlantic aggregating
approximately $37.5 million at September 30, 1996.
As a result of the Exchange, Orion Newco will
become the owner of all the partnership interests
in Orion Atlantic (through Orion Newco and Orion
as the sole limited partners and OrionSat as the
sole general partner of Orion Atlantic). The
approximately 121,988 shares of Orion Newco Series
C Preferred Stock expected to be issued in the
Exchange will be convertible as of the issuance
date into approximately 6,970,740 shares of Orion
Newco Common Stock, or approximately 27% of the
shares of Orion Newco Common Stock outstanding on
a fully diluted basis, assuming a closing of the
Merger Transactions as of January 30, 1997. If the
Merger Transactions close after January 30, 1997,
Orion Newco will be obligated to make certain cash
refunds of payments made by the Exchanging
Partners after that date under various agreements;
if Orion Newco does not have sufficient cash to
make such refunds, the refunds will be made in
shares of Orion Newco Series C Preferred Stock,
and the number of shares issued in the Exchange
will increase. As a result of the Exchange,
certain of the Exchanging Partners will be
principal stockholders of Orion Newco. Orion
Atlantic will remain in existence and maintain its
status as a partnership, with Orion Newco, Orion
and OrionSat (a wholly owned subsidiary of Orion)
as its partners. The structure of Orion Newco
after the Transactions is set forth below under
the caption "The Merger, the Exchange and the
Debenture Investments -- Corporate Structure After
the Transactions."
Orion Newco Series C
Preferred Stock........... Dividends. Subject to the preferential rights of
the Orion Newco Series A Preferred Stock and Orion
Newco Series B Preferred Stock, the record holders
of Orion Newco Series C Preferred Stock are
entitled to receive dividends at the rate of 6%
per annum, payable exclusively (except in the
event of a liquidation) in Orion Newco Common
Stock. The number of shares of Orion Newco Common
Stock distributable as a dividend on each share of
Orion Newco Series C Preferred Stock is calculated
based on the market price of such common stock
under a formula set forth in the Certificate of
Designations for the Orion Newco Series C
Preferred Stock (the "Certificate of
Designations").
10
<PAGE>
Liquidation. Each share of Orion Newco Series C
Preferred Stock has a liquidation preference of
$1,000 per share (plus all accrued and unpaid
dividends) over the Orion Newco Common Stock and
any series, class or classes of stock ranking
junior to the Orion Newco Series C Preferred
Stock.
Voting Rights. The holders of the Orion Newco
Series C Preferred Stock will be entitled to vote
on all matters submitted to the stockholders of
Orion Newco for a vote together with the holders
of Orion Newco Common Stock, Orion Newco Series A
Preferred Stock and Orion Newco Series B Preferred
Stock, voting together as a single class. Each
share of Orion Newco Common Stock will be entitled
to one vote per share and each share of Orion
Newco Senior Preferred Stock and Orion Newco
Series C Preferred Stock (including fractional
shares) will be entitled to one vote for each
whole share of Orion Newco Common Stock that would
be issuable upon conversion of such share of Orion
Newco Senior Preferred Stock and Orion Newco
Series C Preferred Stock, respectively, at the
time the vote is taken.
Conversion. The Orion Newco Series C Preferred
Stock is convertible into Orion Newco Common
Stock, at the option of the holder, at any time
after issuance, at a conversion price of $17.50,
subject to adjustment. Orion Newco may require, by
written notice to all holders of Orion Newco
Series C Preferred Stock, the mandatory conversion
of all of the outstanding Orion Newco Series C
Preferred Stock into Orion Newco Common Stock if
the closing price of the Orion Newco Common Stock
over 20 of the 30 prior trading days is greater
than or equal to the conversion price of $17.50,
subject to adjustment. In each case, all accrued
and unpaid dividends are payable (in Orion Newco
Common Stock) upon conversion. In the case of a
mandatory conversion within two years from the
initial date of issuance of the Orion Newco Series
C Preferred Stock, the number of shares of Orion
Newco Common Stock into which the shares of Orion
Newco Series C Preferred Stock are converted will
be increased by the number of shares of Orion
Newco Common Stock that would be payable if Orion
Newco were immediately to declare and pay all
dividends that in the absence of conversion would
have accrued on such shares of Orion Newco Series
C Preferred Stock over the six-month period
immediately following the date of such mandatory
conversion; provided, however, that the total
dividends, including any additional amounts in
respect of dividends paid as a result of a
mandatory conversion, will not be less than the
amount of dividends that would have accrued on all
outstanding shares of the Orion Newco Series C
Preferred Stock for one full year following the
date of issuance.
11
<PAGE>
Redemption. Orion Newco will be required to redeem
all of the Orion Newco Series C Preferred Stock on
the 25th anniversary of issuance (2022). The Orion
Newco Series C Preferred Stock also is redeemable,
in whole or in part, at the option of Orion Newco,
at any time after the earlier of the second
anniversary of the issuance of the Orion Newco
Series C Preferred Stock, or the effective date of
a Reorganization (as such term is used in the
Certificate of Designations) for an aggregate
redemption price of $1,000 per share (plus all
accrued and unpaid dividends thereon).
See "The Merger, the Exchange and the Debenture
Investments -- Description of the Orion Newco
Series C Preferred Stock."
Conditions to Closing....... Orion and the Exchanging Partners. The closing of
the Exchange Agreement is conditioned upon, among
other things, the satisfaction or waiver by Orion
and the Exchanging Partners of the following
conditions: (i) completion of a refinancing of the
indebtedness of Orion Atlantic outstanding under
the Orion 1 Credit Facility, (ii) the termination
of all agreements between or among the Banks and
Chase, on the one hand, and one or more of Orion
Newco, Orion Atlantic, OrionSat, Orion and the
Exchanging Partners and/or their affiliates on the
other hand, relating to the Orion 1 Credit
Facility or the security or credit support thereof
(the "Bank Agreement Termination"), (iii) the
termination of all obligations under the Orion 1
Credit Facility Support, (iv) the Option
Agreement, dated December 10, 1996, between Orion
Atlantic and Matra Marconi Space being in full
force and effect, Orion Atlantic not being in
default thereunder and Orion Atlantic having made
all payments required to be made thereunder
through the earlier of the closing date of the
Exchange and March 31, 1997, and the Restated
Amendment #10, dated December 10, 1996, to the
Orion 1 Satellite Contract (as defined below),
being in full force and effect, and Orion Atlantic
not being in default thereunder, (v) the formation
of Orion Newco with a certificate of
incorporation, bylaws, capital structure and
management substantially identical in all material
respects to those of Orion, (vi) procurement of
consents needed for the Exchange, (vii)
consummation of the Merger prior to or
concurrently with the Exchange and (viii) receipt
by the Exchanging Partners of an opinion from
Ernst & Young LLP, tax advisor to Orion, to the
effect that the Merger and the Exchange, taken
together, will be a tax-free exchange described in
Code Section 351(a).
Lockheed Martin CLS. The closing of the Exchange
Agreement is conditioned upon the satisfaction or
waiver by Lockheed Martin CLS of the condition
that Lockheed Martin CLS and Matra Marconi Space
enter into a subcontract to the Orion 2 Satellite
Contract relating to the launch of Orion 2.
Orion Parties. The closing of the Exchange
Agreement is conditioned upon the satisfaction or
waiver by the Orion parties of the following
conditions: (i) the ratification or approval by
12
<PAGE>
Orion stockholders of the Merger Transactions,
(ii) the amendment and restatement of the Second
Amended and Restated Partnership Agreement of
Orion Atlantic (the "Partnership Agreement") and
(iii) receipt by Orion Newco of approximately $60
million from the Debenture Investments. See "The
Merger, the Exchange and the Debenture Investments
-- The Exchange Agreement -- Conditions to the
Exchange."
Satisfaction of Conditions. It is presently
anticipated that each of the conditions to the
Exchange would have to be satisfied to consummate
the Exchange (and therefore the Merger). The
Exchanging Partners are not expected to waive any
of the conditions to their obligations to
consummate the Exchange, and the Orion parties do
not intend to waive any of the conditions to their
obligations to consummate the Exchange.
Accounting Treatment........ The Exchange will be accounted for as an
acquisition of minority interest using the
purchase method of accounting. As a result, the
assets and liabilities of Orion Atlantic will be
revalued to fair value to the extent of the
Limited Partners' interests acquired as a result
of the Exchange.
Representations, Warranties,
Covenants and
Indemnification........... Orion and OrionSat have agreed (and Orion has
agreed to bind Orion Newco pursuant to a separate
indemnity agreement) to indemnify the Exchanging
Partners for certain losses arising out of any
claims relating to the Exchange Agreement, subject
to certain exceptions, limitations and conditions.
See "The Merger, the Exchange and the Debenture
Investments -- The Exchange Agreement -- Certain
Provisions of the Exchange Agreement."
Registration Rights......... The Exchanging Partners will be granted certain
shelf, demand and "piggyback" registration rights
with respect to the Orion Newco Series C Preferred
Stock to be received by them in the Exchange and
the Orion Newco Common Stock issuable as dividends
thereon or upon the conversion thereof. See "The
Merger, the Exchange and the Debenture Investments
-- Registration Rights."
Transfer Restrictions....... Each of the Exchanging Partners will agree in a
Transfer Restriction Agreement, among other
things, that it will not transfer any shares of
Orion Newco Common Stock issued upon conversion of
shares of Orion Newco Series C Preferred Stock or
as dividends on Orion Newco Series C Preferred
Stock (the "Affected Shares") for 180 days after
the issuance of the Orion Newco Series C Preferred
Stock without the prior written consent of Orion
Newco, unless such a transfer is to an affiliate
or does not involve a public distribution or
public offering or occurs as the result of certain
events set forth in the Transfer Restriction
Agreement, and is conducted as provided in the
Transfer Restriction Agreement. Also, each of the
Exchanging Partners will agree, pursuant to a
Transfer Restriction Agreement, not to transfer
during any 90-day period Affected Shares
13
<PAGE>
that collectively represent more than 25% of the
aggregate number of shares of Orion Newco Common
Stock issuable upon the conversion of the Orion
Newco Series C Preferred Stock received by such
Exchanging Partner pursuant to the Exchange
Agreement or as dividends on the Orion Newco
Series C Preferred Stock, except as provided in
the Transfer Restriction Agreement. See "The
Merger, the Exchange and the Debenture Investments
-- Certain Transfer Restrictions."
Closing After January 30,
1997. If the Exchange closes after January 30, 1997,
Orion Newco will be obligated to make cash
refunds, on or shortly after the closing date, of
payments made by the Exchanging Partners after
that date under the Orion 1 Credit Facility
Support; if Orion Newco does not have sufficient
cash to make such refunds, the refunds will be
made in shares of Orion Newco Series C Preferred
Stock, and the number of shares issued in the
Exchange will increase. If the Notes Offering is
as large or larger than that presently anticipated
by the Company, all payments made by the
Exchanging Partners after January 30, 1997 under
the Orion 1 Credit Facility Support will be
refunded in cash and the number of shares issued
in the Exchange will not increase. See "The
Merger, the Exchange and the Debenture Investments
-- The Exchange Agreement -- Closing After January
30, 1997."
REASONS FOR THE MERGER
TRANSACTIONS AND THE
DEBENTURE INVESTMENTS
Principal Reasons for
Transactions................ Orion's principal objective for the Merger
Transactions is to simplify Orion's organizational
structure and improve its access to the capital
markets. Orion believes that the Merger
Transactions will enable it to: (i) consolidate
outside investor ownership at the Orion Newco
level, (ii) improve the speed and efficiency of
its decision making, (iii) provide Orion Newco
with 100% ownership of all of its material
subsidiaries, (iv) allow Orion Newco to pursue
independently its business plans and financings
for all of its satellites, (v) eliminate (in
exchange for Orion Newco stock) approximately
$37.5 million of obligations Orion Atlantic owes
to the Exchanging Partners and (vi) increase
Orion's overall market capitalization.
Orion's principal reason for the issuance of $50
million of Debentures to British Aerospace is to
raise additional capital for initial payments with
respect to the Orion 2 satellite, of which
approximately $49.4 million of payments are due
during 1997. The sale of $10 million of Debentures
to Matra Marconi Space will involve a
re-investment by Matra Marconi Space of $10
million of the $13 million of satellite incentive
payments Matra Marconi Space will receive as the
manufacturer of the Orion 1 satellite upon
consummation of the Notes Offering. The
consummation of the Debenture Investments is a
condition to the Exchange.
14
<PAGE>
Related Transactions........ Access to the capital markets is necessary for
Orion to achieve its business plan to construct
and launch two additional satellites, Orion 2
(with coverage of Europe, Russia, the eastern
United States and Latin America) and Orion 3 (with
coverage of the Asia Pacific region). With this
plan in mind, Orion and Orion Newco have been
pursuing and will continue to pursue the following
transactions:
(i) Notes Offering: (i) a Notes Offering in the
amount of approximately $347 million with expected
gross proceeds of approximately $275 million,
excluding approximately $72 million of overfunding
of interest due on such notes. The principal
purpose of the Notes Offering is to refinance the
indebtedness of Orion Atlantic outstanding under
the Orion 1 Credit Facility and release the
existing commitments of the Limited Partners and
their affiliates under the Orion 1 Credit Facility
Support. Such release is a condition to the
Exchange.
(ii) Orion 2 Construction Contract: the Orion 2
Satellite Contract, under which the manufacturer
is to proceed with construction based upon initial
payments of $25 million and further payments
through December 1997 limited to approximately $25
million. Orion expects to commence the
construction of Orion 2 immediately following
completion of the Notes Offering.
(iii) Orion 3 Construction Contract: the Orion 3
Satellite Contract, under which the manufacturer
is to proceed with construction based upon initial
payments through January 31, 1997 aggregating
approximately $15 million, with further payments
through March 31, 1998 being limited to $35
million, payable in approximately equal quarterly
installments. The majority of the amounts due
under the contract are payable in the second and
third quarters of 1998. Orion commenced
construction of Orion 3 in mid-December 1996 under
an authorization to proceed, and expects to enter
into a definitive satellite contract in January
1997.
In addition to the Merger, the Notes Offering and
the Debenture Investments, the Exchange is
indirectly conditioned on, among other things, the
acquisition by Orion of the only outstanding
minority interest in Orion Asia Pacific from
British Aerospace for approximately 86,000 shares
of Orion Newco Common Stock, which has occurred or
is in the process of occurring. The pro forma
financial information included in this Proxy
Statement/Prospectus gives effect to the Merger,
the Exchange and the Debenture Investments and the
transactions on which they are conditioned,
including the Notes Offering, the OAP Acquisition,
the application of the net proceeds of the Notes
Offering to effect the Orion 1 Credit Refinancing
and repayment of amounts owed to STET, a former
Limited Partner, and the use of the proceeds of
the Debenture Investments to make initial payments
on Orion 2 (initial payments on Orion 3 are to be
made from cash on hand). See "Pro Forma Condensed
Consolidated Financial Statements," "The Merger,
the Exchange and the Debenture Investments --
Reasons for
15
<PAGE>
the Merger Transactions and the Debenture
Investments" and "The Related Transactions."
Each proposal to be considered at the Special
Meeting will be voted upon separately by the Orion
stockholders. However, failure by the Orion
stockholders to approve the Exchange Agreement
will result in termination of the Merger Agreement
by Orion, Orion Newco and Orion Merger Subsidiary.
The Merger is a condition to the Exchange and is
being proposed to enable the Exchange to occur. If
the Merger were to cease to be necessary to
consummate the Exchange (which is not expected to
occur), the Board of Directors would cause Orion
to proceed with the Exchange but not the Merger.
In such event, Orion (instead of Orion Newco)
would issue shares of Series C 6% Cumulative
Redeemable Convertible Preferred Stock for the
Exchanging Partners' limited partnership interests
in Orion Atlantic and other rights relating
thereto and Orion (instead of Orion Newco) would
issue the Debentures, but all other aspects of
these transactions would remain the same. Since
the rights of stockholders of Orion Newco will be
substantially the same as the rights of
stockholders of Orion, Orion believes that
consummation of the Exchange would have the same
effect on stockholders whether or not the Merger
occurs. The Merger and the Exchange are conditions
to the Debenture Investments, and waivers of these
conditions are not expected to occur. Repayment of
the Orion 1 Credit Facility is a condition to the
Exchange and the Debenture Investments, and this
condition is not expected to be waived.
SPECIAL MEETING
Date, Time, Place of
Meeting................... The Special Meeting will be held on Thursday,
January 30, 1997 at 9:00 a.m., local time, at 2440
Research Boulevard, Suite 400, Rockville,
Maryland.
Record Date................. Only Orion stockholders of record at the close of
business on December 23, 1996 (the "Record Date")
are entitled to notice of and to vote at the
Special Meeting or any adjournment thereof, unless
a new record date is fixed for any adjourned
meeting. See "The Special Meeting -- Voting Rights
and Related Matters."
Purpose of the Special
Meeting................... At the Special Meeting, Orion stockholders will be
asked to consider and vote upon (i) ratification
of the Merger Agreement and the transactions
contemplated thereby, (ii) approval and adoption
of the Exchange Agreement and the transactions
contemplated thereby and (iii) approval of the
Debenture Investments. See "The Special Meeting --
Voting Rights and Related Matters."
16
<PAGE>
Quorum...................... The holders of a majority of the votes of the
shares of Orion capital stock issued and
outstanding and entitled to vote, present in
person or represented by proxy, treated as a
single class, will be required to constitute a
quorum at the Special Meeting. See "The Special
Meeting -- Voting Rights and Related Matters."
Votes Required.............. The affirmative vote of holders of a majority of
the votes of the shares of Orion capital stock
that are entitled to vote and that are present in
person or represented by proxy at the Special
Meeting, treated as a single class, will be
required to approve each proposal to be considered
at the Special Meeting. Orion anticipates that all
members of the Board of Directors and companies
they represent (who held, in the aggregate,
approximately 38% of Orion's voting stock as of
September 30, 1996) will enter into written
agreements to vote for each such proposal. Each
share of Orion Common Stock will be entitled to
one vote per share, and each share of Orion Series
A Preferred Stock and Orion Series B Preferred
Stock (including fractional shares) will be
entitled to one vote for each whole share of Orion
Common Stock that would be issuable upon
conversion of such share of Orion Series A
Preferred Stock and Orion Series B Preferred
Stock, respectively. See "The Special Meeting --
Voting Rights and Related Matters" and "-- Votes
Required."
Dissenters' Rights.......... Orion stockholders have no dissenters' rights in
connection with the matters submitted by Orion for
stockholder ratification or approval at the
Special Meeting. See "The Special Meeting -- No
Dissenters' Rights."
Revocability of Proxies..... An Orion stockholder giving a proxy in the form
accompanying this Proxy Statement/Prospectus has
the power to revoke the proxy prior to its
exercise. A proxy may be revoked by any
stockholder who attends the Special Meeting and
gives notice of the stockholder's intention to
vote in person, without compliance with any other
formalities. In addition, any Orion stockholder
may revoke a proxy at any time before it is voted
by executing and delivering a later dated proxy or
by delivering a written notice to the Secretary of
Orion stating that the proxy is revoked. See "The
Special Meeting -- Proxies."
BOARD RECOMMENDATION........ The Board of Directors has unanimously approved
(with the British Aerospace Board representative
recusing himself) the terms of the Merger
Agreement, the Exchange Agreement and the
Debenture Agreement and determined that the
Merger, the Exchange and the Debenture Investments
are in the best interest of Orion and its
stockholders. The Board recommends unanimously
(with the British Aerospace Board representative
recusing himself) that stockholders vote FOR
ratification of the Merger Agreement and the
transactions contemplated thereby, FOR approval
and adoption of the Exchange Agreement and the
transactions contemplated thereby, and FOR
approval of the Debenture Investments.
17
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL AND OPERATIONAL DATA
The following table sets forth summary consolidated financial and operational
data of the Company as of and for the years ended December 31, 1994 and 1995 and
for the nine months ended September 30, 1995 and 1996. The data should be read
in conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations of Orion," the Pro Forma Condensed Consolidated
Financial Statements and the Consolidated Financial Statements of the Company
and the related notes included elsewhere in this Proxy Statement/Prospectus. The
summary consolidated financial data under the captions "Consolidated Statements
of Operations Data" for the years ended December 31, 1994 and 1995, with the
exception of the Pro Forma data, were derived from the audited consolidated
financial statements of the Company. The summary consolidated financial data as
of September 30, 1996, and for the nine months ended September 30, 1995 and
1996, with the exception of the Pro Forma data, are derived from the Company's
unaudited consolidated financial statements. The Pro Forma data are not
necessarily indicative of the results that would have been achieved, nor are
they indicative of the Company's future results.
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,
-------------------------------------- --------------------------------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
1995 1996 PRO
1994 1995 PROFORMA(1) 1995 1996 FORMA(1)
----------- ----------- ---------------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Consolidated Statements of Operations
Data:
Revenues.............................. $ 3,415 $ 22,284 $ 22,284 $ 13,947 $ 30,016 $ 30,016
Interest expense...................... 61 24,738 50,637 17,080 20,229 39,521
Net loss.............................. (7,965) (26,915) (103,156) (19,985) (19,807) (67,263)
Net loss per common share............. $ (0.86) $ (3.07) $ (12.01) $ (2.42) $ (1.90) $ (6.46)
Shares used in calculating per share
data (2).............................. 9,272,166 9,103,505 9,376,719 8,522,067 10,943,287 11,544,626
----------- ----------- ---------------- ----------- ------------ ------------
Ratio of earnings to fixed charges
(3)................................... -- -- -- -- -- --
Other Operating Data:
Number of customers................... 34 109 79 167
Capital expenditures.................. $ 51,103 $ 9,060 $ 3,863 $ 10,266
Customer contract backlog (4)......... $ 39,122 $ 120,612 $ 94,890 $ 134,320 $ 123,000
Points of service (5)................. 57 151 124 304
EBITDA (6)............................ $ (14,014) $ (15,427) $ (15,177) $ 134
</TABLE>
AS OF SEPTEMBER 30,
1996
----------------------
PRO
ACTUAL FORMA(1)
--------- ------------
Consolidated Balance Sheet Data:
Cash and cash equivalents............ $ 36,657 $122,339
Restricted cash (7).................. -- 72,000
Total assets......................... 355,977 566,292
Long-term debt (less current
portion)............................. 221,781 425,513
Limited Partners' interest in Orion
Atlantic (8)......................... 19,961 --
Redeemable preferred stock........... 20,539 114,539
Total stockholders' equity........... 6,891 967
Book value per share................. .63 .09
- ----------
(1) Adjusted to reflect the pro forma effects of the Transactions (see "Pro
Forma Condensed Consolidated Financial Statements"), assuming such events
occurred, in the case of Consolidated Statements of Operations Data, on
January 1, 1995 and, in the case of Consolidated Balance Sheet Data, on
September 30, 1996.
(2) Computed on the basis described for net loss per common share in Note 2 to
the Consolidated Financial Statements.
(3) As required by GAAP, net loss is presented before preferred stock dividends
and accretion. For the years ended 1994, 1995, 1995 (pro forma) and the
nine months ended September 30, 1995, 1996 and 1996 (pro forma), preferred
stock dividends and accretion are $.6 million, $1.3 million, $9.8 million,
$1.0 million, $1.0 million and $7.3 million, respectively.
(4) For purposes of the ratio of earnings to fixed charges, earnings consist of
earnings from continuing operations, plus fixed charges, reduced by the
amount of unamortized interest capitalized. Fixed charges consist of
interest on all indebtedness (including commitment fees and amortization of
deferred financing costs) plus the portion of rent expense representing
interest (estimated to be one-third of such expense). For the years ended
December 31, 1994 and 1995, and the nine months ended September 30, 1995
and 1996, earnings were inadequate to cover fixed charges by $35.2 million,
$28.2 million, $21.3 million and $19.8 million, respectively. On a pro
forma basis assuming consummation of the Transactions, earnings
18
<PAGE>
would not have been sufficient to cover fixed charges by $105.4 million and
$70.5 million for the year ended December 31, 1995 and the nine months
ended September 30, 1996, respectively. A 0.5% increase in the assumed
interest rates on the Notes would result in pro forma deficiencies of
earnings to cover fixed charges of approximately $107.1 million for the
year ended December 31, 1995 and $71.8 million for the nine months ended
September 30, 1996.
(5) Backlog represents future revenues under contract. See "Risk Factors --
Risks Relating to Orion's Business -- Uncertainties Relating to Backlog."
(6) Points of service includes installed VSATs and additional transmission
destinations (such as customer premises) that share a VSAT.
(7) "EBITDA" represents earnings before minority interests, interest income,
interest expense, other expense (income), income taxes, depreciation and
amortization. EBITDA is commonly used in the communications industry to
analyze companies on the basis of operating performance, leverage and
liquidity. EBITDA is not intended to represent cash flows for the period
and should not be considered as an alternative to cash flows from
operating, investing or financing activities as determined in accordance
with generally accepted accounting principles ("GAAP"). EBITDA is not a
measurement under GAAP and may not be comparable to other similarly titled
measures of other companies. Other expense (income) includes gains on sale
of equipment, less the write-off of costs relating to the 1995 Financing of
$3.4 million in the fourth quarter of 1995.
(8) Restricted cash represents the estimated $72 million that will be placed in
escrow on the closing date of the Notes Offering to pre-fund the payment of
the first six scheduled payments of interest on the Senior Notes (as
defined below). The actual amount to be placed in escrow and reflected as
restricted cash will depend on the interest rates on the Senior Notes and
market interest rates on government securities on such closing date.
(9) Represents amounts invested by Limited Partners (net of syndication costs
related to the investments), adjusted for such Limited Partners' share of
net losses. The interests of the Limited Partners will be acquired by the
Company in the Exchange.
19
<PAGE>
RISK FACTORS
An investment in Orion Newco Common Stock pursuant to the Merger involves a
high degree of risk. In evaluating the Merger Transactions and the Debenture
Investments, Orion stockholders should carefully consider the following factors
as well as other matters discussed in this Proxy Statement/Prospectus.
Statements contained in this Proxy Statement/Prospectus regarding Orion's
expectations with respect to Orion 2 and Orion 3, related financings, future
operations and other information, which can be identified by the use of
forward-looking terminology, such as "may," "will," "expect," "anticipate,"
"estimate" or "continue" or the negative thereof or other variations thereon or
comparable terminology, are forward-looking statements and depend on a variety
of factors, including those set forth in this Risk Factors section. See
"Forward-Looking Statements." The discussions set forth below constitute
cautionary statements identifying important factors with respect to such
forward-looking statements, including certain risks and uncertainties, that
could cause actual results to differ materially from those in such
forward-looking statements. There can be no assurance that Orion's expectations
regarding some or all of these matters will be fulfilled.
RISKS RELATING TO MERGER, EXCHANGE AND DEBENTURE INVESTMENTS
MERGER, EXCHANGE AND DEBENTURE INVESTMENTS DEPENDENT ON ORION 1 CREDIT
FACILITY REFINANCING
The Merger, the Exchange and the Debenture Investments are conditioned on
consummation of the Orion 1 Credit Facility Refinancing. Although Orion has
engaged in discussions with prospective underwriters with respect to the Notes
Offering Orion is pursuing to effectuate the Orion 1 Credit Facility
Refinancing, there can be no assurance that such financing will be consummated.
Orion has been advised by prospective underwriters that the Notes Offering will
be conditioned on, among other things, concurrent completion of the Exchange,
repayment of the Orion 1 Credit Facility with proceeds of the Notes Offering and
consummation of the OAP Acquisition and the Debenture Investments. There can be
no assurance that the conditions to closing the Orion 1 Credit Facility
Refinancing, and accordingly of the Merger, the Exchange and the Debenture
Investments, will be met.
CERTAIN TERMS OF NOTES OFFERING NOT YET DETERMINED
Completion of the Exchange is conditioned, among other things, upon
completion of the Notes Offering. Certain pricing and other terms of the Notes
Offering are not known at the present time, including, without limitation, the
size of the Notes Offering, the interest rate for the Notes and the amount and
terms of the Orion Newco Common Stock warrants to be included in the Notes
Offering, and there can be no assurance that the terms of such transactions will
be favorable to Orion. In addition, Orion will be subject to a number of
restrictions and limitations imposed by the indentures pursuant to which the
Notes will be issued (the "Notes Indentures"). The Notes Indentures are expected
to contain, among other limitations, covenants which will restrict the ability
of the Company and its subsidiaries to: incur additional indebtedness; create
liens; engage in sale-leaseback transactions; pay dividends or make
distributions in respect of their capital stock; make investments or make
certain other restricted payments; sell assets; create restrictions on the
ability of restricted subsidiaries to make certain payments; issue or sell stock
of restricted subsidiaries; enter into transactions with stockholders or
affiliates; and consolidate, merge or sell all or substantially all of their
assets. However, these limitations will be subject to a number of important
qualifications and exceptions.
RISKS IN IMPLEMENTATION OF MERGER, EXCHANGE AND DEBENTURE INVESTMENTS
In order to implement the Merger, the Exchange and the Debenture Investments,
Orion will need to organize Orion Newco to be substantially identical to Orion,
transfer all matters relating to Orion's capital structure to Orion Newco, and
merge with a subsidiary of Orion Newco. These transactions may require receipt
of a number of approvals or waivers, including waivers of rights of the holders
of the Orion Senior Preferred Stock to have their shares repurchased by Orion,
consents or waivers under various contracts that may make a merger by Orion an
event of default and consents to assignment of various contracts regarding
registration rights applicable to Orion capital stock and other matters. There
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can be no assurance that Orion will obtain all necessary approvals or waivers to
implement the Merger, the Exchange and the Debenture Investments, or regarding
the effect of failure to obtain such approvals or waivers.
It is presently anticipated that each of the conditions to the Exchange would
have to be satisfied to consummate the Exchange (and therefore the Merger and
the Debenture Investments). The Exchanging Partners are not expected to waive
any of the conditions to their obligations to consummate the Exchange, and the
Orion parties do not intend to waive any of the conditions to their obligations
to consummate the Exchange, including, without limitation, conditions relating
to financing, procurement agreements or otherwise.
SUBSTANTIAL CHANGE IN OWNERSHIP OF STOCK
The beneficial ownership of Orion's Common Stock will change substantially as
a result of the Exchange and the Debenture Investments. The Exchange will
involve the issuance of Orion Newco Series C Preferred Stock convertible as of
the issuance date into approximately 6,970,740 shares of Orion Newco Common
Stock, or approximately 27% of the shares of Orion Newco Common Stock
outstanding on a fully diluted basis, assuming a closing of the Merger
Transactions as of January 30, 1997. The Debenture Investments will involve the
issuance of $60 million of Debentures convertible as of the issuance date into
approximately 4,285,714 shares of Orion Newco Common Stock, or approximately
16.6% of the shares of Orion Newco Common Stock outstanding on a fully diluted
basis, assuming a closing of the Debenture Investments as of January 30, 1997.
See "The Merger, the Exchange and the Debenture Investments -- Security
Ownership of Certain Beneficial Owners Prior to and Following the Transactions."
Although the Company is not aware of any intent by the Exchanging Partners,
British Aerospace or Matra Marconi Space to seek to control the management and
affairs of the Company, there can be no assurance that they will not seek to do
so. In addition, the increase in outstanding capital stock could adversely
affect prevailing market prices, as discussed below under the caption "Risks
Relating to Capital Stock -- Potential Adverse Effect of Shares Eligible for
Future Sale."
RISKS RELATING TO HOLDING COMPANY STRUCTURE
After the Merger Transactions, the Company will conduct almost all of its
operations through its subsidiaries. Accordingly, the primary source of the
Company's cash will be dividends and other distributions from its subsidiaries.
The subsidiaries' ability to make distributions to the Company will be subject
to their having sufficient funds from their operations legally available for
payment thereof which are not needed to fund their own operations, obligations
or business plans and which are not restricted by agreements with the creditors
of these entities. If the Company's subsidiaries are unwilling or unable to make
distributions to the Company, the Company's growth may be inhibited. The Company
may not be able to obtain debt financing if it cannot compel the subsidiaries to
make distributions to service such debt financing or obtain upstream guarantees
from its subsidiaries with respect to such financing.
RISKS RELATING TO ORION NEWCO SERIES C PREFERRED STOCK AND DEBENTURES
The Company expects to issue $122 million in Orion Newco Series C Preferred
Stock (assuming a closing of the Merger Transactions as of January 30, 1997) and
$60 million of Debentures. Certain rights granted by Orion Newco to holders of
the Orion Newco Series C Preferred Stock and the Debentures could adversely
affect Orion Newco or the rights of holders of Orion Newco Common Stock. In
particular, the holders of Orion Newco Series C Preferred Stock will have
dividend rights, a liquidation preference, rights to vote with the Orion Newco
Common Stock as a single class, rights to mandatory redemption after 25 years
and earlier redemption at the option of Orion Newco, the right to convert such
shares into Orion Newco Common Stock and registration rights, as described more
fully under the caption "The Merger, the Exchange and the Debenture Investments
- -- Description of the Orion Newco Series C Preferred Stock." Holders of the
Debentures will have the right to convert the Debentures into Orion Newco Common
Stock at $14.00 per share (subject to downward adjustment in certain events) and
the right to receive dividends in Orion Newco Common Stock which, in certain
circumstances, could be valued at a price which is lower than the market price
of such stock at the date of such dividends. See "The Merger, the Exchange and
the Debenture Investments -- The Debenture Investments."
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RISKS RELATING TO ORION'S BUSINESS
LIMITED OPERATIONS; HISTORY OF LOSSES AND NEGATIVE EBITDA; EXPECTATION OF
FUTURE LOSSES
From its inception in 1982 through January 20, 1995, when Orion 1 commenced
commercial operations, Orion was a development stage company. Accordingly, Orion
has limited experience operating its business. Orion has experienced net losses
in each fiscal year since its inception, including a net loss of approximately
$26.9 million and negative EBITDA of $15.4 million during 1995, and a net loss
of $19.8 million during the nine months ended September 30, 1996. On a pro forma
basis, giving effect to the Transactions, the Company would have had a net loss
of $103.2 million and $67.3 million for 1995 and the nine months ended September
30, 1996, respectively. The increase in net loss on a pro forma basis is
associated with the depreciation on the step up in the basis of the Orion 1
satellite and amortization of excess cost over fair value resulting from the
acquisition of the Limited Partners' partnership interests in Orion Atlantic,
the net increase to interest expense as a result of the Transactions, and the
elimination of minority interest as a result of the Exchange. See Notes to Pro
Forma Condensed Consolidated Statements of Operations for the year ended
December 31, 1995 and for the nine months ended September 30, 1996. The
implementation of Orion's business plan regarding Orion 2 and Orion 3 will
require substantial additional capital for the construction, launch, insurance,
financing and start-up costs of those satellites. A substantial portion of these
costs may be financed with indebtedness, which would substantially increase
interest costs. The Company's negative cash flow has been substantial and net
losses and negative cash flows (after payments for capital expenditures and
interest) are expected to increase over the next few years.
NEED FOR SUBSTANTIAL ADDITIONAL CAPITAL
The Company will need a substantial amount of capital over the next three
years (and possibly thereafter) to fund the costs of Orion 2 and Orion 3, the
purchase of VSATs and other capital expenditures and to make various other
payments, such as principal and interest payments with respect to the TT&C
Financing (as defined below), the Notes and any indebtedness incurred to finance
Orion 2 or Orion 3. The Company's cash flows will be inadequate to cover its
cash needs and the Company will seek financing from outside sources. Sources of
additional capital may include public or private debt or equity financings. The
Company is often involved in discussions or negotiations with respect to such
potential financings and, because of its substantial capital needs, may
consummate any such financings at any time. The Company has commenced
construction of Orion 3 and intends to commence construction of Orion 2
immediately after consummation of the Notes Offering, despite the fact that it
does not have any commitment from any outside source to provide such financing.
If the Company is unable to obtain financing from outside sources in the amounts
and at the times needed, it could forfeit payments made on Orion 2 and Orion 3
and its rights to Orion 2 and Orion 3 under the Orion 2 Satellite Contract and
Orion 3 Satellite Contract. Such a forfeiture would have a material adverse
effect on the Company's ability to make payments on its indebtedness and on the
value of the Orion Newco Common Stock.
Expected payments prior to launch under the Orion 2 Satellite Contract and
Orion 3 Satellite Contract and for launch insurance for Orion 2 and Orion 3
aggregate approximately $500 million. Of this amount, $3 million was paid in the
fourth quarter of 1996, and Orion is required to make payments of approximately
$90 million, $360 million and $50 million in 1997, 1998 and 1999, respectively.
These amounts include the Company's estimate regarding the cost of launch
insurance (but not in-orbit insurance, which the Company presently estimates
will cost approximately $5 million to $6 million per annum per satellite), which
estimate is based upon industry figures but not upon discussions with potential
insurers or any commitment to provide insurance. The Company's actual payments
could be substantially higher due to any change orders for the satellites,
higher than expected insurance rates, delays and other factors. In addition, the
Company expects to expend approximately $22 million, $30 million and $34 million
on VSATs and other capital expenditures in 1997, 1998 and 1999, respectively.
However, there can be no assurance that these amounts will not be substantially
higher. The Company believes the costs of VSATs and other capital expenditures
can be financed through capital leases or other secured financing arrangements.
However, the Company has not engaged in material discussions with potential
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lenders and there can be no assurance that such financing can be obtained. The
Company also expects to incur an aggregate of approximately $40 million of
start-up losses and financing costs in connection with Orion 2 and Orion 3.
Orion Newco's ability to raise public equity financing may be limited by the
registration rights it has granted to certain investors. See "Risks Relating to
Capital Stock -Potential Adverse Effect of Shares Eligible for Future Sale"
below.
Under the Orion 1 Satellite Contract, the contractor is entitled to receive
incentive payments based upon the performance of Orion 1 in orbit. These
incentive payments could reach an aggregate of approximately $44 million through
2007, if the transponders on Orion 1 continue to operate in accordance with
specification during that period. As of September 30, 1996, Orion had
obligations with a present value of approximately $21.7 million with respect to
incentive payments. Orion will pay $13 million in satellite incentives
concurrently with the closing of the Notes Offering, of which $10 million will
be re-invested in Orion in the Matra Marconi Investment. Under the Orion 2
Satellite Contract, Orion is obligated to pay $25,000 per day that the satellite
is delivered prior to the scheduled delivery date.
The foregoing estimates do not include any amounts for other possible
financing requirements. The Company may from time to time enter into joint
ventures and make acquisitions of complementary businesses and is often engaged
in discussions or negotiations with regard to such potential joint ventures and
acquisitions. Such joint ventures or acquisitions would need to be financed,
which would increase the Company's need for additional capital. In addition,
Orion intends to replace Orion 1 at the end of its useful life (expected to be
in October 2005). Such replacement likely will require additional financing if
the cash flow from Orion's operations is not sufficient to fund a replacement
satellite.
SUBSTANTIAL LEVERAGE; SECURED INDEBTEDNESS
As of September 30, 1996, after giving pro forma effect to the Transactions,
Orion would have had approximately $426 million of long-term indebtedness, and
will be highly leveraged. The accretion of original issue discount on the Senior
Discount Notes (as defined below) will substantially increase Orion's
liabilities. The Company also expects to incur substantial additional amounts of
indebtedness. The Company will deposit approximately $72 million in escrow to
pre-fund the first six scheduled payments of interest on the Senior Notes (as
defined below). However, the Company ultimately will need to service the cash
interest expense on a very substantial amount of indebtedness with cash
generated by its operations. For 1995 and the three and nine months ended
September 30, 1996, the Company had EBITDA of $(15.4) million, $1.7 million and
$0.1 million and, on a pro forma basis, giving effect to the Transactions,
interest costs of $50.6 million and $39.5 million for 1995 and the nine months
ended September 30, 1996, respectively. Interest costs will increase
substantially if, as expected, the Company incurs additional indebtedness, as
described above under the caption "Need for Substantial Additional Capital." The
Company does not have a revolving credit facility or other source of readily
available capital.
The level of the Company's indebtedness could have important consequences to
the Company and its stockholders, including the following: (i) the ability of
the Company to obtain any necessary financing in the future for capital
expenditures, working capital, debt service requirements or other purposes may
be limited; (ii) a substantial portion of the Company's cash flow from
operations, if any, must be dedicated to the payment of principal of and
interest on its indebtedness and other obligations and will not be available for
use in the Company's business; (iii) the Company's level of indebtedness could
limit its flexibility in planning for, or reacting to changes in, its business;
(iv) the Company will be more highly leveraged than some of its competitors,
which may place it at a competitive disadvantage; and (v) the Company's high
degree of indebtedness will make it more vulnerable to a default and the
consequences thereof (such as bankruptcy workout) in the event of a downturn in
its business. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations of Orion -- Liquidity and Capital Resources -- Current
Funding Requirements."
RISKS OF SATELLITE LOSS OR REDUCED PERFORMANCE
Satellite Loss or Reduced Performance. Satellites are subject to significant
risks, including launch failure, damage that impairs commercial performance,
failure to achieve correct orbital placement during launch, loss of fuel that
reduces satellite life, and satellite in-orbit risks. Although Orion 1 has been
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successfully launched and is in commercial operation, and although Orion
maintains satellite in-orbit insurance on Orion 1, any loss in orbit or reduced
performance of Orion 1 would have a material adverse effect on Orion. In
addition, no assurance can be given that the launch of Orion 2 or Orion 3 will
be successful. Although various sources of data permit differing conclusions,
Orion is aware of sources indicating that the historical loss rate for all
commercial geosynchronous satellite launches may be as high as 15%. Launch risks
vary based upon the launch vehicle used. The Delta III launcher to be used for
Orion 3 is new and has no significant launch history. Even though the Delta III
is based upon earlier Delta launch vehicles, the new technology used in Delta
III could affect its launch success rate.
Orion may have to change launch vehicles if, for example, one of its selected
vehicles experiences a launch failure with respect to another satellite. Orion
intends to order certain long lead time parts in order to reduce the amount of
time needed to obtain one replacement satellite. However, an unsuccessful launch
of Orion 2 or Orion 3 would involve a delay in revenues for at least one year,
and perhaps substantially longer. Any loss or delay of revenue from any of the
Company's satellites would have a material adverse effect on its ability to
service its indebtedness and the value of the Orion Newco Common Stock.
In November 1995, one of Orion 1's components supporting nine transponders of
dedicated capacity serving the European portion of the Orion 1 footprint
experienced an anomaly that resulted in a temporary service interruption,
lasting approximately two hours. Full service to all affected customers was
restored using redundant equipment on the satellite. These transponders
currently generate a majority of Orion's revenues. Orion believes, based on the
data received to date by Orion from its own investigations and from the
manufacturer, and based upon advice from Orion's independent engineering
consultant, Telesat Canada, that because the redundant component is functioning
fully in accordance with specifications and the performance record of similar
components is strong, the anomalous behavior is unlikely to affect the expected
performance of the satellite over its useful life. Furthermore, there has been
no further effect on Orion's ability to provide services to customers. However,
in the event that the currently operating component fails, Orion 1 would
experience a significant loss of usable capacity. In such event, while Orion
would be entitled to insurance proceeds of approximately $47 million and could
lease replacement capacity and function as a reseller with respect to such
capacity (at substantially reduced gross margins), the loss of capacity would
have a material adverse effect on the Company, on its ability to service its
indebtedness and the value of the Orion Newco Common Stock. See "Information
About Orion's Business -- Implementation of the Orion Satellite System -- Orion
1."
At the time of Orion's 1 delivery from its manufacturer, one of the six 36
MHz transponders covering the United States was not performing in accordance
with contract specifications based on then-available data. To date, Orion has
not used such transponder to provide services under any commercial contract, and
there can be no assurance that such transponder will ever be used. Although
Orion settled the matter with the manufacturer for a one-time refund of
approximately $2.75 million and monthly payments of $7,000, there can be no
assurance that such payments adequately compensated Orion for the loss of such
transponder.
Limited Insurance for Satellite Launch and Operation. The in-orbit insurance
of Orion 1 and the launch and in-orbit insurance for Orion 2 and Orion 3 will
not protect the Company against business interruption, loss or delay of revenues
and similar losses and may not fully reimburse the Company for its expenditures.
In addition, such insurance includes or can be expected to include certain
contract terms, exclusions, deductibles and material change conditions that are
customary in the industry. Accordingly, an unsuccessful launch of Orion 2 or
Orion 3 or any significant loss of performance with respect to any of its
satellites would have a material adverse effect on Orion, its ability to make
payments on its indebtedness and the value of the Orion Newco Common Stock.
Although Orion intends to procure insurance for the construction, launch and
insurance costs of Orion 2 and Orion 3, Orion has not obtained any commitment
from insurance underwriters to provide launch insurance for Orion 2 or Orion 3.
There can be no assurance that such insurance will be available or that the
price of such insurance or the terms and exclusions in the actual insurance
policy will be favorable to the Company. A failure of one of the launch vehicles
selected by Orion prior to the launch of Orion 2 or Orion 3 could substantially
increase the cost of launch insurance for Orion. See "Information About Orion's
Business -- Insurance."
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Limited Life of Satellites. While Orion 1 is expected to have an orbital life
of approximately 10.7 years (through October 2005), and Orion 2 and Orion 3 are
expected to have orbital lives of approximately 13 years and 15 years,
respectively, there can be no assurance as to the actual longevity of the
satellites. A number of factors will affect the useful life of each satellite,
including the rate of fuel consumption in achieving correct orbital placement
during launch, the quality of its construction and the durability of its
component parts. There is a significant possibility that one or more
transponders on a satellite may cease to function in accordance with
specifications during its estimated useful life and there is no assurance that
service could be restored through redundant transponders. In addition, while
Orion plans to replace each satellite at the end of its useful life, there can
be no assurance that the required financing and regulatory approvals to do so
will be available.
LAUNCH OF ORION 2 AND ORION 3 SUBJECT TO SIGNIFICANT UNCERTAINTIES
Cost Uncertainties. Based on the current designs of and current construction
schedules for Orion 2 and Orion 3, the total costs of Orion 2 and Orion 3,
including construction, launch, launch insurance, financing costs and start-up
expenses, are presently estimated to be approximately $265 million and $275
million, respectively. These costs may increase as a result of changes that may
occur during the construction of the satellites or if the cost of insurance
exceeds the Company's expectations. See "Information About Orion's Business --
Implementation of the Orion Satellite System." There can be no assurance that
the actual costs of these satellites will not be materially greater than these
estimates.
Substantial Financing Requirements. Completion of Orion 2 and Orion 3 will
require substantial additional financing beyond the funds expected to be raised
in the Notes Offering and the British Aerospace Investment. Failure to raise
such financing would have a material adverse effect on Orion, its ability to
make payments on its indebtedness and the value of the Orion Newco Common Stock,
as discussed in more detail above under the caption "Need for Substantial
Additional Capital."
Timing Uncertainties. Orion presently plans to launch Orion 2 in the second
quarter of 1999 and plans to launch Orion 3 in the fourth quarter of 1998, based
upon the construction and launch schedules set forth in the satellite contracts.
To meet these schedules, Orion must raise the financing needed for payments to
the satellite manufacturers, receive certain regulatory approvals, finalize the
satellite designs and take other necessary steps. Failure to meet the
construction and launch schedules could increase the cost of Orion 2 or Orion 3,
requiring additional financing, as described above under the caption "Need for
Substantial Additional Capital." Although the Orion 2 Satellite Contract and the
Orion 3 Satellite Contract are fixed-price contracts with firm schedules for
construction, delivery and launch, there can be no assurance that increases in
costs due to change orders or delay will not occur. See "Information About
Orion's Business -- Implementation of the Orion Satellite System." There can be
no assurance that the launch of Orion 2 or Orion 3 will take place as scheduled.
Delays in launching satellites are quite common, and a significant delay in the
delivery or launch of Orion 2 or Orion 3 also would have a material adverse
effect on Orion's marketing plan for such satellites, its ability to generate
revenue and service its indebtedness and the value of the Orion Newco Common
Stock.
Risks of Proceeding With Construction Prior to Obtaining all Regulatory
Approvals for Orion 2 and Orion 3. Orion has commenced construction of Orion 3
and will commence construction of Orion 2 prior to completion of the required
consultation with INTELSAT, receipt of final authority from the FCC (in the case
of Orion 2) and completion of the International Telecommunication Union ("ITU")
coordination process. Failure to obtain one more necessary approvals in a timely
manner would likely have a material adverse effect on the Company. See
"Approvals Needed; Regulation of Industry" below.
RISKS RELATING TO POTENTIAL LACK OF MARKET ACCEPTANCE AND DEMAND; GROUND
OPERATIONS
Orion's success will depend in part on the continued growth in demand for
international private network services, which to date have not been a primary
focus of satellite companies, and on Orion's ability to market such services
effectively. Marketing will be critical to Orion's success. However, Orion has
limited experience in marketing, having commenced full commercial operations
only in 1995. Ori-
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on's marketing program until recently consisted of direct sales, using a
U.S.-based sales force, and indirect sales channels, including Limited Partner
sales representatives, for sales in Europe. During 1996, certain of Orion's
indirect sales channels in Europe in 1996 did not meet expectations, and Orion
is seeking to supplement its sales in Europe by significantly increasing its
direct sales capabilities in Europe, particularly with respect to sales of
private network services. However, there can be no assurance that this effort
will be successful. Sales of Orion's services generally involve a long-term,
complex sales process, and new contract bookings will vary from quarter to
quarter. In addition, as an early provider of international network services
using VSATs, Orion is subject to the uncertainties associated with the
development of new services, including uncertainties regarding customer interest
in and acceptance of higher data speed communications, the need to develop and
convince customers of the attractiveness of new applications, and customer
acceptance of the ability of Orion (as a new market entrant) to provide service.
In addition, Orion's operations will continue to depend significantly on Orion's
ability to provide ground operations for private network services using ground
operators throughout the footprint of Orion's satellites. In the event that its
network of ground operators is not maintained and expanded or fails to perform
as expected, Orion's ability to offer private network services will be impaired.
See "Information About Orion's Business -- Network Operations; Local Ground
Operators."
RISKS CONCERNING ABILITY TO MANAGE GROWTH
The Company's future performance will depend, in part, upon its ability to
manage its growth effectively, which will require it to continue to implement
and improve its marketing, operating, financial and accounting systems and to
expand, train and manage its employee base and manage its relationships with its
local ground operators. For example, Orion is in the process of seeking to
integrate a significant number of newly hired direct sales personnel, and
expects the process to continue as it seeks to increase its sales force during
1997. Furthermore, the Company may from time to time enter into joint ventures
and acquire complementary businesses and is often engaged in discussions or
negotiations with regard to such potential joint ventures and acquisitions. Such
joint ventures and acquired businesses would need to be integrated with the
Company, which would place an additional burden on the Company's internal
systems and its ability to manage its employees and its relationships with its
local ground operators. In addition, the Company's ability to attract new orders
is subject to substantial variations from quarter to quarter. If the Company
fails either to expand in accordance with its plans or to manage its growth
effectively, there could be a material adverse effect on its business, growth,
financial condition and results of operations, its ability to service its
indebtedness and the value of the Orion Newco Common Stock.
POTENTIAL ADVERSE EFFECTS OF COMPETITION
The international telecommunications industry is highly competitive. In
providing international telecommunications services, Orion competes with
established satellite and other transmission facilities providers, including
INTELSAT, EUTELSAT, PanAmSat and consortia of major telephone carriers operating
undersea fiber optic cables. In addition, Orion competes with certain
established telephone carriers, such as AT&T, MCI, Sprint, British Telecom,
Cable & Wireless, Deutsche Telekom, France Telecom and Kokusai Denshin Denwa, as
well as resellers of satellite capacity, such as Impsat, in providing private
network communications services. Many of these competitors have significant
competitive advantages, including long-standing customer relationships, close
ties with regulatory authorities, control over connections to local telephone
lines and the ability to subsidize competitive services with revenues from
services they provide as a dominant or monopoly carrier, and are substantially
larger than Orion and have financial resources, experience, marketing
capabilities and name recognition that are substantially greater than those of
Orion. The Company believes that competition in emerging markets, particularly
with respect to private network services, will intensify as dominant and
monopoly long distance providers adapt to a competitive environment and large
carriers increase their presence in these markets. The Company also believes
that competition in more developed markets will intensify as large carriers
consolidate, enhance their international alliances and increase their focus on
private network services. For example, the recently announced merger involving
MCI and British Telecom may substantially increase the ability of the resulting
businesses to provide trans-Atlantic private network services.
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The ability of Orion to compete with these organizations will depend in part on
Orion's ability to price its services at a significant discount to terrestrial
service providers, its level of customer support and service, and the technical
advantages of its systems.
The services provided by the Company have been subject to decreasing prices
over recent years and this pricing pressure is expected to continue (and may
accelerate) for the foreseeable future. Orion will need to increase its volume
of sales in order to compensate for such price reductions. Orion believes that
customers will increase the data speeds in their communications networks to
support new applications, and that such upgrading of customer networks will lead
to increased revenues that will mitigate the effect of price reductions.
However, there can be no assurance that this will occur. In addition, a large
portion of satellite capacity globally is currently used for video distribution.
As an increasing portion of satellite capacity is used for providing private
network services, prices for these services may decline. Compressed digital
video ("CDV"), which substantially increases transmission capacity per channel,
is beginning to be used for video distribution. As CDV becomes more prevalent,
the supply of effective video capacity could increase significantly, which could
result in lower prices.
The Company is aware of a substantial number of new satellites that are in
construction or in the planning stages. Most of these satellites will cover
areas within the footprint of Orion 1 and/or the proposed footprints of Orion 2
and Orion 3. As these new satellites (other than replacement satellites not
significantly larger than the ones they replace) commence operations, they will
substantially increase the capacity available for the provision of services that
compete with the Company's services. After a satellite has been successfully
delivered in orbit, the variable cost of transmitting additional data via the
satellite is limited. Accordingly, absent a corresponding increase in demand,
this new capacity can be expected to result in significant additional price
reductions. Continued price reductions could have a material adverse effect on
Orion's ability to service its indebtedness and on the value of the Orion Newco
Common Stock. See "Information About Orion's Business -- Competition."
APPROVALS NEEDED; REGULATION OF INDUSTRY
Telecommunications Regulatory Policy. Orion is subject to the U.S.
Communications Act of 1934, as amended (the "Communications Act"), and
regulation by the FCC (and, to a limited extent, by the U.S. Department of
Commerce) and by the national and local governments of other countries. The FCC
regulates terms and conditions of communications services, including among other
things changes in control or assignment of licenses. The business prospects of
Orion could be adversely affected by the adoption of new laws, policies or
regulations, or changes in the interpretation or application of existing laws,
policies or regulations, that modify the present regulatory environment or
conditions of the licenses granted by the FCC to Orion.
Additional Regulatory Approvals Needed. The launch and operation of Orion 2
and Orion 3 will require a number of additional regulatory approvals, including
the following: (i) approvals of the FCC (in the case of Orion 2); (ii)
completion of successful consultations with INTELSAT and, in the case of Orion
2, with EUTELSAT; (iii) satellite "landing" rights in countries that are not
INTELSAT signatories or that require additional approvals to provide satellite
or VSAT services; and (iv) other regulatory approvals. Obtaining the necessary
licenses and approvals involves significant time and expense, and receipt of
such licenses and approvals cannot be assured. Although the FCC has
conditionally authorized the construction, launch and operation of Orion 2
(subject to completion of an INTELSAT consultation and required showing of
ability to finance the construction, launch and operation for one year of the
satellite, which requirements generally must be satisfied for final FCC
authorization of all FCC satellite licenses), and Orion will apply for certain
other approvals for Orion 2 and Orion 3, the FCC authorization for Orion 2 has
not become final (since Orion has not yet satisfied the conditions) and most of
the other requisite approvals have not yet been obtained. Failure to obtain such
approvals would have a material adverse effect on Orion and on its ability to
service its indebtedness and the value of the Orion Newco Common Stock. In
addition, Orion is required to obtain approvals from numerous national and local
authorities in the ordinary course of its business in connection with most
arrangements for the provision of services. Within Orion 1's footprint, such
approvals generally have not been difficult for Orion to obtain in a timely
manner, but the failure to obtain particular approvals has
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delayed, and in the future may delay, the provision of services by Orion. The
Orion 1 license from the FCC expires in January 2005. Although Orion has no
reason to believe that its licenses will not be renewed (or new licenses
obtained) at the expiration of the license term, there can be no assurance of
renewal. In addition, Orion will need to comply with the national laws of each
country in which itprovides services. Laws with respect to satellite services
are currently unclear in certain jurisdictions, particularly within the Orion 3
footprint. In certain of these jurisdictions, satellite services may only be
provided via domestic satellites. The Company believes that certain of these
restrictions may change and that it can structure its operations to comply with
the remaining restrictions. However, there can be no assurance in this regard.
See "Information About Orion's Business -- Regulation."
ITU Coordination Process. An international treaty to which the U.S. and the
Republic of the Marshall Islands (through which the Company has applied for the
Orion 3 orbital slot) are parties requires ITU coordination of satellite orbital
slots. Various non-U.S. governments or telecommunications authorities have
commenced coordination procedures pursuant to ITU regulations for proposed
satellites at orbital locations and in frequency bands that are in close
proximity to those proposed for Orion 2 and Orion 3. Existing satellites and any
proposed satellites that are launched prior to Orion 2 and Orion 3 will
effectively have priority over Orion's satellites. Orion's proposed use for
Orion 2 and Orion 3 conflicts to some extent with the use or proposed use of
certain existing or proposed satellites. While Orion believes that it can
successfully coordinate the use of the orbital locations and frequency bands
proposed for Orion 2 and Orion 3, there can be no assurance that coordination
will be achieved. The Company has commenced construction of Orion 3 and will
commence construction of Orion 2 promptly following completion of the Notes
Offering, which will be prior to completion of ITU coordination. There can be no
assurance that ITU coordination will be completed. In the event that successful
coordination cannot be achieved, Orion may have to modify the satellite design
for Orion 2 or Orion 3 in order to minimize the extent of any potential
interference with other proposed satellites using those orbital locations or
frequency bands. Any such modifications could increase the cost or delay the
launch of the satellites (if significant changes to the satellite are required)
and may result in limitations on the use of one or more transponders on Orion 2
or Orion 3, which could affect the amount of revenue realized from such
transponders. If interference occurs with satellites that are in close proximity
to Orion 2 or Orion 3, or with satellites that are subsequently launched into
locations in close proximity before completion of ITU coordination procedures,
such interference would have an adverse effect on the proposed use of the
satellites and on Orion's business and financial performance. Orion cannot
predict the extent of any adverse effect on Orion from any such occurrences. See
"Information About Orion's Business -- Orbital Slots."
UNCERTAINTIES RELATING TO BACKLOG
The Company's current backlog consists of a mix of large and small contracts
for private communications networks and transmission capacity for video and
other satellite transmission services with a variety of customers. Although many
of the Company's customers, especially customers under large and long-term
contracts, are large corporations with substantial financial resources, other
contracts are with companies that may be subject to business or financial risks
affecting their credit worthiness. If customers are unable or unwilling to make
required payments, the Company may be required to reduce its backlog figures
(which would result in a reduction in future revenues of the Company), and such
reductions could be substantial. In the second quarter of 1996, the Company
determined that one large customer under a long-term contract (accounting for
backlog of approximately $19.9 million) was not likely to raise the financing to
commence its service in the near future, and accordingly the Company no longer
considers such contract part of its backlog. Also in the second quarter of 1996,
the Company removed from its backlog a contract with a customer (accounting for
backlog of approximately $4.5 million) which had ceased paying for the Company's
services. In the fourth quarter of 1996, the Company removed $10.4 million from
its backlog related to contracts under which customers failed to use the
contracted service or failed to make timely payment. Orion presently anticipates
that at least $86.4 million of its $123 million in backlog (as of September 30,
1996, after pro forma adjustments for the Exchange) will be realized after 1997.
The Company's contracts commence and terminate on fixed dates. If the Company is
delayed in commencing service or does not provide the required service under
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any particular contract, as it has occasionally done in the past, it may not be
able to recognize all the revenue it initially includes in backlog under that
contract. In addition, the current backlog contains some contracts for the
useful life of Orion 1; if the useful life of Orion 1 is shorter than expected,
some portion of backlog may not be realized unless services satisfactory to the
customer can be provided over another satellite.
TECHNOLOGICAL CHANGES
Although Orion believes that Orion 1 does employ, and Orion 2 and Orion 3
will employ, advanced technologies, the telecommunications industry continues to
experience substantial technological changes. The Company believes that there
are numerous telecommunications companies that are seeking ways to improve the
data transmission capacity of the existing terrestrial infrastructure. There can
be no assurance that such changes will not adversely affect the prospects or
proposed operations or expenses of Orion.
RISKS OF CONDUCTING INTERNATIONAL BUSINESS
The Company's international service contracts are generally denominated in
U.S. dollars, but it is possible that the portion of contracts denominated in
non-U.S. currencies will increase over time. The vast majority of the Company's
costs (including interest and principal of the Notes, other indebtedness and the
costs for VSATs, Orion 2 and Orion 3) are denominated in U.S. dollars.
Accordingly, an increase in the value of U.S. dollars relative to other
currencies could have an adverse effect on the Company. International operations
are also subject to certain risks such as changes in domestic and foreign
government regulations and telecommunication standards, licensing requirements,
tariffs or taxes and other trade barriers and political and economic
instability.
DEPENDENCE OF ORION ON KEY PERSONNEL
Orion's business is dependent on its executive and other officers and other
key personnel. Orion presently does not have employment contracts with, or key
man life insurance covering, such key officers or other personnel. The loss of
key officers or personnel could have an adverse effect on Orion. See "Management
of Orion and Orion Newco."
RISKS RELATING TO CAPITAL STOCK
CONTROL OF ORION NEWCO BY PRINCIPAL STOCKHOLDERS
Executive officers, directors and their affiliates are expected to own
beneficially approximately 8.1 million shares or approximately 51% of the Orion
Newco voting stock that will be outstanding after the Transactions (12.0 million
shares or approximately 46%, of the Orion Newco voting stock that will be
outstanding after the Transactions on a fully diluted basis), assuming a closing
of the Transactions as of January 30, 1997. As a result of their stock ownership
and, in the case of stockholders with representation on the Board of Directors,
the incumbency of directors affiliated with them, such stockholders are and will
continue to be in a position to elect the Board of Directors and thereby control
the affairs and management of Orion Newco and Orion.
RISKS RELATING TO ORION SENIOR PREFERRED STOCK
The Company has outstanding approximately $15.8 million (including accrued
dividends) of Orion Series A Preferred Stock and approximately $4.7 million
(including accrued dividends) of Orion Series B Preferred Stock. Because the
rights of the holders of the Orion Newco Senior Preferred Stock, including
mandatory redemption rights, will be substantially identical to the rights of
the holders of the Orion Senior Preferred Stock, such rights similarly could
adversely affect Orion Newco or the rights of holders of the Orion Newco Common
Stock. Although Orion expects the holders of the Orion Senior Preferred Stock to
agree not to exercise any such mandatory redemption rights under the Orion Newco
Senior Preferred Stock while the Notes or the Debentures are outstanding, such
holders have the right to require Orion to
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repurchase the shares of Orion Common Stock received as a result of conversion
of the Orion Senior Preferred Stock upon, among other things, certain mergers,
changes of control or sales of substantially all the assets of Orion at the pro
rata interest of the holders of such stock in the consideration received or, in
the case of certain fundamental changes, fair market value; and, beginning in
June 1999, such holders have the right to require Orion to repurchase Orion
Senior Preferred Stock (and any Orion Common Stock received upon the conversion
thereof) at the fair market value (in the case of Orion Common Stock) or
liquidation value, including accrued and unpaid dividends (in the case of Orion
Senior Preferred Stock). In addition, the documents relating to the Orion Senior
Preferred Stock impose certain covenants on Orion, and failure to comply with
those covenants could have an adverse effect on Orion. See "Description of Orion
Newco Capital Stock -- Orion Newco Senior Preferred Stock."
LIMITATIONS ON DIVIDENDS ON ORION AND ORION NEWCO COMMON STOCK
Orion has never paid any cash dividends on its Orion Common Stock and does
not anticipate paying (or that Orion Newco would pay) cash dividends in the
foreseeable future. Orion is not permitted to pay cash dividends on the Orion
Common Stock as long as the Orion Senior Preferred Stock is outstanding, subject
to certain limited exceptions. The Notes Indentures and the agreements for the
Debenture Investments will effectively prohibit the payment of cash dividends on
the Orion Newco Common Stock for the foreseeable future. See "Price Range of
Orion Common Stock and Dividend Policy."
POTENTIAL ADVERSE EFFECT OF SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Merger and the Exchange, there will be approximately
25.9 million shares of Orion Newco Common Stock outstanding on a fully diluted
basis, assuming a closing of the Merger Transactions as of January 30, 1997.
Approximately 14.5 million of these shares will initially be held by the
Company's current stockholders and will be freely transferable without
restriction or further registration under the Securities Act, other than the 5.5
million shares held by "affiliates" of the Company, as that term is defined
under the Securities Act. The shares held by affiliates are expected to be
eligible for sale pursuant to Rule 144 under the Securities Act. The Exchanging
Partners, as owners of the Orion Newco Series C Preferred Stock, and British
Aerospace and Matra Marconi Space, as owners of the Debentures, will own the
remaining 11.4 million of such shares of Orion Newco Common Stock, which will be
issuable upon conversion of such securities. All of such remaining shares will
be deemed to be "restricted securities" as that term is defined in Rule 144.
However, the Exchanging Partners, British Aerospace and Matra Marconi Space will
be granted certain shelf, demand and "piggyback" registration rights with
respect to the Orion Newco Common Stock issuable to them upon conversion,
pursuant to which (in the case of the Exchanging Partners) the Company will be
required to prepare and cause to be filed, as soon as practicable after 180 days
following consummation of the Merger Transactions, a "shelf" registration
statement which will cover the registration of certain Eligible Registrable
Securities (as defined to include approximately 25% of the Orion Newco Common
Stock issuable to the Limited Partners upon conversion). The Company will also
be required to file certain additional shelf registration statements for the
Exchanging Partners so that they will continue to be able to sell, each quarter,
up to 25% of the Orion Newco Common Stock issuable to them upon conversion, on a
non-cumulative basis, and certain additional shelf registration statements for
British Aerospace and Matra Marconi Space. No predictions can be made as to the
effect, if any, that sales of Orion Newco Common Stock or the availability of
additional shares of Orion Newco Common Stock for sale by the Exchanging
Partners, British Aerospace or Matra Marconi Space would have on the market
price of such securities prevailing from time to time. Nevertheless, the
foregoing could adversely affect the market prices of the Orion Newco Common
Stock and the ability of Orion Newco to raise equity financing. See "Orion Newco
Shares Eligible for Future Sale."
ANTI-TAKEOVER AND OTHER PROVISIONS OF THE CERTIFICATE OF INCORPORATION
Orion's Certificate of Incorporation includes, and Orion Newco's Certificate
of Incorporation will include, provisions that may discourage or prevent certain
types of transactions involving an actual or potential change in control of
Orion or Orion Newco, respectively, including transactions
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in which the stockholders might otherwise receive a premium for their shares
over then current market prices. In addition, the Board of Directors has the
authority to fix the rights and preferences of and issue shares of preferred
stock, which may have the effect of delaying or preventing a change in control
of Orion or Orion Newco without action by the stockholders. The staggered terms
of the Company's Board of Directors could also discourage any potential
acquirer. The Certificates of Incorporation of Orion and Orion Newco also permit
the redemption of stock from stockholders where necessary to protect Orion's
regulatory licenses. Orion Newco's Certificate of Incorporation will be
substantially identical to Orion's Certificate of Incorporation. See
"Description of Orion Newco Capital Stock -- Certain Anti-takeover Effects." In
addition, any change of control of Orion or Orion Newco is subject to the prior
approval of the FCC. See "Information About Orion's Business -- Regulation --
Unauthorized Transfer of Control."
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THE SPECIAL MEETING
INTRODUCTION
This Proxy Statement/Prospectus is being furnished to the stockholders of
Orion Network Systems, Inc. in connection with the solicitation by the Board of
Directors of Orion of proxies for use at a special meeting of stockholders to be
held on Thursday, January 30, 1997 at 9:00 a.m., local time, at 2440 Research
Boulevard, Suite 400, Rockville, Maryland.
At the Special Meeting, stockholders will be asked to consider and vote upon
proposals (i) to ratify the Merger Agreement and the transactions contemplated
thereby, including the Merger, (ii) to approve and adopt the Exchange Agreement
and the transactions contemplated thereby, including the Exchange, and (iii) to
approve the Debenture Investments. See "The Merger, the Exchange and the
Debenture Investments." Except for procedural matters incident to the conduct of
the Special Meeting, Orion does not know of any matters other than those
described in the Notice of Special Meeting that are to come before the Special
Meeting.
VOTING RIGHTS AND RELATED MATTERS
The shares of Orion capital stock which may be voted at the Special Meeting
consist of shares of Orion Common Stock and shares of Orion Series A Preferred
Stock and Orion Series B Preferred Stock. Each share of Orion Common Stock
eligible to vote entitles its holder to one vote on all matters, each share of
Orion Series A Preferred Stock eligible to vote entitles its holder to 117 votes
on all matters (the number of votes per share determined by dividing the
liquidation preference of the Orion Series A Preferred Stock of $1,000 per share
by the conversion price of $8.50 per share of Orion Common Stock) and each share
of Orion Series B Preferred Stock eligible to vote entitles its holder to 98
votes on all matters (the number of votes per share determined by dividing the
liquidation preference of the Orion Series B Preferred Stock of $1,000 per share
by the conversion price of $10.20 per share of Orion Common Stock).
The close of business on December 23, 1996 has been fixed by the Board of
Directors as the record date for determination of stockholders entitled to
notice of, and to vote at, the Special Meeting. On the record date, 10,974,121
shares of Orion Common Stock were outstanding and eligible to be voted, 13,871
shares of Orion Series A Preferred Stock were outstanding and eligible to be
voted (representing an aggregate of 1,622,907 votes), and 4,298 shares of Orion
Series B Preferred Stock were outstanding and eligible to be voted (representing
an aggregate of 421,204 votes) at the Special Meeting. The foregoing share vote
calculations reflect adjustments arising from the 1-1.36 reverse stock split of
the Orion Common Stock effected in July 1995.
The holders of a majority of the votes of the shares of Orion capital stock
issued and outstanding and entitled to vote, present in person or represented by
proxy, treated as a single class, will be required to constitute a quorum at the
Special Meeting. Under Delaware law, abstentions and broker non-votes are
counted for purposes of determining a quorum.
VOTES REQUIRED
The affirmative vote of holders of a majority of votes of the shares of Orion
capital stock that are entitled to vote and that are present in person or
represented by proxy at the Special Meeting, treated as a single class, will be
required to approve each proposal to be considered at the Special Meeting. Orion
anticipates that all members of the Board of Directors and companies they
represent (who held, in the aggregate, approximately 38% of Orion's voting stock
as of September 30, 1996) will enter into written agreements to vote for each
such proposal.
Under Delaware law, abstentions, but not broker non-votes, are counted as
shares entitled to vote for purposes of determining whether a proposal has been
approved by the necessary number of votes. Abstentions on a proposal will have
the effect of a vote against such proposal.
The Merger will be effected in accordance with Section 251(g) of the Delaware
General Corpora-
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tion Law, which under certain circumstances permits a Delaware corporation (such
as Orion) to reorganize by merging with or intoa wholly owned subsidiary of a
holding company (such as Orion Newco) without the requirement that stockholders
of such Delaware corporation adopt and approve the Merger Agreement.
Accordingly, although the Merger Agreement and the transactions contemplated
thereby, including the Merger, are being submitted for ratification by Orion's
stockholders at the Special Meeting pursuant to contractual and other
requirements, no vote of Orion's stockholders adopting, approving or authorizing
the Merger Agreement and such transactions is required under Delaware law.
However, the Company does not intend to proceed with Merger without obtaining
stockholder ratification.
NO DISSENTERS' RIGHTS
Orion stockholders are not entitled under Delaware law to appraisal or
dissenters' rights in connection with the matters submitted by Orion for
stockholder ratification or approval at the Special Meeting.
PROXIES
A proxy may be revoked by any Orion stockholder who attends the Special
Meeting and gives notice of such stockholder's intention to vote in person
without compliance with any other formalities. In addition, any stockholder may
revoke a proxy at any time before it is voted by executing and delivering a
later dated proxy or by delivering a written notice to the Secretary of Orion
stating that the proxy is revoked. At the Special Meeting, stockholders' votes
cast, either in person or by proxy, will be tabulated by persons appointed by
the Board of Directors to act as inspectors of election.
The cost of soliciting proxies in the form enclosed herewith will be borne
entirely by Orion. In addition to the solicitation of proxies by mails, proxies
may be solicited by officers and directors and regular employees of Orion,
without additional remuneration, by personal interviews, telephone, telegraph or
otherwise. Orion may also utilize the services of its transfer agent, Fleet
National Bank, to provide broker search and proxy distribution services at an
estimated cost of $2,000. Copies of solicitation material may be furnished to
brokers, custodians, nominees and other fiduciaries for forwarding to beneficial
owners of shares of Orion Common Stock, and normal handling charges may be paid
for such forwarding service. All executed proxies received before the vote will
be voted in the manner indicated. EXECUTED BUT UNMARKED PROXIES WILL BE VOTED
FOR EACH OF THE PROPOSALS RELATING TO THE MERGER AGREEMENT, THE EXCHANGE
AGREEMENT AND THE DEBENTURE INVESTMENTS SUBMITTED TO THE STOCKHOLDERS AT THE
SPECIAL MEETING.
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THE MERGER, THE EXCHANGE AND THE DEBENTURE INVESTMENTS
The following discussion summarizes the material aspects of the Merger
Transactions, as set forth in the Merger Agreement and the Exchange Agreement,
and the Debenture Investments, as set forth in the Debenture Agreement. This
discussion is qualified in its entirety by reference to the full text of the
Merger Agreement, the Exchange Agreement and the Debenture Agreement, including
each of the exhibits thereto, the material provisions of which are described in
this Proxy Statement/Prospectus. Copies of the Merger Agreement and the Exchange
Agreement are attached hereto as Attachments A and B, respectively, and a copy
of the Debenture Agreement has been filed as an exhibit to the Registration
Statement of which this Proxy Statement/Prospectus is a part. See "Available
Information."
BACKGROUND OF THE MERGER TRANSACTIONS AND THE DEBENTURE INVESTMENTS
Orion's principal business is the provision of satellite communications for
private communications networks, Internet access and video distribution and
other satellite transmission services. From its inception in 1982 through
January 20, 1995, when Orion 1 commenced commercial operations, Orion was a
development stage enterprise. During this period, Orion's efforts were devoted
primarily to monitoring the construction, launch and in-orbit testing of Orion
1, product development, marketing and sales of interim private communication
network services, raising additional financing for such services, marketing of
capacity and planning Orion 2 and Orion 3 and refinancing of Orion 1. Subsequent
to the acceptance of Orion Atlantic's first satellite, Orion 1, in January 1995,
Orion's efforts have been primarily focused on building customer relationships,
marketing and sales of network and satellite services, as well as ongoing
planning for the future construction of Orion 2 and Orion 3 and refinancing of
Orion 1.
The Merger, the Exchange and the Debenture Investments arose out of Orion's
plans to refinance Orion Atlantic's existing debt and finance two additional
satellites, Orion 2 (with coverage of Europe, Russia, the eastern United States
and Latin America) and Orion 3 (with coverage of the Asia Pacific region). In
the fall of 1995, Orion Atlantic commenced but ultimately deferred a plan to
raise over $290 million of financing for Orion 2, plus $300 million of senior
secured notes to repay the existing Orion 1 Credit Facility payments, make
certain repayments to the Limited Partners and provide working capital (the
"1995 Financing"). After the decision was made to defer the 1995 Financing,
Orion's management team began the process of selecting and implementing
financing plans that would allow Orion to refinance Orion 1 and to construct,
launch and operate Orion 2 and Orion 3. The objectives of the refinancing would
be to eliminate the credit support obligations of the Limited Partners,
including Orion, under the Orion 1 Credit Facility and to enable the financing
of Orion 2 to proceed. Orion believed that this would improve Orion's short-term
and long-term growth prospects and maximize Orion's stockholders' equity value.
Based on the partnership structure of Orion Atlantic, management worked closely
with the Limited Partners to develop an acceptable financing plan.
On December 6, 1995, at a meeting of the Policy and Planning Review Committee
of Orion Atlantic, Salomon Brothers Inc ("Salomon Brothers") was asked to make a
presentation analyzing the 1995 Financing and recommending financing
alternatives available to Orion. Salomon Brothers was selected based on its
participation in the 1995 Financing and role as lead manager of Orion's initial
public offering, and its resulting familiarity with the business and financial
condition of Orion. Effective April 10, 1996, Salomon Brothers was engaged as
Orion's financial advisor in connection with the Exchange. Salomon Brothers
ultimately rendered an opinion to Orion regarding the fairness to Orion from a
financial point of view of the consideration to be paid by Orion in the
Exchange. See " Opinion of Orion's Financial Advisor" below.
Throughout the months of January and February 1996, management explored
alternative financing plans. On February 13, 1996, a management team met with
representatives of Salomon Brothers in New York City. At that meeting, Salomon
Brothers discussed, among other things, the possible mechanics of an exchange
for the Limited Partners' partnership interests, and the consideration that
would need to be provided to the Limited Partners. On February 23, 1996,
management drafted a memorandum that outlined the structural framework of the
financing plan that ultimately evolved into the Merger Transactions. In the
February 23 memorandum, management reiterated that the prospect of resurrecting
the 1995 Financing appeared doubtful. Members of Orion's Finance Committee
discussed the February 23, 1996 management memorandum by phone on February 27,
1996.
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During the month of March 1996, exploration of alternative financing plans
continued. On March 15, 1996, certain members of the Finance Committee discussed
the valuation of the consideration that would need to be provided to the Limited
Partners in exchange for their limited partnership interests in Orion Atlantic.
On March 19, 1996, at a meeting of Orion's Finance Committee, members discussed
the financing alternatives that would be available to Orion if the exchange of
the Limited Partners' partnership interests was not concluded. Based on these
discussions, the Finance Committee recommended that management pursue a
financing plan that involved an exchange of the Limited Partners' limited
partnership interests in Orion Atlantic for Orion stock. The Finance Committee
also requested management to prepare a valuation of Orion Atlantic that would be
submitted to the Board for approval.
Certain members of the Finance Committee conducted a telephone conference
call on March 25, 1996, to review progress made, and to analyze the relative
merits of the financing plans that had been explored. Participants agreed on the
importance of selecting a financing plan that would achieve an improved Orion
Atlantic corporate governance structure that allowed for quicker and more
flexible decision making. Participants further agreed that this corporate
governance structure could be achieved by fully exchanging Orion stock for the
Limited Partners' partnership interests.
In meetings held on April 9, 1996, management reported to the Finance
Committee that it was refining a financing plan that would eliminate the limited
partner guarantees and exchange securities of Orion for the Limited Partners'
limited partnership interests in Orion Atlantic. Discussions of the terms of the
proposed financing plan continued the next day. Discussions of the terms of the
proposed financing plan continued further at an April 17, 1996 meeting of the
Finance Committee.
In an April 18, 1996 memorandum, management provided the Limited Partners
with a status report on the new financing plan. Management, in the memorandum,
expressed its belief that the new financing plan would satisfy Orion's criteria
for a financing plan, refinancing Orion 1 and financing the construction and
launch of Orion 2.
A meeting of the Finance Committee was held on May 2, 1996, to discuss the
new financing plan. Management presented a document summarizing the basic terms
and conditions of the security proposed to be issued to the Limited Partners in
exchange for their limited partnership interests in Orion Atlantic. Based upon
the meeting, the Finance Committee unanimously approved making a proposal to the
Limited Partners to exchange their interests in Orion Atlantic for securities of
Orion pursuant to the term sheet.
On May 3, 1996, management sent the Limited Partners a memorandum containing
details of the proposed financing plan. In the May 3, 1996 memorandum,
management outlined the terms of the Exchange. As detailed in the memorandum,
management informed the Limited Partners that they had been working to select a
financing strategy that would allow for the refinancing of the Orion 1 Credit
Facility and finance the construction and launch of Orion 2. Management informed
the Limited Partners that they had (based on management's evaluation) selected a
financing plan. The management plan had a number of elements. Initially, in
order to simplify the structure of Orion Atlantic, the Limited Partners' limited
partnership interests in Orion Atlantic and certain obligations owed to the
Limited Partners by Orion Atlantic would be exchanged for a convertible
preferred security of Orion. The security would be convertible into Orion's
common stock. In connection with the exchange, Orion would secure additional
capital by conducting a convertible debt offering. The simplified Orion Atlantic
structure would enhance the marketability of Orion's convertible debt offering.
Proceeds of the convertible debt offering would be used to fund an initial down
payment for the construction and launch of Orion 2 and a portion of the initial
down payment for the construction and launch of Orion 3. Based upon prior
discussions with British Aerospace through its representative on the Orion Board
of Directors and Finance Committee, Orion proposed that $50 million of the
convertible debt offering be purchased by British Aerospace. Vendor financing
would supplement the convertible debt offering proceeds, and go towards meeting
the capital needed to construct and launch Orion 2 (and, if possible, Orion 3).
Concurrently with the convertible debt offering and the arrangement of vendor
financing, Orion would conduct a bond offering designed to raise enough capital
to refinance the Orion 1 Credit Facility, and provide for working capital.
In response to a request by certain Limited Partners, the plan was further
refined. In particular, the Company asked Ernst & Young LLP to review the plan
from a tax perspective and determine whether
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a transaction could be structured that would provide the Limited Partners with
non-recognition treatment (in whole or in part) in connection with an exchange
of their interests in Orion Atlantic for stock. After reviewing management's
plan, Ernst & Young LLP advised management that the structure described herein
would provide (i) the Exchanging Partners with the opportunity to qualify for
nonrecognition treatment under Section 351 of the Code and (ii) the Orion
stockholders with similar nonrecognition treatment under either Section 351 or
Sections 354 and 368(a) of the Code, subject to certain exceptions summarized
below, and provided certain requirements are satisfied. See "Certain Federal
Income Tax Consequences" below.
Following distribution of the May 3, 1996 memorandum detailing the Merger
Transactions to the Limited Partners, management and Orion's counsel proceeded
to negotiate the definitive documentation relating to the Merger Transactions.
On May 20, 1996, counsel to Orion and the Limited Partners met for a negotiation
session, and negotiations continued through approximately the end of June 1996.
The terms of the Merger Transactions, including the exchange ratio, were
determined as a result of arm's- length negotiations between Orion and its
advisors and the Limited Partners and their advisors. One of the conditions to
the Merger Transactions was the purchase of $50 million of the convertible debt
offering by British Aerospace, and British Aerospace expressed its intent to
make such purchase, on the same terms as the portion of the convertible debt
offering to be offered to the public.
During late June and early July 1996, each of the Exchanging Partners (but
not Orion) executed copies of the Exchange Agreement and various exhibits
thereto. The executed counterparts were placed into escrow to be delivered to
Orion, OrionSat or Orion Newco on the date of the Exchange.
During late June and July 1996, Orion worked with its financial advisor,
Salomon Brothers, regarding possible bond and convertible note financings.
Salomon Brothers informed Orion during July that the zero coupon high yield bond
market in the communications sector was experiencing a general downturn and that
it would not be advantageous to seek to raise the financing at that time. Based
on this advice, the Board decided to defer the bond and convertible note
offerings and the Exchange until the market for high yield bonds in the
communications sector had improved sufficiently to allow Orion to raise the
capital it desired.
Between July 1996 and November 1996, Orion management consulted several
investment banks to explore a variety of alternative financing methods and
potential transactions. In November 1996, Orion selected prospective
underwriters for the proposed Notes Offering, and commenced preparations for the
Notes Offering.
Salomon Brothers rendered to the Board of Directors of Orion, at a Board
meeting, its opinion dated December 10, 1996 that, based upon and subject to the
various considerations set forth in the opinion, as of December 10, 1996, the
consideration to be paid by Orion in connection with the Exchange is fair from a
financial point of view to Orion. Management confirmed its view that the Merger
Transactions are in the best interests of Orion and its stockholders. Orion's
Board of Directors, on December 10, 1996, after careful deliberation (with W.
Anthony Rice, a representative of British Aerospace, recusing himself),
unanimously approved the Exchange and the Exchange Agreement (which includes
effecting the Merger). Salomon Brothers delivered its fairness opinion later
that day.
In December 1996 and January 1997 Orion and the Exchanging Partners conducted
negotiations concerning certain changes to the Exchange Agreement, which were
ultimately agreed upon in the First Amendment to the Exchange Agreement. Such
changes included agreement by the Exchanging Partners to an extension of the
termination date for the Exchange Agreement to April 30, 1997, agreement for the
cash refund of payments made by the Exchanging Partners after January 29, 1997
under the Orion 1 Credit Facility Support (to the extent Orion Newco has
sufficient funds to make such refund after payment of various agreed items), and
substitution of the Debenture Investments for the previously proposed public
offering of convertible debt securities.
Also in December 1996, Orion and British Aerospace commenced negotiations
concerning the terms of the Debenture Investments. Matra Marconi Space agreed to
make the Matra Marconi Investment of $10 million on the same terms as the
British Aerospace Investment. Orion's Board of Directors, on January 3, 1997 and
again on January 8, 1997, (with W. Anthony Rice, a representative of British
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Aerospace, recusing himself), unanimously approved the Debenture Investments.
Effective as of January 13, 1997, Orion and British Aerospace and Matra Marconi
Space executed the Debenture Agreement.
REASONS FOR THE MERGER TRANSACTIONS AND THE DEBENTURE INVESTMENTS
Orion believes that the Merger Transactions will simplify Orion's
organizational structure and improve its access to the capital markets. The
Transactions will consolidate outside investor ownership at the holding company
level, Orion Newco, and leave Orion Newco with 100% ownership of all of its
material subsidiaries, including Orion Atlantic. This will promote a streamlined
corporate governance structure that will facilitate improved, quicker decision
making. By eliminating minority interests in the Orion subsidiaries that hold
satellite assets, Orion Newco will be able to pursue independently its business
plans and financings for all of its satellites. The Transactions will further
simplify Orion's structure by eliminating (in exchange for Orion Newco stock)
the obligations Orion Atlantic owes to the Exchanging Partners. As of September
30, 1996, such obligations aggregated approximately $37.5 million. Finally, the
increase in outstanding securities as a result of the Merger Transactions is
expected to increase Orion's overall market capitalization, which Orion believes
will also improve its access to the capital markets.
Orion's principal reason for the issuance of $50 million of Debentures to
British Aerospace is to raise additional capital for initial payments with
respect to Orion 2, of which approximately $49.4 million of payments are due
under the Orion 2 Satellite Contract during 1997. The sale of $10 million of
Debentures to Matra Marconi Space will involve a re-investment by Matra Marconi
Space of $10 million of the $13 million of satellite incentive payments Matra
Marconi Space will receive as the Orion 1 manufacturer upon consummation of the
Notes Offering. The consummation of the Debenture Investments is a condition to
the Exchange.
Access to the capital markets is necessary for Orion to achieve its business
plan to construct and launch two additional satellites, Orion 2 (with coverage
of Europe, Russia, the eastern United States and Latin America) and Orion 3
(with coverage of the Asia Pacific region). With this plan in mind, Orion and
Orion Newco have been pursuing and will continue to pursue the following
transactions:
(i) Notes Offering: the Notes Offering in the amount of approximately $347
million with expected gross proceeds of approximately $275 million, excluding
approximately $72 million of overfunding of interest due on such notes (although
the amount of such Notes Offering could be smaller or larger, depending upon
market conditions). The principal purpose of the Notes Offering is to refinance
the Orion 1 Credit Facility and release the existing commitments of the Limited
Partners and their affiliates under the Orion 1 Credit Facility Support. Such
release is a condition to the Exchange.
(ii) Orion 2 Construction Contract: the Orion 2 Satellite Contract with Matra
Marconi Space, under which the manufacturer is to proceed with construction
based upon initial payments of $25 million and further payments through December
1997 limited to approximately $25 million. Orion expects to commence the
construction of Orion 2 immediately following completion of the Notes Offering.
(iii) Orion 3 Construction Contract: the Orion 3 Satellite Contract with
Hughes Space, under which the manufacturer is to proceed with construction based
upon initial payments through January 31, 1997 of approximately $15 million,
with further payments through March 31, 1998 being limited to $35 million,
payable in approximately equal quarterly installments. The majority of the
amounts due under the contract are payable in the second and third quarters of
1998. Orion commenced construction of Orion 3 in mid-December 1996 under an
authorization to proceed, and expects to enter into a definitive satellite
contract in January 1997.
As discussed above under the caption "Background of the Merger Transactions
and the Debenture Investments," Orion believes that it would not be able to
complete these financings in the absence of the Merger, the Exchange and the
Debenture Investments. Orion believes that the construction and launch of Orion
2 and Orion 3 will offer stockholders an opportunity to realize long-term value
through the potential appreciation in the value of Orion's stock (as converted
into Orion Newco stock) due to the increased revenues anticipated to result from
the operation of Orion 2 and Orion 3.
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Even if stockholders ratify or approve the Merger Transactions and the
Debenture Investments, and the other conditions to the Merger Transactions and
the Debenture Investments are satisfied, the Orion Board of Directors reserves
the right, based on its consideration of market conditions and such other
factors as it considers appropriate, to cause Orion not to consummate the Merger
Transactions and the Debenture Investments if it determines the Merger
Transactions and the Debenture Investments are no longer in the best interests
of Orion stockholders.
THE MERGER AGREEMENT
TERMS OF THE MERGER AGREEMENT
Effective as of January 8, 1997, Orion, Orion Newco and Orion Merger
Subsidiary entered into the Merger Agreement, pursuant to which Orion Merger
Subsidiary will be merged with and into Orion, and Orion will become a wholly
owned subsidiary of Orion Newco. At the Effective Time of the Merger (as defined
below), each outstanding share of Orion Common Stock and each share of Orion
Series A Preferred Stock and Orion Series B Preferred Stock will be converted,
without any action on the part of the holder thereof, into the right to receive
one share of Orion Newco Common Stock, Orion Newco Series A Preferred Stock and
Orion Newco Series B Preferred Stock, respectively. It is expected that
approximately 10,974,121 shares of Orion Newco Common Stock, 13,871 shares of
Orion Newco Series A Preferred Stock and 4,298 shares of Orion Newco Series B
Preferred Stock will be issued to the stockholders of Orion in the Merger in
exchange for their shares of Orion Common Stock, Orion Series A Preferred Stock
and Orion Series B Preferred Stock, respectively. Such shares of Orion Newco
Series A Preferred Stock and Orion Newco Series B Preferred Stock will be
convertible as of the issuance date into an aggregate of approximately 2,053,255
shares of Orion Newco Common Stock, or approximately 7.9% of the shares of Orion
Newco Common Stock outstanding on a fully diluted basis, assuming a closing of
the Merger as of January 30, 1997.
The Merger will become effective upon the filing of the Delaware Merger
Certificate (as such term is used in the Merger Agreement) with the Delaware
Secretary of State, which is expected to occur following ratification or
approval of the Merger Transactions and the Debenture Investments by the
requisite vote of the Orion stockholders, and satisfaction or waiver of the
other conditions set forth in the Merger Agreement and the Exchange Agreement
(the "Effective Time of the Merger").
The Merger Agreement provides that Orion Merger Subsidiary will be merged
with and into Orion, and that Orion will be the surviving corporation and will
become a wholly owned subsidiary of Orion Newco. Following the Merger, the
separate existence of Orion Merger Subsidiary will cease. Effective upon
consummation of the Merger, Orion will change its name to Orion Oldco Services,
Inc. and, as soon as practicable thereafter, Orion Newco will change its name to
Orion Network Systems, Inc. The Merger Agreement also provides that the
Certificate of Incorporation and Bylaws of Orion in effect immediately prior to
the Effective Time of the Merger will be the Certificate of Incorporation (with
certain amendments) and Bylaws of the surviving corporation. The officers and
directors of the surviving corporation will consist of the current officers and
directors of Orion. See "Management of Orion and Orion Newco."
At the Effective Time of the Merger, all outstanding stock options, including
those under Orion's 1987 Stock Option Plan and Non-Employee Director Stock
Option Plan (the "Orion Options"), will be assumed by Orion Newco to the fullest
extent permitted by applicable law (such assumed options being referred to
herein as "Orion Newco Assumed Options"). Each Orion Newco Assumed Option will
be subject to the same terms and conditions that were applicable under the
related Orion Option immediately prior to the Effective Time of the Merger.
Orion and Orion Newco have agreed to take all corporate and other actions
necessary to effectuate the assumption of the Orion Options, and Orion has
agreed to use its best efforts prior to the closing of the Merger to obtain any
consents from the holders of Orion Options that may be necessary to effectuate
such assumption, if required by the terms of the Orion Options. Orion Newco also
has agreed to take all corporate and other actions necessary to reserve and make
available sufficient shares of Orion Newco Common Stock for issuance upon
exercise of the Orion Newco Assumed Options.
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At the Effective Time of the Merger, Orion Newco will, to the fullest extent
permitted by applicable law, assume all of Orion's obligations with respect to
each outstanding warrant or other right to purchase shares of Orion Common Stock
upon the same terms and conditions that were applicable under such warrant
immediately prior to the Effective Time of the Merger.
For more information on the specific terms of the Merger Agreement,
stockholders are referred to the full text of the Merger Agreement attached to
this Proxy Statement/Prospectus as Attachment A.
NO EXCHANGE OF CERTIFICATES
At the Effective Time of the Merger, by virtue of the Merger and without any
action on the part of Orion, Orion Merger Subsidiary, Orion Newco, Orion
stockholders or any other person, the shares of Orion Newco capital stock, which
the shares of Orion stock respectively will have been converted into the right
to receive, will be represented and evidenced by the same stock certificates
that previously represented and evidenced the Orion capital stock.
CONDITIONS TO OBLIGATIONS TO EFFECT THE MERGER
The respective obligations of each party to the Merger Agreement to effect
the Merger are subject to the satisfaction of the following conditions at or
prior to the closing of the Merger:
(i) the ratification of the Merger Agreement and the transactions
contemplated thereby by the requisite affirmative vote of the holders of the
Orion capital stock and the approval of the Merger Agreement and the
transactions contemplated thereby by the requisite affirmative vote of the
holder of the outstanding Orion Newco Common Stock and the holder of the
outstanding Orion Merger Subsidiary common stock;
(ii) the receipt of all authorizations, consents, orders or approvals of, or
making of all filings with, any Governmental Entity (as such term is used in the
Merger Agreement) necessary for consummation of the Merger;
(iii) the effectiveness of the Registration Statement under the Securities
Act and the absence of any stop order with respect to the Registration Statement
and of any proceedings commenced or threatened by the Commission with respect to
this Proxy Statement/Prospectus;
(iv) the absence of any temporary restraining order, preliminary or permanent
injunction or other order issued by any court of competent jurisdiction or other
legal restraint or prohibition preventing consummation of the Merger;
(v) the absence of any statute, rule or regulation enacted by any
Governmental Entity that would make consummation of the Merger illegal;
(vi) the receipt of an opinion from Ernst & Young LLP, tax advisor to Orion,
and a determination by the Board of Directors of Orion to the effect that Orion
stockholders do not recognize gain or loss for United States federal income tax
purposes;
(vii) the continued accuracy of the representations and warranties made by
each party in the Merger Agreement; and
(viii) the consummation of the Exchange concurrently with the Merger.
AMENDMENT AND TERMINATION
The Merger Agreement may be amended by Orion, Orion Newco and Orion Merger
Subsidiary at any time before or after ratification or approval of the Merger by
the stockholders of such companies, but after any such stockholder ratification
or approval, no amendment may be made which under Section 251(d) of the Delaware
General Corporation Law would require the approval (or further approval) of
stockholders without obtaining such stockholder approval.
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The Merger Agreement may be terminated at any time prior to the Effective
Time of the Merger, whether before or after ratification or approval, as the
case may be, of the Merger Agreement and related matters by the stockholders of
Orion, Orion Newco and Orion Merger Subsidiary (i) by mutual consent of all of
the parties or (ii) by any party, if any required approval of the stockholders
of Orion, Orion Newco or Orion Merger Subsidiary has not been obtained by April
30, 1997.
ACCOUNTING TREATMENT
The Merger will be accounted for as a reorganization of entities under common
control. As a result, the assets and liabilities transferred pursuant to the
Merger will be accounted for at a historical cost in a manner similar to a
pooling of interests.
THE EXCHANGE AGREEMENT
PARTIES
The Exchange Agreement was entered into by Orion, OrionSat, Orion Atlantic
and the Exchanging Partners effective as of June 1996.
ORION. Orion is a Delaware corporation, the 100% owner of OrionSat, a limited
partner of Orion Atlantic with a 16.66% equity interest, and the holding company
of other subsidiaries, including OrionNet, Inc. Orion owns and operates one of
the first privately owned international satellite communications networks as
well as video distribution and other satellite transmission services. Since its
founding in 1982, Orion's efforts have been focused on the design, construction
and implementation of a global satellite communications system that meets the
expanding telecommunications needs of a multinational business. The consolidated
financial statements of Orion include the financial results of Orion Atlantic
because of OrionSat's control of Orion Atlantic as its sole general partner. See
"Selected Consolidated Financial and Operational Data of Orion."
ORIONSAT. OrionSat is a wholly owned subsidiary of Orion and is the sole
general partner of Orion Atlantic with a 25% equity interest.
ORION ATLANTIC. Orion Atlantic, a Delaware limited partnership, owns and
operates the Orion 1 communications satellite. In 1991, Orion and seven of the
world's leading telecommunications and aerospace systems companies formed Orion
Atlantic to finance the construction, launch and operation of two communication
satellites, and to operate a multinational sales and services organization.
EXCHANGING PARTNERS. The Exchanging Partners are British Aerospace
Communications, Inc. ("BAe"), COM DEV Satellite Communications Limited ("COM
DEV"), Kingston Communications International Limited ("Kingston"), Lockheed
Martin Commercial Launch Services, Inc. ("Lockheed Martin CLS"), MCN Sat US,
Inc. ("Matra"), and Trans-Atlantic Satellite, Inc ("Nissho").
The following sets forth certain information regarding each of the Exchanging
Partners:
BAe is a subsidiary of British Aerospace Public Limited Company (collectively
with its affiliates, "British Aerospace"), which is Europe's leading defense and
aerospace company and one of the leading companies in the world defense and
aerospace market.
COM DEV is a subsidiary of COM DEV, Limited. COM DEV, Limited is also a
supplier of value-added satellite communications services, products for wireless
personal communications and satellite remote sensing data.
Kingston is a subsidiary of Kingston Communications (Hull) plc, the only
municipally-owned telephone company in the United Kingdom. Kingston Satellite
Services, a joint venture to which Kingston is a party, serves as sales
representative and ground operator for Orion Atlantic in the United Kingdom.
Lockheed Martin CLS was formerly named Martin Marietta Commercial Launch
Services, Inc. Lockheed Martin CLS is a subsidiary of Martin Marietta
Technologies, Inc., a Lockheed Martin company. Lockheed Martin CLS acquired the
assets of General Dynamics Commercial Launch Services
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through a transfer of assets from Martin Marietta Corporation, which in turn
acquired these and other assets (including the Atlas family of launch vehicles)
from General Dynamics Corporation in 1994. Lockheed Martin CLS is a commercial
launch services provider and provided launch services to Orion Atlantic as the
launch subcontractor. Lockheed Martin CLS became an Exchanging Partner by
acquiring the limited partnership interest of General Dynamics CLS in the 1994
transaction described above.
Matra is a subsidiary of Matra Hachette ("Matra Hachette"), an aerospace,
defense, industrial and media company and part of the Lagardere Group of France.
Matra Hachette is a sales representative and ground operator for Orion Atlantic
in France. Matra Hachette is one of the parent companies of Matra Marconi Space,
which is the present parent company of MMS Space Systems, the prime contractor
for Orion 1, and is the manufacturer under the Orion 2 Satellite Contract.
Nissho is a subsidiary of Nissho Iwai Corporation, a trading company based in
Japan.
STRUCTURE OF THE EXCHANGE
ORION NEWCO FORMATION. Under the Exchange Agreement, the parties to the
Exchange Agreement agreed that Orion would form a new Delaware corporation to be
named Orion Newco Services, Inc. which is substantially identical in all
material respects to Orion. In particular, Orion Newco would have a certificate
of incorporation, bylaws and capital structure substantially identical in all
material respects to those of Orion. Orion became the initial stockholder of
Orion Newco and owns all shares of Orion Newco Common Stock. Pursuant to the
terms of the Exchange Agreement, Orion will take steps necessary to make the
management of Orion Newco identical to the management of Orion. Subject to and
effective upon the consummation of the Merger, the Orion Newco board of
directors will consist of the ten current Orion directors and Orion Newco will
change its name to Orion Network Systems, Inc. The Orion Newco management team
will consist of the current Orion management team. Pursuant to the Exchange
Agreement, Orion will take the steps necessary to adopt, authorize, execute and
file (i) a Certificate of Designations, Rights and Preferences of Series A 8%
Cumulative Redeemable Convertible Preferred Stock of Orion Newco substantially
identical in all material respects to the Orion Series A Preferred Stock and
(ii) a Certificate of Designations, Rights and Preferences of Series B 8%
Cumulative Redeemable Convertible Preferred Stock of Orion Newco substantially
identical in all material respects to the Orion Series B Preferred Stock.
ORION NEWCO SERIES C PREFERRED STOCK. Under the Exchange Agreement, the
parties agreed that Orion Newco would adopt, authorize, execute and file a
Certificate of Designations, Rights and Preferences of Series C 6% Cumulative
Redeemable Convertible Preferred Stock establishing the terms and relative
rights of preferences of the Orion Newco Series C Preferred Stock. Assuming that
the Exchange closes as of January 30, 1997, 121,988 shares of the Orion Newco
Series C Preferred Stock would be issued to the Exchanging Partners. If the
Exchange closes after January 30, 1997, Orion Newco will be obligated to make
certain cash refunds of payments made by the Exchanging Partners after that date
under various agreements; if Orion Newco does not have sufficient cash to make
such refunds, the refunds will be made in shares of Orion Newco Series C
Preferred Stock, and the number of shares issued in the Exchange will increase.
See "Closing After January 30, 1997" below. The number of shares of Orion Newco
Series C Preferred Stock to be issued to the respective Exchanging Partners,
pursuant to the Exchange Agreement, will be adjusted proportionately to reflect
any subdivision, stock split, stock dividend, recapitalization, combination or
reverse stock split of Orion capital stock or similar transaction by Orion
between the date of the Exchange Agreement and the consummation of the Exchange.
The Exchanging Partners have agreed to transfer their limited partnership
interests in Orion Atlantic, other rights relating thereto and amounts owed to
them by Orion Atlantic aggregating approximately $37.5 million at September 30,
1996 to Orion in exchange for such shares of the Orion Newco Series C Preferred
Stock.
AGREEMENT TO THE MERGER. In the Exchange Agreement, the parties agreed that
Orion Newco would form a new Delaware corporation to be named Orion Merger
Subsidiary, Inc., and that Orion Newco would be the sole stockholder of Orion
Merger Subsidiary. Further, the parties agreed pursuant to the Exchange
Agreement that Orion Merger Subsidiary would be merged with and into Orion in a
merger in which Orion would be the surviving company and all the assets, rights,
property, liabilities and obligations of Orion
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Merger Subsidiary and Orion would be vested in Orion as the surviving company.
Pursuant to Exchange Agreement, Orion agreed to cause all necessary documents to
effect the Merger to be prepared.
RESULTS OF THE EXCHANGE. As a result of the Exchange, the consolidated Orion
group will become the owner of all the partnership interests in Orion Atlantic
(through Orion Newco and Orion as the sole limited partners and OrionSat as the
sole general partner of Orion Atlantic). In addition, Orion Newco will receive
the following rights currently held by the Exchanging Partners with respect to
Orion Atlantic: (i) all of the Exchanging Partners' rights and obligations
under the Second Amended and Restated Partnership Agreement of International
Private Satellite Partners, L.P., as amended and restated simultaneously with
the Exchange (the "Partnership Agreement"), including particularly all of their
rights to receive distributions and allocations thereunder, but also all other
rights they may have as limited partners of Orion Atlantic under applicable law;
(ii) all of the rights and obligations held by certain of the Exchanging
Partners under the Refund Agreement, dated December 31, 1994, among Orion
Atlantic, OrionSat, Orion and the certain of the Exchanging Partners (the
"Refund Agreement"), consisting primarily of rights by such Exchanging Partners
to receive an aggregate of $26.7 million of refunds thereunder; (iii) all of the
rights of COM DEV, Kingston, Lockheed Martin CLS and Matra under the Preferred
Participating Unit Agreements, dated as of October 7, 1993, among Orion
Atlantic, OrionSat, and each of Orion, COM DEV, Kingston, Lockheed Martin CLS
and Matra (the "PPU Agreement"), consisting primarily of rights to receive
repayment of $6.6 million advanced thereunder and $4.3 million of interest
accrued on such advances; (iv) all of the Exchanging Partners' rights under the
Preferred Bidders Agreement, effective as of December, 20, 1991, among Orion
Atlantic, OrionSat, Orion and the Exchanging Partners (the "Preferred Bidders
Agreement"), consisting of preferred bidder status with respect to procurement
contracts entered into by Orion Atlantic; and (v) certain of the Exchanging
Partners' rights under other agreements between or among Orion Atlantic and its
Limited Partners, which Orion believes are not material to Orion but the
acquisition of which will result in termination of contractual obligations that
may impose procedural or other burdens on Orion Atlantic.
As a result of the Exchange, Orion Newco will transfer to the Exchanging
Partners the following numbers of shares of Orion Newco Series C Preferred
Stock, assuming a closing as of January 30, 1997 (in each case, which numbers of
shares will be increased pursuant to a formula based upon payments by the
Exchanging Partners under various agreements if the closing occurs after January
30, 1997, except to the extent that such payments are refunded in cash):
EXCHANGING PARTNERS NUMBER OF SHARES
------------------- ----------------
BAe ................ 50,129
COM DEV ............ 9,462
Kingston ........... 11,198
Lockheed Martin
CLS................. 19,534
Matra .............. 17,727
Nissho.............. 13,938
The terms of the Orion Newco Series C Preferred Stock are described below
under "Description of the Orion Newco Series C Preferred Stock."
CONDITIONS TO THE EXCHANGE
Orion and the Exchanging Partners. Occurrence of the Exchange is subject,
among other things, to satisfaction or waiver by Orion and the Exchanging
Partners of the following conditions:
(i) Orion Newco, Orion Atlantic, Orion and OrionSat shall have completed the
Orion 1 Credit Facility Refinancing. See "The Related Transactions -- The Notes
Offering/Orion 1 Credit Facility Refinancing."
(ii) Orion Newco, Orion Atlantic, Orion, OrionSat and the Exchanging Partners
shall have caused the termination (the "Bank Agreement Termination"), which is
expected to occur concurrently with the completion of the Orion 1 Credit
Facility Refinancing, of all agreements between or among the Banks and Chase, on
the one hand, and one or more of Orion Newco, Orion Atlantic, OrionSat, Orion
and the
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Exchanging Partners and/or their affiliates on the other hand, relating to the
Orion 1 Credit Facility or the security or credit support thereof. See "The
Related Transactions -- The Notes Offering/Orion 1 Credit Facility Refinancing."
(iii) Orion Newco, Orion Atlantic, Orion, OrionSat and the Exchanging
Partners shall have caused the termination (the "Capacity Agreement
Termination"), which is expected to occur concurrently with the completion of
the Orion 1 Credit Facility Refinancing and the Bank Agreement Termination, of
all support obligations with respect to the Orion 1 Credit Facility. See "The
Related Transactions -- The Notes Offering/Orion 1 Credit Facility Refinancing."
(iv) The Option Agreement, dated December 10, 1996, between Orion Atlantic
and Matra Marconi Space shall be in full force and effect, Orion Atlantic shall
not be in default thereunder and Orion Atlantic shall have made all payments
required to be made thereunder through the earlier of the closing date of the
Exchange and March 31, 1997, and the Restated Amendment #10, dated December 10,
1996, to the Orion 1 Satellite Contract shall be in full force and effect and
Orion Atlantic shall not be in default thereunder. See "Information About
Orion's Business -- Implementation of the Orion Satellite System -- Orion 2."
(v) Consents needed for the Exchange shall have been obtained. See
"Approvals" below.
(vi) Orion Newco shall be incorporated with a certificate of incorporation,
bylaws, capital structure and management substantially identical in all material
respects to those of Orion.
(vii) The Merger shall have occurred, or be occurring concurrently with, the
Exchange.
(viii) The Exchanging Partners shall have received an opinion from Ernst &
Young LLP, tax advisor to Orion, in form and substance reasonably satisfactory
to the Exchanging Partners, to the effect that the Merger and the Exchange,
taken together, will be a tax-free exchange described in Code Section 351(a).
Lockheed Martin CLS. In addition to the conditions noted above under the
caption "Orion and the Exchanging Partners," Lockheed Martin CLS's obligations
under the Exchange Agreement are conditioned upon the satisfaction or waiver by
Lockheed Martin CLS of the condition that Lockheed Martin CLS and Matra Marconi
Space enter into a subcontract to the Orion 2 Satellite Contract relating to the
launch of Orion 2. See "Information About Orion's Business -- Implementation of
the Orion Satellite System -- Orion 2."
Orion Parties. In addition to the conditions noted above under "Orion and the
Exchanging Partners," the Orion parties' obligations under the Exchange
Agreement are conditioned upon the following:
(i) The approval of the stockholders of Orion of the Merger Agreement and the
Exchange Agreement shall have been obtained.
(ii) The Partnership Agreement shall have been amended and restated as of the
date of the Exchange.
(iii) Orion Newco shall have raised approximately $60 million from the
Debenture Investments.
The Orion 1 Credit Facility Refinancing, Bank Agreement Termination and
Capacity Agreement Termination are dependent on successful completion of the
Notes Offering, which in turn depends upon market conditions and other factors,
and there can be no assurance that the Notes Offering will occur. Orion believes
that the conditions relating to the Orion 2 Satellite Contract and other
arrangements with Matra Marconi Space have been satisfied, that the conditions
relating to the Lockheed Martin CLS subcontract have been satisfied or waived,
that the Partnership Agreement amendment has been obtained, that binding
commitments to make the Debenture Investments have been entered into, that
consents needed for the Exchange have been or will be obtained, that the Orion
Newco formation conditions have been satisfied, that the Merger will occur
concurrently with the Exchange if ratified by Orion stockholders at the Special
Meeting and that all required opinions from Ernst & Young LLP, tax advisor to
Orion, have been or will be obtained.
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CERTAIN PROVISIONS OF THE EXCHANGE AGREEMENT
The Exchange Agreement contains a number of representations, warranties and
indemnities by Orion and the Exchanging Partners.
o Representations and Warranties. Among other things, each of the Exchanging
Partners has severally represented and warranted to Orion that: (i) such
Exchanging Partner is, and on the date of the Exchange will be, the lawful owner
of the limited partnership interest in Orion Atlantic of such Exchanging
Partner, (ii) such Exchanging Partner has full right and lawful authority to
transfer the limited partnership interest in Orion Atlantic of such Exchanging
Partner pursuant to the Exchange Agreement, (iii) the Exchange Agreement
constitutes a valid and binding obligation of such Exchanging Partner,
enforceable in accordance with its terms, (iv) on the date of the Exchange,
Orion will acquire good, valid and marketable title to such Exchanging Partner's
limited partnership interests in Orion Atlantic, (v) such Exchanging Partner is
an "accredited investor" within the meaning of Rule 501 under the Securities
Act, (vi) the Orion Newco Series C Preferred Stock being acquired by such
Exchanging Partner pursuant to the Exchange Agreement is for its own account,
for investment and not with a view toward distribution within the meaning of the
Securities Act (subject to the ability of certain of the Exchanging Partners to
transfer a portion of their Orion Newco Series C Preferred Stock to other
Exchanging Partners) and (vii) such Exchanging Partner has at the time of
execution of the Exchange Agreement, and at the time of the Exchange will have,
no present plan or intention to sell or otherwise dispose of the Orion Newco
Series C Preferred Stock being acquired under the Exchange Agreement or any
Orion Newco Common Stock issuable upon the conversion of such Orion Newco Series
C Preferred Stock.
Among other things, Orion has represented and warranted to the Exchanging
Partners that: (i) Orion is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware, has full corporate
power and authority to carry on its business as currently conducted, and has the
full legal right, capacity, power and authority (corporate or otherwise) to
execute and deliver the Exchange Agreement and consummate the transactions
contemplated thereby, (ii) the Exchange Agreement constitutes, and the
Registration Rights Agreement (as defined below) when executed, will constitute
a valid and binding obligation of Orion and Orion Newco, enforceable in
accordance with its terms, and that each document to be executed by Orion or
Orion Newco pursuant to the Exchange Agreement, when executed and delivered in
accordance with the provisions thereof, will be a valid and binding obligation
of Orion or Orion Newco, enforceable in accordance with its terms, (iii) upon
consummation of the transactions contemplated by the Exchange Agreement at the
closing of the Exchange Agreement, the Orion Newco Series C Preferred Stock will
be duly and validly issued, fully paid and nonassessable and no personal
liability will attach to the ownership thereof, and the Exchanging Partners will
acquire the legal, valid and marketable title to the Orion Newco Series C
Preferred Stock, (iv) except as set forth in the consolidated audited financial
statements of Orion as of December 31, 1995, and for the period ended on such
date, or included in certain disclosure materials, there exist no material
liabilities (whether contingent or absolute, matured or unmatured, known or
unknown) of Orion or any subsidiary of Orion and (v) immediately prior to the
date of the Exchange, Orion Newco will have no liabilities (other than de
minimis liabilities relating to Orion Newco's formation, any liabilities or
obligations relating to the Exchange Agreement and any liabilities for expenses
relating to the transactions contemplated by the Exchange Agreement). Orion also
has made several representations regarding tax filings and payments, maintenance
of account books, litigation, filings with the Commission, transactions with
Exchanging Partners and the absence of certain violations. The representations
and warranties of the Exchanging Partners and Orion contained in the Exchange
Agreement survive the date of the Exchange and any investigation, audit or
inspection at any time made by or on behalf of any party thereto.
o Covenants. The Exchange Agreement contains a number of covenants whereby
Orion and OrionSat, jointly and severally on the one hand, and the Exchanging
Partners, severally and not jointly on the other hand, covenant and agree with
each other, among other things, that: (i) Orion and OrionSat shall take all
measures reasonably necessary or advisable to secure such consents,
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authorizations and approvals of governmental authorities and of private persons
or entities with respect to the transactions contemplated by the Exchange
Agreement, and the performance of all other obligations of the parties
thereunder, as may be required by any applicable statute or regulation of the
United States or any country, state or other jurisdiction or by any agreement of
any kind whatsoever to which any of them is a party or by which any of them is
bound and which are set forth in a schedule to the Exchange Agreement, (ii)
subject to certain provisions of the Exchange Agreement, OrionSat and the
Exchanging Partners shall take all measures reasonably necessary or advisable to
secure such consents, authorizations and approvals of governmental authorities
and of private persons or entities with respect to the transactions contemplated
by the Exchange Agreement, and to the performance of all other obligations of
such parties thereunder, as may be required by any applicable statute or
regulation of the United States or any country, state or other jurisdiction or
by any agreement of any kind whatsoever to which any of them is a party or by
which any of them is bound (Orion, OrionSat and the Exchanging Partners agreeing
to (a) cooperate in the filing of all forms, notifications, reports and
information, if any, required or reasonably deemed advisable pursuant to
applicable statutes, rules, regulations or orders of any governmental or
supragovernmental authority in connection with the transactions contemplated by
the Exchange Agreement and (b) use their respective good faith efforts to cause
any applicable waiting periods thereunder to expire and any objections to the
transactions contemplated by the Exchange Agreement to be withdrawn before the
Exchange) and (iii) Orion shall take all measures reasonably necessary or
advisable to secure all required consents of the stockholders of Orion
(including the consent of holders of Orion Senior Preferred Stock) to the
Merger, the Exchange and any related transactions requiring stockholder consent.
o Indemnification. In the Exchange Agreement, Orion and OrionSat have agreed
jointly and severally (and Orion agrees to bind Orion Newco pursuant to a
separate indemnity agreement) to indemnify, defend and hold harmless each of the
Exchanging Partners and their respective affiliates, employees, representatives,
agents, officers and directors (collectively, the "EP Indemnified Persons") from
and after the date of the Exchange against and in respect of all Claims (as
defined in the Exchange Agreement) asserted against, resulting to, imposed upon
or incurred by any of the EP Indemnified Persons (whether such Claims are by,
against or relate to Orion Newco, Orion or OrionSat or any other party,
including without limitation, a governmental entity), directly or indirectly, by
reason of or resulting from any of the following: (i) any of the matters with
respect to which Orion Newco, Orion and OrionSat would be obligated to indemnify
the EP Indemnified Persons under certain provisions of the Partnership Agreement
or (ii) any Claims asserted by one or more of the Banks or Chase, or their
successors or assigns, arising from and after the date of the Exchange under (x)
any of the Capacity Agreements or guarantees relating thereto which are
terminated on or prior to the date of the Exchange, (y) any agreements or other
documents terminated or to be terminated in connection with the Bank Agreement
Termination or (z) the Exchange Agreement, in each case excluding any Claims
arising from or relating to any breach of any representation of warranty or
noncompliance with any condition or other agreement given or made by any EP
Indemnified Persons under any of the agreements or documents referred to above
in this paragraph or any document furnished by or on behalf of any EP
Indemnified Person pursuant thereto. The obligation and liabilities of Orion
Newco, Orion and OrionSat with respect to their respective indemnities pursuant
to the Exchange Agreement are subject to certain conditions as set forth in the
Exchange Agreement.
CLOSING OF THE EXCHANGE; AMENDMENT AND TERMINATION OF THE EXCHANGE AGREEMENT
If the Merger Agreement is ratified by Orion's stockholders and the other
conditions to completion of the Exchange are satisfied, the Exchange is to occur
at a time and date proposed by Orion not more than ten days after the
satisfaction or waiver of all conditions to completion of the Exchange. No
amendment or modification of the Exchange Agreement will be valid or binding
unless set forth in writing and duly executed and delivered by the party against
whom enforcement of the amendment or modification is sought. The Exchange
Agreement may be terminated at any time before the Exchange takes place under
various circumstances, principally the failure to meet all of the conditions to
completion of the Exchange by a
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specified date (which is currently April 30, 1997), if either Orion and OrionSat
or the Exchanging Partners collectively (as to all Exchanging Partners) or one
or more Exchanging Partners (as to such Exchanging Partners only) give written
notice of termination to the other parties to the Exchange Agreement; provided,
however, that the terminating party is not in breach of any obligations or
agreements under the Exchange Agreement that are causing any of the conditions
precedent to the Exchange not to be satisfied. In the event the Exchange
Agreement is terminated (other than as to less than all the Exchanging
Partners), the Exchange Agreement shall become wholly void and of no effect, and
the parties shall be released from all future obligations thereunder, subject to
certain provisions relating to confidentiality and the payment of expenses which
will remain in effect.
CLOSING AFTER JANUARY 30, 1997
If the Exchange closes after January 30, 1997, Orion Newco will be obligated
to make cash refunds, on or shortly after the closing date, of payments made by
the Exchanging Partners after that date under the Orion 1 Credit Facility
Support; if Orion Newco does not have sufficient cash to make such refunds, the
refunds will be made in shares of Orion Newco Series C Preferred Stock, and the
number of shares issued in the Exchange will increase. The determination whether
Orion Newco has sufficient cash will be made assuming proceeds of the Notes
Offering and the Debenture Investments are applied to the following uses: (i)
repayment of the Orion 1 Credit Facility and various other obligations relating
thereto, (ii) $49.4 million of initial payments under the Orion 2 Satellite
Contract in 1997, (iii) $13 million of incentive payments to Matra Marconi Space
with respect to Orion 1, (iv) $3.5 million of payments to STET upon repayment of
the Orion 1 Credit Facility, (v) an amount for working capital not to exceed $10
million and (vi) certain other costs and expenses not to exceed $14.3 million.
If the amount of gross proceeds of the Notes Offering is as large or larger than
that presently anticipated by the Company, all payments made by the Exchanging
Partners after January 30, 1997 under the Orion 1 Credit Facility Support will
be refunded in cash and the number of shares issued in the Exchange will not
increase.
ACCOUNTING TREATMENT
The Exchange will be accounted for as an acquisition of minority interest
using the purchase method of accounting. As a result, the assets and liabilities
of Orion Atlantic will be revalued to fair value to the extent of the Limited
Partners' interests acquired as a result of the Exchange.
DESCRIPTION OF THE ORION NEWCO SERIES C PREFERRED STOCK
Pursuant to the Exchange Agreement, Orion has agreed that prior to the date
of the Exchange, Orion Newco will have filed a Certificate of Designations,
Rights and Preferences of Series C 6% Cumulative Redeemable Convertible
Preferred Stock with the State of Delaware (the "Certificate of Designations")
establishing the terms and relative rights and preferences of the Orion Newco
Series C Preferred Stock. According to the Certificate of Designations, the
terms of the Orion Newco Series C Preferred Stock are as follows:
Dividends. Subject to the preferential rights of Orion Newco's Series A
Preferred Stock and Orion Newco's Series B Preferred Stock ranking senior to the
Orion Newco Series C Preferred Stock, the record holders of Orion Newco Series C
Preferred Stock will be entitled to receive dividends at the rate of 6% per
annum, payable exclusively (except in the event of a Liquidation, as defined
below) in Orion Newco Common Stock. Dividends will accrue on a daily basis
commencing on the date of issuance of each share of Orion Newco Series C
Preferred Stock at the simple interest rate of 6% per annum of the $1,000 per
share value thereof. The number of shares of Orion Newco Common Stock
distributable in a dividend on each share of Orion Newco Series C Preferred
Stock is calculated based on the market price of such stock under a formula
provided in the Certificate of Designations.
Liquidation rights. Subject to the liquidation rights contained in the
Certificate of Designations, Rights and Preferences for the Orion Newco Series A
Preferred Stock and the Certificate of Designations, Rights and Preferences for
the Orion Newco Series B Preferred Stock, in the event of any liqui-
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dation, dissolution or winding up of Orion Newco (a "Liquidation"), each holder
of Orion Newco Series C Preferred Stock will be entitled to be paid, before any
distribution or payment is made upon the Orion Newco Common Stock or any other
series or class of stock of Orion Newco ranking junior to the Orion Newco Series
C Preferred Stock, an amount in cash equal to the greater of (a) $1,000 per
share (plus an amount equal to all accrued and unpaid dividends) of all shares
of Orion Newco Series C Preferred Stock held by such holder or (b) the amount
which would be distributed with respect to the shares of Orion Newco Common
Stock (including fractional shares for purposes of this calculation) into which
such shares of Orion Newco Series C Preferred Stock are convertible (assuming
conversion of all outstanding Orion Newco Series C Preferred Stock) immediately
prior to the record date for such distribution (or, if there is no such record
date, then the date as of which the holders of Orion Newco Common Stock entitled
to such distribution are determined), and the holders of Orion Newco Series C
Preferred Stock shall not be entitled to any further payment. If upon any such
Liquidation Orion Newco's assets to be distributed among the holders of the
Orion Newco Series C Preferred Stock are insufficient to permit payment to such
holders of the aggregate amount which they are entitled to be paid, then the
entire assets to be distributed shall be distributed ratably among such holders
based upon a value of $1,000 per share (plus all accrued and unpaid dividends)
of the Orion Newco Series C Preferred Stock held by each such holder.
Voting rights. The holders of the Orion Newco Series C Preferred Stock will
be entitled to notice of all stockholders' meetings in accordance with Orion
Newco's bylaws, and except as otherwise required by law, the holders of the
Orion Newco Series C Preferred Stock will be entitled to vote on all matters
submitted to the stockholders for a vote together with the holders of Orion
Newco Common Stock and the holders of Orion Newco Senior Preferred Stock, voting
together as a single class. Each share of Orion Newco Common Stock will be
entitled to one vote per share and each share of the Orion Newco Senior
Preferred Stock and Orion Newco Series C Preferred Stock (including fractional
shares) will be entitled to one vote for each whole share of Orion Newco Common
Stock that would be issuable upon conversion of such share of Orion Newco Senior
Preferred Stock and Orion Newco Series C Preferred Stock, respectively, at the
time the vote is taken.
Redemption. Orion Newco will be required to redeem all of the Orion Newco
Series C Preferred Stock on the 25th anniversary of issuance (2022).
Additionally, at any time after the second anniversary of the date of the
issuance of the Orion Newco Series C Preferred Stock under the Exchange
Agreement, or, if prior to such date, immediately prior to the consummation of
any consolidation, merger or sale in which the successor entity or purchasing
entity is other than Orion Newco, Orion Newco, at its option and to the extent
it has funds legally sufficient therefor, may redeem the shares of Orion Newco
Series C Preferred Stock then outstanding, in whole or in part, for an aggregate
redemption price of $1,000 per share (plus all accrued and unpaid dividends
thereon); provided that, in the event of a partial redemption, Orion Newco must
redeem the shares of Orion Newco Series C Preferred Stock on a pro rata basis.
Optional Conversion to Common Stock. Holders of Orion Newco Series C
Preferred Stock will have the right, at any time, to convert all or a portion of
such shares into a number of shares of Orion Newco Common Stock equal to the sum
of: (a) the number of shares of Orion Newco Common Stock computed by multiplying
the number of shares of Orion Newco Series C Preferred Stock to be converted by
$1,000, and dividing the result by the applicable Conversion Price (as such term
is used in the Certificate of Designations), initially $17.50, subject to
adjustment, plus (b) the number of shares of Orion Newco Common Stock that would
be payable if all accrued but unpaid dividends were declared and paid on the
shares of Orion Newco Series C Preferred Stock to be converted.
Mandatory Conversion to Common Stock. If the closing price of the Orion Newco
Common Stock over 20 of the 30 prior trading days is greater than or equal to
the Conversion Price of $17.50 (subject to adjustment), Orion Newco may require,
by written notice to all holders of Orion Newco Series C Preferred Stock, the
conversion of all of the outstanding Orion Newco Series C Preferred Stock into a
number of shares of Orion Newco Common Stock equal to the sum of: (a) the number
of shares of Orion Newco Common Stock computed by multiplying the number of
shares of Orion Newco Series C Preferred Stock to be converted by $1,000, and
dividing the result by the applicable Conversion Price then in effect, plus (b)
the number of shares of Orion Newco Common Stock that would be payable if all
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accrued but unpaid dividends were declared and paid on the shares of Orion Newco
Series C Preferred Stock to be converted. If Orion Newco will require the
mandatory conversion of the Orion Newco Series C Preferred Stock within two
years from the initial date of issuance of the Orion Newco Series C Preferred
Stock, then the number of shares of Orion Newco Common Stock into which the
shares of Orion Newco Series C Preferred Stock are converted will be increased
by the number of shares of Orion Newco Common Stock that would be payable if
Orion Newco were immediately to declare and pay all dividends that in the
absence of conversion would have accrued on such shares of Orion Newco Series C
Preferred Stock over the six-month period immediately following the date of such
mandatory conversion; provided, however, that the total dividends, including any
additional amounts in respect of dividends paid as a result of a mandatory
conversion, will not be less than the amount of dividends that would have
accrued on all outstanding shares of the Orion Newco Series C Preferred Stock
during one full year following the date of issuance.
For more information regarding the terms of the Orion Newco Series C
Preferred Stock, stockholders are referred to the text of the Certificate of
Designations, the form of which is attached to this Proxy Statement/Prospectus
as Attachment C.
REGISTRATION RIGHTS
The shares of Orion Newco Series C Preferred Stock are not registered under
the Securities Act and are being issued by Orion Newco in reliance on an
exemption from registration. Such shares will be deemed "restricted securities"
within the meaning of Rule 144 under the Securities Act and may not be sold in
the absence of registration under the Securities Act unless an exemption is
available. Concurrently with the Exchange, Orion, Orion Newco and the Exchanging
Partners will enter into a registration rights agreement (the "Registration
Rights Agreement"), which is made in connection with, and conditioned upon the
consummation of, among other things, the Merger and the Exchange. Further,
pursuant to the Registration Rights Agreement, Orion has agreed to cause Orion
Newco to execute and deliver the Registration Rights Agreement or a copy
thereof, at which time Orion Newco will become a party to the Registration
Rights Agreement and be bound (and have all rights and obligations of Orion)
thereunder. In the Registration Rights Agreement, Orion Newco will grant certain
registration rights to the Exchanging Partners, as summarized below.
Shelf Registration Rights. Pursuant to the Registration Rights Agreement,
Orion Newco will prepare and as soon as practicable (but no later than 15 days
after) after 180 days have passed from the date of issuance of the Orion Newco
Series C Preferred Stock (the "Lockup Period"), a "shelf" registration statement
of Orion Newco (the "Initial Shelf Registration Statement") which covers the
registration of any and all the Eligible Registrable Securities (as defined
below) each holder elects to include in the Initial Shelf Registration
Statement. Orion Newco will include in the Initial Shelf Registration Statement
all Eligible Registrable Securities, other than Eligible Registrable Securities
as to which a holder advises Orion Newco in writing, at least 15 days prior to
the expiration of the Lockup Period, that such holder does not wish to have
included in the Initial Shelf Registration. Orion Newco will use all reasonable
efforts to have the Initial Shelf Registration Statement declared effective by
the Commission as soon as practicable after filing. "Eligible Registrable
Securities" includes the shares of the Orion Newco Common Stock or other
securities issued or issuable upon conversion of the Orion Newco Series C
Preferred Stock purchased by the Exchanging Partners pursuant to the Exchange
Agreement or issued as dividends or distributions pursuant to the Certificate of
Designations that a holder is eligible to sell under the terms of the applicable
Transfer Restriction Agreement described below under "Certain Transfer
Restrictions" (which constitute 25% of the aggregate number of shares of Orion
Newco Common Stock issuable upon conversion of the Orion Newco Series C
Preferred Stock received by such Exchanging Partner pursuant to the Exchange
Agreement or as dividends on such Orion Newco Series C Preferred Stock). Such
securities shall cease to be Eligible Registrable Securities when a registration
statement with respect to the registration of such securities shall have been
declared effective under the Securities Act and such securities shall have been
disposed of pursuant to such registration statement.
Under the Registration Rights Agreement, Orion Newco will use all reasonable
efforts to cause to be filed, during each successive period of not less than 60
and not more than 90 days (as determined by Orion Newco, having regard
principally to coordination of such registration with ongoing business mat-
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ters and disclosure requirements) following the effectiveness of the Initial
Registration Statement which terminates on or before the end of the date five
years following the date of the Exchange (each, a "Top-up Period"), an
additional shelf registration statement or, at Orion Newco's option, a
post-effective amendment to any then-effective shelf registration statement (a
"Top-up Shelf Registration Statement") providing for the registration of the
shares of the Eligible Registrable Securities that each holder of Orion Newco
Series C Preferred Stock elects to include in such Top-up Shelf Registration
Statement which have not been registered previously. Orion Newco is required to
use all reasonable efforts to have the Top-up Registration Statement declared
effective by the Commission as soon as practicable after filing.
Demand Registration of Underwritten Offerings. At any time following the
expiration of the Lockup Period, one or more of the holders of the Orion Newco
Series C Preferred Stock may request that Orion Newco effect a registration
under the Securities Act of all of their Eligible Registrable Securities in a
sale of securities to an underwriter or underwriters of securities for
reoffering to the public (an "Underwritten Offering"). Each such request for
registration must involve shares worth at least $17.5 million in market value.
Each request for an Underwritten Offering will specify the approximate number of
shares of Eligible Registrable Securities requested to be registered and the
anticipated per share price range for such offering. Within ten days after
receipt of any such request, Orion Newco will give written notice of such
requested demand registration to all other holders of the Orion Newco Series C
Preferred Stock and, subject to certain restrictions detailed in the
Registration Rights Agreement, will include in any such Underwritten Offering
all Eligible Registrable Securities with respect to which Orion Newco has
received written request for inclusion therein within 15 days after Orion
Newco's notice is given.
Piggyback Registration Rights. If at any time following the expiration of the
Lockup Period, Orion Newco proposes to effect a registration of the Orion Newco
Common Stock (whether for its own account or for the account of others) under
the Securities Act, other than a shelf or demand registration as described above
or a registration of securities in connection with a business acquisition or
combination or an employee benefit plan (a "Piggyback Registration"), Orion
Newco will give written notice to all holders of its intention to effect such a
registration and, subject to certain provisions described in the Registration
Rights Agreement, will include in such registration all Eligible Registrable
Securities with respect to which Orion Newco has received written requests for
inclusion therein within 15 days after the date Orion Newco's notice is given.
Orion Newco will pay any and all Registration Expenses (as such term is used in
the Registration Rights Agreement) incident to the filing of each such
registration statement or otherwise incident to the performance of or compliance
by Orion Newco with the provisions of the Registration Rights Agreement relating
to a such registration.
CERTAIN TRANSFER RESTRICTIONS
Each Exchanging Partner will enter into a Transfer Restriction Agreement
(each, a "Transfer Restriction Agreement") regarding the transfer of the shares
of Orion Newco Common Stock issuable upon conversion of, or as dividends on, the
Orion Newco Series C Preferred Stock. Pursuant to the applicable Transfer
Restriction Agreement, each Exchanging Partner may not directly or indirectly
sell, offer, contract to sell, make any short sale, pledge or otherwise dispose
of ("transfer") any shares of Orion Newco Common Stock issued upon conversion of
shares of Orion Newco Series C Preferred Stock or as dividends on such Orion
Newco Series C Preferred Stock (the "Affected Shares") without the prior written
consent of Orion Newco during the Lockup Period, unless such sale or transfer is
to an "affiliate" (as such term is defined in Rule 144 under the Securities Act)
of the Exchanging Partner and does not involve a public distribution or public
offering or unless any transfer is effected (i) pursuant to a tender or exchange
offer made by or on behalf of Orion Newco or a third party, (ii) in connection
with a merger, consolidation, sale of all or substantially of all of the assets,
recapitalization or similar transaction involving Orion Newco or (iii) pursuant
to a transaction not involving a public distribution or offering registered
under the Securities Act and not made through a broker, dealer or market-maker
pursuant to Rule 144 (including a pledge that meets such requirements);
provided, however, that prior to any transfer of Affected Shares under clause
(iii) above and prior to any transfer of Orion Newco Series C Preferred Stock
(other than under the circumstances set forth in clause (i) or (ii) above, the
transferee shall execute and deliver to Orion Newco a transfer restriction
agreement substantially simi-
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lar to the Transfer Restriction Agreement the transferor originally entered into
and otherwise reasonably satisfactory in form and substance to Orion Newco, in
which such transferee agrees to abide by all of the restrictions set forth in
the original Transfer Restriction Agreement.
Also, pursuant to the applicable Transfer Restriction Agreement, each
Exchanging Partner agrees that it will not transfer during any 90-day period
Affected Shares that collectively represent more than 25% of the aggregate
number of shares of Orion Newco Common Stock issuable upon conversion of the
Orion Newco Series C Preferred Stock received by such Exchanging Partner
pursuant to the Exchange Agreement or as dividends on such Orion Newco Series C
Preferred Stock (the "25% Limit") unless any such transfer is (i) pursuant to an
underwritten, public offering pursuant to a registration statement under the
Securities Act, (ii) pursuant to a tender or exchange offer made by or on behalf
of Orion Newco or a third party, (iii) in connection with a merger,
consolidation, sale of all or substantially all of the assets, recapitalization
or similar transaction involving Orion Newco or (iv) pursuant to a transaction
not involving a public distribution or offering registered under the Securities
Act and is not made through a broker, dealer or market-maker pursuant to Rule
144 (including a pledge that meets such requirements); provided, however, that
prior to any transfer of Affected Shares under clause (iv) above and prior to
any transfer of Orion Newco Series C Preferred Stock other than under the
circumstances set forth in clause (i), (ii) or (iii) above, the transferee shall
execute and deliver to Orion Newco a transfer restriction agreement
substantially similar to the Transfer Restriction Agreement the transferor
originally entered into (omitting the Lockup Period provision noted above). The
25% Limit described above will terminate on the date that is five years after
the date of issuance of the Orion Newco Series C Preferred Stock under the
Exchange Agreement.
THE DEBENTURE INVESTMENTS
The Debenture Investments will involve the sale of $50 million of convertible
junior subordinated debentures (the "Debentures") to British Aerospace (the
"British Aerospace Investment") and the sale of $10 million of similar
Debentures to Matra Marconi Space (the "Matra Marconi Investment"). Consummation
of the Debenture Investments is a condition to the closing of the Notes
Offering.
Terms of Debentures. Under the Debenture Agreement among Orion Newco, British
Aerospace and Matra Marconi Space, the Debentures will mature 15 years following
the date of issuance and will bear interest at a rate of 8.75% per annum to be
paid semi-annually in arrears, commencing August 1, 1997, solely in Orion Newco
Common Stock at prices between $10.21 and $14.00 per share, depending on the
average trading prices of the Orion Newco Common Stock during the applicable
measurement periods. The Debentures (and accrued but unpaid interest) may be
converted in whole or in part into Orion Newco Common Stock at any time at an
initial conversion rate of $14.00 per share, as adjusted for stock splits or
other recapitalizations, certain dividends or issuances of stock to all
stockholders, issuances of stock (or rights to acquire stock) at a price per
share below $14.00, and other events. See "Risk Factors -- Risks Relating to
Merger, Exchange and Debenture Investments -- Risks Relating to Orion Newco
Series C Preferred Stock and Debentures."
Orion Newco may at any time (except during 90 days after a change in control)
redeem all or part (but not less than 25% on any one occasion) of the Debentures
for cash consideration determined by multiplying the number of shares of Orion
Newco Common Stock issuable upon conversion of the Debentures by the greater of
(i) the average closing price of the Orion Newco Common Stock over the 20
trading days preceding the redemption or (ii) $17.50 per share. Alternatively,
Orion Newco has the right to arrange for the disposition of the Orion Newco
Common Stock issuable upon the conversion of, or as payment of dividends on, the
Debentures in a public or private offering. In such event, the Debenture holders
will be entitled to receive a price per share equal to the greater of (a) at
least 95% of the average closing price of the Orion Newco Common Stock over the
20 trading days preceding the disposition or (b) $17.50 per share. From and
after the time when less than $50 million of Notes remain outstanding, in the
event of a change of control of Orion Newco (defined as the acquisition by any
stockholder of a majority of the voting securities of Orion Newco), either Orion
Newco or any holder of the Debentures may, within 90 days after such change of
control, require the sale of the Debentures, as converted into Orion Newco
Common Stock, to Orion Newco for a purchase price equal to the greater
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of (a) the price payable in an optional redemption (as described above) and (b)
the price paid to holders of Orion Newco Common Stock in the change of control
transaction.
The Debentures will be subordinated to all other indebtedness of the Company,
including the Notes. The Debentures will contain minimal covenants and events of
default so long as $50 million or more of the Notes remain outstanding, but more
extensive covenants and events of default will apply after less than $50 million
of Notes are outstanding. See "The Related Transactions -- The Notes
Offering/Orion 1 Credit Facility Refinancing -- Notes Offering."
In connection with the Debenture Investments, Orion Newco has agreed in the
Debenture Agreement to certain provisions relating to any mandatory redemption
by it of the Debentures, the Orion Newco Series C Preferred Stock or the Orion
Newco Common Stock issued to British Aerospace, Matra Marconi Space or their
respective affiliates upon conversion of the Debentures or the Orion Newco
Series C Preferred Stock or as payment of interest on the Debentures or
dividends on the Orion Newco Series C Preferred Stock. Under its Certificate of
Incorporation, Orion Newco has the right mandatorily to redeem the capital stock
of any stockholder if the ownership of such stock would cause Orion Newco to
violate applicable U.S. regulatory restrictions on foreign ownership. Orion
Newco has agreed that any such redemption of the foregoing securities owned by
British Aerospace, Matra Marconi Space or their respective affiliates will be
effected at the price and on the terms applicable to redemptions effected under
the terms of the Debentures or the Orion Newco Series C Preferred Stock, as the
case may be, which would be more favorable than the price and other terms set
forth in the Certificate of Incorporation. Approval of the Debenture Investments
by Orion stockholders also will constitute approval of such provisions in the
Debenture Agreement.
The consummation of the Debenture Investments is conditioned upon the
following: (i) completion of the Exchange; (ii) termination of all obligations
of British Aerospace, Matra Marconi Space and their respective affiliates under
the Orion 1 Credit Facility Support; (iii) receipt by Orion Newco of net
proceeds from the Notes Offering of at least $225 million; (iv) Orion Newco's
payment to each of British Aerospace and Matra Marconi Space of its costs and
expenses; and (v) acquisition by Orion Newco of all of British Aerospace's
interest in Orion Asia Pacific in exchange for approximately 86,000 shares of
Orion Newco Common Stock.
Matra Marconi will apply certain satellite incentive payments owing to it
toward the purchase price of the Debentures. Under the Orion 1 Satellite
Contract, Matra Marconi, as the Orion 1 manufacturer, is entitled to receive
incentive payments based upon the performance of Orion 1 in orbit. As of
September 30, 1996, Orion Atlantic had obligations with a present value of $21.7
million with respect to incentive payments. Orion Newco will pay $13 million in
satellite incentives following completion of the Notes Offering, of which $10
million will be re-invested in Orion Newco by Matra Marconi Space in Debentures.
REGISTRATION RIGHTS. The shares of Orion Newco Common Stock issuable upon
conversion of, or as dividends on, the Debentures will have the following
registration rights:
Orion Newco will be obligated to include in the "shelf" registration
statement filed with respect to the Orion Newco Series C Preferred Stock (to be
filed approximately six months after such stock is issued) approximately 360,000
shares of Orion Newco Common Stock issued as payment of interest on the
Debentures or previously issued to British Aerospace pursuant to a warrant or
the OAP Acquisition. Orion Newco also will prepare and, within one year after
the date of issuance of the Debentures, cause to be filed a shelf registration
statement of Orion Newco which covers the registration of any and all shares of
Orion Newco Common Stock issuable upon conversion of the Debentures each holder
elects to include in such shelf registration statement. If not all shares of
Orion Newco Common Stock issuable upon conversion of the Debentures are
registered in the initial shelf registration statement, Orion Newco will be
obligated to file additional shelf registration statements to register such
unregistered shares.
Any one or more holders of the Debentures may request that Orion Newco effect
a registration under the Securities Act of all or not less $20 million of shares
of Orion Newco Common Stock issuable upon conversion of the Debentures in an
underwritten offering. The number of requests is not limited, but the Company
will not be obligated to effect more than one underwritten offering in any
12-month
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period. Orion Newco will pay any and all Registration Expenses (as such term is
used in the registration rights agreement) incident to the filing of each
registration statement for an underwritten offering.
If Orion Newco proposes to effect a registration of the Orion Newco Common
Stock (whether for its own account or for the account of others) under the
Securities Act, other than a shelf or demand registration as described above or
a registration of securities in connection with a business acquisition or
combination or an employee benefit plan, Orion Newco will, subject to certain
provisions described in the registration rights agreement, include in such
registration all shares of Orion Newco Common Stock issuable upon conversion of
the Debentures with respect to which Orion Newco has received written requests
for inclusion therein. Orion Newco will pay any and all Registration Expenses
(as such term is used in the registration rights agreement) incident to the
filing of each such registration statement or otherwise incident to the
performance of or compliance by Orion Newco with the provisions of the
registration rights agreement relating to a such registration.
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CORPORATE STRUCTURE AFTER THE TRANSACTIONS
The following diagram illustrates the effects of the Merger, the Exchange and
the other Transactions on the corporate structure of Orion Newco. The ownership
figures are on a fully diluted basis.
[DIAGRAM]
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EFFECT OF THE EXCHANGE ON THE CAPITAL STRUCTURE OF ORION NEWCO
As a result of the issuance of 121,988 shares of Orion Newco Series C
Preferred Stock in the Exchange, which is convertible into approximately
6,970,740 shares of Orion Newco Common Stock, the number of shares of Orion
Newco Common Stock outstanding on a fully diluted basis will increase by
approximately 78% to approximately 25,860,320 shares. In addition, as a result
of the issuance, certain of the Exchanging Partners will be principal
stockholders of Orion Newco. See "Security Ownership of Certain Beneficial
Owners Prior to and Following the Transactions" below.
RECOMMENDATION OF THE BOARD OF DIRECTORS OF ORION
The Board of Directors unanimously approved (with the British Aerospace Board
representative recusing himself) the terms of the Merger Agreement, the Exchange
Agreement and the Debenture Agreement and determined that the Merger, the
Exchange and the Debenture Investments are in the best interests of Orion and
its stockholders. The Board unanimously recommends (with the British Aerospace
Board representative recusing himself) that Orion stockholders vote FOR
ratification of the Merger Agreement and the transactions contemplated thereby,
FOR approval and adoption of the Exchange Agreement and the transactions
contemplated thereby, and FOR approval of the Debenture Investments. The Board
believes that the Merger Transactions and the Debenture Investments are in the
best interests of Orion stockholders because they will simplify Orion's
organizational structure and improve Orion's access to the capital markets. The
reasons for the Board's recommendation are discussed more fully under the
captions "Background of the Merger Transactions and the Debenture Investments"
and "Reasons for the Merger Transactions and the Debenture Investments" above.
OPINION OF ORION'S FINANCIAL ADVISOR
Salomon Brothers has rendered to the Board of Directors of Orion its written
opinion dated December 10, 1996 (the "Salomon Brothers Opinion") that, based
upon and subject to the various considerations set forth in the opinion, as of
December 10, 1996, the consideration to be paid by Orion in connection with the
Exchange was fair from a financial point of view to Orion. No limitations were
imposed by the Board of Directors upon Salomon Brothers with respect to the
investigations made or the procedures followed by it in rendering its opinion.
Salomon Brothers was not requested by the Board of Directors to make any
recommendation as to the form or amount of consideration to be paid by Orion
pursuant to the Exchange Agreement, which issues were resolved in arm's-length
negotiations between Orion and the Exchanging Partners. Salomon Brothers was not
asked to express an opinion, and did not express any opinion, with regard to the
Notes Offering, the Orion 1 Credit Refinancing, the Debenture Investments, the
Orion 2 Satellite Contract, the Orion 3 Satellite Contract or the Merger.
THE FULL TEXT OF THE SALOMON BROTHERS OPINION, WHICH SETS FORTH ASSUMPTIONS
MADE, MATTERS CONSIDERED AND LIMITATIONS ON THE REVIEW UNDERTAKEN, IS ATTACHED
HERETO AS ATTACHMENT D. STOCKHOLDERS OF ORION ARE URGED TO READ THE OPINION
CAREFULLY AND IN ITS ENTIRETY IN CONJUNCTION WITH THIS PROXY
STATEMENT/PROSPECTUS. THE SALOMON BROTHERS OPINION ADDRESSES ONLY THE FAIRNESS
OF THE CONSIDERATION TO BE PAID IN THE EXCHANGE FROM A FINANCIAL POINT OF VIEW
AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY STOCKHOLDER OF ORION AS TO HOW
SUCH STOCKHOLDER SHOULD VOTE ON THE MERGER, THE EXCHANGE OR THE DEBENTURE
INVESTMENTS. THE SUMMARY OF THE SALOMON BROTHERS OPINION SET FORTH IN THIS PROXY
STATEMENT/PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT
OF SUCH OPINION.
In rendering the Salomon Brothers Opinion, Salomon Brothers reviewed certain
publicly available information relating to Orion, as well as certain other
information, including financial projections, provided to Salomon Brothers by
Orion, discussed the past and current operations and financial condition and
prospects of Orion and Orion Atlantic with members of the respective senior
managements of such entities and considered such other information, financial
studies, analyses, investigations and financial, economic, market and trading
criteria which Salomon Brothers deemed relevant.
In rendering its opinion, Salomon Brothers assumed and relied upon the
accuracy and completeness of the information it reviewed for the purpose of such
opinion and did not assume any responsibility for independent verification of
any of such information or for any independent evaluation or appraisal of
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the assets of Orion or Orion Atlantic. With respect to Orion's and Orion
Atlantic's financial projections, Salomon Brothers assumed that they had been
reasonably prepared on bases reflecting the best currently available estimates
and judgments of Orion's or Orion Atlantic's management, as the case may be, as
to the future financial performance of their respective businesses, and while
Salomon Brothers expressed no opinion with respect to such forecasts or the
assumptions on which they were based, Salomon Brothers relied on management's
assumption that the Notes Offering, the Orion 1 Credit Refinancing, the
Debenture Investments, the Orion 2 Satellite Contract and the Orion 3 Satellite
Contract would occur or be executed, each as the case may be, concurrently with
the Exchange. Salomon Brothers assumed that the Exchange would qualify as
tax-free under Section 351 of the Code.
The Salomon Brothers Opinion was necessarily based on economic, market and
other conditions as in effect on, and the information made available to Salomon
Brothers as of, the date of such opinion and did not address Orion's underlying
business decision to effect the Exchange or constitute a recommendation to any
holder of Orion Common Stock concerning the Merger, the Exchange or the
Debenture Investments. The Salomon Brothers Opinion does not imply any
conclusion as to the likely trading range of Orion Newco Common Stock following
the consummation of the Exchange, which may vary depending on, among other
factors, changes in interest rates, dividend rates, market conditions, general
economic conditions and other factors that generally influence the price of
securities.
The following is a summary of the report (the "Salomon Brothers Report")
presented by Salomon Brothers to the Board of Directors of Orion on December 10,
1996, in connection with the rendering of the Salomon Brothers Opinion:
Discounted Cash Flow Analysis. Using an unlevered discounted cash flow
("DCF") methodology, Salomon Brothers examined management's 10-year projections
for each of Orion 1, Orion 2 and Orion 3. Salomon Brothers' DCF analysis relied
on management's assumption that its business plan would be executed, including
that the financings contemplated in such business plan would occur as required.
Salomon Brothers calculated terminal values for each such satellite at the end
of the projection period, assuming its replacement at the end of its usable
life, by reference to the average tax-effected earnings before interest, taxes,
depreciation and amortization ("EBITDA") for the last five-years of the
projection period less the average capital expenditures over the life of a
current specification satellite. Salomon Brothers then used a cash flow
perpetuity approach and assumed a steady nominal growth rate of 3-5% and a
discount rate (equal to Salomon Brothers' estimate of Orion's weighted average
cost of capital ("WACC") once Orion's business reaches maturity) of 11.5% to
calculate terminal values. For reference, Salomon Brothers then converted these
terminal values to implied ranges of EBITDA terminal multiples for Orion 1 of
6.2x to 8.1x, for Orion 2 of 5.7x to 7.5x and for Orion 3 of 5.4x to 7.1x (which
were at the low end of the range of terminal multiple estimates used by
independent equity research analysts for satellite companies with similar
capital spending characteristics). With respect to projected cash flows over the
projection period, Salomon Brothers used discount rates of 15% to 20% through to
the end of the projection period for Orion 1 and discount rates of 17.5% to
22.5% through to the end of the projection period for Orion 2 and Orion 3. These
discount rates were selected primarily based upon ranges cited for satellite
companies' WACC in independent equity analyst research reports for publicly
traded satellite companies. A higher discount rate was selected for Orion 2 and
Orion 3 because these satellites are in an earlier stage of development than
Orion 1. Salomon Brothers also analyzed the implied WACCs for a group of
publicly traded satellite companies based on their respective capital structures
and equity security trading histories. However, due to the limited time period
over which these securities were traded, Salomon Brothers concluded that
reliance on this analysis was inappropriate.
Using its DCF methodology, Salomon Brothers calculated (i) a range of implied
values of $127.2 million to $337.2 million for the Exchanging Partners' equity
interest in Orion Atlantic and (ii) a range of equity values for each current
share of Orion Common Stock of $12.79 to $32.37.
Salomon Brothers also analyzed this DCF valuation in the context of the Orion
Common Stock price as of December 9, 1996, to determine the relationship between
Orion's market capitalization and the theoretical equity value of Orion derived
from the DCF analysis described above. This ratio of market capitalization to
theoretical equity value ranged from 98.7% (assuming low side DCF value) to
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39% (assuming high side DCF value). Applying these ratios to Salomon Brothers'
DCF value range for Orion Atlantic yielded a value range of $125.5 million to
$131.5 million for the Exchanging Partners' 58.3% limited partnership interest
in Orion Atlantic.
Precedent Transaction Analysis. As part of its analysis, Salomon Brothers
reviewed two recent acquisition transactions involving satellite companies: (i)
Orion Atlantic's redemption of STET's interest and Orion's subsequent purchase
of a new interest from Orion Atlantic and (ii) the acquisition by Hughes
Corporation ("Hughes") of PanAmSat. To estimate the value of Orion Atlantic,
Salomon Brothers analyzed the redemption of STET's interest and Orion's
subsequent purchase of a new interest from Orion Atlantic to derive a range of
implied values (i) of Orion Atlantic of $138.1 million to $180.1 million based
upon consideration paid by Orion valued at $11.5 million to $15.0 million for
STET's 8.33% limited partnership interest and (ii) of the Exchanging Partners'
limited partnership interests in Orion Atlantic of $80 million to $104 million
at the time of the transaction. If the additional capital, totaling $47 million,
invested by the Exchanging Partners since the STET redemption is included in
this valuation analysis, the range of implied values of the Exchanging Partners'
limited partnership interests in Orion Atlantic increases to $127 million to
$151 million.
Salomon Brothers also reviewed the Hughes acquisition of PanAmSat and
examined the ratio of firm value (i) to latest twelve months ("LTM") and
projected 3-year forward revenues, (ii) to LTM and projected 3-year forward
EBITDA and (iii) to LTM and projected 3-year forward earnings before interest
and taxes ("EBIT"). Based on these ratios and the limited public information
available with respect to PanAmSat, Salomon Brothers estimated a range of
implied values of the Exchanging Partners' limited partnership interests in
Orion Atlantic of $91 million to $420 million. However, in Salomon Brothers'
judgment, the PanAmSat transaction was not entirely comparable to the Exchange
in most respects, primarily because PanAmSat is a less highly leveraged company
than Orion and is not in a similarly early stage of development. Salomon
Brothers also reviewed several other recently completed merger and acquisition
transactions in the satellite sector, none of which were useful in its analysis.
Public Market Trading Analysis. Salomon Brothers also performed an analysis
in which it compared certain publicly available historical financial and
operating data and market statistics of selected satellite companies (calculated
based on closing stock prices as of December 9, 1996, for the publicly traded
companies, and assuming the midpoint of the filing range for the then-pending
initial public offering for APT Satellite Holdings Limited ("APT Satellite")).
The stock market performance of satellite companies varies significantly
depending on, among other things, stages of development, geographic location and
segments of operation. Accordingly, no company used in the Public Market Trading
Analysis was fully comparable to Orion in most material respects. Salomon
Brothers selected Echostar Communications Corporation ("Echostar"), APT
Satellite and American Mobile Satellite Corporation ("AMSC") as the most
comparable to Orion. Although Echostar and AMSC operate in segments that are
different from those of Orion, they are each in stages of development similar to
that of Orion. Salomon Brothers examined firm value to LTM revenue multiples for
Echostar (8.7x), APT Satellite (12.0x) and AMSC (21.0x) and noted that, based on
these multiples, (i) the total implied equity value of Orion Atlantic was
estimated to range from $120 million to $636 million and (ii) the Exchanging
Partners' limited partnership interests in Orion Atlantic were estimated to
range in value from $70 million to $371 million.
Historical Trading Analysis. As part of its analysis, Salomon Brothers
examined the historical stock market performance of Orion in relation to a
composite index of common stock of selected satellite companies (consisting of
PanAmSat, United States Satellite Broadcasting Company, Inc., Globalstar
Telecommunications Limited, AMSC, Echostar, Asia Satellite Telecommunications
Holdings Limited and P.T. Pasifik Satellit Nusantara) and the Nasdaq Composite
Index and the relationship between price movements thereof over the period from
August 1, 1995 to December 6, 1996. Salomon Brothers observed that for the
entire period the Orion Common Stock underperformed the index of selected
satellite companies and the Nasdaq Composite Index in terms of price
appreciation.
Salomon Brothers also noted that Orion's historical Common Stock price (and
corresponding firm value) could be deconstructed to estimate the amount of value
historically attributed by the public equity market to Orion Atlantic, using the
simplifying assumption that nominal value was attributed to
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Orion 3. On this basis, Salomon Brothers concluded that Orion's historical
Common Stock price range of $6.75 to $14.75 per share could be interpreted as
implying a market valuation for the Exchanging Partners' limited partnership
interests in Orion Atlantic of $47.3 million to $219.0 million.
Convertible Security Valuation. Using options pricing theory and the
discounted present value of probabilistically adjusted dividends, Salomon
Brothers arrived at a range of values for the Orion Newco Series C Preferred
Stock of $83 million to $106 million. This value was based on a range of assumed
prices for Orion Common Stock of $10 to $14 per share at the time of issuance of
the Orion Newco Series C Preferred Stock, the Orion Newco Series C Preferred
Stock's dividend yield, its conversion price and liquidation value, Orion's
share price volatility and the mean expected return on Orion Common Stock, and
reflects the unique characteristics of the Orion Newco Series C Preferred Stock
which distinguish it from conventional convertible preferred stocks. Several of
these parameters required Salomon Brothers to make certain subjective judgments.
The preparation of a fairness opinion is not susceptible to partial analysis
or summary description. Salomon Brothers believes that its analyses and the
summary set forth above must be considered as a whole and that selecting
portions of its analyses and the factors considered by it, without considering
all such analyses and factors, or of the above summary, without considering all
factors and analyses, could create an incomplete view of the processes
underlying the analyses set forth in the Salomon Brothers Opinion and the
Salomon Brothers Report. Salomon Brothers has not indicated that any of the
analyses which it performed had a greater significance than any other. The
ranges of valuations resulting from any particular analysis described above
should not be taken to be the view of Salomon Brothers of the actual value of
Orion and Orion Atlantic. In performing its analyses, Salomon Brothers made
numerous assumptions with respect to industry performance, general business,
financial, market and economic conditions and other matters, many of which are
beyond the control of Orion or Orion Atlantic. The analyses performed by Salomon
Brothers are not necessarily indicative of actual values or actual future
results, which may be significantly more or less favorable than suggested by
such analyses. Such analyses were prepared solely as part of Salomon Brothers'
analysis of the fairness to Orion, from a financial point of view, of the
consideration to be paid in the Exchange. In addition, analyses relating to
value of businesses do not purport to be appraisals or to reflect the prices at
which a business actually might be sold, or the prices at which a company might
actually be sold, or the prices at which securities might trade at the present
time or at any time in the future.
Salomon Brothers is an internationally recognized investment banking firm
that provides financial services in connection with a wide range of business
transactions. As part of its business, Salomon Brothers regularly engages in the
valuation of companies and their securities in connection with mergers and
acquisitions, negotiated underwritings, competitive biddings, secondary
distributions of listed and unlisted securities and private placements and for
other purposes. The Board of Directors retained Salomon Brothers based on
Salomon Brothers' expertise in the valuation of companies, as well as its
familiarity with Orion and other satellite companies. Salomon Brothers, in the
ordinary course of its business, may actively trade the securities of Orion for
its own account and for the accounts of customers, and, accordingly, may at any
time hold a long or short position in such securities. Salomon Brothers may
continue to provide investment banking services to Orion Newco in the future.
Salomon Brothers has, in the past, and in return for customary fees, rendered
certain investment banking and financial advisory services to Orion, including
acting as lead underwriter to Orion in connection with its initial public
offering of Orion Common Stock in August 1995. Orion paid Salomon Brothers
$688,490 in connection with Salomon Brothers' participation in the 1995
Financing. This amount consisted principally of reimbursement of costs incurred
by Salomon Brothers.
Pursuant to a letter agreement, dated April 10, 1996, between Orion and
Salomon Brothers, Orion agreed to pay Salomon Brothers the following fees: (i)
$250,000, which was paid upon execution by Orion of such letter agreement; (ii)
$500,000, which was paid upon delivery of the Salomon Brothers Opinion to the
Board of Directors; and (iii) an additional $1,000,000, payable upon the
successful completion of the financing transactions which facilitate
consummation of the Exchange and the construction of Orion 2 and Orion 3. In
addition, Orion agreed to indemnify and hold harmless Salomon Brothers and its
affiliates, their respective directors, officers, agents and employees and each
person, if
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any, controlling Salomon Brothers or any of its affiliates against certain
liabilities and expenses, including liabilities under the federal securities
laws, incurred in connection with its services.
APPROVALS
Orion is aware of no governmental approvals required for consummation of the
Merger, the Exchange and the Debenture Investments, other than compliance with
federal securities laws and state securities or "Blue Sky" laws. The Board of
Directors is seeking stockholder ratification of the Merger Agreement and the
transactions contemplated thereby, including the Merger, stockholder approval of
the Exchange Agreement and the transactions contemplated thereby, including the
Exchange, and stockholder approval of the Debenture Investments. See "The
Special Meeting -- Voting Rights and Related Matters" and "-- Votes Required."
FEES AND EXPENSES
In general, whether or not the Merger Transactions are consummated, each
party to the Merger Agreement and the Exchange Agreement will bear its own costs
and expenses incurred in connection with the Merger Agreement, the Exchange
Agreement and the transactions contemplated thereby, except certain expenses
incurred in connection with the Salomon Brothers Opinion. Orion or Orion Newco
will bear all expenses associated with the Debenture Investments.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Set forth below is a summary of certain federal income tax consequences under
the Internal Revenue Code of 1986, as amended (the "Code"), to Orion
stockholders (the "Transferors") whose common and preferred stock of Orion
("Orion Stock") is converted into common and preferred stock of Orion Newco
("Orion Newco Stock") pursuant to the Merger. The following summary does not
deal with all aspects of federal taxation that might be relevant to particular
Transferors, nor does the summary address any foreign, state, local, estate, or
gift tax aspects. In addition, the summary addresses only those Transferors who
hold their Orion Stock as a capital asset. In view of the individual nature of
tax consequences, Transferors are urged to consult with their own tax advisors
regarding the specific tax consequences to them of the Merger, including the
applicability of federal, state, local and foreign tax laws.
On January 6, 1997, Ernst & Young LLP, tax advisor to Orion, rendered an
opinion ("Tax Opinion") that the Merger Transferors will have the opportunity to
qualify for nonrecognition treatment because the Merger will qualify either as
(i) a reorganization pursuant to Section 368(a) of the Code or (ii) an exchange
satisfying the requirements of Section 351(a) of the Code, provided certain
requirements (discussed below) are met. In rendering its Tax Opinion, Ernst &
Young LLP relied upon certain representations made by Orion, which
representations Ernst & Young LLP has not independently verified, and the Tax
Opinion is further based upon certain limitations summarized below. Moreover,
the Tax Opinion is not binding on the Internal Revenue Service ("IRS") nor does
it preclude the IRS from adopting a contrary position. The Tax Opinion is based
on provisions of the Code, income tax regulations, and administrative rulings
and court decisions existing as of the date of the Tax Opinion. All such
provisions are subject to change which changes may be retroactive. Ernst & Young
LLP is not responsible for notifying Orion or the Merger Transferors of any such
change which may occur subsequent to the date of the Tax Opinion.
Except as otherwise noted, the summary below assumes that the Merger will
qualify either as a reorganization pursuant to Section 368(a) of the Code or as
an exchange satisfying the requirements of Section 351(a) of the Code, based
upon such Tax Opinion. Subject to the limitations and qualifications referred to
herein, the Tax Opinion addresses and is limited to the following federal income
tax consequences for the Merger Transferors:
(a) Transferors will recognize no gain or loss in connection with the receipt
of shares of Orion Newco Stock in exchange for shares of Orion Stock in the
Merger.
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(b) Each Transferor's tax basis in the shares of Orion Newco Stock it
receives will be equal to its tax basis in the Orion Stock it transferred to
Orion Newco.
(c) The holding period for the Merger Transferor's shares of Orion Newco
Stock will include the Merger Transferor's holding period in its Orion Stock.
Although the summary below addresses certain tax issues in addition to those
noted in (a) through (c) above, Ernst & Young LLP's Tax Opinion does not address
such additional tax issues.
If the Merger does not qualify for tax-free treatment, (a) the Merger
Transferors will recognize gain or loss equal to the difference between the fair
market value on the date of the Merger of the Orion Newco Stock they receive and
their tax basis in the Orion Stock they transfer; (b) the tax basis of the Orion
Newco Stock received by each Transferor will equal the fair market value of that
stock on the date of the Merger; and (c) the holding period for each share of
Orion Newco Stock will begin on the day following the date of the Merger.
Even assuming the Merger qualifies as a tax-free reorganization or exchange,
holders of Orion preferred stock with dividends in arrears might be treated
under Section 305(c) of the Code as recognizing ordinary income (for which a
dividend received deduction may be available to certain corporate holders) as a
consequence of the exchange of their Orion preferred stock for Orion Newco
preferred stock in the Merger, to the extent of the least of (i) the earnings
and profits of Orion Newco (which likely will include the accumulated earnings
and profits of Orion, if any, as of the close of the taxable year in which the
Merger is completed), (ii) the amount of the dividend arrearage with respect to
the Orion preferred stock, or (iii) the amount by which the greater of the fair
market value or liquidation preference of the Orion Newco preferred stock
exceeds the issue price of the Orion preferred stock. However, the recognition
of ordinary income generally applies only to exchanges pursuant to a
"recapitalization." Because the Merger should not constitute a
"recapitalization" within the meaning of Section 368(a)(1)(E) of the Code, and
because Orion does not expect Orion or Orion Newco to have any accumulated or
current earnings and profits for the taxable year in which the Merger occurs,
Orion does not believe the risk of recognizing ordinary income on an exchange of
Orion preferred stock for Orion Newco preferred stock will be significant.
However, there can be no assurance that the IRS or a court considering the
question will not disagree with Orion's determinations.
Holders of Orion preferred stock should also note that, if the redemption
price (including any dividend arrearage on the date of the Merger) of shares of
Orion Newco preferred stock exceeds the issue price of those shares (which
generally will be the fair market value of the Orion Newco preferred stock,
appropriately adjusted to reflect any income recognized by holders under Section
305(c) of the Code in connection with the Merger, as discussed above), the
excess redemption price generally will be taxable to the holders of the Orion
Newco preferred stock as ordinary income (for which a dividend received
deduction may be available to certain corporate holders), to the extent of Orion
Newco's earnings and profits (which, as noted above, likely will include Orion's
accumulated earnings and profits), over the period from the date the Orion Newco
preferred stock is issued to the date the Orion Newco preferred stock is
required (or deemed required) to be redeemed. This could result in the
recognition of ordinary income by Orion Newco preferred stockholders in advance
of their receipt of cash dividends or redemption proceeds.
HOLDERS OF ORION PREFERRED STOCK ARE URGED TO CONSULT THEIR OWN TAX ADVISORS
REGARDING THE APPLICATION OF THE FOREGOING RULES TO THEIR SHARES OF ORION
PREFERRED STOCK.
Ernst & Young LLP's Tax Opinion that the Merger will qualify as a tax-free
reorganization under Section 368(a) of the Code is based on representations of
Orion that certain requirements are met, including: (i) following the Merger,
Orion will continue to own substantially all its assets and substantially all
the assets of Orion Merger Subsidiary (other than the Orion Newco Stock
distributed in the Merger); (ii) historic stockholders of Orion (i.e., Orion
stockholders who have not acquired their Orion Stock in contemplation of the
Merger) will receive pursuant to the Merger and continue to own (not taking into
account any shares of Orion Newco Stock that are sold or otherwise disposed of
following the Merger pursuant to a plan or intention in existence at the time of
the Merger, such as shares sold in
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market transactions and shares with respect to which holders have entered into
risk-limiting transactions, such as short sales and hedges, that have
substantially eliminated their potential for appreciation and risk of
depreciation) shares of Orion Newco Stock having a fair market value on the date
of the Merger equal to at least 50% of the total consideration issued to Orion
stockholders in the Merger; and (iii) following the Merger, Orion Newco will own
stock of Orion representing 80% of the voting power of all classes of Orion
voting stock. If one or more of the foregoing requirements is not satisfied, the
Merger may nonetheless qualify for tax-free treatment under Section 351(a) of
the Code, provided shares of Orion Newco Stock issued to the Merger Transferors
and/or Exchanging Partners representing more than 20% of the voting power of all
classes of Orion Newco voting stock (or more than 20% of the total shares of any
class of Orion Newco nonvoting stock issued in the Merger Transactions) are not,
pursuant to a plan or commitment in existence at the time of the Merger, sold or
otherwise disposed of to a person who has not made a significant transfer of
property to Orion Newco pursuant to either the Merger or the Exchange.
Even assuming the Merger qualifies as a tax-free reorganization or exchange
under Section 351(a) of the Code, holders of existing warrants to purchase Orion
Stock may recognize gain or loss in connection with the exchange or conversion
of those warrants for, or into, warrants to purchase Orion Newco Stock. Such
recognition of gain or loss generally can be avoided by exercising the warrants
to purchase Orion Stock prior to the Merger.
Whether or not the Merger qualifies for tax-free treatment, no income or loss
generally will be recognized by holder of a nonqualified option to purchase
Orion Stock granted to the holder in connection with the performance of services
(an "Orion NSO") as a consequence of the conversion of the Orion NSO into a
nonqualified option to purchase Orion Newco Stock (an "Orion Newco NSO").
Rather, a holder of an Orion Newco NSO generally will recognize ordinary income
only when the holder exercises the Orion Newco NSO, which income generally will
equal the spread between the fair market value of the Orion Newco Stock on date
of exercise (determined without regard to any restrictions that will lapse over
time) and the exercise price.
The conversion of qualified incentive stock options ("ISOs") to purchase
Orion Stock into options to purchase Orion Newco Stock will not disqualify the
new options to purchase Orion Newco Stock from ISO status, provided the Merger
qualifies as a tax-free reorganization under Section 368(a) of the Code and the
Orion ISO is not modified other than to permit the holder to exercise the Orion
ISO for Orion Newco Stock. Similarly, shares of Orion stock acquired on exercise
of an Orion ISO will not be the subject of a "disqualifying disposition" merely
because the shares are exchanged pursuant to the Merger for shares of Orion
Newco Stock, provided the Merger qualifies as a tax-free reorganization under
Section 368(a) of the Code. If, however, the Merger does not constitute a
reorganization described in Section 368(a) of the Code, then, regardless of
whether the Merger qualifies as a tax-free exchange under Section 351(a) of the
Code, (i) each Orion ISO will become disqualified and will be treated as an
Orion Newco NSO, and (ii) an exchange of shares of Orion stock acquired on
exercise of an Orion ISO within one year of the date of exercise, or within two
years of the date on which the Orion ISO was granted to the holder, for shares
of Orion Newco Stock will constitute a "disqualifying disposition" in which the
holder will recognize ordinary income equal to the excess fair market value on
the date of the Merger of the Orion Newco Stock received over the price paid by
the holder for his or her Orion Stock on exercise of the Orion ISO.
Pursuant to Section 1032 of the Code, Orion Newco will not recognize any gain
or loss as a result of issuing shares of Orion Newco Stock to the Merger
Transferors or to the Exchanging Partners.
Finally, it should be noted that Orion and its subsidiaries have substantial
net operating loss carryovers ("NOLs") that currently may be used against future
taxable income of the group. Due to prior changes in the ownership of the stock
of Orion, the use of those losses against future taxable income may be subject
to limitations imposed under Section 382 of the Code. Further, the issuance of
the Orion Newco Series C Preferred Stock to Exchanging Partners will contribute
towards (and may likely cause) an ownership change under Section 382(g) of the
Code to occur and thus impose additional limitations on the use of losses
incurred prior to the issuance to offset future taxable income. In general,
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under Section 382 of the Code, the annual amount of taxable income earned
following a change of more than 50 percent in the ownership of a corporation
that can be offset by NOLs incurred prior to such a change in ownership equals
the product of a rate (published monthly by the IRS) in effect on the date of
the change of ownership times the fair market value of the corporation's stock
outstanding immediately prior to such change in ownership. Depending on the fair
market value of Orion Common Stock, if such an ownership change does occur as a
result of the issuance of the Series C Preferred Stock, the change could extend
the period over which Orion may utilize its NOLs to offset future taxable
income. The future tax benefit of some portion of the NOLs would likely be lost
to the extent an ownership change extends the period over which the NOLs can be
utilized beyond the applicable 15-year carryforward period.
THE SUMMARY SET FORTH ABOVE IS FOR GENERAL INFORMATION PURPOSES ONLY. THE
SUMMARY IS BASED ON CURRENTLY EXISTING PROVISIONS OF THE CODE, EXISTING AND
PROPOSED TREASURY REGULATIONS THEREUNDER AND CURRENT ADMINISTRATIVE RULINGS AND
COURT DECISIONS AS OF THE DATE OF THIS PROXY STATEMENT/PROSPECTUS, ALL OF WHICH
ARE SUBJECT TO CHANGE. TRANSFERORS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS
AS TO SPECIFIC TAX CONSEQUENCES TO THEM OF THE EXCHANGE, INCLUDING THE
APPLICABILITY AND EFFECT OF FOREIGN, STATE, LOCAL, AND OTHER APPLICABLE TAX LAWS
AND THE POSSIBLE EFFECT OF ANY PROPOSED CHANGES IN THE TAX LAWS.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS PRIOR TO AND FOLLOWING THE
TRANSACTIONS
The following table sets forth certain information regarding beneficial
ownership of the Orion Common Stock, as of September 30, 1996, and as adjusted
to reflect the beneficial ownership of Orion Newco Common Stock after the
Merger, the Exchange, the Debenture Investments and the other Transactions,
assuming for this purpose that the Transactions close as of January 30, 1997, by
(i) each stockholder known by Orion to be the beneficial owner of more than five
percent of the outstanding Orion Common Stock, (ii) each director of Orion,
(iii) each current executive officer named in the Summary Compensation Table and
(iv) all directors and executive officers as a group
<TABLE>
<CAPTION>
AFTER THE TRANSACTIONS
BEFORE THE TRANSACTIONS AFTER THE TRANSACTIONS ON A FULLY DILUTED BASIS(23)
------------------------------- ------------------------------- ------------------------------
PERCENT OF PERCENT OF PERCENT OF
AMOUNT OF TOTAL SHARES OF AMOUNT OF TOTAL SHARES OF AMOUNT OF TOTAL SHARES OF
SHARES COMMON STOCK SHARES COMMON STOCK SHARES COMMON STOCK
BENEFICIALLY OUTSTANDING BENEFICIALLY OUTSTANDING BENEFICIALLY OUTSTANDING
OWNED (2) OWNED (2) OWNED (2)
-------------- ---------------- -------------- ---------------- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
NAME AND ADDRESS OF
BENEFICIAL OWNER (1)
Exchanging Partners ................
British Aerospace Space
Systems, Inc. (3)
British Aerospace
Communications, Inc.
13873 Park Center Road
Herndon, VA 22071 .................. 598,183 5.4% 7,119,840 40.5% 7,119,840 27.5%
Lockheed Martin Commercial
Launch Services, Inc.
P.O. Box 179
MSM DC-1400
Denver, CO 80201-0179 .............. 239,769 2.2 1,355,997 11.2 1,355,977 5.2
MCN Sat U.S., Inc
37, Avenue Louis Breuget B.P.1.
78146 Velizy Villacoublay Cedez
France ............................. * * 1,727,257 13.6 1,727,257 6.7
61
<PAGE>
AFTER THE TRANSACTION
BEFORE THE TRANSACTIONS AFTER THE TRANSACTIONS ON A FULLY DILUTED BASIS(23)
------------------------------- ------------------------------- -------------------------------
PERCENT OF PERCENT OF PERCENT OF
AMOUNT OF TOTAL SHARES OF AMOUNT OF TOTAL SHARES OF AMOUNT OF TOTAL SHARES OF
SHARES COMMON STOCK SHARES COMMON STOCK SHARES COMMON STOCK
BENEFICIALLY OUTSTANDING BENEFICIALLY OUTSTANDING BENEFICIALLY OUTSTANDING
OWNED (2) OWNED (2) OWNED (2)
-------------- ---------------- -------------- ---------------- -------------- ---------------
Trans-Atlantic Satellite, Inc.
1211 Avenue of the Americas
41st Floor
New York, NY 10036 ................. * * 796,457 6.8 796,457 3.1
Kingston Communications
International Limited
Telephone House
Carr Lane
Kingston-upon-Hull
HU1 3RE
England ............................ 43,252 * 683,137 5.9 683,137 2.6
COM DEV Satellite
Communications Limited
150 Sheldon Drive
Cambridge, Ontario
Canada N1R 7H6 18,382 * 559,067 4.9 559,067 2.2
Exchanging Partners
as a group ......................... 899,586 8.1 12,241,755 54.5 12,241,755 47.3
John V. Saeman
J.V. Saeman & Co.(4)(5)
Medellion Enterprises, LLC
Suite 570
3200 Cherry Creek South Drive
Denver, CO 80209.................... 1,486,440 13.4 1,486,440 13.4 1,486,440 5.7
CIBC Wood Gundy Ventures, Inc.
(4)(6)
425 Lexington Avenue
New York, NY 10017 977,123 8.2 977,123 8.2 977,123 3.8
Cumberland Associates
1114 Avenue of the Americas
New York, NY 10036.................. 815,000 7.4 815,000 7.4 815,000 3.2
Fleet Venture Resources, Inc.(4)(7)
Fleet Equity Partners VI, L.P.
Chisholm Partners II, L.P.
50 Kennedy Plaza
Providence, RI 02903................ 743,428 6.3 743,428 6.3 743,428 2.9
Dawson-Samberg Capital
Management, Inc.
Pequot General Partners
DS International Partners
Pequot Endowment Partners, L.P.
Dawson-Samberg(8)
354 Pequot Ave.
Southport, CT 06490................. 637,500 5.8 637,500 4.4 637,500 2.5
Space Systems/Loral, Inc.
3925 Fabian Way
Palo Alto, CA 94303................. 588,235 5.4 588,235 5.4 588,235 2.3
Gustave M. Hauser(4)(9)
712 Fifth Avenue
New York, New York 01910............ 437,517 4.0 437,517 4.0 437,517 1.7
John G. Puente (4)(10)
2440 Research Blvd., Suite 400
Rockville, MD 20850................. 432,181 3.9 432,181 3.9 432,181 1.7
62
<PAGE>
AFTER THE TRANSACTIONS
BEFORE THE TRANSACTIONS AFTER THE TRANSACTIONS ON A FULLY DILUTED BASIS(23)
------------------------------- ------------------------------- ------------------------------
PERCENT OF PERCENT OF PERCENT OF
AMOUNT OF TOTAL SHARES OF AMOUNT OF TOTAL SHARES OF AMOUNT OF TOTAL SHARES OF
SHARES COMMON STOCK SHARES COMMON STOCK SHARES COMMON STOCK
BENEFICIALLY OUTSTANDING BENEFICIALLY OUTSTANDING BENEFICIALLY OUTSTANDING
OWNED (2) OWNED (2) OWNED (2)
-------------- ---------------- -------------- ---------------- -------------- ---------------
Sidney S. Kahn(4)(11)
14 East 60th Street, Suite 500
New York, New York 10022............ 254,840 2.3 254,840 2.3 254,840 1.0
W. Neil Bauer (4)(12)
2440 Research Blvd., Suite 400
Rockville, MD 20850................. 133,821 1.2 133,821 1.2 133,821 *
David J. Frear (4)(13)
2440 Research Blvd., Suite 400
Rockville, MD 20850................. 60,181 * 60,181 * 60,181 *
Richard H. Shay (14)
2440 Research Blvd., Suite 400
Rockville, MD 20850................. 35,805 * 35,805 * 35,805 *
Warren B. French, Jr. (15)
124 S. Main Street
Edinburg, VA 22824.................. 15,623 * 15,623 * 15,623 *
Richard J. Brekka (16)
CIBC Wood Gundy Ventures, Inc.
425 Lexington Avenue
New York, NY 10017.................. 10,000 * 10,000 * 10,000 *
Barry Horowitz (17)
Mitretek Systems, Inc.
7525 Colshire Drive
McLean, VA 22102.................... 10,000 * 10,000 * 10,000 *
Douglas H. Newman (18)
2440 Research Blvd., Suite 400
Rockville, MD 20850 ................ 20,000 * 20,000 * 20,000 *
W. Anthony Rice (19)
British Aerospace
13873 Park Center Road
Herndon, VA 22071................... 10,000 * 10,000 * 10,000 *
Robert M. Van Degna (20)
Fleet Equity Partners
50 Kennedy Plaza
Providence, RI 02903................ 10,000 * 10,000 * 10,000 *
Hans Giner (21)
2440 Research Blvd., Suite 400
Rockville, MD 20850................. 5,000 * 5,000 * 5,000 *
Dennis J. Curtin (22)
2440 Research Blvd., Suite 400
Rockville, MD 20850................. 26,039 * 26,039 * 26,039 *
All directors and executive
officers as a group (15 persons) ... 2,947,447 25.6 2,947,447 25.6 2,947,447 11.4
</TABLE>
- ----------
* Less than 1%.
(1) In accordance with Rule 13d-3 under the Exchange Act, a person is deemed to
be a "beneficial owner" of a security if he or she has or shares the power
to vote or direct the voting of such security or the power to dispose or
direct the disposition of such security. A person is also deemed to be a
beneficial owner of any securities of which that person has the right to
acquire beneficial ownership within 60 days from September 30, 1996. More
than one person may be deemed to be a beneficial owner of the same
securities. All persons shown in the table above have sole voting and
investment power, except as otherwise indicated. This table includes shares
of Orion Common Stock subject to outstanding options granted pursuant to
Orion's Stock Option Plan and the Non-Employee Director Stock Option Plan.
The shares held by the Exchanging Partners
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may be deemed to be beneficially owned by their parent companies, including
British Aerospace Public Limited Company, COM DEV, Limited, Kingston
Communications (Hull) plc, Martin Marietta Technologies, Inc. and Lockheed
Martin Corporation, Matra Hachette and Nissho Iwai Corporation. See "The
Merger, the Exchange and the Debenture Investments -- The Exchange
Agreement -- Parties."
(2) For the purpose of computing the percentage ownership of each beneficial
owner, any securities which were not outstanding but which were subject to
options, warrants, rights or conversion privileges held by such beneficial
owner exercisable within 60 days were deemed to be outstanding in
determining the percentage owned by such person but were not deemed
outstanding in determining the percentage owned by any other person.
(3) Includes 511,678 shares held of record and 86,505 shares issuable upon the
exercise of warrants held by British Aerospace Space Systems, Inc. Such
warrants were exercised subsequent to September 30, 1996.
(4) Does not include shares issuable upon exercise of warrants which are
exercisable only in the event that the Orion Senior Preferred Stock is
redeemed by Orion prior to its conversion into Orion Newco Common Stock.
(5) The 1,486,440 shares of Orion Common Stock beneficially owned by John V.
Saeman include 58,823 shares issuable upon conversion of 500 shares of
Orion Series A Preferred Stock, and 16,339 shares issuable upon conversion
of 166.667 shares of Orion Series B Preferred Stock. Of the remaining
1,411,278 shares of stock beneficially owned by John V. Saeman, 814,005 are
held by J. V. Saeman & Co., a general partnership, of which Mr. Saeman and
his wife are the sole partners, 40,196 are held by JCC, Ltd., a limited
partnership, of which J. V. Saeman & Co. is the general partner, and
535,523 are held by Medallion Enterprises, LLC, a limited liability
company, of which Mr. Saeman and his wife are the sole members. Includes
10,000 shares issuable upon exercise of stock options exercisable within 60
days.
(6) Includes 764,705 shares issuable upon conversion of 6,500 shares of Orion
Series A Preferred Stock and 212,418 shares issuable upon conversion of
2,166.667 shares of Orion Series B Preferred Stock held by CIBC, which
conversion would increase the number of shares of Orion Common Stock by
977,123 (8.9%).
(7) Includes 588,234 shares issuable upon conversion of 4,000 shares of Orion
Series A Preferred Stock held by the two Fleet entities (which include, for
purposes of this footnote, Fleet Venture Resources, Inc. and Fleet Equity
Partners, VI, L.P.) and 1,000 shares of Orion Series A Preferred Stock held
by Chisholm, and 130,685 shares issuable upon conversion of 1,333 shares of
Orion Series B Preferred Stock held by Fleet and preferred options held by
Chisholm which are convertible into 24,509 shares of Orion Common Stock.
Such conversion would increase the number of outstanding shares of Orion
Common Stock by 743,428 (6.8%).
(8) Includes 54,100 shares held by Dawson-Samberg Capital Management, Inc.,
235,400 shares held by Pequot General Partners, 204,100 shares held by DS
International Partners and 143,900 shares held by Pequot Endowment
Partners, L.P.
(9) Includes 58,823 shares issuable upon the conversion of 500 shares of Orion
Series A Preferred Stock and 16,339 shares issuable upon conversion of
166.667 shares of Orion Series B Preferred Stock held by Mr. Hauser and his
wife. Includes 10,000 shares issuable upon exercise of stock options
exercisable within 60 days.
(10) Includes 58,439 shares held of record and 7,351 shares issuable upon the
exercise of options by Mr. Puente's wife. Includes 321,501 shares held of
record, 43,087 shares issuable upon the exercise of stock options, 1,411
shares issuable upon the conversion of 12 shares of Orion Series A
Preferred Stock and 392 shares issuable upon conversion of 4 shares of
Orion Series B Preferred Stock held by Mr. Puente. Includes 10,000 shares
issuable upon exercise of stock options exercisable within 60 days.
(11) Includes 29,411 shares issuable upon the exercise of 250 shares of Orion
Series A Preferred Stock and 8,169 shares issuable upon conversion of
83.333 shares of Orion Series B Preferred Stock. Includes 10,000 shares
issuable upon exercise of stock options exercisable within 60 days.
(12) Includes 133,821 shares issuable upon the exercise of stock options held by
Mr. Bauer exercisable within 60 days. Does not include 10,220 shares held
of record, 1,882 shares issuable upon the conversion of 16 shares of Orion
Series A Preferred Stock and 522 shares issuable upon conversion of 5.333
shares of Orion Series B Preferred Stock purchased in June 1995 held by Mr.
Bauer's wife. Mr. Bauer disclaims beneficial ownership of these shares.
(13) Includes 46,321 shares issuable upon the exercise of stock options
exercisable within 60 days and 1,176 shares issuable upon conversion of 10
shares of Orion Series A Preferred Stock and 326 shares issuable upon
conversion of 3.333 shares of Orion Series B Preferred Stock.
(14) Includes 18,895 shares issuable upon exercise of stock options exercisable
within 60 days.
(15) Does not include 172,520 shares held of record, 29,412 shares issuable upon
the conversion of 250 shares of Orion Series A Preferred Stock or 8,170
shares issuable upon conversion of 83.334 shares of Orion Series B
Preferred Stock held by Shenandoah Telecommunications Company, of which Mr.
French is the former Chairman and presently a consultant. Mr. French
disclaims beneficial ownership of these shares. Includes 10,000 shares
issuable upon exercise of stock options exercisable within 60 days.
(16) Mr. Brekka disclaims beneficial ownership of all shares of Orion's capital
stock which are owned by CIBC Wood Gundy. Includes 10,000 shares issuable
upon exercise of stock options exercisable within 60 days.
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(17) Includes 10,000 shares issuable upon the exercise of stock options
exercisable within 60 days.
(18) Includes 10,000 shares issuable upon the exercise of stock options
exercisable within 60 days.
(19) Does not include 598,183 shares beneficially owned by British Aerospace
Space Systems, Inc. Mr. Rice, a Director of Orion and a director of British
Aerospace Space Systems, Inc., disclaims beneficial ownership of these
shares. Includes 10,000 shares issuable upon exercise of stock options
exercisable within 60 days.
(20) Excludes 588,234 shares issuable upon conversion of 4,000 shares of Orion
Series A Preferred Stock held by Fleet and 1,000 shares of Orion Series A
Preferred Stock held by Chisholm, and 130,685 shares issuable upon
conversion of 1,333 shares of Orion Series B Preferred Stock held by Fleet
and preferred options held by Chisholm which are convertible into 24,509
shares of Orion Common Stock. Such conversion would increase the number of
outstanding shares of Orion Common Stock by 743,428 (6.8%). Mr. Van Degna,
a Director of Orion, is the chairman and chief executive officer of each of
the managing general partners of Fleet Equity Partners VI, L.P., the
chairman and chief executive officer of Fleet Venture Resources, Inc. and
the chairman and chief executive officer of the corporation that is the
general partner of the partnership that is the general partner of Chisholm
Partners II, L.P. Mr. Van Degna disclaims beneficial ownership of these
shares. Includes 10,000 shares issuable upon exercise of stock options
exercisable within 60 days.
(21) Includes 5,000 shares issuable upon the exercise of stock options
exercisable within 60 days.
(22) Includes 14,446 shares issuable upon the exercise of stock options
exercisable within 60 days, and 705 shares issuable upon the conversion of
6 shares of Orion Series A Preferred Stock and 196 shares issuable upon
conversion of 2 shares of Orion Series B Preferred Stock.
(23) The percentage ownership of each beneficial owner calculated on a fully
diluted basis assumes conversion of all securities which were not
outstanding but which were subject to options, warrants, rights or
conversion privileges held by all beneficial owners exercisable within 60
days.
65
<PAGE>
THE RELATED TRANSACTIONS
The following describes certain Transactions whose completion is a condition
to the Merger, the Exchange or the Debenture Investments.
THE NOTES OFFERING/ORION 1 CREDIT FACILITY REFINANCING
Orion 1 Credit Facility Refinancing. The Orion 1 Credit Facility Refinancing
and the release of the Limited Partners' (and their affiliates') Orion 1 Credit
Facility Support Agreements (as defined below) is a condition to the Exchange,
and such release and the Exchange are conditions to the Debenture Investments. A
substantial portion of the funding for the Orion 1 satellite, which constitutes
the principal asset of Orion Atlantic (and, indirectly, of Orion), was provided
under the Orion 1 Credit Facility. Principal and interest payments under the
Orion 1 Credit Facility commenced in July 1995, six months after commencement of
commercial operations of Orion 1. As of September 30, 1996, approximately $210.4
million remained outstanding under the Orion 1 Credit Facility. That facility is
secured by substantially all of the assets of Orion Atlantic. The Orion 1 Credit
Facility also is supported by certain guarantees and other commitments by the
Exchanging Partners and Orion (the "Orion 1 Credit Facility Support
Agreements"), under which the Exchanging Partners and Orion agreed to make
payments to Orion Atlantic, either on a monthly basis or to the extent needed to
meet obligations under the Orion 1 Credit Facility or otherwise, of over $420
million over the seven-year period commencing with commercial operation of Orion
1. Through September 30, 1996, the Exchanging Partners and Orion have paid
approximately $26.7 million to Orion Atlantic under the Orion 1 Credit Facility
Support Agreements.
In connection with the Orion 1 Credit Facility Refinancing, Orion Newco,
Orion Atlantic, Orion, OrionSat and the Exchanging Partners are obligated to
take all measures reasonable necessary or advisable to cause the Bank Agreement
Termination and the Capacity Agreement Termination. However, the Capacity
Agreements of Kingston and Matra (but not the associated Capacity Guarantees)
will remain in full force and effect and the Kingston Capacity Agreement and the
Matra Capacity Agreement will be deemed amended, effective as of the date of the
Exchange, to reduce the amount of capacity subject to such Capacity Agreements.
Notes Offering. The Orion 1 Credit Facility Refinancing will be effected with
the proceeds of the Notes Offering. It is presently expected that the Notes
Offering will be in the amount of approximately $347 million with expected gross
proceeds of approximately $275 million (excluding approximately $72 million of
overfunding of interest due on such notes). The possible effects of incurring
substantial additional indebtedness are discussed elsewhere in this Proxy
Statement/Prospectus under the captions "Risk Factors -- Risks Relating to
Orion's Business -- Substantial Leverage; Secured Indebtedness" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations of Orion -- Liquidity and Capital Resources -- Current Funding
Requirements." Orion Newco is expected to incur substantial additional amounts
of indebtedness over the next few years, as described above under the caption
"Risk Factors -- Risks Relating to Orion's Business -- Need for Additional
Capital."
The Notes Offering is expected to include (i) Senior Notes due 2007 of Orion
Newco ("Senior Notes") sold as a unit with Warrants ("Warrants") to purchase
shares of Orion Newco Common Stock and (ii) Senior Discount Notes due 2007 of
Orion Newco ("Senior Discount Notes" and together with the Senior Notes, the
"Notes") sold as a unit with Warrants to purchase shares of Orion Newco Common
Stock. It is expected that the Notes will be guaranteed by each Restricted
Subsidiary (as defined in the Notes Indentures) of the Company. The Senior Notes
are presently expected to be issued at their principal amount with cash interest
payable on a semi-annual basis. The first six semi-annual interest payments on
the Senior Notes are to be paid from an escrow account funded out of the
proceeds of the Notes Offering. The Senior Discount Notes are presently expected
to be issued at a discount from their principal amount, and no cash interest is
expected to be payable on the Senior Discount Notes for the first five years.
The Notes are presently expected to rank senior in right of payment to all
subordinated indebtedness of the Company and pari passu in right of payment with
all unsecured senior indebtedness of the Company. The Notes are presently
expected to be unsecured (except to the extent of the proceeds in the escrow
account for application to the first six semi-annual interest payments on the
Senior
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Notes). The Notes are presently expected to mature ten years after issuance and
to provide for optional and mandatory redemption.
The Notes are to be issued under Notes Indentures among Orion Newco, its
Restricted Subsidiaries and a trustee which are expected to contain, among other
limitations, covenants which will restrict the ability of the Company and its
subsidiaries to: incur additional indebtedness; create liens; engage in
sale-leaseback transactions; pay dividends or make distributions in respect of
their capital stock; make investments or make certain other restricted payments;
sell assets; create restrictions on the ability of restricted subsidiaries to
make certain payments; issue or sell stock of restricted subsidiaries; enter
into transactions with stockholders or affiliates; and consolidate, merge or
sell all or substantially all of their assets. However, these limitations will
be subject to a number of important qualifications and exceptions.
Each Warrant will entitle the holder thereof to purchase the number of shares
of Orion Newco Common Stock at the exercise prices that will be established at
the time the Warrants are issued. The Warrants are presently expected not to be
exercisable for at least six months, and possibly longer, after the date of
issuance. The Warrants are presently expected to expire on the tenth anniversary
of the date of issuance.
The terms of the Notes and the Warrants as issued may differ in certain
respects from the terms described above. See "Risk Factors -- Risks Relating to
Merger, Exchange and Debenture Investments -- Certain Terms of Notes Offering
Not Yet Determined."
Each of the Exchanging Partners has agreed that Orion Newco may pursue the
Notes Offering to effect the Orion 1 Credit Facility Refinancing. Under the
Exchange Agreement, however, Orion Newco and Orion have reserved the right not
to proceed with the Notes Offering if they determine that it would not be in the
best interests of the stockholders of Orion Newco or Orion (including the
entities who would become stockholders of Orion Newco after the Merger).
OAP ACQUISITION
Orion has acquired or is in the process of acquiring the only outstanding
minority interest in Orion Asia Pacific from an affiliate of British Aerospace
for approximately 86,000 shares of Orion Newco Common Stock. Orion acquired the
remainder of Orion Asia Pacific in December 1992. Orion Asia Pacific holds
rights under an agreement with the Republic of the Marshall Islands pursuant to
which Orion is pursuing an orbital slot for the Orion 3 satellite. Consummation
of the OAP Acquisition is a condition to the British Aerospace Investment.
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INFORMATION ABOUT ORION NEWCO
Orion Newco is a newly formed Delaware corporation. Orion is the initial
stockholder of Orion Newco and owns one share of Orion Newco Common Stock. Orion
Newco is substantially identical in all material respects to Orion. In
particular, Orion Newco has a certificate of incorporation and bylaws
substantially identical in all material respects to those of Orion and a capital
structure substantially identical to that of Orion. For more information,
stockholders are referred to Orion Newco's certificate of incorporation and
bylaws filed as exhibits to the Registration Statement of which this Proxy
Statement/Prospectus is a part.
DESCRIPTION OF ORION NEWCO CAPITAL STOCK
The authorized capital stock of Orion Newco consists of 40,000,000 shares of
Orion Newco Common Stock, par value $.01 per share, and 1,000,000 shares of
preferred stock, par value $.01 per share.
The following summary description of the capital stock of Orion Newco upon
consummation of the Merger Transactions and the Debenture Investments is
qualified in its entirety by reference to the Certificate of Incorporation and
Bylaws of Orion Newco, copies of which are filed as exhibits to the Registration
Statement of which this Proxy Statement/Prospectus is a part.
ORION NEWCO COMMON STOCK
As of December 15, 1996, there were 10,974,121 shares of Orion Common Stock
outstanding, held by approximately 350 stockholders of record.
As described below, the rights and preferences of Orion Newco Common Stock
are substantially identical in all material respects to those of Orion Common
Stock.
Dividends. Subject to preferences that may then be applicable to any then
outstanding preferred stock, holders of Orion Newco Common Stock are entitled to
receive dividends out of funds legally available therefor when, as and if
declared by the Board of Directors. Orion has not paid any cash dividends upon
its Orion Common Stock and does not plan to pay any dividends on such stock for
the foreseeable future. The Notes Indentures will contain covenants that
restrict Orion Newco's ability to pay cash dividends.
Voting Rights. Each holder of Orion Newco Common Stock is entitled to one
vote per share of Orion Newco Common Stock held by such holder on all matters to
be voted upon by the stockholders of Orion Newco. Holders of shares of Orion
Newco Common Stock are not entitled to cumulative voting rights.
Staggered Terms of Directors. Under the provisions of Orion Newco's
Certificate of Incorporation, the members of the Board of Directors are divided
into three classes with the term of one class expiring each year. Accordingly,
only those Directors of a single class can be changed in any one year and it
could take three years to change the entire Board. While Orion Newco believes
that a staggered Board of Directors is in the best interests of Orion Newco and
its stockholders, such requirement may have the effect of protecting management
in retaining its position and discouraging potential acquirors.
Liquidation Rights. All shares of Orion Newco Common Stock have equal rights,
on a share for share basis, to receive pro rata the net assets of Orion Newco
upon liquidation or dissolution after payments to creditors and holders of
preferred stock, if any, then issued and outstanding. There are no redemption or
sinking fund provisions applicable to the Orion Newco Common Stock. All
outstanding shares of Orion Newco Common Stock are, and the shares of Orion
Newco Common Stock offered hereby will be when issued in accordance herewith,
fully paid and non-assessable.
ORION NEWCO PREFERRED STOCK
Orion Newco's Certificate of Incorporation authorizes the Board of Directors
to issue, from time to time and without further stockholder action, one or more
series of preferred stock, and to fix the relative rights and preferences of the
shares, including voting powers, dividend rights, liquidation preferences,
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redemption rights and conversion privileges. Because of its broad discretion
with respect to the creation and issuance of preferred stock without stockholder
approval, the Board of Directors could adversely affect the voting power of the
holders of Orion Newco Common Stock and, by issuing shares of preferred stock
with certain voting, conversion and/or redemption rights, could discourage any
attempt to obtain control of Orion Newco.
ORION NEWCO SENIOR PREFERRED STOCK
As described above under the caption "The Merger, the Exchange and the
Debenture Investments -- The Merger Agreement -- Terms of the Merger Agreement,"
pursuant to the Merger Orion Newco will issue the Orion Newco Series A Preferred
Stock and the Orion Newco Series B Preferred Stock in exchange for an identical
number of shares of Orion Series A Preferred Stock
and Orion Series B Preferred Stock.
Preemptive Rights. The holders of Orion Newco Senior Preferred Stock have a
contractual "preemptive" right to purchase a pro rata portion of any equity
securities sold by Orion Newco in the future on the same terms and conditions as
sold to others, subject to certain exceptions for securities sold or granted to
employees, certain small offerings, existing rights to acquire equity securities
and public offerings of securities under the Securities Act.
Dividends and Conversion. Dividends on the Orion Newco Senior Preferred Stock
accrue at 8% per annum, and are payable as and when declared by the Board. The
Orion Newco Senior Preferred Stock is convertible into Orion Newco Common Stock
at initial prices of $8.50 and $10.20 per share, subject to anti-dilution
adjustments in the case of recapitalizations or issuances of Orion Newco Common
Stock below the conversion price (other than pursuant to Warrants issued in the
Notes Offering). Future issuances of Orion Newco Common Stock below the
conversion price could significantly increase the percentage of Orion Newco's
equity owned by the holders of the Orion Newco Senior Preferred Stock. Upon
conversion of the Orion Newco Senior Preferred Stock, any accrued and unpaid
dividends on the Orion Newco Senior Preferred Stock will be waived.
Liquidation Rights. The Orion Newco Senior Preferred Stock has a liquidation
preference equal to the amount invested, which preference increases to the
extent of any accrued and unpaid dividends.
Voting Rights. Holders of the Orion Newco Senior Preferred Stock are entitled
to vote with holders of the Orion Newco Series C Preferred Stock and the Orion
Newco Common Stock, together as a single class on an as-if-converted basis.
Put Rights. The holders of Orion Newco Senior Preferred Stock have the right
to sell the Orion Newco Common Stock received upon the conversion thereof to
Orion Newco upon, among other things, certain mergers, changes of control or
sales of substantially all the assets of Orion Newco at the pro rata interest of
such holders in the consideration received, in the case of certain fundamental
changes, or fair market value. In the case of mergers in which the consideration
to be received by holders of Orion Newco Common Stock is in a form other than
cash, Orion Newco shall pay the purchase price with a combination of a specified
amount of freely tradable securities, a specified amount of cash, and the
balance with a note payable over two years. The holders of Orion Newco Senior
Preferred Stock (and any Orion Newco Common Stock received upon the conversion
thereof) also have the right to sell such stock (or the common stock issuable
upon conversion thereof) to Orion Newco commencing in June 1999 at the fair
market value of their shares (in the case of Orion Newco Common Stock) or the
liquidation value, including accrued and unpaid dividends (in the case of Orion
Newco Senior Preferred Stock), in accordance with the following schedule:
ON OR AFTER MAY 31, PORTION
------------------- ---------
1999............... 33 1/3 %
2000............... 66 2/3 %
2001............... 100 %
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The holders of Orion Newco Senior Preferred Stock have agreed to waive
exercise of these rights for so long as any Notes or Debentures remain
outstanding. These rights terminate upon the closing of a "Qualified Public
Offering," as discussed below.
Tag Along Rights. Certain principal stockholders of Orion have granted to
CIBC, Fleet and Chisholm the right to have a pro rata portion (based on the
percentage of Orion Newco Common Stock outstanding) of the Orion Newco Common
Stock issuable upon conversion of the Orion Newco Senior Preferred Stock
included in any sales by those principal stockholders which involve more than 5%
of the Orion Newco Common Stock then outstanding.
Termination of Certain Rights Upon Qualified Public Offering. The rights of
the holders of the Orion Newco Senior Preferred Stock relating to sale following
certain mergers, changes of control or sale of substantially all assets, the
rights to sell such stock to Orion Newco commencing in June 1999 or in
connection with certain business combinations at fair market value, the
preemptive rights and certain of the additional investment rights terminate upon
the closing of a "Qualified Public Offering" which is defined as a public
offering of the Orion Newco Common Stock with gross proceeds to Orion Newco of
not less than $30 million and a public offering price per share of not less than
$25.50.
Restrictive Covenants; Representations. The documents relating to the Orion
Newco Senior Preferred Stock impose certain covenants on Orion Newco. The
covenants include limitations on payment of dividends, redemption of junior
securities such as Orion Newco Common Stock, certain issuances of senior
securities (except when the Orion Newco Senior Preferred Stock is able to
acquire an equivalent seniority), expansion into other lines of business or
engaging in certain affiliated transactions. Failure to comply with those
covenants (or failure of representations to be true and complete when made)
could result in an increase in the dividend on the Orion Newco Senior Preferred
Stock not to exceed an annual dividend of 14% and could give the holders of the
Orion Newco Senior Preferred Stock certain rights to sell such stock to Orion
Newco if the non-compliance is material or (in certain cases) continues after
certain cure periods. The Notes Indentures are expected to contain a covenant
which will effectively prohibit such sale to Orion while any Notes are
outstanding. Orion Newco has the right to redeem the Orion Newco Senior
Preferred Stock (subject to limitations contained in the Notes Indentures) at
its liquidation value (plus accrued and unpaid dividends) by paying holders of
Orion Newco Senior Preferred Stock that amount and activating certain warrants
(issued concurrently with the Orion Newco Senior Preferred Stock) to purchase
Orion Newco Common Stock at the conversion price of such Orion Newco Senior
Preferred Stock. These warrants do not become exercisable unless Orion Newco
exercises its right to repurchase the Orion Newco Senior Preferred Stock.
Orion Newco's Right to Force Conversion of Orion Newco Senior Preferred
Stock. Orion Newco may require conversion of the Orion Newco Senior Preferred
Stock (resulting in the cancellation of accrued but unpaid dividends) if it
meets certain public float requirements, the holders of Orion Newco Senior
Preferred Stock are not subject to any agreements restricting the sale of Orion
Newco Common Stock received on conversion and the closing trading price of the
Orion Newco Common Stock for 30 of the 45 trading days preceding notice of the
required conversion has been above (i) $21.24 (if Orion Newco makes the
conversion election prior to June 17, 1997) and (ii) $25.50 (if Orion Newco
makes the conversion election on or after June 17, 1997).
ORION NEWCO SERIES C PREFERRED STOCK
The relative rights and preferences of the Orion Newco Series C Preferred
Stock will be as set forth on the Certificate of Designations, the form of which
is attached to this Proxy Statement/Prospectus as Attachment C, and are
described above under "The Merger, the Exchange and the Debenture Investments --
Description of the Orion Newco Series C Preferred Stock."
WARRANTS AND OPTIONS
As of December 15, 1996, there were warrants and options outstanding to
purchase an aggregate of 1,193,721 shares of Orion Common Stock at exercise
prices ranging from $8.16 to $14.00 per share, with a weighted average exercise
price of $10.31 per share. Holders of Orion Series A Preferred Stock have
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(and holders of Orion Newco Series A Preferred Stock will have) options to
invest an additional approximately $350,000 in similar preferred stock (except
that such similar preferred stock would be convertible at any time into Orion
Newco Common Stock at a price based upon the date when the option is exercised
within a range from $10.20 to $17.00 per share of Orion Newco Common Stock). The
holders of Orion Newco Senior Preferred Stock also hold certain warrants to
purchase Orion Newco Common Stock at the conversion price of such Orion Newco
Senior Preferred Stock. These warrants do not become exercisable unless Orion
Newco exercises its right to repurchase the Orion Newco Senior Preferred Stock.
The warrants and options contain provisions for the adjustment of exercise
prices in certain events, including stock dividends, stock splits,
reorganizations, reclassifications or mergers.
REGISTRATION RIGHTS
Orion Newco Senior Preferred Stock; SS/L. The holders of Orion Newco Senior
Preferred Stock and SS/L (an existing stockholder) are entitled to include their
shares of Orion Newco Common Stock in a registered offering of securities by
Orion Newco (a "piggyback" registration) for its own account or for the account
of its stockholders. If Orion Newco proposes to register any shares of Orion
Newco Common Stock under the Securities Act (other than for an offering
primarily to employees or in connection with a merger or acquisition), the
holder of registration rights may request that Orion include in the registered
offering shares held by such holder or which the holder would receive upon
conversion or exercise. If so requested, Orion Newco must use its best efforts
to include in the registered offering all shares requested, provided, among
other conditions, that the managing underwriter of such offering has the right
to limit or exclude entirely such shares of Orion Newco Common Stock from such
offering. Orion Newco is required to bear all registration and selling expenses,
other than underwriting discounts, selling commissions, applicable stock
transfer taxes, and certain registration fees and expenses, in connection with
such piggyback registrations.
The holders of Orion Newco Senior Preferred Stock have demand rights
(including two "long form" and an unlimited number of "short form"
registrations) to require Orion Newco to register the securities held by them,
subject to certain conditions. Orion Newco is required to bear all registration
and selling expenses, other than underwriting discounts, selling commissions,
applicable stock transfer taxes, and certain registration fees and expenses, in
connection with such demand registrations.
Series C Preferred Stock. The registration rights held by the holders of the
Orion Newco Series C Preferred Stock are described above under "The Merger, the
Exchange and the Debenture Investments-- Registration Rights."
Any exercise of such registration rights may hinder efforts by Orion Newco to
arrange future financings of Orion Newco and may have an adverse effect on the
market price of the Orion Newco Common Stock. See "Orion Newco Shares Eligible
for Future Sale."
CERTAIN ANTI-TAKEOVER EFFECTS
Orion Newco's Certificate of Incorporation and Bylaws contain certain
provisions that are intended to enhance the likelihood of continuity and
stability in the composition of Orion Newco's Board of Directors and in the
policies formulated by the Board of Directors, and to discourage an unsolicited
takeover of Orion Newco if the Board of Directors determines that such a
takeover is not in the best interest of Orion Newco and its stockholders.
However, these provisions could have the effect of discouraging certain attempts
to acquire Orion Newco or remove incumbent management even if some or a majority
of Orion Newco's stockholders were to deem such an attempt to be in their best
interest, including those attempts that might result in a premium over the
market price for the shares of Orion Newco Common Stock held by stockholders.
Orion Newco is subject to Section 203 of the Delaware General Corporation Law
("Section 203") which, subject to certain exceptions, prohibits a Delaware
corporation from engaging in certain business combinations with any interested
stockholder for a period of three years following the date that such stockholder
became an interested stockholder. In general, Section 203 defines an "interested
stockholder" as any entity or person beneficially owning 15% or more of the
outstanding voting stock of
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the corporation and any entity or person affiliated with or controlling or
controlled by such entity or person. A Delaware corporation may elect not to be
subject to Section 203 by having its stockholders approve an amendment to its
certificate of incorporation or bylaws to such effect. Orion Newco has not made
such an election and, therefore, Section 203 may have an anti-takeover effect
with respect to Orion Newco.
Under the Communications Act, if Orion Newco controlled an FCC radio common
carrier licensee (which it presently does not), the FCC could refuse or revoke
such licensee's license if (i) over 25% of Orion Newco was controlled by foreign
persons or entities and (ii) the FCC found that the public interest would be
served thereby. Because of these provisions, Orion Newco's Certificate of
Incorporation empowers the Board of Directors of Orion Newco to redeem any of
Orion Newco's outstanding capital stock to the extent necessary to prevent the
loss or secure the reinstatement of any license or franchise from any
governmental agency. Such stock may be redeemed at the lesser of (i) fair market
value or (ii) such holder's purchase price (if the stock was purchased within a
year of such redemption). See "Information About Orion's Business -- Regulation"
and "Risk Factors -- Risks Relating to Orion's Business -- Approvals Needed;
Regulation of Industry." The Company has agreed to certain limits on this right
with respect to the Debenture Investments. See "The Merger, the Exchange and the
Debenture Investments -- The Debenture Investments."
Orion Newco's Certificate of Incorporation contains a provision (the "Fair
Price Provision") that requires the approval of the holders of a majority of
Orion Newco's voting stock (other than voting stock held by an Interested
Stockholder (as defined below)) as a condition to a merger or to certain other
business transactions with, or proposed by, a holder of 20% or more of Orion
Newco's voting stock (an "Interested Stockholder"), except in cases (such as the
Debenture Investments) where the Continuing Directors approve the transaction or
certain minimum price criteria and other procedural requirements are met. A
"Continuing Director" is a director who is not an Interested Stockholder or
affiliated with an Interested Stockholder or who was a member of the Board prior
to the time the Interested Stockholder became an Interested Stockholder or whose
nomination or election to the Board of Directors is recommended or approved by a
majority of the Continuing Directors. The minimum price criteria generally
require that, in a transaction in which stockholders are to receive payments,
holders of Orion Newco Common Stock must receive a value equal to the highest
price paid by the Interested Stockholder for Orion Newco Common Stock during the
prior two years, and that such payment be made in cash or in the type of
consideration paid by the Interested Stockholder for the greatest portion of its
shares. Orion Newco's Board of Directors believes that the Fair Price Provision
will help assure that all of Orion Newco's stockholders are treated similarly if
certain kinds of business combinations are effected. However, the Fair Price
Provision may make it more difficult to accomplish certain transactions that are
opposed by the incumbent Board of Directors and that could be beneficial to
stockholders.
Orion Newco's Certificate of Incorporation also requires any person (or
entity) (the "Acquiring Stockholder") who acquires or seeks to acquire shares of
capital stock of the Company that would increase such person's voting power in
Orion Newco above any of three thresholds (20%, 33% or 50%) to send a disclosure
statement to Orion Newco and the other stockholders. The Acquiring Stockholder
must receive the approval of the holders of a majority of the other shares of
Orion Newco before the Acquiring Stockholder can vote the acquired stock. In
addition, if the Acquiring Stockholder has acquired or is acquiring more than
50% of the outstanding capital stock, the other stockholders who vote against
such acquisition are entitled to dissent and obtain for their shares, from Orion
Newco, payment equivalent to the estimated fair value of their shares. The
practical effect of this requirement is to condition the acquisition of control
of Orion Newco on the approval of a majority of the pre-existing disinterested
stockholders.
Orion Newco's Certificate of Incorporation provides that all actions taken
by the stockholders must be taken at an annual or special meeting of
stockholders. Under the Bylaws, special meetings of the stockholders of Orion
Newco may be called only by a majority of the members of the Board of Directors,
the Chairman or stockholders owning in the aggregate at least 35% of the
outstanding shares of capital stock of Orion Newco entitled to vote. Orion Newco
is not obligated to hold more than one
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special meeting called by stockholders during any six-month period. Stockholders
are required to comply with certain advance notice provisions with respect to
any nominations of candidates for election to Orion Newco's Board of Directors
or other proposals submitted for stockholder vote. These provisions may have the
effect of deterring hostile takeovers or delaying changes in control or
management of Orion Newco.
Orion Newco's Certificate of Incorporation and Bylaws provide that the Board
of Directors of Orion Newco is divided into three classes of directors serving
staggered three-year terms. The classification of directors has the effect of
making it more difficult for stockholders to change the composition of the Board
of Directors in a relatively short period of time. The authorized number of
directors may be changed by resolution of the Board of Directors or by the
holders of at least two-thirds of the voting power of all outstanding shares,
and directors may not be removed without cause.
The foregoing provisions of Orion Newco's Certificate of Incorporation and
Bylaws, except for those dealing with the liability of directors, may not be
altered, amended or repealed without the approval of the holders of at least
two-thirds of the voting power of all outstanding shares entitled to vote
thereon and the affirmative vote of the Board of Directors.
LISTING
The Orion Common Stock is, and after the Merger Transactions the Orion Newco
Common Stock will be, quoted on the Nasdaq National Market under the trading
symbol "ONSI."
TRANSFER AGENT
The transfer agent and registrar for the Orion Common Stock is, and after the
Merger Transactions the transfer agent and registrar for the Orion Newco Common
Stock will be, Fleet National Bank.
ORION NEWCO SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Merger and the Exchange, there will be approximately
25.9 million shares of Orion Newco Common Stock outstanding on a fully diluted
basis, assuming a closing of the Merger Transactions as of January 30, 1997.
Approximately 14.5 million of these shares will initially be held by Orion's
current stockholders, all of which will be freely transferable without
restriction or further registration under the Securities Act, other than the 5.5
million shares held by "affiliates" of Orion Newco, as that term is defined
under the Securities Act. The shares held by affiliates of Orion Newco are
expected to be eligible for sale pursuant to Rule 144 under the Securities Act.
In general, under Rule 144 as currently in effect, a person (or persons whose
shares are aggregated), including an affiliate, who has beneficially owned
shares of Orion Newco (or shares of Orion exchanged for shares of Orion Newco)
for at least two years (including the holding period of any prior owner other
than an affiliate) is entitled to sell, within any three-month period, a number
of shares that does not exceed the greater of (i) 1% of the then outstanding
shares of Orion Newco Common Stock (approximately 111,000 shares outstanding
immediately after the Transactions) or (ii) the average weekly trading volume of
the Orion Newco Common Stock during the four calendar weeks preceding such sale,
subject to the filing of a Form 144 with respect to such sale and certain other
limitations and restrictions. In addition, a person who is not deemed to have
been an affiliate of Orion Newco at any time during the 90 days preceding a
sale, and who has beneficially owned the shares proposed to be sold (or shares
of Orion exchanged for such shares) for at least three years, would be entitled
to sell such shares under Rule 144(k) without regard to the requirements
described above.
The Exchanging Partners, as owners of the Orion Newco Series C Preferred
Stock, and British Aerospace and Matra Marconi Space, as owners of the
Debentures, will own the remaining 11.4 million shares of Orion Newco Common
Stock, which will be issuable upon the conversion of such securities. All of
such shares will be deemed to be "restricted securities" as that term is defined
in Rule 144. Moreover, each Exchanging Partner will enter into a Transfer
Restriction Agreement regarding the transfer of the shares of Orion Newco Common
Stock issuable upon conversion of, or as dividends on, the Series C Preferred
Stock. Pursuant to the applicable Transfer Restriction Agreement, each Exchang-
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ing Partner may not transfer any shares of Orion Newco Common Stock issued upon
conversion of shares of Series C Preferred Stock or as dividends on such Series
C Preferred Stock (the "Affected Shares") without the prior written consent of
Orion Newco until the expiration of the Lockup Period (other than certain
transfers to affiliates). Also, pursuant to the applicable Transfer Restriction
Agreement, each Exchanging Partner agrees that it will not transfer during any
90-day period Affected Shares that collectively represent more than 25% of the
aggregate number of shares of Orion Newco Common Stock issuable upon conversion
of the Series C Preferred Stock received by such Exchanging Partner pursuant to
the Exchange Agreement or as dividends on such Series C Preferred Stock (the
"25% Limit") unless any such transfer is (i) pursuant to an underwritten, public
offering pursuant to a registration statement under the Securities Act, (ii)
pursuant to a tender or exchange offer made by or on behalf of the Company or a
third party, (iii) in connection with a merger, consolidation, sale of all or
substantially all of the assets, recapitalization or similar transaction
involving Orion Newco or (iv) pursuant to a transaction not involving a public
distribution or offering registered under the Securities Act and not made
through a broker, dealer or market-maker pursuant to Rule 144 (including a
pledge that meets such requirements); provided, however, that prior to any
transfer of Affected Shares under clause (iv) above and prior to any transfer of
Series C Preferred Stock other than under the circumstances set forth in clause
(i), (ii) or (iii) above, the transferee shall execute and deliver to Orion
Newco a transfer restriction agreement substantially similar to the Transfer
Restriction Agreement the transferor originally entered into (omitting the
Lockup Period provision noted above). The 25% Limit described above will
terminate on the date that is five years after the date of issuance of the Orion
Newco Series C Preferred Stock under the Exchange Agreement. See "The Merger,
the Exchange and the Debenture Investments -- Certain Transfer Restrictions."
The Exchanging Partners and holders of the Debentures will be granted certain
shelf, demand and "piggyback" registration rights with respect to the Orion
Newco Common Stock issuable upon conversion of the Orion Newco Series C
Preferred Stock or such Debentures, respectively, and the Orion Newco Common
Stock issuable as dividends thereon or interest with respect thereto. See "The
Merger, the Exchange and the Debenture Investments -- Registration Rights" and
"-- The Debenture Investments."
No predictions can be made as to the effect, if any, that sales of Orion
Newco Common Stock or the availability of additional shares of Orion Newco
Common Stock for sale by the Exchanging Partners or other stockholders of Orion
Newco would have on the market price of the Orion Newco Common Stock prevailing
from time to time or on the ability of Orion Newco to raise additional equity
financing. See "The Merger, the Exchange and the Debenture Investments --
Registration Rights," "-- Certain Transfer Restrictions," "-- The Debenture
Investments" and "-- Security Ownership of Certain Beneficial Owners Prior to
and Following the Transactions."
COMPARATIVE RIGHTS OF ORION STOCKHOLDERS AND
ORION NEWCO STOCKHOLDERS
Upon consummation of the Merger, stockholders of Orion will become
stockholders of Orion Newco. There are no material differences between the
rights stockholders of Orion possessed prior to the Merger and the rights such
stockholders will have after the Merger as Orion Newco stockholders.
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INFORMATION ABOUT ORION'S BUSINESS
OVERVIEW
Orion is a rapidly growing provider of satellite-based communications
services, focused primarily on (i) private communications network services, (ii)
Internet services and (iii) video distribution and other satellite transmission
services. Orion provides multinational corporations with private communications
networks designed to carry high speed data, fax, video teleconferencing, voice
and other specialized services. The Orion satellite's ubiquitous coverage
reaches all locations within its footprint, enabling the delivery of high speed
data to customers in emerging markets and remote locations which lack the
necessary infrastructure to support these services. The Company also offers high
speed Internet access and transmission services to companies outside the United
States seeking to avoid "last mile" terrestrial connections and bypass congested
regional Internet network routes. In addition, Orion provides satellite capacity
for video distribution, satellite news gathering and other satellite services
primarily to broadcasters, news organizations and telecommunications providers.
The Company provides its services directly to customer premises using VSATs.
The Company commenced operations of the Orion 1 satellite in January 1995. As
of September 30, 1996, Orion serviced 167 customers through 304 points of
service. The Company's customers include Amoco Poland Limited, Amway
Corporation, AT&T Corp., BBC, British Telecom, CNN, Citibank, N.A., Deere & Co.,
Global One, GTECH Corporation, Hungarian Broadcasting, News International
Limited, RTL Television, Pepsi-Cola International, Sprint Communications, Viacom
International Inc., Westinghouse Communications, World Wide Television News and
Xerox Corporation, or certain of their subsidiaries. As of September 30, 1996,
Orion's contract backlog was $123 million (after pro forma adjustments for the
Exchange). Substantially all of Orion's current contracts with customers are
denominated in U.S. Dollars. For the three months ended September 30, 1996, the
Company generated revenues of $12.2 million and had a loss from operations, net
loss and EBITDA (as defined below) of $(7.2) million, $(5.8) million and $1.7
million, respectively. For the first nine months of 1996, the Company generated
revenues of $30.0 million and had a loss from operations, net loss, net cash
used in operating actives and EBITDA of $(26.3) million, $(19.8) million,
$(25.0) million and $0.1 million, respectively. "EBITDA" represents earnings
before minority interests, interest income, interest expense, net of other
expense (income), income taxes, depreciation and amortization. EBITDA is
commonly used in the communications industry to analyze companies on the basis
of operating performance, leverage and liquidity. EBITDA is not intended to
represent cash flows for the period and should not be considered as an
alternative to cash flows from operating, investing or financing activities as
determined in accordance with GAAP. EBITDA is not a measurement under GAAP and
may not be comparable to other similarly titled measures of other companies.
The Company owns and operates the Orion 1 satellite, which provides coverage
of 34 European countries, much of the United States and parts of Canada, Mexico
and North Africa. Through arrangements with local ground operators, Orion
currently has the ability to deliver network services to and among points in 27
European countries, portions of the United States and a limited number of Latin
American countries. Orion 2, expected to be launched in the second quarter of
1999, will increase significantly the Company's pan-European capacity and
provide coverage of Central and South America. Orion 3, expected to be launched
in the fourth quarter of 1998, will cover broad areas of the Asia Pacific region
including China, Japan, Korea, India, Southeast Asia, Australia, New Zealand,
Eastern Russia and Hawaii. In the aggregate, the footprints of Orion 1, Orion 2
and Orion 3 will cover approximately 86% of the world's population.
The Company believes that demand for satellite based communications services
will continue to grow due to (i) the expansion of businesses beyond the limits
of wide bandwidth terrestrial infrastructure, (ii) accelerating demand for high
speed data services, (iii) growing demand for Internet and intranet services,
especially outside the U.S., (iv) increased size and scope of television
programming distribution, (v) worldwide deregulation of telecommunications
markets, and (vi) continuing technological advancements. Satellites are able to
provide reliable, high bandwidth services anywhere in their coverage areas and
the Company believes that it is well positioned to satisfy market demand for
these services. In
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addition, the Company believes that satellites will play a larger role in
providing Internet services due to their flexibility to accomodate high
bandwidth and asymmetric traffic.
FEATURES AND BENEFITS
Orion's satellite-based network offers customers a number of important
features, which provide significant benefits versus competing alternatives.
Bypass terrestrial network and multiple international connection
points. Orion's ability to bypass terrestrial facilities improves service
reliability and quality by reducing potential points of failure and avoids
"last mile" limitations. In addition, terrestrial bypass allows Orion to
avoid the multiple in-country toll charges of terrestrial facilities and
thereby reduces cost.
Direct end-to-end service to customer sites. Orion provides service
from rooftop to rooftop using VSAT earth stations located on customer
premises. This "end-to-end service" is reliable, rapidly installed, easily
upgraded and avoids the "last mile" limitations of some terrestrial
alternatives.
Ubiquitous coverage. Orion delivers wide bandwidth service to emerging
markets and remote locations where there are no effective terrestrial
alternatives.
One-stop shopping. Orion provides its customers with a single point of
contact for customer care, including service, billing and support.
Two-way communications for all sites. Orion's meshed network solutions
and frame relay services promote network efficiency and allow real-time
data transfer among dispersed network points.
Well-suited for asymmetric communications traffic. Orion's network
solutions can be designed to carry asymmetric traffic efficiently, which
increases performance and lowers cost to customers for services such as
Internet services.
Point to multipoint capability. Orion's ability to broadcast video,
data and voice to multiple locations simultaneously enables efficient
network design.
High power Ku-band transmissions, high reception sensitivity. Orion's
high power transmissions allow customers to lower costs by utilizing
small, less expensive earth station equipment. Orion 1's reception
sensitivity allows for effective reception from portable earth stations,
an advantage in satellite news gathering.
Cost-competitive. Orion prices its services to be competitive with both
satellite-based and terrestrial alternatives.
THE ORION SATELLITE SYSTEM
The Company launched Orion 1, a high-power satellite with 34 Ku-band
transponders, in November of 1994. Orion 1 provides coverage of 34 European
countries, much of the United States and parts of Canada, Mexico and North
Africa. Through arrangements with local ground operators, Orion currently has
the ability to deliver network services to and among points in 27 European
countries, portions of the United States and a limited number of Latin American
countries.
The Company has recently signed a contract for the construction and launch of
Orion 2. Orion 2 will expand the Company's European coverage and extend coverage
to portions of the Commonwealth of Independent States, Latin America and the
Middle East, as shown in more detail in the footprint set forth below under the
caption "-- Implementation of the Orion Satellite System -- Orion 2." Orion 2
will increase significantly the Company's pan-European capacity, currently the
area of strongest demand for the Company's services. The Company recently
commenced selling services in certain areas of Latin America. Orion 2 is
scheduled to be launched in the second quarter of 1999.
The Company has recently entered into an authorization to proceed with Hughes
Space for the construction and launch of Orion 3 and has commenced construction
of Orion 3. Orion 3 will cover broad areas of the Asia Pacific region including
China, Japan, Korea, India, Southeast Asia, Australia, New Zealand, Eastern
Russia and Hawaii, as shown in more detail in the footprint set forth below
under
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the caption "-- Implementation of the Orion Satellite System -- Orion 3." Orion
3's footprint will provide the Company with the ability to redistribute
programming from the United States via Hawaii to most of the Asia Pacific
region. The Company has already taken a number of steps to establish an early
market presence in Asia, and has entered into an $89 million lease for eight of
Orion 3's 43 transponders. Orion 3 is scheduled to be launched in the fourth
quarter of 1998.
In the aggregate, the footprints of Orion 1, Orion 2 and Orion 3 will cover
approximately 86% of the world's population. Maps of the footprints of Orion 1,
Orion 2 and Orion 3 are set forth below under the caption "-- Implementation of
the Orion Satellite System."
THE ORION STRATEGY
Orion's strategy is to maximize its revenues per satellite transponder
through the delivery of value-added services to end users. To quickly establish
a stable base of revenues, Orion sells transponder capacity to video
broadcasters and telecommunications service providers. However, Orion's
long-term strategic focus is on value-added private network services, which
include network design, VSAT installation, support and monitoring, in addition
to basic satellite capacity service. The implementation of Orion's strategy is
based on the following elements:
o Focus on Specialized Communications Needs of Multinational
Organizations
o Bridge to Emerging Markets and Remote Locations
o End-to-End Service
o Global Coverage
o Early Market Entry
o Local Presence
o Ownership of Facilities
FOCUS ON SPECIALIZED COMMUNICATIONS NEEDS OF MULTINATIONAL ORGANIZATIONS
Orion targets the needs of multinational businesses and governmental
customers for customized private network communications services. Advantages of
the Company's satellite-based network services include: (i) transmission over
wide areas to multiple dispersed sites including sites in emerging markets; (ii)
interconnectivity among all sites; (iii) wide bandwidth and high data speeds;
(iv) transmission of data, fax. teleconferencing and voice over the same
network; (v) high transmission reliability, quality and security; (vi) Internet
access; and (vii) rapid implementation, both for the initial installation and
for later network modifications. Due to the flexibility of the network, Orion is
able to provide companies with customized solutions to link multiple locations.
BRIDGE TO EMERGING MARKETS AND REMOTE LOCATIONS
Orion targets customers doing business in emerging markets and remote
locations of developed markets which often lack the fiber optic and digital
infrastructure required for wide bandwidth, high speed data applications.
Terrestrial transmissions in many emerging markets must often pass through
local, poorly developed network segments before reaching the customer premises,
making it difficult to send and receive high speed data. In contrast, Orion's
satellite system completely avoids such "bottlenecks" in local network segments
by sending and receiving transmissions directly to and from customers, avoiding
the need to interconnect with the local infrastructure. A significant portion of
Orion's private communications network customers transmit high-speed data to and
from locations in Central and Eastern Europe. Orion 2 and Orion 3 will extend
coverage to the Commonwealth of Independent States, Latin America and the Asia
Pacific Region.
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END-TO-END SERVICE
Orion provides its services directly to and among customer locations using
satellite transmission and VSATs installed at customer premises. Offering
end-to-end services and bypassing terrestrial infrastructure allows Orion to
offer higher reliability and higher quality services than some terrestrial
facilities by bypassing multiple telecommunications service providers and local
networks and avoiding related toll charges. It also permits Orion to install
networks more quickly than many of its competitors, who must deal with multiple
vendors and multiple communications technologies. Orion offers its customers
one-stop shopping. This includes a single point of contact, an all-inclusive
contract and consistent quality of service throughout the network.
GLOBAL COVERAGE
Orion believes that providing global coverage is a competitive advantage in
marketing to multinational corporations. Orion 1 covers 34 European countries,
much of the U.S. and portions of Canada, Mexico and North Africa. Orion uses
capacity leased from other carriers to supplement its network coverage area
(such as to areas of Russia and Latin America). Orion estimates that when Orion
2 (with coverage of Europe, Russia, the eastern United States, Latin America,
North Africa and the Middle East) and Orion 3 (with coverage of the Asia Pacific
region) are deployed, the satellite footprints in the aggregate will cover an
area inhabited by approximately 86% of the world's population. This coverage
will enable Orion to offer its customers a single source for service offerings
and a greater measure of network quality control than terrestrial alternatives.
EARLY MARKET ENTRY
Orion develops an early market presence in targeted geographic areas prior to
satellite launch in order to build its customer base. To accomplish this, Orion
hires sales people, develops relationships with ground operators, and delivers
its services using leased satellite capacity. Orion employed this strategy prior
to the commercial operation of the Orion 1 satellite and is pursuing the same
approach with Orion 2 and Orion 3. For example, the Company is currently
providing service in Latin America and Russia over leased satellite capacity.
LOCAL PRESENCE
Orion has arrangements with 30 local ground operators covering most countries
within the Orion 1 footprint, and is entering into additional arrangements as it
offers services in new areas. These ground operators are critical to providing
integrated service because they obtain necessary licenses, install and maintain
the customers' networks, provide in-country business experience and often
facilitate market entry.
OWNERSHIP OF FACILITIES
Orion believes it is strategically important to own its satellite facilities.
Orion believes that over the long-term ownership of satellite facilities
provides a cost advantage over resellers and other private service providers
that must lease satellite capacity to provide services to customers. The
Company's satellite ownership enables it to control the quality and reliability
of its network solutions, maintain the flexibility to rapidly add capacity, new
locations and new features to its customer networks, and respond quickly to
customer requests.
INDUSTRY OVERVIEW
Fixed communications satellites are generally located in geostationary orbit
approximately 22,300 miles above the earth and blanket large geographic areas of
the earth with signal coverage. Satellites are thus well suited for
transmissions that must reach many locations over vast distances simultaneously
(i.e., point-to-multipoint transmissions), such as the distribution of
television programming to cable operators, television stations and directly to
homes. Satellites can be accessed from virtually any location within the
geographic area they cover. This ubiquitous coverage allows the satellite to
transmit voice and data
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communications to remote locations and emerging markets where terrestrial
infrastructure is not well developed. Historically, satellites were used
primarily for international voice and data traffic, using large earth stations
that enabled lower-power satellites to function as "cables in the sky." The
principal drawback to satellite-based voice transmission is the 1/4 of a second
delay caused by the signal traveling to and from the satellite. In the U.S.,
Western Europe and Japan, the use of satellites for voice traffic has decreased
since the early 1980s with the growth of fiber optic cable networks.
Geostationary satellites now are used primarily for television distribution.
However, voice and data traffic remains the dominant use of satellites in
developing countries.
Prior to the late 1970s or early 1980s, most terrestrial infrastructure
consisted of copper wire (and, to a lesser extent, microwave systems), which was
well suited for ordinary telephone service. Today most developed economies
employ fiber optic cables, which provide much wider bandwidth than copper. In
addition, transoceanic cables now link most major industrialized countries.
Fiber optic cables are well suited for carrying large amounts of bulk traffic
between two fixed locations, and unlike copper wire facilities have sufficient
capacity to carry the high speed data communications that comprise an increasing
percentage of communications traffic. However, in many less developed areas,
terrestrial facilities still consist mainly of copper wire. Even in areas with
fiber optic networks, the "last mile" connections to customer premises often
consist of copper wire. As a result, customers with sites in areas which are
underdeveloped or which have not upgraded their "last mile" copper wire to fiber
optic cable often do not have access to the full range of high speed data
communications demanded by many businesses.
Satellites provide a number of advantages over terrestrial facilities for
many high speed communications services. First, satellites provide ubiquitous
service within their footprint and can deliver service directly to customers'
premises. Satellites enable high speed communications service where there is no
suitable terrestrial alternative available. In addition, satellites can
completely bypass terrestrial network congestion points, "last mile" bottlenecks
and unreliable networks of incumbent service providers to provide advanced
services to locations where conventional terrestrial service is available but
inadequate. Second, the cost to provide bandwidth via satellite does not
increase with the distance between sending and receiving stations. Not only must
terrestrial networks add physical capacity to cover additional distances, they
must also continually reamplify transmission signals. Satellites are well suited
for transmission across large distances, for wide bandwidth and for
point-to-multipoint (broadcast) applications. Finally, since VSATs are
relatively easy to install and/or relocate, high power satellite networks can be
rapidly installed, upgraded and reconfigured. In contrast, installation of fiber
optic cable is expensive, time consuming and requires obtaining rights-of-way.
The current generation of high power Ku-band satellites, such as Orion 1, is
particularly well suited to provide high speed business communications services
in addition to video distribution services. The use of the Ku-band frequencies
(as opposed to the C-band used by older generations of satellites) offers
reduced interference with ground communications. This enables satellites to use
the higher broadcasting power necessary to support small, low-cost VSAT earth
stations and makes it cost effective to transmit to or among numerous locations.
DATA NETWORKING
During the past decade, there has been significant growth in data networking
applications. The data networking market includes a number of types of services,
including leased lines for private networks, public data network services,
managed network services, frame relay and other services such as ATM
(asynchronous transfer mode) and WAN (wide area network) services. Ovum, Ltd. (a
U.K.-based consulting firm) estimates that revenues from the X.25
packet-switched data networking services in Western Europe alone totaled
approximately $2.7 billion in 1996, excluding revenues from such services as
leased lines, frame relay and ATM. Data networking applications include:
o Private network services; intranets: Many companies are utilizing their own
"private" networks to meet their specific communications requirements, including
voice and data communications, business television transmissions, video
teleconferencing, high speed fax and e-mail. Corporate networks offer higher
performance, greater control and security than can be provided through the
public network.
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Corporations are also taking advantage of intranets to distribute information
within their own companies using Internet technologies.
o Data inquiry, collection and retrieval: Hotel and travel reservation
systems and financial enterprises use private communications networks for
database inquiries and retrieval of information stored on computers. Banks use
such networks to verify account balances and connect automatic teller machines
to computers. Retail establishments verify credit standing and gather inventory
information. Other businesses use private communications networks to gather data
from multiple locations and transport it to central locations for analysis.
o Internet/intranet: Business and consumers rely on the Internet for a
growing number of services, including research, e-mail, data exchange, software
and graphics, financial services and shopping, and even voice communications.
These applications are predicted to continue to expand and diversify in the
future as enabling technologies mature.
o Image transmissions: Manufacturing, publishing, research and medical
industries use dedicated communications networks for high-resolution image
transmissions requiring large amounts of bandwidth.
o Government networks: Network telecommunications are employed for complex
military and nonmilitary government applications, including administrative and
logistical functions, that require high security and customer network control.
Orion believes that the demand for international data networking will
continue to grow as a result of (i) the shift to client/server computing, (ii)
the proliferation of bandwidth intensive applications and the development of
protocols such as frame relay to handle these applications, and (iii) use of the
Internet and intranets as part of main-stream corporate communications.
(i) Shift to client/server computing. Businesses are increasingly shifting
from using large host computers and centralized data network architectures to
distributed PC and workstation based platforms. As a result, businesses
require more private network infrastructure to establish and interconnect
local and wide area networks. As businesses become more global, the ability
to link multiple locations becomes more critical.
(ii) Proliferation of bandwidth intensive applications; frame relay.
Companies are relying more heavily on applications such as CAD/CAM and image
transfer that require more bandwidth and result in traffic patterns that
involve bursts of transmissions. In addition, there is increasing demand for
near-instantaneous connectivity and fast, reliable data transport. Frame
relay services support these applications and reduce the cost of fully and
partially meshed networks. The Company expects that demand for frame relay
services will experience rapid growth through the year 2000.
(iii) Expansion in Internet and intranet services. The Internet is
becoming a major vehicle for economic and social activity enabling broad,
global access to financial and business information, research material, and
information on leisure, arts and general interest topics. Business uses of
the Internet include communication within and among businesses, electronic
commerce, advertising and merchandising. Internet usage has also led to
increased demand for "intranet" services for corporate applications. Intranet
servers are used for publishing information, processing data and data-based
applications and collaboration among employees, vendors, and customers.
The significant growth in data networking services has led to rapid growth in
demand for satellite-based networks. Multinational companies are not always able
to implement client/server architectures, install wide bandwidth applications or
employ Internet and intranet solutions in every market due to underdeveloped
terrestrial communications infrastructure. Therefore, a growing use of VSATs is
to provide wide bandwidth capacity to industrial sites in emerging markets and
remote locations. Recent Comsys and Price Waterhouse reports have identified an
installed base of 140,000 to 160,000 VSATs and predict significant worldwide
growth over the next few years.
ORION MARKET OPPORTUNITY
The Company believes that demand for satellite based communications services
will continue to grow because of (i) the expansion of businesses beyond the
limits of wide bandwidth terrestrial infrastructure, (ii) accelerating demand
for high speed data services, (iii) growing demand for Internet and
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intranet services, especially outside the U.S., (iv) increased size and scope of
television programming distribution, (v) worldwide deregulation of
telecommunications markets, and (vi) continuing technological advancements.
(i) Expansion of business beyond the limits of wide bandwidth terrestrial
infrastructure. Overall growth in the international telecommunications market
reflects the increasingly international nature of business, the increasing
importance of emerging and newly industrialized economies and the increase in
international trade. International businesses expanding into emerging markets
often rely on the incumbent communications service providers for voice
circuits. However, as large organizations increasingly rely on more
sophisticated, high speed communications services to run their businesses,
many of these companies face operational bottlenecks when attempting to
implement more sophisticated communications networks. These problems are
faced both by companies in emerging markets and companies in developed
markets that rely on "last mile" copper infrastructure to interconnect with a
fiber optic network. Satellites provide wide bandwidth end-to-end service
directly connecting customer premises and bypassing the limitations of
terrestrial facilities.
(ii) Accelerating demand for high speed data services. The growth of
graphical user interfaces, the popularity of image-intensive applications
such as CAD/CAM, the incorporation of high-resolution electronic images into
business processes and video teleconferencing have necessitated major
upgrades of corporate data networks to accommodate the high data transfer
requirements of these applications. Most of these high speed data services
require fiber optic cable or other high bandwidth connections to the customer
premises. Even in developed markets, the "last mile" connection to the
customers premises often consists of copper wire, which cannot handle many
high speed data services. Satellites are well positioned to take advantage of
this trend because they provide reliable high bandwidth service everywhere in
their coverage areas, reaching sites in underdeveloped areas and bypass "last
mile" copper wire facilities that are unable to handle high speed
communications.
(iii) Demand for Internet and intranet services. The growth in Internet
and intranet services has further strained corporate network infrastructures.
The utility of Internet services to users is often constrained by the lack of
sufficient bandwidth to support high-resolution graphical applications and
images. Even where infrastructure quality is high, the rapid growth of the
Internet continues to create network congestion. Users are sometimes unable
to use current-generation software or gain high speed access to the Internet
due to the poor quality of their local terrestrial infrastructure. Satellites
have many advantages in delivering Internet services. satellite based
networks provide services directly to customer premises, bypassing
terrestrial bottlenecks and congested Internet routing facilities. In
addition, satellite based networks can be designed to support asymmetric and
multicast Internet traffic much more efficiently than terrestrial networks.
(iv) Increased size and scope of television programming distribution. The
global television market is experiencing significant growth, both in terms of
the number of broadcasters creating programming and the number of channels
available to viewers. Within the U.S., the number of television broadcast and
cable television program networks grew from three in 1970 to over 100 in 1993
and to approximately 200 in 1996. U.S. and international broadcasters are
seeking to expand into each others' markets, increasing the need for
satellite transmission capacity. Non-U.S. broadcasters are using
international satellites to distribute domestic programming to U.S. and other
overseas audiences of similar cultural heritage. Furthermore, the Company
believes that as the number of broadcasters and channels increases,
individual competitors will have a greater need for competitive
differentiation which will increase the use of live transmissions and expand
television coverage. Multichannel programming is expanding rapidly in Eastern
Europe, Latin America and Asia. The growth in multichannel programming has
increased the demand for international programming such as news and sports.
Orion is well positioned to take advantage of this growth due to its
high-power Ku-band satellite and transatlantic footprint.
(v) Worldwide deregulation of telecommunications markets. During the past
decade many countries have liberalized their telecommunications markets in
order to permit new competitors to provide facilities and services. These
changes have been particularly apparent in Europe, where Orion
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currently has the ability to deliver network service to and among points in
27 countries. Deregulation is also creating new competitors to national
telecommunications companies, which represent potential additional customers
for the Company's services.
(vi) Continuing technological advancements. The following recent
technological advances are expected to increase capacity, efficiency and
demand for satellite services:
1. High Power Satellites. The ability of service providers to deliver high
quality services directly to customer premises has greatly improved with the
development of high power satellites. Older, lower power satellites require
large, expensive earth stations to receive transmissions. Typically these earth
stations were located outside urban areas and required interconnection with
public telephone systems. High power satellites, such as Orion 1, enable the use
of small, inexpensive VSAT earth stations that may be installed at a customer
location, thereby reducing customer costs and bypassing all terrestrial
facilities.
2. Meshed Network Services. Traditional VSAT networks employ a hub/star
architecture anchored by an expensive hub earth station that controls the
network and communicates with each of the VSATs. Recent advances in VSAT
technology have led to the creation of fully meshed satellite-based networks.
These networks offer less transmission delay than hub/star networks by enabling
any network node to communicate with any other network node directly through the
satellite without having to transmit through a central network control point.
3. Frame Relay. The Company believes that despite rapid advances in network
services and application software, many companies hesitated to implement meshed
data networks due to high overhead costs generated by descriptive and routing
commands required to travel with the data traffic. Frame relay technology
reduces the number and complexity of commands needed to send data, and enables
companies to implement more cost-effective meshed networks. To meet customers'
demands for fully meshed frame relay network services, the Company has developed
its VISN service.
4. Compressed Digital Video. CDV technology is designed to compress up to ten
high-quality video channels in the same bandwidth that previously carried one or
two analog channels. This technology is creating a rapid expansion in the number
of available video channels with improved transmission quality. CDV lowers the
per-channel cost of delivering programming via satellite and cable television
systems, thereby enabling more programming options to be provided to smaller
markets. The Company believes that CDV will enable continued growth in the
number of video channels and also accelerate broadcasters' efforts to distribute
their programming internationally. The Company also believes that CDV will
result in higher total revenues per transponder as more customers can be served
per transponder. However, CDV may also in effect increase the supply of
satellite transponders, causing prices to decline. See "Risk Factors -- Risks
Relating to Orion's Business -- Potential Adverse Effects of Competition."
Although CDV is just beginning to be adopted in the industry, as of September
30, 1996, approximately 63% of Orion's video customers used CDV technology.
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ORION SERVICES
Orion provides satellite-based digital communications services comprised of:
(i) private network services for multinational business and governmental
customers, (ii) Internet backbone and access services and (iii) satellite
transmission capacity services, including video distribution services for
broadcasters, news organizations and international carriers. As indicated by the
charts below, 61% of revenues are derived from the sale of satellite capacity,
primarily for video. However, 62% of bookings for the nine months ended
September 30, 1996 were from private network and Internet services. The Company
believes these figures are consistent with its strategy of building a stable
base of revenues through sales of transmission capacity and then focusing on the
delivery of value-added private network services to end-users.
[DIAGRAM]
- ----------
* Bookings represent new customer contracts executed during the period. See
"Risk Factors -- Risks Relating to Orion's Business -- Uncertainties Relating to
Backlog."
PRIVATE COMMUNICATIONS NETWORK SERVICES
International Leased Line Services. Orion's international leased line
services include Digital Link and Digital Channelized Link. Digital Link can be
designed as a "point-to-point" private network service directly connecting
customer locations or as a "point-to-multipoint" service for customers seeking
to transmit communications from a central location to numerous remote sites.
Orion also offers Digital Channelized Link, a multiplexed version of Digital
Link that integrates digitally compressed voice, fax and data traffic into a
single channel. Digital Link and Digital Channelized Link services have been
offered by Orion since 1993. International leased line services have constituted
a majority of Orion's bookings of private communications network services to
date. Customers typically connect between three and nine sites with data rates
generally of 128 Kbps or greater.
One customer, a major multinational consumer goods company, required
voice/fax and data connectivity from nine offices in Central and Eastern Europe
and the company's U.S. headquarters, utilizing data speeds of up to 128 Kbps.
The sites are manufacturing centers for the customer's soap and toiletry
products. The customer was seeking a "one-stop shopping" solution which allowed
for simultaneous exchange of all of its voice/fax and data applications over a
single network provided by single network service provider. The customer
investigated two alternative networking solutions and selected satellite
connectivity provided by Orion over terrestrial facilities provided by the local
PTT's due to superior quality. The customer uses Orion's service for managing
inventory and "just-in-time" order entry.
International Data Networking Services. Orion's fully-meshed frame relay
based international data networking service, "Virtual Integrated Sky Network"
("VISN"), allows customers to transmit and receive voice, fax and data
communications, including intranet services, among multiple locations
simultaneously. VISN was developed by Orion and produced by Nortel Dasa (a joint
venture among Northern Telecom, Dornier GmbH, and Daimler Benz Aerospace AG).
The first phase of this service became available to customers commencing in the
third quarter of 1995, and subsequent phases of the service
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have been introduced during 1996 and are expected to be introduced during 1997,
including the addition of video teleconferencing. VISN offers customers
bandwidth on demand for data, voice and fax and, following the introduction of
in-process and future releases, customers will have the option to be charged on
a "pay per use" basis (e.g., minutes of use for voice and volume for data). VISN
employs TDMA technology, which will enable networks to send both voice and data
concurrently and further increase the effective bandwidth available for data
transmission. The VISN product was awarded "Best New Transport Technology
Product" at the 1995 ComNet New Product Achievement Awards Competition. Most
customers have between four and ten sites, and generally have minimum data rates
with the ability to use substantially greater bandwidth for bursts of traffic.
A VISN customer, Creditanstalt Bankverein, Austria's second largest bank,
needed a voice and data network among all of its branches in Central and Eastern
Europe. Data applications varied from electronic mail to transfer transactions
to its centralized data center in Vienna, along with voice requirements for
interoffice telephone calls and facsimile transmission. Creditanstalt
investigated terrestrial leased line and dial-up services to satisfy its
requirements. Orion's VISN service offered full meshed, frame relay network
service which supports both voice/fax and data transmission simultaneously.
Creditanstalt replaced its terrestrial network with a nine site VISN network
using data speeds of up to 256 Kbps.
INTERNET BACKBONE AND ACCESS SERVICES
The Company believes that the rapid growth of the Internet has created
substantial opportunities for Orion. First, the United States has become the
residence of the majority of the world's Internet content. Companies are looking
for reliable, wide bandwidth connections which bypass congested Internet network
segments. Orion's transatlantic capacity is well suited for companies in Europe,
including Internet Service Providers ("ISPs"), seeking high-speed access to the
U.S. Internet. Second, the Internet has begun to evolve from a user centered
"pull" environment (users requesting information) to a content provider centered
"push" environment (information delivered to users without concurrent request).
Broadly distributed entertainment, information and advertising via the Internet
are well suited for broadcast, point-to-multipoint communications facilities,
such as satellite. By using satellite broadcasts to transmit the most popular
Internet content to regional locations, ISPs can reduce their costs and relieve
network congestion. Finally, Internet data communications are typically
asymmetric. A typical, large Internet data transmission is predicated by a user
request that comprises only a few bytes of traffic. This interaction is
inefficient when carried over terrestrial full-duplex networks, which carry the
same capacity in both directions. Orion's satellite based solutions can be
designed with different amounts of capacity in each direction, providing an
inexpensive circuit for user requests and high-speed, reliable and available
capacity for the data that flows back to the user.
Although Orion's Internet services were introduced only in the second quarter
of 1996, sales of such services constituted 16% of new service bookings for the
nine months ended September 30, 1996. Orion offers three Internet-related
services, described below.
ISP Backbone Service. Orion's DirectNet I service is designed for European
ISPs. The service combines a dedicated, high speed point-to-point circuit
between the ISP's points of presence in Europe and the North American Internet
through a dedicated, fully redundant backbone connection. Orion also offers
additional features with its DirectNet I service, including 24-hour network
monitoring, control and support and a 99.5% network availability guarantee and
associated downtime credits. Orion is pursuing requirements or joint venture
arrangements with ISPs in which all of their transatlantic traffic would be
carried over Orion 1 as it develops. For example, Orion has an arrangement with
PSINet Inc. in which Orion has agreed to serve as the supplier for PSINet's
backbone, connecting PSINet's various points of presence in Europe to the U.S.
Internet backbone. Orion's ISP customers include, for example, companies such as
Global Ukraine, an ISP based in Kiev. Global Ukraine sought Internet
connectivity to the United States backbone with advanced technical features.
Orion now provides Global Ukraine with a 256 Kbps circuit from the Ukraine to
the United States with a connection into the U.S. Internet at three network
access points, providing route diversity and ensuring fast response time by
avoiding points of potential network congestion. Orion does not expect DirectNet
I to generate a material portion of its revenues.
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Corporate Internet Access. Orion's DirectNet II service is offered to
international corporations requiring high volume data transmission in connection
with World Wide Web browsing and downloading. DirectNet II provides a
point-to-point circuit between the North American Internet and the corporation's
premises. Orion offers large corporations Internet access service by reselling
the Internet access services of several large ISPs, such as DIGEX and UUNet.
Multicast Satellite-Based Internet Services. Orion recently introduced its
WorldCost service which allows ISPs or corporate users to significantly reduce
Internet bandwidth and ground facility costs. The service is based on an
asymmetric architecture which couples wide bandwidth satellite broadcasting with
narrow bandwidth terrestrial links to the Internet. Furthermore, WorldCost can
provide a single channel that is shared among multiple ISPs, which can remove a
significant amountof traffic from ISP terrestrial networks. The Company has
recently taken orders from customers but is not currently providing any
customers with this service.
VIDEO DISTRIBUTION AND OTHER SATELLITE TRANSMISSION SERVICES
Orion provides transmission capacity to cable and television programmers,
news and information networks, telecommunications companies and other carriers
for a variety of applications. Approximately two-thirds of Orion's transmission
capacity services consist of video services. The Company offers transmission
capacity services under long term contracts, with approximately 35% of such
services being under contracts of three years or less, 14% being under contracts
of approximately four to six years in duration and approximately 51% being
delivered under longer term contracts (such percentages being based upon
contract values). The remainder consists principally of occasional use services
for periods of up to a few hundred hours.
Video Services -- Contribution: Orion's video services include
"contribution," the long-distance transport of video signals (usually one or
more television channels) to one location. Viacom has leased capacity for one
channel on Orion 1 for the purpose of occasional or full time transmission for
video programming from its U.S. facilities to a broadcast facility in London.
From there it can be inserted into programming and rebroadcast in Europe.
Orion's contribution services also include transport of news programming for
RTL, a major commercial broadcast network in Germany. RTL needed to interconnect
its various news bureaus in Germany and the U.S. to transmit news stories to its
headquarters in Koln. Orion provided 24 MHz of transatlantic transmission
capacity service allowing transmission of RTL's programming in compressed
digital video format.
Video Services -- Distribution: Cable and television programmers use Orion's
satellite transmission services for distribution of television programming to
local broadcast stations, cable head-ends, MMDS (multichannel microwave
distribution) systems and SMATV (satellite master antenna television). Orion has
a joint marketing agreement with NTL, which operates one of the largest video
gateways in Europe, located in downtown London. Orion and NTL offer programmers
uplink, compression and distribution to cable head-ends throughout the United
Kingdom and to locations in Europe. Orion's ability to offer video distribution
services is aided by the transponder switching capabilities of Orion 1, which
are (and those of Orion 2 and Orion 3 are expected to be) designed to permit
programs to be distributed simultaneously throughout the satellite's coverage
area.
Orion's video distribution customers include Black Entertainment Television,
Inc. ("BET"), which was seeking a video distribution service for the
distribution of its BET On Jazz International Network, an internationally
distributed programming network dedicated to international Jazz and Blues
artists. BET required receipt of its signal at its headquarters in Washington,
D.C., conversion to a European TV standard, digital compression and uplinking of
the compressed digital video signal for distribution to cable head ends in the
United Kingdom and other sites in Europe.
News and Special Events: Orion 1 is used for transmission of special events
or remote feeds to international news bureaus from television stations and
on-location mobile transmitters. Because Orion's Ku-band technology and VSAT
ground segment infrastructure offers high reception sensitivity, the Company is
especially effective in transmitting television signals sent from low-powered
portable trans-
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mitters typically used by news organizations and program distributors. In
contrast to video contribution services, news and special events are
characterized by occasional use rather than long-term capacity contracts. CNN
selected Orion's service for its coverage of Bosnia, and Orion provided service
to the European Broadcasting Union for coverage of the Olympics in Atlanta.
International Carriers: Orion satellite transmission services are used by
international carriers to provide backup for terrestrial lines and to provide
communications services to areas with inadequate telecommunications
capabilities. These carriers resell Orion's capacity as part of their own
services.
Capacity Sales: Orion sells bulk capacity to resellers who use Orion's
transmission capacity as one component of a customer's end-to-end communications
solution. For example, Orion currently sells capacity to a number of firms that
resell Orion's capacity to governmental organizations.
Orion offers a range of value-added services in conjunction with its video
distribution and other satellite transmission services. Such services may
include the provision of video uplinking and receiving stations, digital
compression equipment and software, transmission monitoring, and gateway
interconnection services.
CUSTOMERS AND BACKLOG
Customers. As of September 30, 1996, Orion had entered into contracts with
167 customers, principally large multinational corporations, European companies
and governmental agencies. These entitles come from many different industries,
including communications, broadcasting, manufacturing, government, banking and
finance, energy, lottery, consumer distribution, Internet access services and
publishing. Selected customers from each service area are set forth below.
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SELECTED ORION CUSTOMERS
Private Network Services: AT&T Deere & Company
Digital Link/Digital Amoco EDS
Channelized Link Amway GE Americom
Chase Manhattan Bank Global One
Citibank News International
Limited
Concert Westinghouse
Private Network Services: Balluff & Co. Pepsi Cola
VISN Creditanstalt Price Waterhouse
Internet-related Am. Univ. of Bulgaria LV Net Teleport
Banknet Spectrum
BITS Terminal Bar
Datac TSSA Nask
Global Ukraine
Video Transmission and Other AsiaNet Hughes Network Systems
Black Entertainment Hungarian Broadcasting
Television
Bonneville International MCI
British Telecom RTL Television
CNN Telecom Italia
Comsat Viacom International
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More than half of Orion's customers are based in the U.S., but these
customers have a substantial majority of their points of service in Western and
Eastern Europe, as indicated in the charts below.
[DIAGRAM]
Orion has entered into a contract with DACOM Corp., a Korean communications
company which provides international and long distance telephone and leased line
services, international and domestic data communications and value added network
services. Under the contract, DACOM will, subject to certain conditions, lease
eight dedicated transponders on Orion 3 for 13 years for direct-to-home
television service and other satellite services, for $89 million payable in
installments from December 1996 through seven months following the lease
commencement date of the transponders. DACOM has the right to terminate the
contract before March 1997 (and Orion would retain the $10 million paid) if it
fails to obtain certain approvals. Payments are subject to refund if Orion 3 has
not been successfully launched and commenced of commercial operation by June 30,
1999. Although Orion 3 is scheduled to be launched in the fourth quarter of
1998, there can be no assurance that Orion will be able to meet the delivery
requirement of this contract.
Backlog. At September 30, 1996, Orion had approximately $123 million of
contracts in backlog (after giving effect to the Exchange and related
transactions, which will result in changes to arrangements with Limited Partners
that reduce backlog by approximately $11 million), as compared to approximately
$95 million at September 30, 1995. The backlog contracts generally have terms of
between three and four years. Orion presently anticipates that at least $86.4
million of its backlog will be realized after 1997. Orion has begun to receive
contract renewals under expiring contracts (under some of the earliest
contracts, which were entered into in 1993). The size of contracts varies
significantly, depending on the amount of capacity required to provide service,
the geographic location of the network and other services provided. As of
September 30, 1996, Orion had a VSAT installation backlog of 68.
Although many of the Company's customers, especially customers under large
and long-term contracts, are large corporations with substantial financial
resources, other contracts are with companies that may be subject to other
business or financial risks. If customers are unable or unwilling to make
required payments, the Company may be required to reduce its backlog figures
(which would result in a reduction in future revenues of the Company), and such
reductions could be substantial. The Company has recently instituted tighter
credit policies, and has taken steps to remove from backlog arrangements with
customers who have not taken service or have not made all required payments. In
the second quarter of 1996, the Company determined that one large customer under
a long-term contract (accounting for backlog of approximately $19.9 million) was
not likely to raise necessary financing to commence its service in the near
future, and accordingly the Company no longer considers such contracts part of
its backlog. Also in the second quarter of 1996, the Company removed from its
backlog contracts with a customer (accounting for backlog of approximately $4.5
million) which had ceased paying for the Company's services. In the fourth
quarter of 1996, the Company removed $10.4 million from its backlog related to
contracts under which customers failed to use the contracted service or failed
to make timely payment. The Company's contracts commence and terminate on fixed
dates. If the Company is delayed in commencing service or does not provide the
required service under any particular contract, as it has occasionally done in
the past, it may not be able to recognize all the revenue it initially includes
in
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backlog under that contract. In addition, the current backlog contains some
contracts for the useful life of Orion 1; if the useful life of Orion 1 is
shorter than expected, some portion of backlog may not be realized unless
services satisfactory to the customer can be provided over another satellite.
See "Risk Factors -- Risks Relating to Orion's Business -- Uncertainties
Relating to Backlog."
SALES AND MARKETING
Orion uses both direct and indirect sales channels. Orion markets its private
communications network services and Internet services through direct sales,
local representatives and distributors in Europe and the United States, and
wholesale arrangements with major carriers, Internet service providers,
resellers and systems integrators. Orion markets its video distribution and
other satellite transmission services primarily through direct sales. Orion also
has established arrangements with local companies in most countries within the
Orion 1 footprint to assist Orion with selling efforts and to provide customer
support and network maintenance functions in those countries (as discussed below
under the caption "Network Operations; Local Ground Operators").
Orion generally will enter into a single contract with customers covering
service to a number of countries. Orion offers the business customer a single
point-of-contact, a single contract and a price for its entire network, which
Orion believes constitutes true "one-stop shopping." Orion prices its services
centrally, using a single, easily administered set of pricing procedures for
customer networks.
Marketing will be critical to Orion's success. However, Orion has limited
experience in marketing, having commenced full commercial operations in 1995.
Orion's marketing program until recently consisted of direct sales using a U.S.
based sales force and indirect sales channels, including Limited Partner sales
representatives, for sales in Europe. The majority of Orion's contract bookings
to date have been generated by its direct sales force. Certain of its indirect
sales channels in Europe have not met expectations. Orion has been significantly
increasing its direct sales capabilities in Europe, particularly with respect to
sales of private communications network services. Although Orion believes that
the increase in its European sales capabilities will increase its bookings,
there can be no assurance regarding the timing or amount of such increase. Sales
of Orion's services generally involve a long-term complex sales process, and
Orion's bookings have fluctuated significantly. See "Risk Factors -- Risks
Relating to Orion's Business -- Risks Relating to Potential Lack of Market
Acceptance and Demand; Ground Operations."
The Company may from time to time enter into joint ventures or acquire
businesses which provide it with additional customers or which enhance its
marketing capabilities. Although the Company is presently considering one such
possible acquisition, it does not have binding arrangements at the present time.
The Company believes that such acquisition, if consummated, would not have a
material effect on the Company. See "Risk Factors -- Risks Relating to Orion's
Business -- Risks Concerning Ability to Manage Growth."
DIRECT SALES
Orion has assembled a direct sales force of 31 as of December 15, 1996 (as
increased from 26 at June 30, 1996) full-time employees in the United States and
Europe to offer its private communications network and satellite transmission
services. Approximately 68% of the sales force is based in the United States (in
Maryland) and approximately 32% is based in Europe. Orion expects to continue to
expand its sales force significantly throughout 1997, both in the U.S. and
Europe.
INDIRECT SALES CHANNELS
Representatives/Distributors. Orion has entered into agreements for the
marketing of its private communications network services in the United Kingdom,
France, Germany, Austria, Italy and other European countries. These agreements
call for sales, marketing and customer support services in specified
geographical areas, generally on a non-exclusive basis. Generally, the duration
of these agreements is three years. Third party sales representatives receive
commissions and fees for sales and customer support services, each of which are
payable over the life of the customer contracts to which the representative's
services relate and which are based upon the revenues derived. Sales
representatives are
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supervised by Orion sales managers, who establish marketing strategies with the
representatives, establish pricing, attend certain sales calls, develop
marketing materials and sales training tools, coordinate joint efforts in
promotional events and provide information about Orion's services. Orion also
provides engineering support to its sales representatives. Orion provides some
of these functions to support the sales efforts of its distributors.
Distributors purchase Orion's services at wholesale prices and resell those
services to customers at prices determined by the distributors. Two Limited
Partners who serve as sales representatives (and ground operators) are entitled
to receive additional commissions under a "profit sharing" formula based on
their overall contribution to sales, but no amounts have been paid under such
formula to date. Orion expects that unless Limited Partners sales
representatives increase their sales significantly, payments under the profit
sharing arrangement will be minimal.
Major Carriers and Other Wholesalers. Orion has entered into distributor
resale arrangements with major carriers, teleport operators, resellers and other
companies in the United States and internationally. These distributors typically
purchase communications network services from Orion (primarily the Digital Link
and Digital Channelized Link and to a lesser extent the DirectNet services) at a
wholesale rate for resale to their customers. This represents an important sales
channel for the Company, and the Company is focusing on strengthening these
relationships. Major carriers employ substantial sales forces and have the
advantage of being existing providers to many of Orion's target customers, which
makes marketing easier and increases awareness of customer needs.
NETWORK OPERATIONS; LOCAL GROUND OPERATORS
Orion has a centralized network operations function at its corporate
headquarters in Rockville, Maryland, supported by arrangements with local
companies in most countries within the Orion 1 footprint who assist Orion with
selling efforts and providing customer support and network maintenance
functions. Orion's relationships with ground operators are critical to providing
integrated service because ground operators obtain necessary licenses, install
and maintain the customers' networks, provide in-country business experience and
often facilitate market entry.
Network Operations. Once Orion enters into a contract with a customer, Orion
finalizes the design of the customer's network, acquires the required equipment
and arranges for the installation and commissioning of the network. Upon
commencement of service, Orion also monitors the performance of the networks
through its U.S. based network management center, located at its corporate
headquarters in Rockville, Maryland, and from facilities in Europe. The network
management center allows Orion to perform diagnostic procedures on customer
networks and to reconfigure networks to alter data speeds, change frequencies
and provide additional bandwidth.
Ground Operators. Through arrangements with 30 local ground operators, Orion
currently has the ability to deliver network services (through Orion 1 or leased
capacity on other satellites) to or among points in 27 European countries, the
United States and Mexico (which comprises substantially all of the countries
within the coverage area of Orion 1), as well as arrangements to deliver network
services in certain other Latin American countries. The ground operator
agreements call for installation and maintenance of VSATs and other equipment,
customer support and other functions in designated geographical areas, generally
on a non-exclusive basis. Generally, such ground operations agreements last
three years. Orion coordinates ground operations services (including service
calls) by its local agents through centralized customer service centers located
at Orion's corporate headquarters and at its facilities in Amsterdam. Orion also
provides its ground operators with installation and maintenance, training
materials and support. Ground operators receive fixed fees for installation,
maintenance and other services, which vary depending on the level of services
and the geographic area. Certain ground operators receive payments for customer
support over the life of the related customer contract, based upon the revenues
derived. Two Limited Partner ground operators are entitled to receive additional
fees under a profit sharing formula, but no amounts have been paid under such
formula to date and Orion expects that, unless such Limited Partners
significantly increase the number of VSATs they maintain on behalf of Orion or
Orion's customers, profit sharing payments will be minimal. Orion's operations
will continue to depend significantly on Orion being able to provide ground
operations for private network services using representatives and distributors
throughout the footprint of Orion's satellites. In the event that its network of
ground operators is not maintained and expanded, or fails to perform as
expected, Orion's
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ability to offer private network services will be impaired. See "Risk Factors
- --Risks Relating to Orion's Business -- Risks Relating to Potential Lack of
Market Acceptance and Demand; Ground Operations."
Set forth below is a map showing the locations of Orion's existing European
ground operators and potential new ground operators.
[DOCUMENT CONTAINS A MAP OF EUROPE INDICATING WHERE ORION HAS GROUND OPERATORS
AND WHERE ORION IS NEGOTIATING THE HIRING OF ADDITIONAL GROUND OPERATORS]
MIGRATION PLAN FOR NEW MARKETS
Prior to the launch of Orion 1, the Company began providing private
communications network services to customers over satellite capacity leased from
others. This early market entry strategy is being extended to Latin America and
Asia with the execution of the Orion 2 Satellite Contract and commencement of
construction of Orion 3 in December 1996. By developing an early market
presence, Orion builds its customer base, establishes relationships with ground
operators and becomes familiar with the regulations and practices in its new
markets prior to launch of its satellites. Upon the launch of Orion 1, Orion
migrated its customer base to its own satellite, and Orion expects to pursue the
same approach for Orion 2 and Orion 3.
In Latin America, the Company has a relationship with a ground operator in
Mexico and is currently providing service to customers in Mexico, Colombia and
Paraguay over leased capacity. The Company intends to migrate such services to
Orion 2 after it commences operations, as Orion did with its Orion 1 satellite.
The Company has three U.S. based direct sales personnel focused on selling in
Latin America, and is pursuing relationships with other potential ground
operators and joint venture partners.
In Asia, the Company has assigned two full time personnel to pursue arrangements
with potential ground operators and joint venture partners, and has commenced
discussions with such entities in a number of Asian countries. Orion has begun
the process of identifying potential sales representatives in countries within
the Orion 3 footprint. The Company has also begun discussions with existing
customers who have operations within the Orion 3 footprint and have expressed an
interest in procuring Orion's services in Asia. Orion has started to identify
other potential multinational and Asia-based customers, and plans to open a
regional office in Asia in the second half of 1997. The Company expects its
marketing for Orion 3 will be assisted by the $89 million pre-construction lease
by DACOM, a Korean communications company, of eight of Orion 3's transponders
for direct-to-home service and other satellite services. See "-- Implementation
of the Orion Satellite System -- Orion 3 -- Pre-Construction Customer."
IMPLEMENTATION OF THE ORION SATELLITE SYSTEM
Orion currently provides its services with Orion 1 and with facilities leased
from other providers covering areas outside the satellite's footprint.
Ultimately the Company will provide these services with three satellites,
together with facilities leased outside of its footprints. Orion 1 provides
coverage of the Northern Atlantic Ocean region. Orion 2 is being designed to
cover the Atlantic Ocean region but with coverage of points further East (into
the Commonwealth of Independent States) and South (into Latin America and
Africa), and Orion 3 is being designed to cover the Asia Pacific region.
The design, construction, launch and in-orbit delivery of a satellite is a
long and capital-intensive process. Satellites comparable to Orion's typically
cost in excess of $200 million (exclusive of development, financing and other
costs) and take two to three years to construct, launch and place in orbit.
Prior to launch, the owner generally must obtain a number of licenses and
approvals, including approval of the host country's national telecommunications
authorities to construct and launch the satellite, coordination and registration
of an orbital slot (of which there are a limited number) through the ITU to
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avoid interference with other communications systems and a consultation on
interference with INTELSAT (and EUTELSAT in the case of European satellites).
Obtaining the necessary consents can involve significant time and expense, and
in the case of the United States, requires a showing that the owner has the
financial ability to fund the construction and launch of the satellite and to
operate for one year. The Company has commenced construction of Orion 3 and
plans to commence construction of Orion 2 prior to receipt of all regulatory
approvals. Failure to obtain such approvals prior to launch would have a
material adverse effect on the Company. See "Risk Factors -- Risks Relating to
Orion's Business -- Approvals Needed; Regulation of Industry" and "Regulation"
below.
Orion 1 is expected to have an in-orbit useful life of approximately 10.7
years, estimated to end in October 2005, and Orion 2 and Orion 3 are expected to
have in-orbit useful lives of 13 years and 15 years, respectively (based upon
present design). While there can be no assurances that adequate financing and
regulatory approvals will be obtained, Orion plans to launch replacement
satellites as its satellites reach the end of their useful lives.
ORION 1
Orion 1 was launched in November 1994 and commenced commercial operations in
January 1995.
Satellite Design and Footprint. Orion 1, which is in geosynchronous orbit at
37.5|SD West longitude, is a high power Ku-band telecommunications satellite
that contains 28 transponders of 54 MHz bandwidth and six transponders of 36 MHz
bandwidth (although one of these transponders has not operated in accordance
with specifications, as described below). The footprint of Orion 1 is shown
below (although certain transponders of Orion 1 can be reconfigured to match
changing business and telecommunications requirements).
[DIAGRAM]
Satellite Construction and Performance. Orion 1 was constructed by Matra
Marconi Space's subsidiary MMS Space Systems Limited, one of the major satellite
contractors in Europe. Orion 1 was designed both for the delivery of high-speed
data and for high-powered digital video transmission to corporate users. In
particular, Orion 1 was designed with high reception sensitivity, which enables
two-way transmission from and to small earth stations, reducing the equipment
and transmission cost to customers. Orion 1 has transatlantic networking
capability, which allows users to uplink data in the U.S. or Europe and downlink
that transmission simultaneously to the U.S.
and Europe.
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This configuration simplifies customers' transatlantic networking solutions.
Orion believes that Orion 1's Ku-band technology and VSAT ground segment
infrastructure is among the least expensive, most flexible technologies for
interactive satellite transmissions in the North Atlantic market. Like most
recent satellites, Orion 1 offers digitally compressed transmission, in addition
to analog transmission, which allows the satellite to increase by up to ten fold
its usable bandwidth per transponder, leading to greater revenue per transponder
and greater network availability to customers in need of bandwidth on demand.
When Orion 1 was delivered into orbit, one of the 36 MHz transponders with
coverage of the United States did not perform in accordance with contract
specifications. Orion settled the matter with the manufacturer for a one time
refund of $2.75 million (which amount was applied as a mandatory prepayment
under the existing Orion 1 Credit Facility). In addition, the manufacturer will
pay Orion approximately $7,000 per month for the life of the satellite under the
warranty to the extent the transponder is not used to generate revenue. Orion
believes that the failure of such transponder to perform in accordance with
specifications will not have a significant impact on Orion's ability to offer
its services.
In November 1995, one of Orion 1's components supporting nine transponders of
dedicated capacity serving the European portion of the Orion 1 footprint,
experienced an anomaly that resulted in a temporary service interruption,
lasting approximately two hours. Full service to all affected customers was
restored using redundant equipment on the satellite. The redundant equipment
currently generates a majority of Orion's revenues. Orion believes, based on the
data received to date by Orion from its own investigations and from the
manufacturer, and based upon advice from Orion's independent engineering
consultant, Telesat Canada, that because the redundant component is functioning
fully in accordance with specifications and the performance record of similar
components is strong, the anomalous behavior is unlikely to affect the expected
performance of the satellite over its useful life. Furthermore, there has been
no effect on Orion's ability to provide services to customers. However, in the
event that the redundant component fails, Orion 1 would experience a significant
loss of usable capacity. In such event, while Orion would be entitled to
insurance proceeds of approximately $47 million and could lease replacement
capacity and function as a reseller with respect to such capacity (at
substantially reduced gross margins), the loss of capacity would have a material
adverse effect on Orion. See "Risk Factors -- Risks Relating to Orion's Business
- -- Risks of Satellite Loss or Reduced Performance."
Control of Satellite. Orion uses its tracking, telemetry and command facility
in Mt. Jackson, Virginia (the "TT&C facility") to control Orion 1, and has in
place backup facilities at its headquarters in Rockville, Maryland. In addition,
Orion has a satellite control center at Orion's headquarters in Rockville,
Maryland, from which commands can be sent to the satellite, directly, or
remotely through the TT&C facility. Orion also has constructed a network
management center at its headquarters to monitor the performance of Orion 1 and
to perform diagnostic procedures on and to reconfigure its communications
networks. Orion leases additional facilities in Europe for backup tracking,
telemetry and command and network monitoring functions.
ORION 2
Schedule and Footprint. Orion intends to launch Orion 2 in the Atlantic Ocean
region to bolster its European capacity and to expand its coverage area in the
Commonwealth of Independent States, Latin America and parts of Africa. Orion 2
will be a high power Ku-band communications satellite which will contain
approximately 30 transponders of 54 MHz bandwidth. Orion has obtained
conditional authorization from the FCC for the orbital slot at 12|SD West
longitude for operation of Orion 2. The FCC has commenced the coordination
process through the ITU and will commence consultation with INTELSAT upon
request from Orion. Orion currently plans to commence construction of Orion 2
immediately after completion of the Offering and launch Orion 2 late in the
second quarter of 1999. See "-- Satellite Construction, Launch and Performance"
and "Risk Factors -- Risks Relating to Orion's Business -- Launch of Orion 2 and
Orion 3 Subject to Significant Uncertainties."
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[DIAGRAM]
Satellite Construction, Launch and Performance. Matra Marconi Space and MMS
Space Systems are the prime contractors for Orion 2 and will use MMS Space
Systems' EUROSTAR satellite platform for Orion 2. This platform was previously
used for Inmarsat 2, Telecom 2, Hispasat and Orion 1. Lockheed Martin CLS will
provide launch services for Orion 2 using the Atlas II A-S launch vehicle. Atlas
II A-S, which is larger than the launch vehicle used for the launch of Orion 1,
is an expanded version of Atlas II. All 26 of the Atlas II, II A and II A-S
launches have been successful. There have been more than 500 Atlas flights
since the first research and development launch in 1957. For a discussion of the
Company's financing needs with respect to Orion 2, and related risks, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" and "Risk Factors -- Risks
Relating to Orion's Business -- Launch of Orion 2 and Orion 3 Subject to
Significant Uncertainties -- Substantial Financing Requirements."
The Orion 2 satellite will be tested extensively prior to launch. Matra
Marconi Space is obligated to correct all defects in the satellite or its
components discovered prior to the launch. If Orion 2 is launched but fails to
meet the specified performance criteria following launch, or fails to arrive at
its designated orbit within 180 days of launch, or is completely destroyed or
incapable of operation, Orion 2 will be deemed a "constructive total loss." Upon
a constructive total loss of Orion 2, Orion would generally be entitled to order
from Matra Marconi Space a replacement satellite on substantially the same terms
and conditions as set forth in the Orion 2 Satellite Contract, subject to
certain pricing adjustments. If Orion 2 is substantially able to perform but
fails to meet certain criteria for full acceptance, Orion 2 will be deemed a
"partial loss." Upon a partial loss of Orion 2, Orion would be entitled to
receive a partial refund based on calculations of Orion 2's performance
capabilities. If Orion 2 is not a constructive total loss or partial loss, but
does not meet the specified performance requirements at final acceptance or for
five years thereafter, Matra Marconi Space may be required to make certain
refund payments to Orion up to a maximum of approximately $10 million. Orion's
principal remedy in the case of a constructive total loss or partial loss will
be under the launch insurance the Company is to obtain. A total or partial loss
will involve delays and loss of revenue, which will impair Orion's ability to
service its indebt-
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dness, and such insurance will not protect Orion against business interruption,
loss or delay of revenues or similar losses and may not fully reimburse the
Company for its expenditures. See "Insurance" below and "Risk Factors -- Risks
Relating to Orion's Business -- Risks of Satellite Loss or Reduced Performance
- -- Limited Insurance for Satellite Launch and Operation."
The Orion 2 Satellite Contract provides for incentive payments to encourage
early delivery and limited liquidated damages payable in the event of late
delivery. The incentive payments would equal $25,000 per day for each day that
Orion 2 is delivered prior to the scheduled delivery date. Liquidated damages in
the event of a late delivery of Orion 2 also would be calculated on a daily
basis, with the aggregate amount not to exceed approximately $12 million. These
liquidated damages would be Orion's exclusive remedy for late delivery, except
as discussed above.
Control of Satellite. Orion expects to use the TT&C facility to control Orion
2, and to use its existing network monitoring facilities in Rockville, Maryland
and backup facilities in Europe.
There can be no assurance that Orion 2 will be launched successfully. See
"Risk Factors -- Risks Relating to Orion's Business -- Launch of Orion 2 and
Orion 3 Subject to Significant Uncertainties."
ORION 3
Schedule and Footprint. Orion intends to launch Orion 3 in the Asia Pacific
region. Orion 3 is expected to cover all or portions of China, Japan, Korea,
India, Hawaii, Southeast Asia, Australia, New Zealand, and Eastern Russia. Orion
3 is expected to be a high-power satellite with 23 54 MHz and two 27 MHz
equivalent Ku-band transponders, 10 36 MHz C-band transponders for use by Orion,
and eight Ku-band transponders to be used by DACOM, a large Asian customer, for
direct-to-home television services and other satellite services. Orion, through
the Republic of the Marshall Islands, has filed the appropriate documentation to
begin the ITU process to coordinate an orbital slot at 139|SD East longitude.
Orion has not commenced the consultation process with INTELSAT with respect to
such orbital slot. Orion commenced construction of Orion 3 in December 1996.
Orion 3 is scheduled to be launched in the fourth quarter of 1998. See "Risk
Factors -- Risks Relating to Orion's Business -- Launch of Orion 2 and Orion 3
Subject to Significant Uncertainties."
For a discussion of Orion's financing needs with respect to Orion 3, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations of Orion -- Liquidity and Capital Resources" and "Risk Factors --
Risks Relating to Orion's Business -- Need for Substantial Additional Capital"
and "-- Launch of Orion 2 and Orion 3 Subject to Significant Uncertainties --
Substantial Financing Requirements."
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The proposed coverage of Orion 3 is shown below.
[DIAGRAM]
Pre-Construction Customer. Orion has entered into a contract with DACOM
Corp., a Korean communications company which provides international and long
distance telephone and leased line services, international and domestic data
communications and value added network services. Under the contract, DACOM will
lease eight dedicated transponders on Orion 3 for 13 years for direct-to-home
television service and satellite services, in return for payment of
approximately $89 million payable over a period from December 1996 through seven
months following the lease commencement date for the transponders. DACOM has the
right to terminate the contract before March 1997 (and Orion would retain the
$10 million paid) if it fails to obtain certain approvals. Payments are subject
to refund if the successful launch and commencement of commercial operation of
Orion 3 has not occurred by June 30, 1999. Although Orion 3 is scheduled to be
launched in the fourth quarter of 1998, there can be no assurance that Orion
will meet the delivery requirements of this contract. See "Risk Factors -- Risks
Relating to Orion's Business -- Launch of Orion 2 and Orion 3 Subject to
Significant Uncertainties -- Timing Uncertainties." As part of the arrangements
with DACOM, Orion granted DACOM a warrant to purchase 50,000 shares of Common
Stock at $14 per share.
Satellite Construction, Launch and Performance. Orion has selected Hughes
Space as the prime contractor for Orion 3 and will use a Hughes Space HS 601 HP
satellite platform for Orion 3. Launch services for Orion 3 will be provided
using the McDonnell Douglas Delta III launch vehicle. Delta III,
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which is larger than the launch vehicle used for the launch of Orion 1, is an
expanded version of the Delta II launch vehicle which has had 53 successful
launches with a failure rate of less than 2%. There have been no Delta III
flights to date, and the Company expects its launch to be the third Delta III
flight based upon information provided by the launch vehicle manufacturer
regarding its present flight schedules. For a discussion of the Company's
financing needs with respect to Orion 3, and related risks, see "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity" and "Risk Factors -- Risks Relating to Orion's Business -- Launch of
Orion 2 and Orion 3 Subject to Significant Uncertainties -- Substantial
Financing Requirements."
Under the proposed Orion 3 Satellite Contract, the Orion 3 satellite will be
tested extensively prior to launch. Hughes Space is obligated to correct all
defects in the satellite or its components discovered prior to the launch. The
risk of loss or damage to Orion 3 passes from Hughes Space to Orion at the time
of intentional ignition of Orion 3. After Orion 3 is launched and meets the
specified performance criteria following launch, and has not suffered damage
caused by any failure or malfunction of the launch vehicle, Hughes Space is
required to perform in-orbit testing of Orion 3 to determine whether the
transponders meet the specified performance criteria. If the transponders meet
the specified performance criteria, Hughes Space is entitled to retain the full
satellite performance payments described below. See "Insurance" and "Risk
Factors -- Risks Relating to Orion's Business -- Satellite Risks -- Limited
Insurance for Satellite Launch and Operation."
Orion has options to purchase an additional satellite which may be used as a
replacement satellite for Orion 3 to be launched within 12 to 19 months
(depending on the option chosen by Orion), with fees for accelerating the
construction after Orion places the order for completion of an additional
satellite. Hughes Space is obligated to furnish the replacement satellite on
terms substantially similar to those contained in the Orion 3 Satellite
Contract.
The Orion 3 Satellite Contract provides for incentive payments to encourage
satellite performance and limited liquidated damages payable in the event of
late delivery. The incentive payments could total $18 million depending on the
satellite's performance, of which $10 million could be payable upon acceptance
of the Orion 3 satellite and $8 million is payable over the course of the
satellite's operational lifetime (all of which incentive payments are included
in the contract price for Orion 3). In the event that it is determined during
the Orion 3's operational lifetime that a transponder is not successfully
operating, Orion is entitled to receive payment refunds under the Orion 3
Satellite Contract. Liquidated damages in the event of a late delivery of Orion
3 also would be calculated on a daily basis, with the aggregate amount not to
exceed approximately $6 million. These liquidated damages would be Orion's
exclusive remedy for late delivery.
Control of Satellite. Orion expects to lease a tracking, telemetry and
command facility in Asia to control Orion 3 and to maintain backup facilities in
Korea, pursuant to arrangements with DACOM.
There can be no assurance that Orion 3 will be launched successfully. See
"Risk Factors -- Risks Related to Orion's Business -- Launch of Orion 2 and
Orion 3 Subject to Significant Uncertainties."
ORBITAL SLOTS
Orion 1: Orion has been licensed by the FCC and has completed the
coordination process with INTELSAT to operate Orion 1 in geostationary orbit at
37.5' West longitude.
Orion 2: Orion has obtained conditional authorization from the FCC for the
construction, launch and operation of Orion 2 at 12' West longitude. On behalf
of Orion, the FCC has commenced the orbital slot coordination process through
the ITU. Orion believes that its use of the 12' West longitude slot for Orion 2
is not likely to interfere with proposed uses of adjacent slots filed for by
other governments, except for a possible overlap of 75 MHz with one such filing
as discussed more fully below under the caption "-- ITU Coordination Process."
Orion will consult with INTELSAT regarding Orion 2, and believes that since
there are no INTELSAT satellites located adjacent to the 12' West longitude
orbital slot, the INTELSAT coordination should be obtained in due course.
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Orion 3: Orion, through the Republic of the Marshall Islands, has filed the
appropriate documentation with the ITU to begin the ITU coordination process for
Orion 3 at 139' East longitude. Based upon the time of filing by the Republic of
the Marshall Islands, Orion believes that the proposed orbital slot for Orion 3
would have effective priority under ITU procedures with respect to the 139' East
longitude orbital slot, but some proposals for adjacent slots would be entitled
to priority over the Company's proposal (through the Republic of the Marshall
Islands) with respect to possible interference. Orion believes, based upon its
monitoring of the other proposals and information in the industry regarding
their progress, that none of the entities with effective priority over the
Company's proposal (through the Republic of the Marshall Islands) will be able
to launch a satellite prior to launch of Orion 3 to take advantage of such
priority. Orion has not commenced the consultation process with INTELSAT with
respect to Orion 3, but as in the case of Orion 2 expects to complete the
INTELSAT coordination in due course.
Other Orbital Slots: Orion has received an authorization from the FCC for a
Ku-band satellite in geostationary orbit at 47' West longitude, and has
coordinated this orbital position with INTELSAT. Orion has also filed an
application with the FCC to operate a satellite at 126' East longitude. The FCC
has filed documentation with the ITU to commence the coordination process for
this slot. In May 1996, in response to Orion's application, the FCC assigned the
U.S. domestic orbital location of 135' West longitude to Orion. In November
1996, the FCC granted authorization to Orion to utilize the slot, conditioned on
Orion submitting financial qualification information, or documentation
justifying a waiver of the financial requirements, within 120 days after the
release of the individual order with respect to Orion's application. Orion
presently intends to seek a waiver with respect to this 120 day requirement, but
believes failure to obtain a waiver would not have a material affect on Orion or
its business. Such 120 day requirement does not apply to authorization
previously granted to Orion, such as for the 12' West longitude orbital slot
proposed to be used for Orion 2.
In September 1995, Orion filed applications for authority to construct,
launch and operate Ka-band satellites at 78.0' East longitude, 93.0' West
longitude, and 83.0' West longitude, and an amendment to its pending application
to construct, launch and operate a Ku-band satellite at 127' West longitude to
add a Ka-band payload. In addition, Orion filed an application to modify its
authority to construct, launch and operate a Ku-band satellite at 47' West
longitude to include a North/South beam configuration. On November 9, 1995,
Orion filed an application for authority to construct, launch and operate a
Ka-band satellite at 12' West longitude. In May 1996, the FCC assigned Ka-band
orbital locations for 33 U.S. companies for international orbital locations,
including two assigned to Orion at 78' East longitude and 126.5' East longitude,
and one at 47' West longitude. This orbital assignment plan was conditioned upon
authorization of the domestic portion of the proposed satellite systems. At
approximately the same time the FCC made ITU filings for these satellites. The
FCC order does not license these satellites, and some of the applications to use
the orbital assignments are subject to further FCC processing. There are ongoing
negotiations among the applicants concerning a consensual Ka-band orbital
assignment plan to be submitted to the FCC to resolve a number of mutually
exclusive orbital assignment requests, including Orion's pending Ka-band
application for 93.0' West longitude, 83.0' West longitude and 127' West
longitude. The FCC has indicated that if a consensus cannot be reached by the
applicants, the FCC will itself resolve these orbital conflicts in the
processing of these applications, and such processing will be in conformity with
yet-to-be adopted Ka-band service rules. There can be no assurance that Orion
will receive final licenses to operate at these orbital positions, or that the
FCC will act favorably on Orion's other satellite filings.
ITU Coordination Process. An international treaty to which the U.S. and the
Republic of the Marshall Islands are parties requires coordination of satellite
orbital slots through the procedures of the ITU. There are only a limited number
of such orbital slots. ITU procedures provide for a priority to attach to
proposals that are submitted first for a particular orbital slot and associated
frequencies, and provide for protection from interference by satellites in
adjacent slots. This priority does not establish legally-binding rights, but at
a minimum establishes certain procedural rights and obligations for and with
respect to the party that first submits its proposal.
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Over the past decade, a substantial increase in satellite proposals
introduced into the ITU coordination process has caused delays in that process.
In addition, many proposals are submitted to the ITU for registration of
satellite systems that ultimately are not constructed or launched. As a result,
the ITU is investigating ways to improve or streamline the filing process for
registration of orbital slots. In the meantime, it has become international
practice for operators who propose to use a certain orbital slot to investigate
and evaluate whether proposals to launch satellites into the same or a nearby
orbital location are likely to result in actual operation, and for operators to
negotiate with other countries or operators that propose to use the same or a
nearby orbital location. There can be no assurance of the outcome of any
objections to this international practice or as to the results of the ITU's
investigations.
Orion is involved in discussions with certain governments concerning their
proposals to use orbital slots. While Orion believes that it can successfully
coordinate and resolve any interference concerns regarding the use of the
orbital locations and frequency bands proposed for Orion 2 and Orion 3, there
can be no assurance that this will be achieved, nor can there be assurance that
ITU coordination will be completed by the scheduled launch dates for Orion 2 and
Orion 3.
In the event that successful coordination cannot be achieved, Orion may have
to modify the satellite design for Orion 2 or Orion 3 in order to minimize the
extent of any potential interference with other proposed satellites using those
orbital locations or frequency bands. Any such modifications may result in
certain features of Orion 2 and Orion 3 differing from those described in this
Prospectus and may result in limitations on the use of one or more transponders
on Orion 2 or Orion 3 or delays in the launch of Orion 2 or Orion 3. In order to
achieve successful coordination, Orion may also have to modify the operation of
the satellites, or enter into commercial arrangements with operators of other
satellites, in order to protect against harmful interference to Orion's
operations. If interference occurs with satellites that are in close proximity
to Orion 2 and Orion 3, or with satellites that are subsequently launched into
locations in close proximity without completing ITU coordination procedures,
such interference would have an adverse effect on the proposed use of the
satellites and on Orion's business and financial performance. See "Risk Factors
- -- Risks Relating to Orion's Business -- Approvals Needed; Regulation of
Industry."
INSURANCE
Orion has obtained satellite in-orbit life insurance for Orion 1 covering the
period from May 1996 to May 1997 in an initial amount of approximately $245
million providing protection against partial or total loss of the satellite's
communications capability, including loss of transponders, power or ability to
control the positioning of the satellite. The aggregate premium for in-orbit
insurance for Orion 1 is approximately $6 million per annum.
Orion intends to procure launch insurance for the construction, launch and
insurance costs of Orion 2 and Orion 3. In the past, satellite launch insurance
was generally procured approximately six months prior to launch. Recently, it
has become possible to obtain a commitment from insurance underwriters well
before that time, which fixes the rate and certain terms of launch insurance.
Orion intends shortly to seek such a commitment from insurance underwriters to
provide launch insurance for Orion 2 and Orion 3. Such insurance is expected to
be quite costly, with present insurance rates ranging at or above 16% of the
insured amount, depending upon such factors as the launch history and recent
performance of the launch vehicle to be used and general availability of launch
insurance in the insurance marketplace (although such rates have reached 20% or
higher in the past several years). Such insurance can be expected to include
certain contract terms, exclusions, deductibles and material change conditions
that are customary in the industry. After launch of Orion 2 and Orion 3, the
Company will need to procure satellite in-orbit life insurance for Orion 2 and
Orion 3. There can be no assurance that such insurance will be available or that
the price of such insurance or the terms and exclusions in the actual insurance
policies will be favorable to the Company. Launch and in-orbit insurance for its
satellites will not protect the Company against business interruption, loss or
delay of revenues and similar losses and may not fully reimburse the Company for
its expenditures. Accordingly, an unsuccessful launch of Orion 2 or Orion 3 or
any significant loss of performance with respect to any of its satellites would
have a material adverse effect on Orion and would impair Orion's ability to
service its indebted-
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ness, including the Notes. See "Risk Factors -- Risks Relating to Orion's
Business -- Risks of Satellite Loss or Reduced Performance -- Limited Insurance
for Satellite Launch and Operation."
COMPETITION
As a provider of data networking and Internet-related services, Orion
competes with a large number of telecommunications service providers and
value-added resellers of transmission capacity. As a provider of satellite
transmission capacity, Orion competes with other providers of satellite and
terrestrial facilities.
Many of these competitors have significant competitive advantages, including
long-standing customer relationships, close ties with regulatory and local
authorities, control over connections to local telephone networks and have
financial resources, experience, marketing capabilities and name recognition
that are substantially greater than those of Orion. The Company believes that
competition in emerging markets will intensify as incumbent service providers
adapt to a competitive environment and international carriers increase their
presence in these markets. The Company also believes that competition in more
developed markets will intensify as larger carriers consolidate, enhance their
international alliances and increase their focus on data networking. Orion's
ability to compete with these organizations will depend in part on Orion's
ability to price its services at a significant discount to terrestrial service
providers, its marketing effectiveness, its level of customer support and
service and the technical advantages of its systems.
SERVICE PROVIDERS
Orion has encountered strong competition from major established carriers such
as AT&T, MCI, Sprint, British Telecom, Cable & Wireless, Deutsche Telekom,
France Telecom and Kokusai Denshin Denwa, which provide international telephone,
private line and private network services using their national telephone
networks and link to those of other carriers. A number of these carriers have
formed global consortia to provide private network services, including AT&T --
Unisource Services Company (AT&T, PTT Telecom Netherlands, Telia (Sweden), Swiss
Telecom PTT and Telefonica of Spain), Concert (British Telecom and MCI), and
Global One (Sprint, France Telecom and Deutsche Telekom). Other service
providers include MFS Worldcom (which acquired IDB Communications Group, Inc.
and Wiltel International, Inc.), Infonet, SITA, Telemedia International,
Spaceline, ANT Bosch (which is being acquired by General Electric), Teleport
Europe, Impsat, and various local resellers of satellite capacity. Finally,
service organizations that purchase satellite capacity, VSAT and other hardware
and install their own networks may be considered competitors of the Company with
respect to their own networks. Although these carriers and service providers are
competitors, some are also Orion's customers. Orion believes that all network
service providers are potential users of Orion's satellite capacity for the
network services they offer their customers. See "Risk Factors -- Risks Relating
to Orion's Business -- Potential Adverse Effects of Competition."
SATELLITE CAPACITY
Orion provides fixed satellite service and does not intend to compete with
proposed mobile satellites or low earth orbit systems ("LEO") such as
Globalstar, Iridium or Odyssey (although the Company does expect to compete with
Teledesic, a proposed LEO system), or, with the exception of the pre-leased
transponders on Orion 3 to be used for video transmissions, with direct-to-home
satellite systems such as Primestar, DirectTV or EchoStar. Mobile satellite
services are characterized by voice and data transmission to and from mobile
terminals on platforms such as ships or aircraft. Direct-to-home services are
characterized by the transmission of television and entertainment services
directly to consumers. Orion's satellites will compete with trans-Atlantic fixed
satellite systems, European regional and domestic systems and Asian systems.
Existing International and Trans-Atlantic Satellite Systems. The market for
international fixed satellite communications capacity has been dominated by
INTELSAT for thirty years, and INTELSAT can be expected to continue to dominate
this market for the foreseeable future. INTELSAT, a consortium of approximately
138 countries established by international treaty in 1964, owns and operates the
largest
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fleet of commercial geosynchronous satellites in the world (25 satellites, with
additional satellites on order). INTELSAT's satellites have historically been
general purpose, lower-power satellites designed to serve large areas with
public telephone service transmitted between expensive gateway earth stations.
INTELSAT generally provides capacity directly to its signatories who then market
such capacity to their customers. The availability of new services generally is
subject to the discretion of each country's signatory and INTELSAT is required
under its charter to set its pricing in order to achieve a fixed pre-tax return
on equity that is established from time to time by INTELSAT's board of
governors. INTELSAT is considering a restructuring and it is expected that the
Intelsat Assembly of Parties will decide on a new structure for the organization
in 1997. Any restructuring of INTELSAT that increases its marketing flexibility
could materially impact Orion's ability to compete in the market for private
satellite delivered services.
PanAmSat currently operates four satellites, with one satellite providing
coverage in each of the Atlantic Ocean region, the Asia Pacific region and
Indian Ocean region (the fourth covers the Atlantic Ocean region but is near the
end of its useful life). These satellites primarily provide broadcasting
services, such as television programming and backhaul operations. PAS 3,
launched in January 1996, with coverage of the Atlantic Ocean, competes directly
with Orion 1. It has performance attributes which are generally comparable to
those of Orion 1 and carries 16 Ku-band transponders, of which 8 transponders
are capable of providing service to or within Europe, and 16 C-band
transponders. PanAmSat has announced that it intends to launch four additional
satellites, two in 1997 that will provide coverage of the U.S., Central America
and Mexico, and two that will provide coverage of the Indian and Pacific Ocean
regions, respectively, in 1997 and early 1998. PanAmSat is in the process of
selling a controlling interest to Hughes Electronics Corp., which is the largest
private space-related company in the world. This transaction will enhance
PanAmSat's ability to compete with Orion.
Existing European Regional and Domestic Satellite Systems. In Europe, Orion
competes with certain regional satellites systems and may compete with domestic
satellite systems. Regional and domestic satellite systems generally have
limited ability to serve customers with needs for extensive international
networks. Orion's primary competitor in Europe is the major regional satellite
system operated by EUTELSAT. EUTELSAT, established in 1977, presently comprises
over approximately 45 member countries. EUTELSAT operates seven satellites,
providing telephony, television, radio and data services, and has announced a
plan to launch five new satellites through 1998.
Asian Pacific Region Satellite Systems. Orion believes that
currently-operating satellite systems in the Asia Pacific region generally are
limited in their ability to provide private network and similar services at an
acceptable performance level due to insufficient power, limited Ku-band capacity
and limited geographic coverage. Nevertheless, there is a large number of
satellite systems operating in Asia. The major Asia Pacific regional satellite
systems include the AsiaSat system licensed in Hong Kong (with two satellites in
operation and a third planned for launch in 1997), the Chinese Apstar system
(also with two satellites in operation and a third planned for launch near the
end of 1997) and the Indonesian Palapa system (with three satellites in orbit
and plans to launch at least three more satellites through 1999). Japan has
licensed several satellite networks for domestic and international service,
including the JCSat series (three satellites in operation and a fourth planned
for launch in 1997), NTT's two N-Star satellites, and Space Communications
Corporation's Superbird A and B (with a third planned for 1997). Optus operates
four Australian domestic satellites that offer limited international coverage
and plans several follow-on satellites. Korea operates Koreasat 1 and 2,
primarily for domestic service, with plans for a third satellite that would
offer expanded regional service in 1999. Thailand has licensed the Thaicom
system, with two domestic satellites in operation, and plans two new satellites
in 1997 offering regional coverage. Measat operates a Malaysian system
consisting of two satellites providing DTH service to Malaysia and parts of
Asia.
Other Satellite Systems. There are numerous satellites other than the ones
discussed above that compete to some extent with Orion. In addition, the Company
is aware of a substantial number of satellites that are in construction or in
the planning stages. Most of these satellites will cover areas within the
footprint of Orion 1 and/or the proposed footprints of Orion 2 and Orion 3. As
these new satellites commence operations, they (other than replacement
satellites not significantly larger than the ones they replace) will
substantially increase the capacity available for sale in the company's markets.
After a
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satellite has been successfully delivered in orbit, the variable cost of
transmitting additional data via the satellite is limited. Accordingly, absent a
corresponding increase in demand, this new capacity can be expected to result in
significant additional price reductions. For example, Teledesic Corporation
proposes to operate up to 840 low earth orbit small satellites by 2001 to
provide global fixed satellite services (including voice, data and broadband
transmission services). Although Orion cannot assess to what degree, if any,
these proposed satellites might compete with Orion in the future, Teledesic
could provide significant competition to the Company. See "Risk Factors -- Risks
Relating to Orion's Business -- Potential Adverse Effects of Competition."
TERRESTRIAL CAPACITY
Orion competes with terrestrial facilities for intra-Europe and
trans-Atlantic capacity.
European Facilities. Orion's services compete with terrestrial
telecommunications delivery services, which are being improved gradually through
the build-out of fiber optic networks and a move from analog to digital
switching. As fiber networks and digital network switching become more
prevalent, the resulting improved and less expensive terrestrial capacity
increasingly competitive with Orion's services.
Undersea Cable. Undersea fiber optic cable capacity has increased
substantially in recent years. Although Orion believes that undersea cable
capacity is not as well suited as satellite capacity to serve the requirements
of video broadcasters or the demand for multi-point private network services,
fiber optic and coaxial cables are well suited for carrying large amounts of
bulk traffic, such as long distance telephone calls, between two locations.
Operators of undersea fiber optic cable systems typically are joint ventures
among major telecommunications companies. Orion expects strong competition from
these carriers in providing private network services.
REGULATION
REGULATORY OVERVIEW
The international telecommunications environment is highly regulated. As an
operator of privately owned international satellite systems licensed by the
United States, Orion is subject to the regulatory authority of the United States
(primarily the FCC) and the national communications authorities of the countries
in which it provides service. Each of these entities can potentially impose
operational restrictions on Orion. In addition, Orion is subject to the INTELSAT
and EUTELSAT consultation processes. The changing policies and regulations of
the United States and other countries will continue to affect the international
telecommunications industry. Orion cannot predict the impact that these changes
will have on its business or whether the general deregulatory trend in recent
years will continue. Orion believes that continued deregulation would be
beneficial to Orion, but deregulation also could reduce the limitations facing
many of its existing competitors and potential new competitors.
The operation of Orion 2 and Orion 3 will require a number of regulatory
approvals, including (i) the approvals of the FCC (in the case of Orion 2), (ii)
completion of successful consultations with INTELSAT and, in the case of Orion
2, with EUTELSAT; (iii) satellite "landing" rights in countries that are not
INTELSAT signatories or that require additional approvals to provide satellite
or VSAT services; and (iv) other regulatory approvals. Obtaining the necessary
licenses and approvals involves significant time and expense, and receipt of
such licenses and approvals cannot be assured. Failure to obtain such approvals
would have a material adverse effect on Orion and on its ability to service its
indebtedness and the value of the Orion Newco Common Stock. In addition, Orion
is required to obtain approvals from numerous national local authorities in the
ordinary course of its business in connection with most arrangements for the
provision of services. Within Orion 1's footprint, such approvals generally have
not been difficult for Orion to obtain in a timely manner. However, the failure
to obtain particular approvals has delayed, and in the future may delay, the
provision of services by Orion. See "Risk Factors -- Risks Relating to Orion's
Business -- Approvals Needed; Regulation of Industry."
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AUTHORITY TO CONSTRUCT, LAUNCH AND OPERATE SATELLITES
Orion 1. In June 1991, Orion received final authorization from the FCC (the
"Orion 1 License") to construct, launch and operate a Ku-band satellite in
geostationary orbit at 37.5' West longitude in accordance with the terms,
conditions and technical specifications submitted in its application to the FCC.
The Orion 1 license from the FCC expires in January 2005. Although Orion has no
reason to believe that its licenses will not be renewed (or new licenses
obtained) at the expiration of the license term, there can be no assurance of
renewal.
Orion 2. Orion has obtained conditional authorization from the FCC for the
orbital slot at 12' West longitude for operation of Orion 2. The Orion 2
authorization will not become final until Orion completes a consultation with
INTELSAT and demonstration to the FCC of its financial ability to meet the costs
of construction, the launch of its satellite and operating expenses for one year
following launch. Orion has not yet met the required financial qualifications
demonstration to the FCC. It is required to make such showing within 90 days
after completion of INTELSAT consultation, and accordingly intends to commence
consultation with INTELSAT after it has obtained an additional financing and
believes it can make the required financial showing. The application filed with
the FCC for Orion 2 contains a technical proposal different than that currently
being coordinated with the ITU, and will need to be amended. Orion has no reason
to believe that the FCC will not approve such amendment or that the amendment
will cause material delay in obtaining final FCC authority for Orion 2.
Orion 3. Orion is pursuing an orbital slot at 139' East longitude through the
Republic of the Marshall Islands. Under an agreement with the Republic of the
Marshall Islands entered into in 1990, the Republic of the Marshall Islands
agreed to file with the ITU all documents necessary to secure authorization for
Orion to operate a satellite in geo-stationary orbit. In return for the right to
utilize any orbital slots secured by the Republic of the Marshall Islands, Orion
must, among other things, (i) commence construction of a functioning operating
center for satellites serving the Pacific Island portion of the Orion Asia
Pacific network at least a year prior to the operation of an Orion satellite,
(ii) train and support certain employees designated by the Republic of the
Marshall Islands at least a year prior to the operation of an Orion Asia Pacific
satellite, and (iii) construct, equip and install (except for power supply or
back-up) four earth stations capable of handling a "T-1" circuit for operation
with the Orion Asia Pacific system prior to the operation of an Orion Asia
Pacific satellite.
CONSULTATION WITH INTELSAT AND EUTELSAT
Orion 1. Prior to receiving final licensing and launch authority for Orion 1,
Orion successfully completed its consultation with INTELSAT pursuant to the
INTELSAT Treaty. A similar consultation for Orion 1 was completed with EUTELSAT
in May 1994. Additional consultations or other approvals may be needed in
individual countries for the use of VSATs.
Orion 2. Orion has not commenced consultations with INTELSAT or EUTELSAT for
Orion 2, and intends to commence such consultation with INTELSAT for Orion 2
when it is ready to make its financial showing to the FCC, as discussed above.
Orion believes that since there are no INTELSAT or EUTELSAT satellites located
adjacent to the 12' West longitude orbital slot, the INTELSAT and EUTELSAT
coordination should be obtained in due course.
Orion 3. Orion has not commenced consultations with INTELSAT for Orion 3, but
Orion believes that since there are no INTELSAT satellites located adjacent to
the 139' East longitude orbital slot, the INTELSAT coordination should be
obtained in due course.
INTERNATIONAL TELECOMMUNICATION UNION
An international treaty to which the U.S. and the Republic of the Marshall
Islands are parties requires coordination of satellite orbital slots through the
procedures of the ITU. The process for coordinating orbital slots through the
ITU is discussed under the caption " -- Orbital Slots -- ITU Coordination
Process."
Orion 1: After Orion 1 reached its orbital position and commenced operation,
the FCC notified the ITU. This concluded the process for coordination of the
Orion 1 orbital slot.
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Orion 2: On behalf of Orion, the FCC has commenced the orbital slot
coordination process through the ITU. Orion believes that its use of the 12'
West longitude slot for Orion 2 is not likely to interfere with proposed uses of
adjacent slots filed for by other governments, except for a possible overlap of
75 MHz with one proposal as discussed more fully under the caption "-- Orbital
Slots -- ITU Coordination Process."
Orion 3: Orion, through the Republic of the Marshall Islands, has filed the
appropriate documentation with the ITU to begin the ITU coordination process for
Orion 3 at 139' East longitude. As discussed more fully under the caption "--
Orbital Slots -- ITU Coordination Process," based upon the time of filing by the
Republic of the Marshall Islands, Orion believes that the proposed orbital slot
for Orion 3 would have priority under ITU procedures with respect to the 139'
East longitude orbital slot, but some proposals by other administrations for
adjacent slots would be entitled to effective priority over the proposal by the
Republic of the Marshall Islands with respect to possible interference. Orion
believes, based upon its monitoring of the proposals of other administrations
and information in the industry regarding their progress, that none of the
administrations with effective priority over the proposal by the Republic of the
Marshall Islands will be able to launch a satellite prior to launch of Orion 3
to take advantage of such priority. Orion also believes that it can complete the
ITU coordination process for Orion 3 at 139' East longitude, however, there can
be no assurance that this will be achieved.
UNITED STATES REGULATORY RESTRICTIONS
Orion is subject to regulation under the Communications Act, the FCC's July
1985 Separate Systems decision as modified by subsequent FCC decisions, other
FCC regulations, and the terms of the various orders issued by the FCC with
respect to Orion and its subsidiaries, including the terms of the Orion 1
License. These regulations, orders and authorizations impose various
restrictions on Orion and on other similarly situated companies. Certain
important restrictions are described below.
Limited Interconnection with Public Switched Message Networks. Under current
U.S. policies concerning "separate satellite systems," such systems may provide:
(i) all services not interconnected with the public switched network ("PSN");
(ii) emergency restoration services and up to 8,000 64 kbps equivalent circuits
per satellite interconnected with the PSN for common carrier public switched
international services; and (iii) interconnected private line services. Under
applicable FCC orders, Orion has been authorized to provide up to 8,000 64 kbps
equivalent circuits interconnected to the PSN for public switched services. All
U.S. restrictions on the interconnection of public switched networks with
separate satellite systems are expected to terminate in the first quarter of
1997. Orion's networking business is intended to be non-common carrier service,
and accordingly it will not be permitted to provide interconnected switched
services, but will be permitted to sell this capacity to common carriers.
Use of the Orion 1 Satellite System for U.S. Domestic Services. In January
1996, the FCC eliminated certain distinctions between U.S. licensed domestic
satellites and separate satellite systems. It authorized both sets of U.S.
licensed satellite operators to provide both domestic and international
services. Domestic operators have designed their current satellite facilities
principally for continental U.S. coverage of the United States, and thus may as
a general matter offer only limited competition for international services at
the outset. However, future satellite designs of domestic satellite operators
could be modified to more directly compete in the international market.
New Orbital Locations. The FCC now requires applicants, at the time of filing
for an orbital position (either domestic arc or international orbital position),
to demonstrate the financial ability to construct, launch and operate that
satellite for a one year period. This new requirement will have no change in the
licensing of Orion's orbital positions at 37.5' West, 12' West, 47' West
longitude and 126' East longitude (the orbital slot at 139' East longitude is
not being pursued through the FCC and is not subject to the financial showing
requirement.) To the extent that Orion is seeking an orbital location through
the FCC, Orion will need to have significant financing on hand at the time of
application or obtain a waiver of the required financial demonstration. There is
no assurance that Orion will be able to obtain such waiver.
103
<PAGE>
Unauthorized Transfer of Control. The Communications Act bars a change in
control of the holder of FCC licenses without prior approval from the FCC. Any
finding that a change of control without prior FCC approval had occurred could
have a significant adverse effect on Orion's ability to implement its business
plan.
INTERNATIONAL REGULATION
Orion will need to comply with the applicable laws and obtain the approval of
the regulatory authority of each country in which it proposes to provide network
services or operate VSATs. The laws and regulatory requirements regulating
access to satellite systems vary from country to country. Some countries have
substantially deregulated satellite communications, making customer access to
Orion services a simple procedure, while other countries maintain strict
monopoly regimes. The application procedure can be time-consuming and costly,
and the terms of licenses vary for different countries.
Orion provides service using the licenses it obtains or that are obtained by
local ground operators or, in certain cases, through customer-obtained
authorizations. For example, Orion's representatives in the United Kingdom
(Kingston Communications), France (Matra Hachette), Germany (Nortel Dasa) and
Italy (Telecom Italia) have licenses in such countries. Orion also has obtained
"landing rights" through the INTELSAT treaty (although each INTELSAT signatory
country retains sovereignty over the transmission of satellite signals and
retains the right to object to the use of satellites within its borders). Orion
is now authorized, either directly or through its ground operators, to provide
service in 27 European countries.
Orion expects to pursue a similar strategy in Asia and Latin America. In
addition, Orion will need to comply with the national laws of each country in
which it provides services. Laws with respect to satellite services are
currently unclear in certain jurisdictions, particularly within the Orion 3
footprint. In certain of these jurisdictions, satellite services may only be
provided via domestic satellites. The Company believes that certain of these
restrictions may change and it can structure its operations to comply with the
remaining restrictions. However, there can be no assurance in this regard. See
"Risk Factors -- Risks Relating to Orion's Business -- Approvals Needed;
Regulation of Industry."
HUMAN RESOURCES
As of October 31, 1996, Orion and its subsidiaries had 175 full time
employees. Of its total work force, six are part of management, 44 are in
engineering or satellite control operations, 75 are in marketing, sales and
sales support, and 50 are devoted to support and administrative activities.
LEGAL PROCEEDINGS
In October 1995, Skydata Corporation ("Skydata"), a former contractor, filed
suit against Orion Atlantic, Orion Satellite Corporation and Orion, in the
United States District Court for the Middle District of Florida, claiming that
certain Orion Atlantic operations using frame relay switches infringe a Skydata
patent. Skydata's suit sought damages in excess of $10 million and asked that
any damages assessed be trebled. On December 11, 1995, the Orion parties filed a
motion to dismiss the lawsuit on the grounds of lack of jurisdiction and
violation of a mandatory arbitration agreement. In addition, on December 19,
1995, the Orion parties filed a Demand for Arbitration against Skydata with the
American Arbitration Association in Atlanta, Georgia, requesting damages in
excess of $100,000 for breach of contract and declarations, among other things,
that Orion and Orion Atlantic own a royalty-free license to the patent, that the
patent is invalid and unenforceable and that Orion and Orion Atlantic have not
infringed on the patent. On March 5, 1996, the court granted the Company's
motion to dismiss the lawsuit on the basis that Skydata's claims are subject to
arbitration. Skydata appealed the dismissal to the United States Court of
Appeals to the Federal Circuit. Skydata also filed a counterclaim in the
arbitration proceedings asserting a claim for $2 million damages as a result of
the conduct of Orion and its affiliates. On May 15, 1996, the arbitrator granted
the Orion parties' request for an initial hearing on claims relating to the
Orion parties' rights to the patent, including the co-ownership claim and other
contractual claims.
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<PAGE>
On November 9, 1996, Orion and Skydata executed a letter with respect to the
settlement in full the pending litigation and arbitration. As part of the
settlement, the parties are to release all claims by either side relating in any
way to the patent and/or the pending litigation and arbitration. In addition,
Skydata is to grant Orion (and its affiliates) an unrestricted, world-wide
paid-up license to make, have made, use or sell products or methods under the
patent and all other corresponding continuation and reissue patents. Orion is to
pay Skydata $437,000 over a period of two years as part of the settlement. The
parties are in the process of documenting the terms of the settlement in a
formal settlement agreement.
While Orion is party to regulatory proceedings incident to its business,
there are no material legal proceedings pending or, to the knowledge of
management, threatened against Orion or its subsidiaries.
105
<PAGE>
MANAGEMENT OF ORION AND ORION NEWCO
DIRECTORS AND EXECUTIVE OFFICERS
Orion's Board is, and following the Merger Orion Newco's Board will be,
divided into three classes of directors, serving staggered three-year terms. The
directors and executive officers of Orion and their ages and (in the case of
directors) terms as of November 15, 1996 are as follows:
<TABLE>
<CAPTION>
TERM EXPIRES
NAME AGE POSITION WITH ORION (DIRECTORS)
- -------------------- ----- ------------------------------------------------- ---------------
<S> <C> <C> <C>
Gustave M. Hauser .. 67 Chairman, Director 1998
President and Chief Executive Officer, Director
W. Neil Bauer....... 50 (Principal Executive Officer) 1999
Vice President, Chief Financial Officer and
Treasurer (Principal Financial Officer and
David J. Frear...... 40 Principal Accounting Officer)
Vice President, Corporate and Legal Affairs, and
Richard H. Shay..... 55 Secretary
Senior Vice President, Orion Satellite
Corporation and General Manager, Engineering and
Denis Curtin........ 57 Satellite Operations
Vice President of Orion and President, Orion
Hans C. Gin|fer.......57 Asia Pacific Corporation
Vice President of Orion and President, Orion
Douglas H. Newman .. 57 Satellite Corporation
Richard J. Brekka .. 35 Director 1997
Warren B. French,
Jr.................. 73 Director 1997
Barry Horowitz...... 52 Director 1998
Sidney S. Kahn...... 59 Director 1999
John G. Puente...... 66 Director 1998
W. Anthony Rice..... 44 Director 1997
John V. Saeman...... 60 Director 1998
Robert M. Van
Degna............... 52 Director 1999
</TABLE>
BACKGROUND OF DIRECTORS AND EXECUTIVE OFFICERS
Information with respect to the business experience and the affiliations of
the directors and executive officers of Orion (and, following the Merger, Orion
Newco) is set forth below.
Gustave M. Hauser has been Chairman of Orion since January 1996 and has been
a director of Orion since December 1982. Since 1983, he has been Chairman and
Chief Executive Officer of Hauser Communications, Inc., an investment and
operating firm specializing in cable television and other electronic
communications. From 1973 to 1983 he served as Chairman and Chief Executive
Officer of Warner-Amex Cable Communications, Inc. (formerly Warner Cable
Communications, Inc.), a major multiple system operator of cable television
systems and originator of satellite delivered video programming. He is a trustee
of the Museum of Television and Radio. He is a past Vice Chairman of the
National Cable Television Association, and from 1970 to 1977 he served, by
appointment of the President of the United States, as a director of the Overseas
Private Investment Corporation.
W. Neil Bauer has been President of Orion since March 1993, and has been
Chief Executive Officer and a director since September 1993. From 1989 to
February 1993, Mr. Bauer was employed by GE American Communications, Inc., where
he served as Senior Vice President and General Manager of
106
<PAGE>
Commercial Operations. Prior to 1989, Mr. Bauer was Chief Financial Officer of
GE American Communications, Inc. and later head of commercial sales. He held
several key financial planning positions at GE/RCA from 1984 through 1986
focused on operational and business analysis of diverse business units including
all communications units. From 1974-1983, he was employed by RCA Global
Communications, an international record carrier. During this period, he held
several financial and operational positions and was responsible for financial
and business planning.
David J. Frear has been Vice President and Chief Financial Officer of Orion
since November 1993 and Treasurer of Orion since January 1994. From September
1990 through April 1993, Mr. Frear served as Vice President and Chief Financial
Officer of Millicom Incorporated, an international telecommunications service
company. From January 1988 to September 1990, Mr. Frear held various positions
in the investment banking department at Bear, Stearns & Co. Inc. Mr. Frear
received his CPA in 1979.
Richard H. Shay has been Secretary of Orion since January 1993 and a Vice
President since April 1992. From July 1981 until September 1985, Mr. Shay served
as Chief Counsel to the National Telecommunications and Information
Administration ("NTIA") of the U.S. Department of Commerce and then as Deputy
General Counsel to the Department, where he was responsible for the legal
matters of the Department's agencies. In his capacity as Chief Counsel to NTIA,
Mr. Shay also served as Acting Director of its Office of International Policy,
served on the official U.S. delegation to the 1982 Nairobi Plenipotentiary
Conference of the ITU and was involved in preparation for the 1983 ITU Direct
Broadcast Satellite World Administrative Radio Conference.
Denis J. Curtin is Senior Vice President, OrionSat and General Manager,
Engineering and Satellite Operations. He joined the Company in September 1988 as
Vice President, Engineering. He previously was Senior Director of Satellite
Engineering of COMSAT's Systems Division. While at COMSAT, Dr. Curtin served for
over 21 years in the systems engineering, program and engineering management of
both domestic and international satellite systems. He has an MS in Physics, a
Ph.D. in Mechanical Engineering, and has published numerous papers on solar cell
and solar array technology, is the editor of the Trends in Satellite
Communications and is a Fellow of the American Institute of Astronautics and
Aeronautics.
Hans C. Giner became President of Orion Asia Pacific, Orion's subsidiary
devoted to pursuing construction and launch of a satellite covering the Asia
Pacific region, in the fourth quarter of 1995 and a Vice President of Orion in
the first quarter of 1996. Mr. Gin|fer served as a consultant to Orion from
October 1995 through January 1996 relating to similar matters. Prior thereto, he
held senior positions in the satellite and telecommunications industries for
more than 20 years. Most recently, from April 1994 through September 1995 he
served as President of Stellar One Corporation, a high-tech company designing,
manufacturing and distributing technologies for telecommunications groups,
particularly local telephone and cable television companies. Prior to that, from
November 1987 through March 1994, Mr. Gin|fer held several positions for, and
ultimately served as president and CEO of Millisat Holdings, Inc., a member of
the Millicom Group, with worldwide responsibility for development of media and
telecommunications properties, including broadcast, cable and wireless
television.
Douglas H. Newman has been President of Orion Satellite Corporation since
October 16, 1995. Mr. Newman was with Sprint International as Vice President and
General Manager Asia-Pacific Division from July 1993 until October 1994. He
served as Vice President World Wide Sales and Marketing for Analog Devices Inc.
from December 1988 to July 1993. Prior to that he was a Vice President of
National Semiconductor Corporation both in Europe and the United States from May
1979 until December 1988. Earlier, he spent 15 years at Texas Instruments Inc.'s
European Semiconductor Division in a variety of management positions in
engineering, marketing and sales.
Richard J. Brekka has been a director of Orion since June 1994. He is a
Managing Director of CIBC Wood Gundy Capital ("CIBC-WG"), the merchant banking
division of Canadian Imperial Bank of Commerce and is a Director and the
President of CIBC Wood Gundy Ventures, Inc., an indirect wholly owned subsidiary
of Canadian Imperial Bank of Commerce. Mr. Brekka joined CIBC-WG in February
1992. Prior to joining CIBC-WG, Mr. Brekka was an officer of Chase Manhattan
Bank's merchant banking group from February 1988 until February 1992.
107
<PAGE>
Warren B. French, Jr. has been a director of Orion since August 1988. He was
President and a director of Shenandoah Telephone Company of Edinburg, Virginia
from 1973 to 1988 and President and a director of Shenandoah Telecommunications
Company, the parent company of Shenandoah Telephone Company, from 1981 to 1988.
From 1988 through 1995, he was Chairman and a director of Shenandoah
Telecommunications Company. He is a past Chairman of the United States Telephone
Association and is a former director of First National Corporation.
Barry Horowitz has been a director of Orion since May 1996. He is President
and Chief Executive Officer of Mitretek Systems, Inc. Mitretek works with
federal, state and local governments as well as other non-profit public interest
organizations on technology-based research and development programs. Mitretek
was incorporated in December 1995 as a result of a restructuring with The MITRE
Corporation. Principal capabilities are related to information and environmental
system technologies. In addition, Dr. Horowitz is President and Chief Executive
Officer of Concept 5 Technologies, Inc., a subsidiary of Mitretek, which
provides technical services to commercial clients, with its initial focus on the
financial community. Prior to the restructuring and since 1969, Dr. Horowitz
served MITRE in several capacities, including Trustee and President and CEO.
Sidney S. Kahn has been a director of Orion since July 1987. He is presently
a private investor. From 1977 to December 1989, he was Senior Vice President of
E.F. Hutton Company, Inc., a wholly owned subsidiary of the E.F. Hutton Group,
Inc. He is also a director of Delia's, Inc.
John G. Puente has been a director since 1984. Mr. Puente was Chairman of
Orion from April 1987 through January 1996, and since July, 1996 has been
serving as a consultant to the Company and chairman of the Company's Executive
Committee. He served as Chief Executive Officer of Orion from April 1987 through
September 1993. He was a director and, from 1978 to April 1987, served as Senior
Vice President, Executive Vice President or Vice Chairman of M/A-COM, Inc., a
diversified telecommunications and manufacturing company. He was a founder of
SouthernNet, Inc., a fiber optic long distance communications company and one of
the two companies that merged to form Telecom*USA, Inc. (which was later
acquired by MCI), serving as a director of SouthernNet from July 1984 until
August 1987, and Chairman of the Board of SouthernNet from July 1984 until
December 1986. During his tenure as Chairman of the Board of SouthernNet, Mr.
Puente was instrumental in the founding of the National Telecommunications
Network, a national consortium of long distance fiber optic communications
companies, and was its first chairman. In 1972 Mr. Puente was a founder of DCC,
Inc., of which he became Chairman and CEO. In 1978 DCC, Inc. was acquired by
Microwave Associates to form M/A-COM, Inc.; DCC, Inc., subsequently was acquired
by Hughes Aircraft Company and became Hughes Network Systems, Inc. Mr. Puente
also played a prominent role in the early development of the communications
satellite industry, holding technical and executive positions in COMSAT and
American Satellite Corporation.
W. Anthony Rice has been a director of Orion since January 1994. Mr. Rice is
Chief Executive Officer of British Aerospace Asset Management, the business unit
responsible for all of the company's activities in respect of commercial
aircraft leasing and financing. Previously, he served as Group Treasurer of
British Aerospace Plc from 1991 until the end of 1995. British Aerospace is
Europe's leading defense and aerospace company.
John V. Saeman has been a director of Orion since December 1982. He is an
owner of Medallion Enterprises LLC, a private investment firm located in Denver,
Colorado. Mr. Saeman was Vice Chairman and Chief Executive Officer of Daniels &
Associates, Inc. and its related entities in the telecommunications field from
1980 to 1988. He is former director as well as past Chairman of Cable Satellite
Public Affairs Network (C-Span) as well as a former director and past Chairman
of the National Cable Television Association. Mr. Saeman was a director of
Celerex Corporation and is a director of Nordstrom National Credit Bank. Celerex
Corporation filed a petition for reorganization under Chapter 11 of the United
States Bankruptcy Code in 1995.
108
<PAGE>
Robert M. Van Degna has been a director of Orion since June 1994. He is the
managing general partner of Fleet Equity Partners. Mr. Van Degna joined Fleet
Financial Group in 1971 and has held a variety of lending and management
positions until he organized Fleet Equity Partners in 1982 and became its
managing general partner. Mr. Van Degna also serves as a director of ACC
Corporation and, Preferred Networks, Inc.
Orion's Certificate of Incorporation and Bylaws provide that the Board of
Directors of Orion, which presently consists of 11 members (with one vacancy),
shall consist of that number of directors determined by resolution of the Board
of Directors. The Charter provides that the Board of Directors shall be divided
into three classes, each consisting of approximately one-third of the total
number of directors. Class I Directors, consisting of Messrs. Hauser, Puente and
Saeman, will hold office until the 1998 annual meeting of stockholders; Class II
Directors, consisting of Messrs. Bauer, Horowitz, Kahn and Van Degna will hold
office until the 1999 annual meeting of stockholders; and Class III Directors
consisting of Messrs. Brekka, Rice and French will hold office until the 1997
annual meeting of stockholders. There are no family relationships among any of
the directors or officers of Orion. Executive officers serve at the discretion
of the Board of Directors.
Three directors, Messrs. Rice, Brekka and Van Degna, were elected pursuant to
agreements with each of British Aerospace, CIBC and Fleet, respectively, which
terminated in August 1995 when the Orion Common Stock became publicly traded.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has established a Committee on Auditing, Corporate
Responsibility and Ethics (the "Audit Committee"), a Committee on Human
Resources and Compensation (the "Compensation Committee"), an Executive
Committee, a Finance Committee and a Nominating Committee.
The Audit Committee is composed of Messrs. Van Degna (chairman), Hauser and
Kahn. The Audit Committee examines and considers matters relating to the
financial affairs of Orion, including reviewing Orion's annual financial
statements, the scope of the independent annual audit and the independent
auditors' letter to management concerning the effectiveness of Orion's internal
financial and accounting controls. From the time Orion became subject to the
Exchange Act through December 31, 1995 (the "1995 Public Company Period"), the
Audit Committee held one meeting.
The Compensation Committee is composed of Messrs. Brekka (chairman), French,
Saeman and Van Degna. The Compensation Committee considers and makes
recommendations to Orion's Board of Directors with respect to programs for human
resource development and management organization and succession, approves
changes in senior executive compensation, considers and makes recommendations to
Orion's Board of Directors with respect to compensation matters and policies and
employee benefit and incentive plans and exercises authority granted to it to
administer such plans and administers Orion's stock option and grants of stock
options under the stock option plans. During the 1995 Public Company Period, the
Compensation Committee held two meetings. Three of the four members attended
both meetings; Mr. Brekka attended one of the two meetings.
The Executive Committee is composed of Messrs. Hauser, Kahn, Puente
(chairman), Saeman and Van Degna. The Executive Committee provides strategic
direction with respect to financing, strategic partners, acquisitions and market
focus, subject to approval by the Board of Directors of all significant actions.
The Executive Committee was formed in July 1996 and has met numerous times with
regard to the Transactions and other matters. Mr. Puente has been actively
engaged as chairman of the Executive Committee in connection with the
Transactions.
The Finance Committee is composed of Messrs. Brekka, Hauser, Kahn (chairman),
Puente, Rice and Saeman. The Finance Committee considers and makes
recommendations to the Board of Directors with respect to the financial affairs
of Orion, including matters relating to capital structure and requirements,
financial performance, dividend policy, capital and expense budgets and
significant capital commitments. During the 1995 Public Company Period, the
Finance Committee held ten meetings. Four of the members attended at least eight
of these meetings; Messrs. Rice and Brekka attended fewer than that number.
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<PAGE>
The Nominating Committee is composed of Messrs. French, Puente and Saeman
(chairman). The Nominating Committee recommends to the Board of Directors
qualified candidates for election as directors of Orion and considers
candidates, if any, recommended by stockholders. During the 1995 Public Company
Period, the Nominating Committee held one meeting. Each member of the Nominating
Committee attended this meeting.
LIMITS ON LIABILITY; INDEMNIFICATION
The provisions of Orion Newco's Certificate of Incorporation relating to
limits on liability and indemnification of directors are substantially identical
to the provisions of Orion's Certificate of Incorporation summarized below.
Orion's Certificate of Incorporation provides that Orion's directors will not
be liable for monetary damages for breach of the directors' fiduciary duty of
care to Orion and its stockholders. This provision in the Certificate of
Incorporation does not eliminate the duty of care, and in appropriate
circumstances equitable remedies such as an injunction or other forms of
non-monetary relief would remain available under Delaware law. In accordance
with the requirements of Delaware law, Orion's directors remain subject to
liability for monetary damages (i) for any breach of their duty of loyalty to
Orion or its stockholders, (ii) for acts or omissions not in good faith or
involving intentional misconduct or knowing violation of law, (iii) under
Section 174 of the Delaware General Corporation Law for approval of an unlawful
dividend or an unlawful stock purchase or redemption and (iv) for any
transaction from which the director derived an improper personal benefit. This
provision also does not affect a director's responsibilities under any other
laws, such as the federal securities laws or state or federal environmental
laws.
Orion's Certificate of Incorporation also provides that, except as expressly
prohibited by law, Orion shall indemnify any person who was or is a party (or
threatened to be made a party) to any threatened, pending or completed action,
suit or proceeding by reason of the fact that such person is or was a director
or officer of Orion (or is or was serving at the request of Orion as a director
or officer of another enterprise), against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by such person in connection with such action, suit or proceeding if such person
acted in good faith and a manner such person reasonably believed to be in or not
opposed to the best interests of Orion, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his or her conduct was
unlawful. Such indemnification shall not be made in respect of any claim, issue
or matter as to which such person shall have been adjudged to be liable to Orion
unless (and only to the extent that) the Delaware Court of Chancery or the court
in which such action or suit was brought determines that, in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity.
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<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth a summary of total compensation, including
bonuses, paid to the Chief Executive Officer and the four other most highly paid
executive officers (the "named executive officers") for services in all
capacities to Orion and its subsidiaries for the fiscal years ended December 31,
1996, 1995 and 1994.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION
------------------------------------- ------------------------------------
AWARDS PAYOUTS
------------------------- --------
OTHER SECURITIES
ANNUAL RESTRICTED UNDERLYING ALL OTHER
NAME AND COMPEN- STOCK OPTIONS/ LTIP COMPEN-
PRINCIPAL POSITION YEAR SALARY($) BONUS($) SATION($)(1) AWARD(S)($) SARs(#) PAYOUTS($) SATION($)
------------------ ---- --------- -------- ------------ ----------- ------- ---------- ------------
<S> <C> <C> <C> <C> <C>
W. NEIL BAUER,................ 1996 $278,106 $ -- $ --
President and Chief 1995 265,000 90,000 110,294
Executive Officer 1994 250,000 100,000 100,684
DAVID J. FREAR, .............. 1996 185,996 -- --
Vice President, Treasurer 1995 179,005 40,000 4,570 55,147
and Chief Financial Officer 1994 170,000 51,000 25,715
DOUGLAS H. NEWMAN ............ 1996 201,206 -- --
Vice President of Orion 1995 34,618 14,000 50,000
and President, Orion 1994 --
Satellite Corporation
HANS C. GINER................. 1996 141,638 35,000
Vice President of Orion and 1995 --
President, Orion Asia Pacific 1994 --
Corporation
DENIS J. CURTIN,.............. 1996 155,380 5,000
Senior Vice President of 1995 151,081 38,000 24,705
Orion Satellite Corporation 1994 133,850 35,700
</TABLE>
- ----------
(1) Relocation expenses.
OPTION GRANTS IN LAST FISCAL YEAR
Orion has adopted a 1987 Employee Stock Option Plan (the "1987 Employee Stock
Option Plan"). Under the 1987 Employee Stock Option Plan, options to purchase up
to an aggregate of 1,470,588 shares of Orion Common Stock are available for
grants to employees of Orion. Orion has also adopted a Non-Employee Director
Stock Option Plan. The following table sets forth information concerning grants
of stock options to the named executive officers pursuant to the 1987 Employee
Stock Option Plan during the year ended December 31, 1996.
<TABLE>
<CAPTION>
Potential Realized
Value at Assumed
Annual Rates
of Stock Price
Appreciation
Individual Grants for Option Term
-------------------------------------------------------- --------------------
Number of % of Total
Securities Options Exercise or
Underlying Granted to Base Price
Options Employees in Per Share Expiration
Name Granted Fiscal Year ($/Sh)(1) Date 5%($) 10%($)
- ---- ---------- ------------ ------------ ------------ -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
W. Neil Bauer -- --
David J. Frear . -- --
Douglas H. Newman. -- --
Hans C. Giner ... 25,000 20% 8.49 01/16/03 (2) 86,386 201,425
10,000 8% 10.78 11/19/03 (2) 43,875 102,302
Denis J. Curtin . 5,000 4% 10.78 11/19/03 (2) 21,937 51,151
</TABLE>
- ----------
(1) The option exercise price is equal to one hundred percent of the fair
market value of the Orion Common Stock on the date the option was granted.
(2) The options will vest in equal installments over a five-year period from
the date of grant.
111
<PAGE>
OPTION EXERCISES IN LAST FISCAL YEAR AND YEAR-END OPTION VALUES
The following table sets forth the value of all unexercised options held at
year-end 1996 by the named executive officers. No named executive officer
exercised any stock options during the fiscal year.
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS IN-THE-MONEY OPTIONS AT
AT DECEMBER 31, 1996 DECEMBER 31, 1996 (1)
------------------------- -------------------------
NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- ------------------------- -------------------------
W. Neil Bauer ..... 97,058/138,235 312,130/279,780
David J. Frear .... 35,293/ 60,294 75,659/ 86,286
Douglas H. Newman . 10,000/ 40,000 32,050/128,200
Hans C. Giner ..... 0/ 35,000 0/130,575
Denis J. Curtin ... 31,284/ 20,661 121,404/ 40,321
- ----------
(1) Based on a per share price of $12.875 on December 31, 1996.
COMPENSATION OF DIRECTORS
Prior to January 1996 (Orion having become a publicly traded company during
1995), directors did not receive compensation for serving on the Board of
Directors or its committees but were reimbursed for their expenses for each
Board of Directors or its committee meeting attended. Commencing in January
1996, directors receive annual compensation of $4,000, $1,500 for each Board of
Directors meeting attended, $750 for each committee meeting attended and per
annum grants of stock options to purchase 10,000 shares of Orion Common Stock
under the 1996 Non-Employee Director Stock Option Plan. An initial grant of
options to purchase 10,000 shares of Orion Common Stock under that plan was made
to each non-employee director in January 1996. In addition, an initial grant of
options to purchase 30,000 shares of Orion Common Stock under that plan was made
to Barry Horowitz, a director, upon his election in March 1996. The option
exercise price of the options granted to each non-employee director in January
1996 and Mr. Horowitz in March 1996 was equal to the fair market value of Orion
Common Stock on the respective dates the options were granted.
EMPLOYMENT AGREEMENTS AND TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL
ARRANGEMENTS
Orion has not entered into any employment agreements or any termination of
employment or change in control arrangements with any of its officers, except
for certain change in control vesting provisions in the 1987 Stock Option Plan
described below.
In his capacity as a consultant to the Company, John G. Puente, a director of
the Company and Chairman of the Executive Committee, is compensated at a rate of
$25,000 per month and has been granted non-incentive stock options to purchase
up to an aggregate of 100,000 shares of Orion Common Stock at an exercise price
of $9.83 per share. Of the options granted to Mr. Puente, 50% are vested and 50%
will vest upon the successful completion during Mr. Puente's tenure as Chairman
of the Executive Committee or within six months thereafter, of the Notes
Offering. All options granted to Mr. Puente will vest immediately upon the sale
or merger of the Company during Mr. Puente's tenure as Chairman of the Executive
Committee or within six months thereafter.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Bauer, the President and Chief Executive Officer of Orion and Mr. Puente,
then Chairman of Orion, served on the Compensation Committee and therefore
participated in making recommendations to the Board of Directors on officer
compensation matters until June 28, 1995.
STOCK OPTION PLANS
1987 Employee Stock Option Plan. In April 1987, Orion adopted its 1987
Employee Stock Option Plan. Under the 1987 Employee Stock Option Plan, as
amended in March 1995, options to purchase up to an aggregate of 1,470,588
shares of Orion Common Stock may be granted to key employees of Orion
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<PAGE>
and its subsidiaries. The 1987 Employee Stock Option Plan provides for the grant
both of incentive stock options intended to qualify as such under Section 422 of
the Internal Revenue Code of 1986, as amended (the "Code"), and nonstatutory
stock options. The 1987 Employee Stock Option Plan will terminate in May 1997,
unless sooner terminated by the Board of Directors.
The 1987 Employee Stock Option Plan is administered by the Board, but the
Board has delegated administration to the Compensation Committee, which is
comprised of disinterested directors. Subject to the limitations set forth in
the 1987 Employee Stock Option Plan, the Compensation Committee has the
authority to select the persons to whom grants are to be made, to designate the
number of shares to be covered by each option and whether such option is an
incentive stock option or a nonstatutory stock option, to establish vesting
schedules, to specify the type of consideration to be paid to Orion upon
exercise and, subject to certain restrictions, to specify other terms of the
options. The maximum term of options granted under the 1987 Employee Stock
Option Plan is ten years. The aggregate fair market value of the stock with
respect to which incentive stock options are first exercisable in any calendar
year may not exceed $100,000 per individual. Options granted under the 1987
Employee Stock Option Plan generally are non-transferable and expire either
upon, or 30 days after, the termination of an optionee's employment relationship
with Orion. In general, if an optionee dies or is permanently disabled during
his or her employment by or service to Orion, such person's option may be
exercised up to one year following such death or disability.
Options granted under the 1987 Employee Stock Option Plan to the executive
officers will immediately vest in the event the optionee's employment is
terminated within two years after a "Change in Control" by Orion other than for
"Cause" or by the optionee for "Good Reason" (as such terms are defined in an
applicable resolution of the Board of Directors). "Cause" for termination of
employment is narrowly defined, including only such matters as fraud, a crime
involving moral turpitude, compromising trade secrets, willfully failing to
perform material assigned duties or gross or willful misconduct that causes
substantial harm to Orion. "Good Reason" means a reduction in the optionee's
base salary, except for a reduction of up to 10% due to a reduction in
compensation generally applicable to execu tive officers of Orion, a substantial
reduction in responsibilities or required relocation. A "Change in Control"
occurs when any person or entity becomes the beneficial owner, directly or
indirectly, of securities representing 51% or more of the combined voting power
of Orion's then outstanding securities (excluding for purposes of such
computation all securities of Orion beneficially owned by such person or entity
as of March 15, 1995).
The exercise price of incentive stock options must equal at least the fair
market value of the Orion Common Stock on the date of grant. The exercise price
of nonstatutory stock options may be less than the fair market value of the
Orion Common Stock on the date of grant. The exercise price of incentive stock
options granted to any person who at the time of grant owns stock possessing
more than 10% of the total combined voting power of all classes of stock must be
at least 110% of the fair market value of such stock on the date of grant and
the term of these options cannot exceed five years.
As of September 30, 1996, Orion had options outstanding under the 1987
Employee Stock Option Plan to purchase an aggregate of 891,776 shares held by 86
persons at a weighted average exercise price of $9.77 per share. The exercise
price of all options granted under the 1987 Employee Stock Option Plan has been
at least equal to the fair market value of the Orion Common Stock on the date of
the grant as determined in good faith by the Board of Directors. As of September
30, 1996, options to purchase 129,755 shares of Orion Common Stock granted
pursuant to the Plan had been exercised. There are 449,057 shares of Orion
Common Stock available for future grants under the Employee Plan.
The 1987 Employee Stock Option Plan may be amended by the Board, subject to
stockholder approval if such approval is then required by applicable law or in
order for the 1987 Employee Stock Option Plan to continue to satisfy the
requirements of Rule 16b-3 under the Exchange Act.
Non-Employee Director Stock Option Plan. In January 1996, Orion adopted its
Non-Employee Director Stock Option Plan ("Non-Employee Director Stock Option
Plan") and up to 380,000 shares of Orion Common Stock are reserved for issuance
thereunder. The stock options granted under the Non-Employee Director Stock
Option Plan are non-incentive options.
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<PAGE>
Under the terms of the Non-Employee Director Stock Option Plan, each
Non-Employee Director (as defined) generally will receive or have vest options
to purchase 10,000 shares of Orion Common Stock for each year that such
Non-Employee Director serves as a director of Orion. Each current Non-Employee
Director has a vested option to purchase 10,000 shares of Orion Common Stock,
and an unvested option to purchase 10,000 shares of Orion Common Stock which
will vest at the next annual meeting of stockholders (expected to be held in May
1997) if such director remains in office until such date. In addition, Mr.
Horowitz, who became a director on May 20, 1996, has an additional option to
purchase 10,000 shares which will vest if he remains in office until the 1998
annual stockholders meeting. Each current Non-Employee Director will be annually
granted an additional option to purchase 10,000 shares of Orion Common Stock
each year after the annual meeting of stockholders if he or she is then a
Non-Employee Director.
Each new Non-Employee Director whose commencement of service is after March
20, 1996 will be granted an initial option to purchase the number of shares of
Orion Common Stock equal to (i) the number of complete and partial years in the
term to which such Non-Employee Director was elected or appointed, multiplied by
(ii) 10,000. Each Non-Employee Director also will be annually granted an
additional option to purchase 10,000 shares of Orion Common Stock as of each of
(i) the day after the Non-Employee Director's first re-election to the Board of
Directors and (ii) each year after the annual meeting of stockholders if he or
she is then a Non-Employee Director.
Each option will be exercisable from and after the day of the first annual
meeting of stockholders after grant of the option. In the case of an initial
option to purchase of more than 10,000 shares, the option will be exercisable to
the extent of 10,000 shares from and after the day of the first annual meeting
of stockholders after grant of the option, in respect of an additional 10,000
shares from and after the day of the second annual meeting of stockholders after
grant of the option, and (if the option is to purchase of more than 20,000
shares), in respect of an additional 10,000 shares from and after the day of the
third annual meeting of stockholders after grant of the option. Upon the
termination of service of a Non-Employee Director in all capacities as an
employee and/or director of Orion and all of its affiliated companies other than
by reason of the death or permanent and total disability, any option granted to
such Non-Employee Director pursuant to the Non-Employee Director Stock Option
Plan shall terminate to the extent it is not then exercisable. If the
termination of service is by reason of the death or permanent and total
disability of a Non-Employee Director, the options held by such Non-Employee
Director shall be exercisable in respect of all shares subject to such options
for a period of one year from the date of such termination of service or until
expiration of the option, if earlier.
The option exercise price under the Non-Employee Director Stock Option Plan
is equal to 100% of the fair market value of Orion Common Stock on the date the
option is granted. Options granted under the Non-Employee Director Stock Option
Plan expire if not exercised within five years from the date of grant.
Payment for shares purchased under the Non-Employee Director Stock Option
Plan may be made either in cash or cash equivalents, in shares of Orion Common
Stock with a fair market value equal to the option price, or a combination of
cash and shares of Orion Common Stock. The Non-Employee Director Stock Option
Plan also allows for "cashless exercise," in which a licensed broker tenders to
Orion cash equal to the exercise price (plus taxes required to be withheld) at
the time Orion issues the stock certificates.
The Non-Employee Director Stock Option Plan will terminate automatically on
March 20, 2006, unless previously terminated. No termination, suspension or
amendment of the Non-Employee Director Stock Option Plan may, without the
consent of the optionee to whom an option has been granted, adversely affect the
rights of the holder of the option.
OTHER STOCK OPTIONS
From time to time, the Board of Directors of Orion may grant options to
purchase shares of Orion Common Stock outside of the 1987 Employee Stock Option
Plan and Non-Employee Director Stock Option Plan. As of November 30, 1996,
options to purchase an aggregate of 123,987 shares of Orion
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<PAGE>
Common Stock were outstanding outside of such plans at an average exercise price
of $8.30. During 1995, 6,463 options granted outside of such plans were
exercised.
OTHER EMPLOYEE BENEFIT PLANS
1997 Employee Stock Purchase Plan. In September 1996, Orion adopted its 1997
Employee Stock Purchase Plan (the "Stock Purchase Plan"). Under the Stock
Purchase Plan, eligible employees may purchase up to an aggregate of 500,000
shares of Orion Common Stock through payroll deductions. Eligible employees
include all employees except those who have been employed by Orion for less than
three months, those who work less than five months per calendar year or less
than 20 hours per week, and those who would own 5% or more of the total combined
voting power of all classes of Orion's capital stock upon their participation in
the Stock Purchase Plan. The Stock Purchase Plan will terminate at the sooner of
September 2006 or such time as all shares of Orion Common Stock available under
the Stock Purchase Plan have been issued.
The Stock Purchase Plan is administered by the Board, but the Board has
delegated administration to its Human Resources and Compensation Committee.
Employees may commence participation in the Stock Purchase Plan or change their
payroll deduction percentages effective at the beginning of each calendar
quarter. On the last day of each quarter, all funds accumulated in an employee's
account are used to purchase shares of Orion Common Stock at a purchase price
equal to the lesser of 85% of the fair market value of such Orion Common Stock
(i) on the first trading day of the quarter or (ii) on the last trading day of
the quarter, but in no event shall the per-share price be less than the par
value of the Orion Common Stock ($.01). No employee may purchase in any one
calendar year shares of Orion Common Stock having an aggregate fair market value
in excess of $25,000. Orion Common Stock purchased under the Stock Purchase Plan
are entitled to full dividend participation.
An employee's participation in the Stock Purchase Plan terminates in the
event the employee voluntarily terminates such participation, ceases to be
employed by Orion or ceases to be eligible to participate in the Stock Purchase
Plan, or in the event the Board elects to terminate the Stock Purchase Plan. An
employee who retires, is laid off, takes a leave of absence, dies or suffers a
disability may directly or, in the case of death, through the employee's estate
withdraw any payroll deductions remaining in the employee's account, receive
that number of shares of Orion Common Stock which may be purchased with the
amount then credited to the employees account, or make up any deficiency
resulting from missed payroll deductions through an immediate cash payment.
Participation in the Stock Purchase Plan may resume at the beginning of the next
quarter if the employee again becomes eligible to participate.
The Stock Purchase Plan is not subject to the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), nor is it qualified under Section
401(a) of the Code. As of November 15, 1996, no shares of Orion Common Stock
have been purchased or issued under the Stock Purchase Plan.
1997 401(k) Profit Sharing Plan. In September 1996, Orion adopted its 1997
401(k) Profit Sharing Plan (the "401(k) Plan"). Under the 401(k) Plan, eligible
employees may elect to have a portion of their pay deducted for investment in a
variety of mutual funds that invest in equity and debt securities and a money
market account. In addition, Orion may in its discretion make matching
contributions in the form of cash or in the equivalent amount of Orion Common
Stock, and may make profit sharing contributions. Up to 100,000 shares of Orion
Common Stock are issuable as matching contributions under the 401(k) Plan. The
401(k) Plan will continue indefinitely unless terminated by Orion at any time in
its discretion. Orion may also suspend matching and profit sharing contributions
at any time in its sole discretion.
The 401(k) Plan is administered under a written trust agreement between Orion
and certain trustees (the "401(k) Trustees"). The 401(k) Trustees oversee the
investment of employee contributions, and Orion administers all other matters in
connection with the day-to-day operation of the 401(k) Plan. Eligible employees
may elect to deduct up to $9,500 of their compensation on a pre-tax basis in a
given calendar year. The 401(k) Trustees have discretion to select among these
investment media, or employees may direct the 401(k) Trustees to invest their
payroll deductions in accordance with specific instructions. At its discretion,
Orion may match all or part of employee payroll deductions in cash or the
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<PAGE>
equivalent amount of Orion Common Stock. In addition, Orion may also make
additional profit sharing contributions in its discretion by distributing a
certain percentage of its profits to employees pro rata based on the ratio of an
employee's compensation to the total compensation of all 401(k) Plan
participants. Orion is responsible for directing the investment of any matching
or profit sharing contributions it makes to employee accounts.
An employee's payroll deductions (and any rollover contributions into the
401(k) Plan) and earnings thereon are always 100% vested and non-forfeitable.
Matching and profit sharing contributions become 100% vested and non-forfeitable
for any employee who attains age 65, dies, or becomes disabled while working for
Orion. An employee whose employment terminates for any other reason will be 0%
vested in any matching and profit sharing contribution which the employee has
received if the employee has less than two years of service with Orion and 100%
vested in such matching and profit sharing contributions if the employee has two
or more years of service. The 401(k) Plan allows employees to begin receiving
benefits upon age 65 or upon becoming disabled while employed by Orion.
Employees may also withdraw from their account in the event of certain defined
hardships, and may borrow between $1,000 and the lesser of $50,000 or 50% of the
vested amounts in their accounts at the 401(k) Trustee's discretion. An
employee's participation in the 401(k) Plan will terminate in the event of
voluntary termination by the employee, termination of the employee's employment
or eligibility, or Orion's election to terminate the 401(k) Plan.
The 401(k) Plan is qualified under Section 401(a) of the Code and as a
qualified cash or deferred compensation arrangement under Section 401(k) of the
Code. The 401(k) Plan is also subject to certain provisions of ERISA,
principally Title I, relating to protection of employee benefit rights, and to
the provisions of the Code relating to retirement plans. As of November 15,
1996, no shares of Orion Common Stock or other cash matching or profit sharing
contributions have been distributed under the 401(k) Plan.
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PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
As discussed more fully under the caption "The Merger, the Exchange and the
Debenture Investments," pursuant to the Merger, each share of Orion Common
Stock, Orion Series A Preferred Stock and Orion Series B Preferred Stock will be
converted into the right to receive one share of Orion Newco Common Stock, Orion
Newco Series A Preferred Stock and Orion Newco Series B Preferred Stock,
respectively. In addition, pursuant to the Exchange, Orion Newco will issue
shares of Orion Newco Series C Preferred Stock for the Exchanging Partners'
limited partnership interests in Orion Atlantic, a consolidated subsidiary of
Orion, as a result of which, among other things, Orion Newco and its
subsidiaries (including Orion) will become the owner of all the partnership
interests in Orion Atlantic. Orion Newco will also acquire approximately $37.5
million of Orion Atlantic's obligations to the Exchanging Partners.
The Merger will be accounted for as a reorganization of entities under common
control. As a result, the assets and liabilities transferred pursuant to the
Merger will be accounted for at historical cost in a manner similar to a pooling
of interests. The Exchange will be accounted for as an acquisition of minority
interests using purchase accounting. As a result, the assets and liabilities of
Orion Atlantic will be revalued to fair value to the extent of the Exchanging
Partners' interests acquired as a result of the Exchange. The determination of
the fair value of the Orion Newco Series C Preferred Stock has been based on a
fairness opinion issued by Salomon Brothers dated December 10, 1996 (see "The
Merger, the Exchange and the Debenture Investments -- Opinion of Orion's
Financial Advisor"). Such value has been allocated to Orion Atlantic's assets
and liabilities based on the estimate of fair market value of the Orion 1
satellite as of December 1, 1996 of $304 million provided in an appraisal dated
December 20, 1996 from Ascent Communications Advisors, L.P., and management's
best estimate of fair value for other assets and liabilities of Orion Atlantic.
In addition to the Merger, the Exchange and the Debenture Investments, the
pro forma condensed consolidated balance sheet at September 30, 1996 gives
effect to the following transactions, which are, directly or indirectly,
conditions precedent to the Merger, the Exchange and the Debenture Investments
as described above, as if they took place on that date: (i) the Notes Offering
(including the use of the net proceeds therefrom to repay indebtedness under the
Orion 1 Credit Facility and to prefund the first six scheduled interest payments
and to pay interest rate hedge breakage costs associated with the Orion 1 Credit
Facility), (ii) the British Aerospace Investment, with gross proceeds of $50
million (and the application of $1 million of the proceeds thereof to make
interest payments under the Orion 2 Satellite Contract and the Orion 3 Satellite
Contract), (iii) the satisfaction of $13 million owed to Matra Marconi Space
through the Matra Marconi Investment of $10 million and $3 million of cash, (iv)
the acquisition by Orion of British Aerospace's 17% ownership of Orion Asia
Pacific for approximately 86,000 shares of Orion Common Stock, (v) payments of
approximately $3.9 million, including accrued interest, owed to STET, a former
Limited Partner, and (vi) the write-off of deferred financing fees (such
transactions collectively with the Merger and the Exchange, the "Transactions").
The pro forma condensed consolidated statements of operations for the year ended
December 31, 1995 and the nine months ended September 30, 1996 have been
prepared as if the Transactions took place on January 1, 1995. The unaudited pro
forma condensed consolidated financial statements do not purport to present the
actual financial position or results of operations of the Company had the
Transactions in fact occurred on the dates specified, nor are they indicative of
the results of operations that may be achieved in the future. The unaudited pro
forma condensed consolidated financial statements are based on the assumptions
and adjustments further described herein.
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ORION NETWORK SYSTEMS, INC.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
ACTUAL DEBIT CREDIT PRO FORMA
-------------- ---------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents........... $ 36,656,619 $260,125,000 (1) $216,280,254 (2) $122,338,532
48,750,000 (3) 3,050,000 (4)
3,862,833 (5)
Accounts receivable................. 5,808,568 5,808,568
Accrued interest.................... 157,125 157,125
Prepaid expenses and other.......... 5,584,196 5,584,196
-------------- ---------------- ---------------- ---------------
Total current assets................ 48,206,508 308,875,000 223,193,087 133,888,421
Property and equipment: ............
Land................................ 73,911 73,911
Telecommunications.................. 22,707,786 22,707,786
Furniture and computer.............. 4,598,505 4,598,505
Satellite and related............... 322,450,415 1,000,000 (3) 27,751,744 (6) 323,466,583
27,767,912 (6)
-------------- ---------------- ---------------- ---------------
349,830,617 28,767,912 27,751,744 350,846,785
Less accumulated depreciation ...... (57,914,578) 27,751,744 (6) (30,162,834)
-------------- ---------------- ---------------- ---------------
Net property and equipment.......... 291,916,039 56,519,656 27,751,744 320,683,951
Deferred financing costs............ 11,208,678 14,875,000 (1) 11,208,678 (2) 15,175,000
250,000 (3)
50,000 (4)
Restricted cash .................... 72,000,000 (1) 72,000,000
Other assets........................ 4,645,948 1,200,000 (3) 24,544,477
18,698,529 (6)
---------------- ---------------- ---------------
Total assets........................ $355,977,173 $472,468,185 $262,153,509 $566,291,849
============== ================ ================ ===============
Current liabilities: ...............
Accounts payable.................... $ 4,094,026 $ 4,094,026
Accrued liabilities................. 7,374,884 7,374,884
Other current liabilities........... 5,402,117 5,402,117
Interest payable.................... 3,128,365 $ 3,038,858 (2,5) 89,507
Current portion of long term debt .. 33,873,930 27,496,124 (2) 6,377,806
-------------- ---------------- ---------------- ---------------
Total current liabilities........... 53,873,322 30,534,982 23,338,340
Long term debt...................... 221,781,393 180,218,718 (2) $347,000,000 (1) 425,512,675
13,000,000 (4) 10,000,000 (4)
3,500,000 (5) 50,000,000 (3)
6,550,000 (6)
Other liabilities................... 32,878,061 30,995,875 (6) 1,882,186
Minority interest Orion Atlantic ... 19,961,032 9,974,466 (2) --
9,986,566 (6)
Minority interests in other
entities............................ 52,984 52,984
Redeemable preferred stock: .......
Series A........................... 15,820,460 15,820,460
Series B........................... 4,718,526 4,718,526
Series C........................... 94,000,000 (6) 94,000,000
Stockholders' equity: ..............
Common stock........................ 112,325 857 (3) 113,182
Capital in excess of par............ 86,508,773 1,199,143 (3) 87,707,916
Accumulated deficit................. (79,729,703) 7,124,717 (2) (86,854,420)
-------------- ---------------- ---------------- ---------------
Total stockholders' equity.......... 6,891,395 7,124,717 1,200,000 966,678
-------------- ---------------- ---------------- ---------------
Total liabilities and equity ....... $355,977,173 $291,885,324 $502,200,000 $566,291,849
============== ================ ================ ===============
</TABLE>
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ORION NETWORK SYSTEMS, INC.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1996
(UNAUDITED)
1. To reflect the estimated proceeds from the Notes Offering of $332 million,
net of estimated financing costs of approximately $15 million. Of the $347
million of gross proceeds from the Notes Offering, $ has been allocated to
the Senior Notes, $ to the Senior Discount Notes and $ to capital in excess
of par value to reflect the issuance of the Orion Newco Common Stock
warrants (the "Warrants") based on the estimated relative fair values of
the Senior Notes, the Senior Discount Notes and the Warrants. The Senior
Notes and Senior Discount Notes are assumed to bear interest at 11.875% and
13.125% per annum, respectively, and are due in 2007. No assurance can be
given that the value allocated to the Warrants is indicative of the price
at which the Warrants may actually trade. Of such proceeds, approximately
$72 million will be placed in an escrow account to fund the first six
scheduled interest payments on the Senior Notes. Such amount has been
reflected as restricted cash. The actual amount placed in escrow will
depend on the interest on the Senior Notes and on market interest rates on
the closing date of the Notes Offering.
2. To reflect the repayment of $207.7 million plus accrued interest of $2.7
million (as of September 30, 1996) under the Orion 1 Credit Facility, the
write-off of unamortized deferred financing costs of $11.2 million and
interest rate hedge breakage costs of $5.9 million, and the pro rata
allocation of such costs to the minority interests of Orion Atlantic. At
January 30, 1997, the expected closing date of the Notes Offering, the
aggregate principal and interest outstanding under the Orion 1 Credit
Facility will be $216 million.
3. To reflect (i) the estimated proceeds from the British Aerospace Investment
of $49.8 million, net of estimated financing costs of $.2 million, (ii) the
initial down payment of $1 million to Matra Marconi Space to begin
construction of Orion 2 and (iii) the acquisition by Orion of British
Aerospace's 17% common stock interest in Orion Asia Pacific, a consolidated
subsidiary (for approximately $1.2 million in Orion Common Stock), which
will be completed in connection with the Transactions.
4. To record the payment of accrued satellite incentive obligations to Matra
Hachette of $13 million, Matra's Marconi Space's corresponding reinvestment
of $10 million in Debentures, and financing costs of $50,000.
5. To reflect the repayment of $3.5 million of promissory notes and $0.4
million of accrued interest (as of September 30, 1996) thereon to STET, a
former limited partner, required to be paid as a result of the Exchange.
See "Certain Transactions."
6. To reflect the effects of the Exchange Agreement, including the acquisition
by Orion of certain obligations to the Exchanging Partners aggregating
approximately $37.5 million, through the exchange of the Exchanging
Partners' partnership interests in Orion Atlantic for Orion Newco Series C
Preferred Stock. The Orion Newco Series C Preferred Stock has been valued
at approximately $94 million based on a fairness opinion prepared by
Salomon Brothers dated December 10, 1996 using an underlying Orion Common
Stock price of $12 per share (see "The Merger, the Exchange and the
Debenture Investments -- Opinion of Orion's Financial Advisor"). Such
amount has been allocated to the obligations acquired and the 58.7%
interest of Orion Atlantic previously held by the Exchanging Partners. Such
allocation results in a step up in basis of approximately $46.5 million, of
which $27.8 million had been allocated to the Orion 1 satellite based on an
appraisal prepared by Ascent Communications Advisors, L.P. estimating the
fair value of the Orion 1 satellite to be $304 million. The remaining step
up of $18.7 million has been allocated to costs in excess of fair value of
net assets acquired and is included in Other Assets in the accompanying Pro
Forma Condensed Consolidated Business Sheet. Accumulated depreciation of
$27.8 million relating to the portion of the satellite revalued to fair
value has been offset against the basis of the satellite.
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ORION NETWORK SYSTEMS, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
ACTUAL DEBIT CREDIT PRO FORMA
--------------- ---------------- --------- ----------------
<S> <C> <C> <C> <C>
Revenues ................................ $ 30,015,517 $ 30,015,517
Operating expenses: .....................
Direct................................... 4,285,834 4,285,834
Sales and marketing...................... 7,792,666 7,792,666
Engineering and technical services ...... 6,333,525 6,333,525
General and administrative............... 11,469,235 11,469,235
Depreciation and amortization............ 26,402,947 $ 3,362,919 (1) 29,765,866
--------------- ---------------- --------- ----------------
Total.................................... 56,284,207 3,362,919 59,647,126
--------------- ---------------- --------- ----------------
Loss from operations..................... (26,268,690) 3,362,919 (29,631,609)
Other expense (income): .................
Interest income.......................... (1,841,868) (1,841,868)
Interest expense......................... 20,228,519 19,292,733 (2) 39,521,252
Other.................................... (48,356) (48,356)
--------------- ---------------- --------- ----------------
Total other expense (income)............. 18,338,295 19,292,733 37,631,028
--------------- ---------------- --------- ----------------
Loss before minority interest............ (44,606,985) 22,655,652 (67,262,637)
Minority interest........................ 24,799,698 24,799,698 (3) --
--------------- ---------------- --------- ----------------
Net loss................................. (19,807,287) 47,455,350 (67,262,637)
Preferred stock dividend and accretion .. 1,006,285 6,329,100 (4) 7,335,385
--------------- ---------------- --------- ----------------
Net loss attributable to common
shareholders............................. $(20,813,572) $53,784,450 $(74,598,022)
=============== ================ ========= ================
Net loss per common share................ $ (1.90) $ (6.46)
=============== ================
Weighted average common shares
outstanding.............................. 10,943,287 11,544,626 (5)
=============== ================
</TABLE>
120
<PAGE>
ORION NETWORK SYSTEMS, INC.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1996
(UNAUDITED)
1. To reflect depreciation on the step up in basis on the Orion 1 satellite of
$2.0 million and the amortization of excess cost over fair value of net
assets acquired of $1.3 million resulting from the acquisition of the
Limited Partners' partnership interests in Orion Atlantic over the
estimated useful life of the satellite of 10.5 years.
2. To reflect the adjustment to interest as follows:
<TABLE>
<CAPTION>
<S> <C>
Reduction in Orion 1 Credit Facility interest expense................................ $(12,096,466)
Reduction in Orion 1 Credit Facility interest rate cap expense....................... (1,067,500)
Reduction in amortization of deferred financing costs on the Orion 1 Credit
Facility .......................................................................... (1,597,941)
Interest expense on Senior Notes..................................................... 19,771,875
Interest expense on Senior Discount Notes............................................ 14,266,277
Interest expense on Debentures, net of amounts capitalized related to construction
of Orion 2 of $3.2 million......................................................... 695,625
Interest expense from amortization of deferred financing costs on new borrowings .... 1,115,625
Reduction in interest expense relating to repayment of other obligations to Limited
Partners ........................................................................... (1,794,762)
---------------
Net increase in pro forma interest expense.......................................... $ 19,292,733
===============
</TABLE>
The Senior Notes and Senior Discount Notes are assumed to bear interest at
a rate of 11.875% and 13.125%, respectively, per annum. A change in the
interest rate on the Notes of 0.5% would result in a change of $1.3 million
in interest expense for the nine months ended September 30, 1996. The
amount of pro forma interest expense with respect to the Notes does not
give the effect to any allocation of the gross proceeds of the Notes
Offering between the Notes and Warrants. Because a portion of the gross
proceeds will be allocated to the Warrants, the discount on the Notes
resulting therefrom will be accreted into interest expense (using the
interest method) over the term of the Notes.
3. Elimination of minority interest as a result of the Exchange.
4. To record the dividend requirement on the Orion Newco Series C Preferred
Stock issued as a result of the Exchange as well as pro rata accretion to
redemption value over a 25 year-period.
5. Pro forma weighted average shares outstanding for the nine months ended
September 30, 1996 consist of:
<TABLE>
<CAPTION>
<S> <C>
Historical weighted average shares outstanding................................ 10,943,287
Pro forma issuance of shares to British Aerospace and Matra Marconi Space for
interest on $60 million Debentures ........................................... 515,625
Pro forma issuance of shares to British Aerospace for purchase of 17%
minority interest in Orion Asia Pacific ...................................... 85,714
------------
Total pro forma weighted average shares outstanding........................... 11,544,626
============
</TABLE>
121
<PAGE>
ORION NETWORK SYSTEMS, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
ACTUAL DEBIT CREDIT PRO FORMA
--------------- ---------------- --------- ---------------
<S> <C> <C> <C> <C>
Revenues.............................. $ 22,283,882 $ 22,283,882
Operating expenses: ..................
Direct................................ 10,485,745 10,485,745
Sales and marketing................... 8,613,399 8,613,399
Engineering and technical services ... 8,539,644 8,539,644
General and administration............ 10,072,429 10,072,429
Depreciation and amortization......... 31,403,376 $ 4,253,528 (1) 35,656,904
--------------- ---------------- --------- ---------------
Total................................. 69,114,593 4,253,528 73,368,121
--------------- ---------------- --------- ---------------
Loss from operations.................. (46,830,711) 4,253,528 (51,084,239)
Other expense (income): ..............
Interest income....................... (1,924,822) (1,924,822)
Interest expense...................... 24,738,446 25,898,354 (2) 50,636,800
Other................................. 3,359,853 3,359,853
--------------- ---------------- --------- ---------------
Total other expense (income).......... 26,173,477 25,898,354 52,071,831
--------------- ---------------- --------- ---------------
Loss before minority interest......... (73,004,188) 30,151,882 (103,156,070)
Minority interest..................... 46,089,010 46,089,010 (3) --
--------------- ---------------- --------- ---------------
Net loss.............................. (26,915,178) 76,240,892 (103,156,070)
Preferred stock dividend and
accretion............................. 1,329,007 8,438,800 (4) 9,767,807
--------------- ---------------- --------- ---------------
Net loss attributable to common
shareholders.......................... $(28,244,185) $84,679,692 $ (112,923,877)
=============== ================ ========= ===============
Net loss per common share............. $ (3.07) $ (12.01)
=============== ===============
Weighted average common shares
outstanding........................... 9,103,505 9,376,719 (5)
=============== ===============
</TABLE>
122
<PAGE>
ORION NETWORK SYSTEMS, INC.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
(UNAUDITED)
1. To reflect depreciation on the step up in basis on the Orion 1 satellite of
$2.5 million and the amortization of excess cost over fair value of net
assets acquired of $1.7 million resulting from the acquisition of the
Exchanging Partners' partnership interests in Orion Atlantic over the
estimated useful life of the satellite of 10.5 years.
2. To reflect the adjustment to interest expense as follows:
<TABLE>
<CAPTION>
<S> <C>
Reduction in Orion 1 Credit Facility interest expense.......................................... $(17,437,104)
Reduction in Orion 1 Credit Facility interest rate cap expense................................. (426,250)
Reduction in amortization of deferred financing costs on the Orion 1 Credit Facility .......... (2,012,222)
Interest expense on Senior Notes .............................................................. 26,362,500
Interest expense on Senior Discount Notes...................................................... 16,824,834
Interest expense on Debentures net of amounts capitalized related to construction of Orion 2
of $2.3 million................................................................................ 2,993,219
Interest expense from amortization of deferred financing costs on new borrowings .............. 1,487,500
Reduction in interest expense relating to repayment of other obligations to Limited
Partners .................................................................................... (1,894,123)
---------------
Net increase in pro forma interest expense..................................................... $ 25,898,354
===============
</TABLE>
The Senior Notes and Senior Discount Notes are assumed to bear interest at
a rate of 11.875% and 13.125%, respectively, per annum. A change in the
interest rate on the Notes of 0.5% would result in a change of $1.7 million
in interest expense for the year ended December 31, 1995. The amount of pro
forma interest expense with respect to the Notes does not give effect to
any allocation of the gross proceeds of the Notes Offering between the
Notes and Warrants. Because a portion of the gross proceeds will be
allocated to the Warrants, the discount on the Notes resulting therefrom
will be accreted into interest expense (using the interest method) over the
term of the Notes.
3. Elimination of minority interest as a result of the Exchange.
4. To record the dividend requirement on the Orion Newco Series C Preferred
Stock issued as a result of the Exchange as well as pro rata accretion to
redemption value over a 25-year period.
5. Pro forma weighted average shares outstanding for the year ended December
31, 1995 consist of:
<TABLE>
<CAPTION>
<S> <C>
Historical weighted average shares outstanding............................................... 9,103,505
Pro forma issuance of shares to British Aerospace and Matra Marconi Space for interest on
$60 million Debentures....................................................................... 187,500
Pro forma issuance of shares to British Aerospace for purchase of 17% minority interest in
Orion Asia Pacific ...................................................................... 85,714
-----------
Total pro forma weighted average shares outstanding.......................................... 9,376,719
===========
</TABLE>
123
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OPERATIONAL DATA OF ORION
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The following selected consolidated statements of operations and balance
sheet data as of and for the years ended December 31, 1991, 1992, 1993, 1994 and
1995 are derived from the Company's audited consolidated financial statements.
The selected consolidated statements of operations and balance sheet data as of
September 30, 1996 and for the nine months ended September 30, 1995 and 1996 are
derived from the unaudited consolidated financial statements of the Company and,
in the opinion of the Company, include all adjustments, consisting of normal
recurring accruals, necessary for a fair presentation of such information.
Operating results for the nine months ended September 30, 1996 are not
necessarily indicative of the results that may be achieved for the year ending
December 31, 1996. The pro forma consolidated statements of operations and
balance sheet data are derived from the unaudited Pro Forma Condensed
Consolidated Financial Statements included herein. The pro forma data are not
necessarily indicative of the results that would have been achieved nor are they
indicative of the Company's future results. The data should be read in
conjunction with the Pro Forma Condensed Consolidated Financial Statements and
the Consolidated Financial Statements, related notes and other financial
information included herein. From its inception in 1982 through January 20,
1995, when Orion 1 commenced commercial operations, Orion was a development
stage enterprise. Because of Orion's exclusive management and control of Orion
Atlantic as its sole general partner (subject to certain rights of approval by
the Limited Partners), and Orion's aggregate 33 1/3% (through November 1995, 41
2/3% from December 1995 through the present) partnership interest, the financial
statements of Orion Atlantic are consolidated with the financial statements of
Orion. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations of Orion," "Pro Forma Condensed Consolidated Financial
Statements" and the Consolidated Financial Statements and Notes thereto.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------
1995 PRO
1991 1992 1993 (1) 1994 1995 FORMA(2)
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Consolidated Statements of
Operations Data:
Revenues....................... $ 648 $ 1,403 $ 2,006 $ 3,415 $ 22,284 $ 22,284
Interest expense............... 456 180 133 61 24,738 50,637
Net loss....................... (2,573) (3,295) (7,886) (7,965) (26,915) (103,156)
Net loss per common share ..... $ (0.35) $ (0.40) $ (0.85) $ (0.86) $ (3.07) $ (12.01)
Shares used in calculating per
share data(3).................. 7,318,147 8,232,548 9,266,445 9,272,166 9,103,505 9,376,719
----------- ----------- ----------- ----------- ----------- -----------
Ratio of earnings to fixed
charges(4)..................... -- -- -- -- -- --
Other Operating Data: .........
Number of customers............ 3 5 10 34 109
Capital expenditure............ $ 44,036 $ 78,429 $ 44,130 $ 51,103 $ 9,060
Customer contract backlog(5) .. $ 4,572 $ 9,402 $ 18,185 $ 39,122 $ 120,612
Points of Service(6)........... -- 57 151
EBITDA (7)..................... $ (1,852) $ (6,243) $ (9,069) $ (14,014) $ (15,427)
</TABLE>
NINE MONTHS
ENDED SEPTEMBER 30,
-------------------------------------
1996 PRO
1995 1996 FORMA(2)
----------- ------------ ------------
Consolidated Statements of
Operations Data:
Revenues....................... $ 13,947 $ 30,016 $ 30,016
Interest expense............... 17,080 20,229 39,521
Net loss....................... (19,985) (19,807) (67,263)
Net loss per common share ..... $ (2.42) $ (1.90) $ (6.46)
Shares used in calculating per
share data(3).................. 8,522,067 10,943,287 11,544,626
----------- ------------ ------------
Ratio of earnings to fixed
charges(4)..................... -- -- --
Other Operating Data: .........
Number of customers............ 79 167
Capital expenditure............ $ 3,863 $ 10,266
Customer contract backlog(5) .. $ 94,890 $ 134,320 $ 123,000
Points of Service(6)........... 124 304
EBITDA (7)..................... $ (15,177) $ 134
<TABLE>
<CAPTION>
<PAGE>
AS OF SEPTEMBER 30,
1996
----------------------
PRO
ACTUAL FORMA(2)
--------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated Balance Sheet
Data:
Cash and cash equivalents........ $ 26,507 $ 7,668 $ 3,404 $ 11,219 $ 55,112 $ 36,657 $122,339
Restricted Cash(8)............... -- -- -- -- -- -- 72,000
Total assets..................... 106,712 204,975 271,522 340,176 389,075 355,977 566,292
Long-term debt (less current
portion)......................... 1,073 106,821 185,294 230,175 250,669 221,781 425,513
Limited Partners' interest in
OrionAtlantic(9)................. 77,683 77,753 69,909 62,519 14,626 19,961 --
Redeemable preferred stock ...... -- -- -- 14,555 20,358 20,539 114,539
Total stockholders' equity
(deficit)........................ 2,559 14,478 8,400 3,351 26,681 6,891 967
Book value per share ............ .44 2.26 1.26 .49 2.46 .63 .09
</TABLE>
- ----------
(1) In 1993, Orion Atlantic terminated its commitment to purchase a second
satellite from MMS Space Systems, resulting in a termination charge of $5
million. See Note 3 to the Consolidated Financial Statements.
124
<PAGE>
(2) Adjusted to reflect the pro forma effects of the Transactions (see "Pro
Forma Condensed Consolidated Financial Statements"), assuming such events
occurred, in the case of the Consolidated Statements of Operations Data, on
January 1, 1995 and, in the case of the Balance Sheet Data, on September
30, 1996.
(3) Computed on the basis described for net loss per common share in Note 2 to
the Consolidated Financial Statements.
(4) For purposes of the ratio of earnings to fixed charges, earnings consist of
earnings from continuing operations, plus fixed charges reduced by the
amount of unamortized interest capitalized. Fixed charges consist of
interest on all indebtedness (including commitment fees and amortization of
deferred financing costs) plus the portion of rent expense representing
interest (estimated to be one-third of such expense). For the years ended
December 31, 1991, 1992, 1993, 1994 and 1995, and the nine months ended
September 30, 1995 and 1996, earnings were inadequate to cover fixed
charges by $2.6 million, $8.8 million, $24.0 million, $35.2 million, $28.2
million, $21.3 million and $19.8 million, respectively. On a pro forma
basis assuming consummation of the Transactions, earnings would not have
been sufficient to cover fixed charges by $105.4 million and $70.5 million
for the year ended December 31, 1995 and the nine months ended September
30, 1996, respectively. A 0.5% increase in the assumed interest rates on
the Notes would result in pro forma deficiencies of earnings to cover fixed
charges of approximately $107.1 million for the year ended December 31,
1995 and $71.8 million for the nine months ended September 30, 1996.
(5) Backlog represents future revenues under contract. See "Risk Factors --
Risks Relating to Orion's Business -- Uncertainties Relating to Backlog."
(6) Points of service includes installed VSATs and additional transmission
destinations (such as customer premises) that share a VSAT.
(7) "EBITDA" represents earnings before minority interests, interest income,
interest expense, net of other expense (income), income taxes, depreciation
and amortization. EBITDA is commonly used in the communications industry to
analyze companies on the basis of operating performance, leverage and
liquidity. EBITDA is not intended to represent cash flows for the period
and should not be considered as an alternative to cash flows from
operating, investing or financing activities as determined in accordance
with GAAP. EBITDA is not a measurement under GAAP and may not be comparable
to other similarly titled measures of other companies. Other expense
(income) includes gains on sale of equipment less costs of $5 million in
1993 associated with the termination of the Company's commitment to
purchase a second satellite and the write-off of costs relating to the
1995 Financing of $3.4 million in the fourth quarter of 1995.
(8) Restricted cash represents the estimated $72 million that will be placed in
escrow on the closing date of the Notes Offering to fund the payment of the
first six scheduled payments of interest on the Senior Notes. The actual
amount to be placed in escrow and reflected as restricted cash will depend
on the interest rate on the Senior Notes and interest rates on government
securities on such closing date.
(9) Represents amounts invested by Limited Partners (net of syndication costs
related to the investments), adjusted for such Limited Partners' share of
net losses. The interests of the Limited Partners will be acquired by the
Company in the Exchange.
125
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF ORION
GENERAL
Orion's principal business is the provision of satellite communications for
private communications networks and video distribution and other satellite
transmission services. From its inception in 1982 through January 20, 1995, when
Orion 1 commenced commercial operations, Orion was a development stage
enterprise. Prior to January 1995, Orion's efforts were devoted primarily to
monitoring the construction, launch and in-orbit testing of Orion 1, product
development, marketing and sales of interim private communications network
services, raising financing and planning Orion 2 and Orion 3.
OrionSat is the sole general partner in Orion Atlantic and Orion has a 41 2/3
% equity interest in Orion Atlantic. Orion will become the 100% owner of Orion
Atlantic upon consummation of the Exchange.
As a result of Orion's control of Orion Atlantic, Orion's consolidated
financial statements include the accounts of Orion Atlantic. All of Orion
Atlantic's revenues and expenses are included in Orion's consolidated financial
statements, with appropriate adjustment to reflect the interests of the Limited
Partners in Orion Atlantic's losses prior to the Exchange. The assets and
liabilities reported in the consolidated balance sheets at September 30, 1996,
December 31, 1995 and December 31, 1994 primarily pertain to Orion Atlantic.
OVERVIEW
Orion's revenues are principally generated under three to four year contracts
for delivery of communications services. Such revenues, substantially all of
which are generated through Orion Atlantic, are derived principally from
recurring monthly fees from its customers, although many contracts include
initial non-recurring installation and other fees. These non-recurring fees
generally are structured to cover the Company's actual costs of installation of
the customer's site-based equipment. The revenues from each contract vary,
depending upon the type of service, amount of capacity, data handling ability of
the network, the number of VSATs (which generally are owned by Orion),
value-added services and other factors. Depending on the complexity of the
services to be provided to a customer, the period between the date of signature
of a contract and the commencement of actual services (and receipt of fees)
typically ranges from 30 days to six months. Substantially all of Orion's
contracts are denominated in U.S. dollars, although some contracts are
denominated in pounds sterling, deutschemarks, Austrian shillings or French
francs. See "Risk Factors -- Risks Relating to Orion's Business -- Risks of
Conducting International Business." Orion begins to record revenues under its
contracts upon service commencement to the customer.
The services provided by Orion have been subject to decreasing prices over
recent years and this pricing pressure is expected to continue (and may
accelerate) for the foreseeable future, particularly if capacity continues to
increase, which it may. Orion will need to increase its volume of sales in order
to compensate for such price reductions. Orion believes that customers will
increase the data speeds in their communications networks to support new
applications, and that such upgrading of customer networks will lead to
increased revenues that will mitigate the effect of price reductions.
See "Risk Factors -- Risks Relating to Orion's Business -- Potential Adverse
Effects of Competition." Orion expects to continue to incur increasing net
losses and negative cash flow (after payments for capital expenditures and
interest) for the foreseeable future.
Orion's direct cost of services includes principally (i) costs relating to
the installation, maintenance and licensing of VSAT earth stations at its
customers' premises; (ii) satellite lease payments for transponder capacity
(generally for services outside of the Orion 1 footprint); and (iii) associated
miscellaneous expenses. Sales and marketing expenses consist of salaries, sales
commissions (including commissions to third party sales representatives), travel
and promotional expenses. The Company has recently commenced a significant
expansion of its marketing program and expects to continue this expansion
through 1997. Due to the complexity of the Company's services, and the expected
turnover of
126
<PAGE>
new sales personnel, sales and marketing expense is expected to increase
significantly during 1997. Engineering and technical expenses, consisting
principally of personnel costs and travel, relate to TT&C, network monitoring,
network design and similar activities. The Company constructed its TT&C
facilities to control two satellites. As a result, the Company anticipates a
slight increase in costs with Orion 2 and a more substantial increase in costs
with Orion 3, which will require separate TT&C facilities. General and
administrative expenses consist of in-orbit insurance premiums, personnel costs
other than for selling and engineering, information systems, professional
services, and occupancy costs. These costs will increase generally as the
Company's operations expand. Specifically, in-orbit insurance costs will
increase significantly following the launches of Orion 2 and Orion 3.
Depreciation and amortization expenses result mainly from the depreciation of
the Orion 1 satellite, VSATs and the related equipment to service the expansion
of the private network communication services business (see Note 2 of the Notes
to Consolidated Financial Statements) and will increase substantially after the
launch of Orion 2 and Orion 3. Interest income is primarily the result of
interest earned on the proceeds from Orion's private and public equity
offerings. Interest costs will increase substantially as a result of the Notes
Offering and will increase again after additional financing for Orion 2 and
Orion 3 is obtained. Interest expenses are associated with Orion's credit
facilities used to fund the construction and launch of Orion 1 and the related
tracking, telemetry and control facility. Such financing will be required
substantially in advance of the anticipated revenues from Orion 2 or Orion 3.
Orion's costs (other than sales commissions) generally do not vary substantially
with the amount of revenue from the Orion 1 satellite.
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1995
Revenue. Total revenue for the nine months ended September 30, 1996 was $30.0
million, compared to $13.9 million for the same period in 1995, an increase of
116%, resulting from increased volume of sales. Revenues from private
communications network services were $11.6 million for the first nine months of
1996 compared to $4.8 million for the comparable period in 1995, as the number
of points of service increased to 304 as of September 30, 1996 from 124 at
September 30, 1995. Revenues from video distribution and other satellite
transmission services were $18.2 million for the first nine months of 1996
compared to $8.4 million for the same period in 1995, resulting from a
substantial increase in customers for these services in 1996.
OPERATING EXPENSES
Direct expenses. Direct expenses for the nine months ended September 30,
1996, were $4.3 million compared to $10.0 million for the same period in 1995.
The decrease of $5.7 million, or 57%, was primarily attributable to accruals for
satellite incentive obligations owed by Orion to the contractor under the Orion
1 Satellite Contract during the initial satellite deployment period from January
20, 1995 through June 30, 1995. The Company capitalized the present value of the
remaining satellite incentive obligation of approximately $14.8 million,
effective July 1, 1995, as part of the cost of the satellite. As of September
30, 1996, Orion had obligations with a present value of approximately $21.7
million with respect to satellite incentives.
Sales and marketing expenses. Sales and marketing expenses were $7.8 million
for the nine months ended September 30, 1996, as compared to $5.9 million in the
same period of 1995. The increase of $1.9 million, or 32% is primarily
attributable to sales commissions, third party sales representative fees and
ground operator fees associated with the growth in the private communications
network service business.
Engineering and technical expenses. Engineering and technical expenses were
$6.3 million in the nine months ended September 30, 1996, as compared to $6.0
million for the comparable period in 1995. The increase was due to customer
engineering functions in support of network services.
General and administrative expenses. General and administrative expenses were
$11.5 million for the nine months ended September 30, 1996, compared to $7.2
million for the period ended September 30, 1995. The increase of $4.3 million,
or 60%, for the nine months ended September 30, 1996 was
127
<PAGE>
primarily due to the inclusion of the cost of in-orbit life insurance for the
entire period during 1996. The policy became effective in May 1995.
Depreciation and amortization. Depreciation and amortization expense for the
nine months ended September 30, 1996 was $26.4 million, an increase of $4.1
million, or 18%, over the same period in 1995. The increase is primarily a
result from depreciation of VSATs and other ground equipment to service the
expansion of the private network communication services business and
depreciation of the Orion 1 satellite which was placed in service January 20,
1995.
Interest. Interest income was $1.8 million for the nine months ended
September 30, 1996, compared to $1.1 million for the nine months ended September
30, 1995. The increase in interest income ($0.7 million or 64%) during the first
three quarters of 1996 is primarily a result of interest earned on the proceeds
from the Company's initial public offering in August 1995. Interest expense, net
of capitalized interest, was $20.2 million for the nine months ended September
30, 1996, compared to $17.1 million for the comparable period in 1995. The
increase in interest expense of $3.1 million in the first three quarters of 1996
is attributable to expensing interest (including commitment fees, interest
accretion associated with the Orion 1 satellite incentive obligation and
amortization of deferred financing costs) from the in-service date of Orion 1
and the impact of an interest rate cap agreement in 1996. Prior to the
in-service date of Orion 1, substantially all interest expense was capitalized.
Interest expense will substantially increase as a result of the Notes Offering.
Net Loss. The Company incurred a net loss of $19.8 million, compared to a net
loss of $20.0 million for the nine months ended September 30, 1996 and 1995,
respectively, after deduction of the limited partners' and minority interests'
share in the Company's losses before minority interests' of $24.8 million and
$33.4 million, respectively. Net loss is expected to increase substantially in
subsequent periods as a result of interest expense on the Notes and elimination
of the minority interests in Orion Atlantic.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO THE YEAR ENDED DECEMBER 31, 1994
Revenue. Services revenue for 1995 was $22.3 million compared to $3.4 million
for 1994. Revenues from private communications network services were $10.0
million from 72 customers in 1995 and $3.4 million from 18 customers in 1994, as
the number of sites in service increased to 143 from 53. Revenues from
transmission capacity and video distribution services were $12.3 million during
1995. There were no revenues from these services during 1994, as Orion 1
commenced operations on January 20, 1995.
OPERATING EXPENSES
Direct expenses. Direct expenses were $10.5 million and $3.5 million in 1995
and 1994, respectively. The increase of $7.0 million, or 199%, was primarily
attributable to accruals for satellite incentives during 1995, which were not
applicable prior to launch in November 1994, costs associated with equipment
sales ($2.5 million in 1995, $0 in 1994), and installation and maintenance costs
in connection with higher volumes of customer sites placed in service during
1995 ($1.3 million in 1995, $0.5 million in 1994). These increases were
partially offset by a reduction in leased transponder capacity costs as
customers were transferred from leased capacity to Orion 1. No equipment sales
occurred during 1994.
Sales and marketing expenses. Sales and marketing expenses were $8.6 million
in 1995, as compared to $5.9 million in 1994, an increase of $2.7 million or
47%. The increase is due to the hiring of additional sales personnel, increased
advertising and promotion expenses associated with increased sales and equipment
sales commissions.
Engineering and technical expenses. Engineering and technical expenses were
$8.5 million in 1995, as compared to $3.0 million for 1994, an increase of $5.5
million or approximately 184%. The increase is attributable to increased
staffing requirements related to control and operation of the satellite, and
customer engineering functions in support of the expansion of the network
services business.
General and administrative expenses. General and administrative expenses were
$10.1 million for 1995 compared to $5.1 million for 1994. The increase of $5.0
million or 99% was primarily due to the cost of in-orbit insurance for Orion 1,
beginning in May 1995, and other costs associated with Orion's commencement of
full commercial operations.
128
<PAGE>
Depreciation and amortization. Depreciation and amortization was $31.4
million in 1995, an increase of $29.7 million, as compared to $1.7 million for
1994. The increase primarily resulted from the commencement of depreciation of
Orion 1 upon being placed in service January 20, 1995.
Interest. Interest income was $1.9 million for 1995, compared to $0.4 million
for the prior year. The increase in interest income during 1995 is primarily a
result of interest earned on proceeds from Orion's initial public offering in
August 1995. Interest expense, net of capitalized interest, increased from $0.06
million for 1994 to $24.7 million for 1995. The increase in interest expense in
1995 is attributable to expensing interest (including commitment fees and
amortization of deferred financing costs) from the in-service date of Orion 1.
Prior to that date, substantially all interest expense was capitalized as part
of the cost of Orion 1.
Other. Other expenses of $3.4 million for the year-ended December 31, 1995
are primarily related to costs incurred in connection with Orion Atlantic's
plans to raise financing for Orion 2, which plans were deferred in November
1995.
Net loss. The Company incurred a net loss of $26.9 million and $8.0 million
for 1995 and 1994, respectively, after deduction of the Limited Partners' and
minority interests' share in the Company's results of operations of $46.1
million and $7.4 million, respectively.
YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993
Revenue. Services revenue for the year ended December 31, 1994 was $3.4
million compared to $2.0 million for the year ended December 31, 1993. The
increased revenue reflects an increase in the number of private network
customers from 12 in 1993 to 18 in 1994.
OPERATING EXPENSES
Direct expenses. Direct expenses were $3.5 million and $2.6 million in the
years ended December 31, 1994 and 1993, respectively. Direct expenses increased
$0.9 million or 32% which was primarily attributable to the increased revenue
generated by private network services.
Sales and marketing expenses. Sales and marketing expenses were $5.9 million
in the year ended December 31, 1994, as compared to $1.9 million in 1993
primarily due to the Company's increased selling efforts in private network
services.
Engineering and technical expenses. Engineering and technical expenses were
$3.0 million in the year ended December 31, 1994, as compared to $1.8 million
for the year ended December 31, 1993. Engineering and technical services
increased $1.2 million due to the increased support requirements of private
network services.
General and administrative expenses. General and administrative expenses were
$5.1 million for the year ended December 31, 1994 compared to $4.7 for the year
ended December 31, 1993. Orion Atlantic entered into interest rate hedging
arrangements which fixed the maximum interest rate through November 1995 at
11.54%. Thereafter, an interest cap agreement is in place relating to a notional
amount declining every nine months from $150 million effective November 30,
1993. General and administrative expenses increased $0.4 million principally due
to the increased staffing requirements of the Company's management team in
anticipation of higher operating levels.
Interest. During the year ended December 31, 1994, Orion incurred $27.0
million of interest costs (including commitment fees and amortization of
deferred financing costs) compared to $16.3 for the comparable period in 1993,
substantially all of which was capitalized. The increase in interest is
attributable to additional borrowings related to the construction of Orion 1 and
subordinated borrowings beginning in late 1993 from the Limited Partners to fund
the development of the Orion Atlantic network services business.
Other. Other income was $0.05 million in the year ended December 31, 1994,
compared to expense of $4.9 million for the year ended December 31, 1993. The
increase in other income is related to the April 1993 termination by Orion
Atlantic of its commitment to purchase a second satellite from Space
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Systems (due to a reassessment of the satellite design and target markets) which
resulted in the forfeiture of $5.0 million which was then expensed as a
termination charge.
Net loss. The Company incurred net losses of $8.0 million and $7.9 million
for the years ended December 31, 1994 and 1993, respectively, after deducting
the Limited Partners' and minority interests' share in Orion's results of
operations of $7.4 million and $7.8 million, respectively.
LIQUIDITY AND CAPITAL RESOURCES
Funding to date. Orion has required significant capital for operating and
investing activities in the development of its business, and will need
significant additional capital in the future to develop fully its global
satellite communications system. The Company's funding has been provided
primarily by the sale of equity securities, including the completion of its
initial public offering in August 1995 which generated proceeds to the Company
of approximately $52 million (net of underwriting discounts), bank loans, vendor
financing, lease arrangements and short-term loans from its investors. As of
September 30, 1996, Orion had a working capital deficiency of $5.7 million and
the net cash used in operations for the nine months ended September 30, 1995 and
1996, was $30.4 million and $25.0 million, respectively.
Funding for the construction and launch of the Orion 1 satellite and related
facilities was fully committed through $90 million of equity from the limited
partners of Orion Atlantic, an aggregate of $251 million under the Orion 1
Credit Facility and approximately $11 million under other debt facilities,
dedicated primarily to the construction of the TT&C facility, which is being
used to control Orion 1.
Amounts outstanding under the Orion 1 Credit Facility bear interest at 1.75%
over the LIBOR rate (7.68% at December 31, 1995). Orion Atlantic has entered
into agreements with Chase Manhattan Bank,(National Association) ("Chase") for
interest rate hedging arrangements which fixed the maximum interest rate through
November 1995 at 11.54%. Thereafter a self funding interest rate cap agreement
is in place relating to a notional amount declining every six months from $150
million effective November 30, 1995 to $15.6 million effective March 31, 2001.
Under the terms of the cap agreement, when LIBOR equals or exceeds 5.5%, Orion
Atlantic pays Chase a fee equal to 3.3% per annum of the notional amount and
receives a payment from Chase in an amount equal to the difference between the
actual LIBOR rate and 5.5% on the notional amount. There was an unrealized loss
on this cap as of September 30, 1996 of approximately $5.9 million. On the
closing date of the Notes Offering, the Company will pay its then outstanding
obligation under this facility, including costs to break the interest cap
agreement.
In the event of a deficiency in cash flow required to service the Orion 1
Credit Facility, the Limited Partners of Orion Atlantic, including the Company,
would be obligated to make additional payments toward such deficiency under the
terms of their contingent satellite capacity commitment agreements. Such
agreements would be terminated as a result of the Exchange.
Existing Obligations. The following is a description of Orion's existing
obligations, a substantial portion of which are to be paid with the proceeds of
the Notes Offering; however, no assurance can be given that the Notes Offering
will be completed.
Orion Atlantic began repayment of the term loans under the Orion 1 Credit
Facility in 1995. Sales of services to customers and certain capacity
commitments of the Limited Partners are expected to provide the cash to meet
Orion Atlantic's loan repayment obligations. The Company and the other Limited
Partners of Orion Atlantic have agreed to lease capacity on Orion 1, subject to
obligations of Orion Atlantic under the refund agreement (defined below) to
refund lease payments, and have entered into additional contingent capacity
lease contracts as support for payment of the senior bank debt of Orion
Atlantic. The Company's obligations under these firm and contingent capacity
arrangements are $2.5 million and $4.3 million, respectively, per year for seven
years, and the Company is obligated to indemnify STET (a former limited partner
whose partnership interest in Orion Atlantic was purchased by Orion Atlantic)
against certain payments made by STET under its firm and contingent capacity
leases. This indemnity could increase Orion's obligations to make payments in
the event of cash deficits of Orion Atlantic to $8.6 million per year, and could
require Orion for a term of four years commenc-
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ing in January 1998 to make payments to Orion Atlantic of up to approximately
$2.5 million per year. The Company maintains a $10 million letter of credit
supporting this indemnification obligation.
Amounts outstanding under the Orion 1 Credit Facility (approximately $210.4
million, including interest, as of September 30, 1996) are secured by the assets
of Orion Atlantic, the partnership interests of the partners in Orion Atlantic
and the stock of OrionSat, and are due in graduated installments through 2002.
Among other customary covenants and requirements, the Orion 1 Credit Facility
includes significant restrictions on the distribution of any funds from Orion
Atlantic to the partners. Distributions can only be made if Orion Atlantic has
sufficient revenues to cover operating costs and debt service. Orion's capacity
commitments and the Orion 1 Credit Facility are required to be refinanced in
connection with the Exchange. See "The Related Transactions -- The Notes
Offering/Orion 1 Credit Facility Refinancing."
At September 30, 1996, the Company had outstanding indebtedness of
approximately $7.2 million under a seven year term loan provided by General
Electric Capital Corporation ("GECC") for the TT&C facility, which is secured by
the TT&C facility and various assets relating thereto. Additionally, at
September 30, 1996, the Company had obligations with a present value of $21.7
million, which are payable to the manufacturer of Orion 1 through 2006 (of which
$13 million will be paid in cash on the Closing Date, $10 million of which will
be reinvested in the Debentures), and $8.0 million payable to a former partner
in Orion Atlantic through 1997. Of this $8.0 million, approximately $3.5 million
(plus interest of approximately $500,000 as of January 30, 1997) will be paid
with proceeds of the Notes Offering. Also at September 30, 1996, the Company had
outstanding approximately $8.1 million of subordinated debt under a facility of
up to $10.5 million from certain Limited Partners (excluding the Company) for
Orion Atlantic's network services. See Note 5 to Consolidated Financial
Statements for additional discussion of Orion's long-term debt. Orion will be
acquiring the Limited Partners' interests in such obligations in the Exchange.
Current Funding Requirements. The Company will need a substantial amount of
capital over the next three years (and possibly thereafter) to fund the costs of
Orion 2 and Orion 3, the purchase of VSATs and other capital expenditures and to
make various other payments, such as principal and interest payments with
respect to the TT&C Financing, the Notes and any indebtedness incurred to
finance Orion 2 or Orion 3. The Company's cash flows will be inadequate to cover
its cash needs and the Company will seek financing from outside sources. The
Company does not have a revolving credit facility or other source of readily
available capital. Sources of additional capital may include public or private
debt or equity financings. The Company is often involved in discussions or
negotiations with respect to such potential financings and, because of its
substantial capital needs, may consummate any such financing at any time. The
Company has commenced construction of Orion 3 and intends to commence
construction of Orion 2 immediately after consummation of the Notes Offering,
despite the fact that it does not have any commitment from any outside source to
provide such financing. If the Company is unable to obtain financing from
outside sources in the amounts and at the times needed, it could forfeit
payments made on Orion 2 and Orion 3 and its rights to Orion 2 and Orion 3 under
the Orion 2 Satellite Contract and Orion 3 Satellite Contract and there would be
a material adverse effect on the Company's ability to make payments on the Notes
and the value of the Orion Newco Common Stock.
Expected payments prior to launch under the Orion 2 Satellite Contract and
Orion 3 Satellite Contract and for launch insurance for Orion 2 and Orion 3
aggregate approximately $500 million. In addition to the $3 million paid in the
fourth quarter of 1996, Orion will need to make payments of approximately $90
million, $360 million and $50 million in 1997, 1998 and 1999, respectively.
These amounts include the Company's estimate regarding the cost of launch
insurance (but not in-orbit insurance, which the Company presently estimates
will cost approximately $5 million to $6 million per annum per satellite),
although the Company has not had material discussions with potential insurers
and has not received any commitment to provide insurance. The Company's actual
payments could be substantially higher due to any change orders for the
satellites, insurance rates, delays and other factors. In addition, the Company
expects to expend approximately $22 million, $30 million and $34 million on
VSATs and other capital expenditures in 1997, 1998 and 1999, respectively. The
Company believes these VSAT and
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other capital expenditures can be financed through capital leases or other
secured financing arrangements. However, the Company has not engaged in material
discussions with potential lenders and there can be no assurance that such
financing can be obtained.
Under the Orion 1 Satellite Contract, the contractor is entitled to receive
incentive payments based upon the performance of Orion 1 in orbit. These
incentive payments could reach an aggregate of approximately $44 million through
2007, if the transponders on Orion 1 continue to operate in accordance with
specification during that period. As of September 30, 1996, Orion had
obligations with a present value of approximately $21.7 million with respect to
incentive payments. Orion will pay $13 million in satellite incentives following
completion of the Notes Offering of which $10 million will be re-invested in
Debentures of Orion Newco in the Matra Marconi Investment.
The foregoing estimates do not include any amounts for other possible
financing requirements. The Company may from time to time enter into joint
ventures and make acquisitions of complimentary businesses and is often engaged
in discussions or negotiations with regard to such potential joint ventures and
acquisitions. Such joint ventures or acquisitions would need to be financed,
which would increase the Company's need for additional capital. In addition,
Orion intends to replace Orion 1 at the end of its useful life (expected to be
in October 2005). Such replacement likely will require additional financing if
the cash flow from Orion's operations is not sufficient to fund a replacement
satellite. See "Risk Factors -- Risks Relating to Orion's Business --Need for
Substantial Additional Capital" and " -- Launch of Orion 2 and Orion 3 Subject
to Significant Uncertainties -- Substantial Financing Requirements; Risks of
Commencing Construction Prior to Completing Financing."
As of September 30, 1996, after giving pro forma effect to the Transactions,
Orion would have had approximately $426 million of long-term indebtedness. The
accretion of original issue discount, if any, on the Senior Discount Notes will
increase the amount of Orion's indebtedness. As indicated above, Orion's
financing plan requires a total of $480 million of additional financing to fully
fund the construction, launch and insurance of Orion 2 and Orion 3 and
associated financing and start-up costs, and Orion presently expects that a
significant portion of such additional financing will be in the form of
additional indebtedness. Such additional indebtedness would increase Orion's
long-term indebtedness. See "Risk Factors -- Risks Relating to Orion's Business
- --Substantial Leverage; Secured Indebtedness."
The level of the Company's indebtedness could have important consequences to
its stockholders, including the following: (i) the ability of the Company to
obtain any necessary financing in the future for working capital, capital
expenditures, debt service requirements or other purposes may be limited; (ii) a
substantial portion of the Company's cash flow from operations, if any, must be
dedicated to the payment of principal of and interest on its indebtedness and
other obligations and will not be available for other purposes; (iii) the
Company's level of indebtedness could limit its flexibility in planning for, or
reacting to changes in, its business; (iv) the Company will be more highly
leveraged than some of its competitors, which may place it at a competitive
disadvantage; and (v) the Company's high degree of indebtedness will make it
more vulnerable to a default and the consequences thereof (such as bankruptcy
workout) in the event of a downturn in its business.
Because of its substantial needs for additional financing, Orion may attempt
to raise additional funds substantially earlier than the date it needs such
funds, depending on the conditions of the capital markets from time-to-time,
including during 1997. If the Merger and the Exchange are consummated, Orion
will be entitled to incur additional indebtedness at any time, including prior
to the date such funds are needed, without obtaining any further stockholder
approval. If Orion raises such funds prior to the date such funds are needed, it
will (in addition to the risks and costs associated with increased leverage)
incur substantial interest cost for periods when such funds are not deployed in
its business.
TAXES
As of December 31, 1995, Orion had net operating loss carryforwards for
federal tax purposes of approximately $51.2 million. The ability of Orion to
benefit from net operating losses for federal income tax purposes will depend on
a number of factors, including whether Orion has sufficient income from which to
deduct the losses, limitations that may arise as a result of changes in the
ownership of Orion,
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including as a result of the Transactions and other factors, and certain other
limitations which may significantly reduce the economic benefit of those losses
to Orion. Due to uncertainty regarding its ability to realize the benefits of
such net operating loss carryforwards, the Company has established a valuation
allowance for the full amount of its net operating loss carryforwards. Of
Orion's net operating losses, approximately $31.2 million was incurred by Orion
Atlantic and allocated to Orion. Orion Atlantic is structured as a partnership
for U.S. income tax purposes. As a result, Orion Atlantic itself generally
should not be subject to federal income taxation. Instead, the Partners of Orion
Atlantic, including Orion and OrionSat, will separately report their allocable
shares of Orion Atlantic's net income, loss, gain, deductions, and credits, as
determined under the allocation provisions of the Partnership Agreement. Orion
Atlantic may, however, be subject to income tax on a portion of its income in
certain states and other countries in which it has operations. Under the
Partnership Agreement, the first $20 million of any losses was allocated to
OrionSat, and any losses in excess of that amount generally have been allocated
to the Partners, including Orion and OrionSat, in proportion to their respective
percentage interests. Subsequent to consummation of the Exchange, all losses
will be allocated to Orion.
EFFECT OF INFLATION
Orion believes that inflation has not had a material effect on the results of
operations to date.
EFFECT OF RECENTLY ISSUED FINANCIAL ACCOUNTING STANDARDS
In March 1995, the FASB issued Statement No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,
which requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount. Statement No. 121 also addresses the accounting for long-lived
assets that are expected to be disposed of. Orion adopted Statement No. 121 in
the first quarter of 1996. The effect of adoption was not material to its
financial condition or results of operations.
In October 1995, the FASB issued Statement No. 123, Accounting for Stock
Based Compensation, which is effective for awards after January 1, 1996. Orion
has elected to continue to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25) and related Interpretations
in accounting for its employee stock based award programs, because the
alternative fair value accounting provided for under FASB Statement No. 123
requires use of option valuation models that were not developed for use in
valuing employee stock options. Under APB 25, when the exercise price of the
employee award equals the market price of the underlying stock on the date of
grant, as has been the case historically with Orion's awards, no compensation
expense is recognized.
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PRICE RANGE OF ORION COMMON STOCK AND DIVIDEND POLICY
Since completion of Orion's initial public offering in August 1995, the Orion
Common Stock has been quoted on the Nasdaq National Market under the trading
symbol "ONSI." As of December 15, 1996, there were approximately 350
stockholders of record of Orion Common Stock. The following table summarizes the
high and low closing sale prices of the Orion Common Stock by fiscal quarter for
1995, 1996 and 1997 as reported on the Nasdaq National Market.
QUARTER ENDED: 1995
------------------------------------- ------------
August 1 through September 30 ....... $10 3/4 to $14 1/4
December 3 .......................... 16 3/4 to 12
QUARTER ENDED: 1996
------------------------------------ ------------------
March 31 ........................... $ 8 1/4 to $14 3/4
June 30 ............................ 10 1/4 to 14 1/4
September 30 ....................... 7 1/4 to 12 1/8
December 31 ........................ 9 1/2 to 12 7/8
QUARTER ENDED: 1997
- --------------------------- -----------
March 31 (through January 14)............. $12 1/2 to $15
On December 13, 1996, the date preceding public announcement of the Merger
Transactions, the last reported sale price of the Orion Common Stock, as
reported on the Nasdaq National Market, was $12 5/8 .
Orion has never paid any cash dividends on the Orion Common Stock and the
Board of Directors of Orion currently does not anticipate paying cash dividends
in the foreseeable future on shares of Orion Common Stock. The terms of the
Orion 1 Credit Facility, which regulate cash distributions to Orion Atlantic's
partners, including Orion, and agreements relating to the Orion Senior Preferred
Stock limit Orion's ability to pay cash dividends on the Orion Common Stock. The
Notes Indentures are expected to contain covenants restricting the payment of
cash dividends by Orion Newco for the foreseeable future. See "The Related
Transactions -- The Notes Offering/Orion 1 Credit Facility Refinancing -- Notes
Offering."
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CERTAIN TRANSACTIONS
The following is a summary of certain transactions among Orion, directors,
officers and certain stockholders of Orion, and related persons. Orion believes
that each of such transactions was on terms no less favorable to Orion than
reasonably could have been obtained in arm's-length transactions with
independent third parties. Orion has a policy requiring that any material
transactions between Orion and persons or entities affiliated with officers,
directors or principal stockholders of Orion be on terms no less favorable to
Orion than reasonably could be obtained in arm's-length transactions with
independent third parties. Orion's policy is to conduct an appropriate review of
all related party transactions and to have the Audit Committee or a comparable
body review potential conflict of interest situations.
Orion is a party to numerous agreements with one or more Exchanging Partners,
most of which were entered into in December 1991, including the partnership
agreement of Orion Atlantic, firm and contingent capacity leases (most of which
will be terminated in connection with the Exchange), the Orion 1 Satellite
Contract, the Orion 2 Satellite Contract, agreements with STET or its affiliates
concerning the TT&C facility, representative agent agreements and agreements to
make loans or advances to Orion (which will be terminated as part of the
Exchange). See "The Merger, the Exchange and the Debenture Investments -- The
Exchange Agreement."
Orion entered into the Orion 1 Satellite Contract with British Aerospace, an
affiliate of a principal stockholder of Orion and of which Mr. Rice, a director
of Orion, is a Group Treasurer. Under the terms of the Orion 1 Satellite
Contract, Orion has paid an aggregate of $43.4 million in 1991, $72 million in
1992 (plus a $5 million payment upon termination for convenience by Orion of a
second satellite), $26 million in 1993, $89.8 million in 1994 and $0.3 million
in 1995. As of September 30, 1996, Orion Atlantic had obligations of $15 million
to Matra Marconi Space with respect to incentive payments under the Orion 1
Satellite Contract, of which $13 million will be paid on the closing date of the
Exchange. Of this amount, $10 million will be re-invested in Orion by Matra
Marconi Space in the Matra Marconi Investment. See "The Merger, the Exchange and
the Debenture Investments -- The Debenture Investments." The balance of the
outstanding obligations are payable 18 months following commencement of
construction under the Orion 2 Satellite Contract, and subsequent payments of up
to $29.4 million may become payable thereafter, depending on satellite
performance. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations of Orion -- Liquidity and Capital Resources."
Orion has engaged certain Exchanging Partners as representative agents for
sales and ground operations. A joint venture between two Exchanging Partners
(Kingston Communications and British Aerospace) serves as a ground operations
representative in the United Kingdom, and the affiliate of another Exchanging
Partner (Matra Hachette) serves as a ground operations representative in France.
Orion expects to pay these Exchanging Partners an aggregate of $1.6 million in
1996 as commissions and other fees (including for ground operations and, in the
case of the Kingston Communications/British Aerospace joint venture, satellite
capacity, equipment leasing and other charges), and paid these Exchanging
Partners $1.9 million in 1995 and $1.9 million in 1994 for these services. See
"Information About Orion's Business -- Sales and Marketing" and "-- Network
Operations; Local Ground Operators."
In December 1991, Orion issued 259,515 shares of Orion Common Stock at a
value of $11.56 per share to British Aerospace Space Systems, Inc. in
consideration of British Aerospace Space Systems, Inc.'s agreement to guarantee
Orion's obligations under a $10 million letter of credit (see Note 4 to
Consolidated Financial Statements). The shares were reconveyed to Orion and are
held in treasury at a value of $0. The shares are pledged as security for
British Aerospace Space Systems, Inc. in the event it is required to fund
amounts under its guarantee and Orion does not provide reimbursement. These
arrangements will be terminated upon the closing of the Transactions.
In December 1993, Orion issued an aggregate of 178,097 shares of Orion Common
Stock as part of a private placement of Orion Common Stock to certain of its
directors and affiliates of those directors at a purchase price of $10.20 per
share. The terms of such issuance permitted the purchas-
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ers to receive the benefit of any lower price at which Orion Common Stock
subsequently was issued in a private placement or to receive any other security
subsequently issued in a private placement. In June 1994, when Orion issued
shares of Orion Common Stock as part of a private placement of Orion Common
Stock to a limited number of institutions and other investors (including 64,705
shares to affiliates of Directors) at a purchase price of $8.50 per share, Orion
issued 100,326 additional shares to the Directors and affiliates of Directors
who purchased Orion Common Stock in December 1993. In addition, after Orion
issued Orion Series A Preferred Stock (along with warrants and options to make
an additional investment) to CIBC, Fleet and Chisholm (each as defined below) in
June 1994, the Directors and affiliates of Directors who purchased Orion Common
Stock in December 1993 each exercised their right to receive Orion Series A
Preferred Stock (along with warrants and options to make an additional
investment) in exchange for the Orion Common Stock previously acquired, and
Orion issued an aggregate of $3,000,000 of Orion Series A Preferred Stock to
such persons and entities.
In April 1994, Orion entered into an agreement with Space Systems/Loral
("SS/L") whereby SS/L agreed to purchase 588,235 shares of Orion Common Stock
for an aggregate purchase price of $5,000,000.
In June 1994, CIBC Wood Gundy Ventures, Inc. ("CIBC"), Fleet Venture
Resources, Inc. ("Fleet") and Chisholm Partners, II, L.P. ("Chisholm") purchased
$11.5 million in Orion Series A Preferred Stock. For a description of the Orion
Series A Preferred Stock, see "Description of Orion Newco Capital Stock --
Preferred Stock." In connection with the transaction, CIBC and Fleet each were
granted the right to elect one member of Orion's Board of Directors. These
rights terminated as a result of the Company's initial public offering.
In June 1994, CIBC, Inc. (an affiliate of CIBC) became a $25,000,000 lender
under the Orion 1 Credit Facility.
In June 1995, CIBC, Fleet and certain Directors and affiliates of Directors
who purchased Orion Series A Preferred Stock in June 1994 purchased
approximately $4.2 million of Orion Series B Preferred Stock. This purchase was
pursuant to an option granted in June 1994. The Orion Series B Preferred Stock
has rights, designations and preferences substantially similar to those of the
Orion Series A Preferred Stock, and is subject to similar covenants, except that
the Orion Series B Preferred Stock is convertible into Orion Common Stock at an
initial price of $10.20 per share, subject to certain anti-dilution adjustments.
For a description of the Orion Series B Preferred Stock, See "Description of
Orion Newco Capital Stock -- Orion Newco Preferred Stock.
In November 1995, Orion Atlantic redeemed the limited partnership interest
previously held by STET for an aggregate of approximately $11.5 million (the
"STET Redemption"), including $3.5 million in cash and $8 million in promissory
notes, $3.5 million (plus accrued interest of approximately $400,000) of which
will be paid on the closing date of the Exchange. As part of the STET
Redemption, Telecom Italia, a subsidiary of STET, entered into a representative
agreement and distributor arrangement with Orion providing for sales, marketing,
customer support and ground operations services in Italy. Orion Atlantic funded
the STET Redemption by selling a new limited partnership interest to Orion for
$8 million (including $3.5 million in cash and $4.5 million in promissory notes)
$3.5 million (plus accrued interest of approximately $400,000) of which will be
paid on the closing date of the Exchange). Orion Atlantic also entered into
amendments to existing contracts with STET that were expected to result in a
cash savings by the Company of approximately $3.5 million over a ten-year
period. In connection with the STET Redemption, Orion agreed to indemnify
Telecom Italia for payments which would be made under its firm and contingent
capacity agreements with Orion Atlantic. Such indemnity will be discontinued on
the closing date of the Exchange.
In July 1996, Matra Marconi Space, the parent company of MMS Space Systems,
the prime contractor for Orion 1, entered into the Orion 2 Satellite Contract
with Orion regarding construction of Orion 2, which contract was amended in
December 1996. Certain terms of the Orion 2 Satellite Contract are described
above under the caption "Information About Orion's Business -- Implementation of
the Orion Satellite System -- Orion 2." Matra Hachette, one of the parent
companies of Matra Marconi
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Space, will be a more than 5% beneficial owner of Orion Common Stock after the
Exchange and the Merger. See "The Merger, the Exchange and the Debenture
Investments."
Effective June 1996, Orion and the Exchanging Partners entered into the
Exchange Agreement. In December 1996 and January 1997, the Exchanging Partners
agreed to extend to April 30, 1997 the termination date for the Exchange. See
"The Merger, the Exchange and the Debenture Investments -- The Exchange
Agreement."
Effective January 13, 1997, Orion, Orion Newco and each of British Aerospace
and Matra Marconi Space entered into the Debenture Agreement. The net proceeds
of the Debenture Investments, which will occur concurrently with the Notes
Offering, are estimated to be approximately $59 million. Such net proceeds are
expected to be used for initial payments to the manufacturers under the Orion 2
Satellite Contract.
FORWARD-LOOKING STATEMENTS
Information set forth in this Proxy Statement/Prospectus under the captions
"Risk Factors," "Management's Discussion and Analysis of Financial Condition and
Results of Operations of Orion" and "Selected Consolidated Financial and
Operationa Data of Orion" and under other captions contains various
"forward-looking statements" within the meaning of Section 27A of the Securities
Act and Section 21E of the Exchange Act. Such statements represent Orion's
reasonable judgment concerning the future and are subject to risks and
uncertainties that could cause Orion's actual operating results and financial
position to differ materially. Such forward-looking statements include the
following: Orion's belief that the Merger Transactions will enhance the ability
of the Company to raise additional financing; Orion's belief that a change in
the operational structure of Orion Atlantic would reduce certain potential
conflicts of interest and operating concerns that may be inherent in the current
partnership structure of Orion Atlantic; Orion's projections regarding the
continuation of operating losses and net cash flow deficits; Orion's belief and
the judgments of its independent engineering consultant, Telesat Canada,
regarding the expected performance of the Orion 1 satellite over its useful
life, and the effect of such performance on Orion's business; Orion's
expectations regarding the period for construction and launch of Orion 2 and
Orion 3; Orion's belief that it can overcome uncertainties relating to Orion 2
and Orion 3; Orion's expectations regarding receipt of regulatory approvals,
coordination of orbital slots and avoidance of possible interference; Orion's
beliefs regarding existing and future regulatory requirements, its ability to
comply with such requirements and the effect of such requirements on its
business; Orion's beliefs regarding the competitive advantages of satellites and
of Orion's satellites, strategies and services in particular, both in general
and as compared to other providers of services or transmission capacity and
other services presently offered or which may be offered in the future; Orion's
expectations regarding the growth in telecommunications and the demand for
telecommunications services; Orion's beliefs regarding the demand for or
attractiveness of Orion's services; Orion's beliefs regarding technological
advances and their effect on telecommunications services or demand therefor;
Orion's beliefs regarding availability of net operating loss carryforwards;
Orion's beliefs regarding its representatives and distributors; Orion's belief
regarding transactions or existing management structures being in the best
interests of Orion and its stockholders; the description of the Merger, the
Exchange and the Debenture Investments under the caption "Certain Transactions"
as being on terms no less favorable to Orion than reasonably could have been
obtained in arm's-length transactions with independent third parties; Orion's
intention not to pay any cash dividends on the Orion Common Stock in the
foreseeable future; Orion's belief that any liability that might be incurred by
Orion upon the resolution of certain existing or future legal proceedings not
having a material adverse effect on the consolidated financial condition or
results of operations of Orion; and the adoption of new accounting releases not
being material to its financial condition or results of operations.
Orion cautions that the above statements are further qualified by important
factors that could cause Orion's actual results to differ materially from those
in the forward-looking statements. Such factors include, without limitation,
those set forth in this Proxy Statement/Prospectus under "Risk Factors" and the
following: the Merger, the Exchange and the Debenture Investments are dependent
on the Orion 1 Credit Facility Refinancing and the Debenture Investments, and
there being no assurance that these
137
<PAGE>
financings or the Merger, the Exchange and the Debenture Investments can be
consummated; the terms of financings not being known and there being no
assurance that such terms will not be unfavorable to Orion; there being no
assurance that Orion will obtain all necessary approvals or waivers to implement
the Merger, the Exchange and the Debenture Investments, or regarding the effect
of failure to obtain such approvals or waivers; there being no assurance as to
the effect of issuance of Orion Newco Series C Stock on the market for Orion
Newco Common Stock; no assurances regarding the business plan; Orion's history
of losses and expectation of future losses; the substantial financial risks and
financing requirements; substantial leverage and limits on Orion's ability to
raise additional funds; risks of satellite loss or reduced performance; launch
of Orion 2 and Orion 3 being subject to significant uncertainties; risks
relating to Orion's business plan; potential adverse effects of competition; no
assurances regarding approvals needed or current or future regulation of the
telecommunications industry; no assurances regarding technological changes;
risks of conducting international business; dependence of Orion on key
personnel; control of Orion Newco by principal stockholders; risks relating to
senior preferred stock; limits on paying cash dividends on Orion Common Stock;
and anti-takeover and other provisions of the certificate of incorporation. See
"Risk Factors."
OTHER MATTERS
The Board of Directors of Orion does not know of any matter to be brought
before the Special Meeting other than as described in the Notice of Special
Meeting accompanying this Proxy Statement/Prospectus. If any other matter comes
before the Special Meeting, it is the intention of the persons named in the
accompanying proxy to vote the proxy in accordance with their best judgment with
respect to such other matter.
LEGAL MATTERS
Certain legal matters with respect to the Merger Transactions and the
securities offered hereby will be passed upon for Orion and Orion Newco by Hogan
& Hartson L.L.P., Washington, D.C.
EXPERTS
The consolidated financial statements of Orion Network Systems, Inc. at
December 31, 1995 and 1994, and for each of the three years in the period ended
December 31, 1995, included in the Proxy Statement of Orion Network Systems,
Inc., which is referred to and made a part of this Prospectus and Registration
Statement, have been audited by Ernst & Young LLP, independent auditors, as set
forth in their report thereon appearing elsewhere herein, and are included in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing
138
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
---------
Report of Independent Auditors ...................................... F-2
Consolidated Financial Statements
Consolidated Balance Sheets ........................................ F-3
Consolidated Statements of Operations .............................. F-4
Consolidated Statements of Changes in Stockholders' Equity........ F-5
Consolidated Statements of Cash Flows .............................. F-6
Notes to Consolidated Financial Statements ......................... F-7
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Orion Network Systems, Inc.
We have audited the accompanying consolidated balance sheets of Orion Network
Systems, Inc. as of December 31, 1995 and 1994, and the related consolidated
statements of operations, changes in stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Orion Network
Systems, Inc. at December 31, 1995 and 1994, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Washington, DC
February 9, 1996
F-2
<PAGE>
ORION NETWORK SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
------------------------------- ----------------
1994 1995 1996
--------------- --------------- ----------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS (NOTE 3)
Current assets:
Cash and cash equivalents $11,218,831 $55,111,585 $36,656,619
Accounts receivable (less allowance for doubtful accounts $278,000 at
December 31, 1995 and $328,000 at September 30, 1996) 551,870 5,189,598 5,808,568
Notes receivable and accrued interest -- 129,810 157,125
Prepaid expenses and other current assets 150,276 3,168,058 5,584,196
--------------- --------------- ----------------
Total current assets 11,920,977 63,599,051 48,206,508
Property and equipment, at cost:
Land 73,911 73,911 73,911
Telecommunications equipment 4,231,380 13,836,841 22,707,786
Furniture and computer equipment 1,833,169 3,395,799 4,598,505
Satellite and related equipment 303,486,227 321,918,549 322,450,415
--------------- --------------- ----------------
309,624,687 339,225,100 349,830,617
Less: accumulated depreciation (1,628,958) (32,170,865) (57,914,578)
--------------- --------------- ----------------
Net property and equipment 307,995,729 307,054,235 291,916,039
Deferred financing costs, net 15,551,956 12,894,720 11,208,678
Other assets, net 4,706,876 5,527,221 4,645,948
--------------- --------------- ----------------
Total assets $340,175,538 $389,075,227 $355,977,173
=============== =============== ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $1,154,344 $ 10,454,723 $4,094,026
Accrued liabilities 5,522,220 6,812,223 7,374,884
Other current liabilities -- 2,111,687 5,402,117
Interest payable 7,734,764 8,005,079 3,128,365
Current portion of long-term debt (Note 5) 12,015,663 28,607,110 33,873,930
--------------- --------------- ----------------
Total current liabilities 26,426,991 55,990,822 53,873,322
Long-term debt (Note 5) 230,175,483 250,669,286 221,781,393
Other liabilities 3,091,074 20,698,084 32,878,061
Limited Partners' interest in Orion Atlantic (Notes 1 and 3) 62,519,087 14,626,338 19,961,032
Minority interest in other consolidated entities 57,639 52,354 52,984
Commitments and contingencies (Note 4)
Series A 8% Cumulative Redeemable Convertible Preferred Stock,
$.01 par value; 15,000 shares authorized; 13,871, 14,491 and 14,500
shares issued and outstanding at September 30, 1996 and December 31,
1995 and 1994, respectively, plus accrued dividends (Note 6) 14,554,693 15,705,054 15,820,460
Series B 8% Cumulative Redeemable Convertible Preferred Stock,
$.01 par value; 5,000 shares authorized; 4,298 and 4,483 shares issued
and outstanding at September 30, 1996 and December 31, 1995, plus
accrued dividends (Note 6) -- 4,652,647 4,718,526
Stockholders' equity (Notes 4 and 6):
Common stock, $.01 par value; 40,000,000 shares authorized; 11,232,533,
11,115,965 and 7,045,523 issued, 10,973,018, 10,856,450 and 6,786,008
outstanding at September 30, 1996 and December 31, 1995 and 1994,
respectively, less 259,515 held as treasury shares (at no cost) 70,455 111,160 112,325
Capital in excess of par value 33,952,062 85,485,613 86,508,773
Accumulated deficit (30,671,946) (58,916,131) (79,729,703)
--------------- --------------- ----------------
Total stockholders' equity 3,350,571 26,680,642 6,891,395
--------------- --------------- ----------------
Total liabilities and stockholders' equity $340,175,538 $389,075,227 $355,977,173
=============== =============== ================
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
ORION NETWORK SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------------------- --------------------------------
1993 1994 1995 1995 1996
--------------- --------------- --------------- --------------- ----------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Services revenue .......................... $ 2,006,021 $ 3,415,053 $ 22,283,882 $ 13,947,425 $ 30,015,517
Operating expenses: .......................
Direct 2,648,306 3,503,037 10,485,745 10,019,683 4,285,834
Sales and marketing ...................... 1,920,578 5,863,823 8,613,399 5,914,332 7,792,666
Engineering and technical services........ 1,775,261 3,004,144 8,539,644 6,021,853 6,333,525
General and administrative................ 4,731,322 5,058,201 10,072,429 7,168,165 11,469,235
Depreciation and amortization............. 1,752,103 1,716,019 31,403,376 22,276,632 26,402,947
--------------- --------------- --------------- --------------- ----------------
Total operating expenses................. 12,827,570 19,145,224 69,114,593 51,400,665 56,284,207
--------------- --------------- --------------- --------------- ----------------
Loss from operations....................... (10,821,549) (15,730,171) (46,830,711) (37,453,240) (26,268,690)
Other expense (income):
Interest income........................... (181,707) (413,435) (1,924,822) (1,078,347) (1,841,868)
Interest expense.......................... 132,869 60,559 24,738,446 17,080,146 20,228,519
Other..................................... 4,949,722 (54,737) 3,359,853 (43,216) (48,356)
--------------- --------------- --------------- --------------- ----------------
Total other expense (income)............. 4,900,884 (407,613) 26,173,477 15,958,583 18,338,295
--------------- --------------- --------------- --------------- ----------------
Loss before minority interest.............. (15,722,433) (15,322,558) (73,004,188) (53,411,823) (44,606,985)
Limited Partners' and minority interest in
the net loss of Orion Atlantic and other
consolidated entities .................... 7,836,362 7,357,640 46,089,010 33,426,738 24,799,698
--------------- --------------- --------------- --------------- ----------------
Net loss................................... (7,886,071) (7,964,918) (26,915,178) (19,985,085) (19,807,287)
Preferred stock dividend .................. -- 626,400 1,329,007 959,646 1,006,285
--------------- --------------- --------------- --------------- ----------------
Net loss attributable to common
stockholders.............................. $ (7,886,071) $ (8,591,318) $(28,244,185) $(20,944,731) $(20,813,572)
=============== =============== =============== =============== ================
Net loss per common share.................. $ (0.85) $ (0.86) $ (3.07) $ (2.42) $ (1.90)
=============== =============== =============== =============== ================
Weighted average common shares
outstanding............................... 9,266,445 9,272,166 9,103,505 8,522,067 10,943,287
=============== =============== =============== =============== ================
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
ORION NETWORK SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
-------------------------
CAPITAL IN TOTAL TOTAL
NUMBER OF EXCESS OF ACCUMULATED STOCKHOLDERS|AL
SHARES AMOUNT PAR VALUE DEFICIT EQUITY
------------- ----------- -------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1992................. 6,405,732 $ 64,057 $28,608,812 $(14,194,557) $ 14,478,312
Issuance of common stock (Note 6)........... 178,097 1,781 1,804,564 -- 1,806,345
Exercise of stock options................... 165 2 998 -- 1,000
Net loss for 1993........................... -- -- -- (7,886,071) (7,886,071)
------------- ----------- -------------- ---------------- ----------------
Balance at December 31, 1993................. 6,583,994 65,840 30,414,374 (22,080,628) 8,399,586
Issuance of common stock.................... 782,503 7,825 6,326,028 -- 6,333,853
Exercise of stock options................... 31,967 319 208,131 -- 208,450
Conversion of common stock to redeemable
preferred stock (Note 6)................... (352,941) (3,529) (2,996,471) -- (3,000,000)
Accrued dividend on preferred stock......... -- -- -- (626,400) (626,400)
Net loss for 1994........................... -- -- -- (7,964,918) (7,964,918)
------------- ----------- -------------- ---------------- ----------------
Balance at December 31, 1994................. 7,045,523 70,455 33,952,062 (30,671,946) 3,350,571
Issuance of common stock.................... 4,002,941 40,030 50,960,330 -- 51,000,360
Exercise of stock options and warrants...... 67,501 675 573,221 -- 573,896
Accrued dividend on preferred stock......... -- -- -- (1,329,007) (1,329,007)
Net loss for 1995........................... -- -- -- (26,915,178) (26,915,178)
------------- ----------- -------------- ---------------- ----------------
Balance at December 31, 1995................. 11,115,965 111,160 85,485,613 (58,916,131) 26,680,642
Conversion of preferred to common........... 91,071 910 804,034 -- 804,944
Exercise of stock options and warrants...... 25,497 255 219,126 -- 219,381
Accrued dividend on preferred stock......... -- -- -- (1,006,285) (1,006,285)
Net loss for the nine months ended September
30, 1996................................... -- -- -- (19,807,287) (19,807,287)
------------- ----------- -------------- ---------------- ---------------
Balance at September 30, 1996 (unaudited) .. 11,232,533 $112,325 $86,508,773 $(79,729,703) $ 6,891,395
============= =========== ============== ================ ================
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
ORION NETWORK SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
-------------------------------------------- ---------------------------
1993 1994 1995 1995 1996
------------- ------------- ---------------- --------------- ---------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss............................................ $ (7,886,071) $ (7,964,918) $(26,915,178) $(19,985,085) $(19,807,287)
Adjustments to reconcile net loss to net cash
used in operating activities: ......................
Depreciation and amortization...................... 1,798,526 1,713,117 31,403,376 22,276,632 26,402,947
Amortization of deferred financing costs........... -- -- 2,130,588 1,597,941 1,597,941
Provision for bad debts............................ -- -- 277,529 671,226 524,999
Satellite incentives and accrued interest.......... -- -- 5,185,834 6,463,771 1,747,334
Limited Partners' interest in Orion Atlantic....... (7,843,860) (7,390,331) (46,109,627) (33,454,227) (24,800,306)
Minority interest in other consolidated
entities.......................................... 7,496 37,627 20,617 27,489 608
Gain on sale of assets............................. (50,278) (54,737) (59,301) (45,616) (41,054)
Changes in operating assets and liabilities: ......
Accounts receivable............................... 63,075 (426,281) (4,915,257) (1,921,320) (1,143,969)
Accrued interest.................................. -- -- (129,810) -- (27,315)
Prepaid expenses and other current assets......... 197,025 159,030 (3,017,782) (4,261,808) (2,416,138)
Other assets...................................... (279,902) 321,443 (519,773) (1,618,912) 427,741
Accounts payable and accrued liabilities.......... 3,125,830 535,092 7,327,377 745,518 (5,818,070)
Other current liabilities......................... -- -- 3,670,988 977,374 3,279,274
Interest payable.................................. -- -- (885,106) (1,883,773) (4,876,714)
------------- ------------- ---------------- --------------- ---------------
Net cash used in operating activities............... (10,868,159) (13,069,958) (32,535,525) (30,410,790) (24,950,009)
INVESTING ACTIVITIES
Capital expenditures................................ (44,130,325) (51,103,006) (9,060,412) (3,863,019) (10,266,012)
Cost of business acquisition........................ (2,721) -- -- -- --
Refund from satellite manufacturer.................. -- -- 2,750,000 2,750,000 --
FCC license costs................................... (93,545) (96,030) (558,817) (381,337) (117,600)
------------- ------------- ---------------- --------------- ---------------
Net cash used in investing activities............... (44,226,591) (51,199,036) (6,869,229) (1,494,356) (10,383,612)
FINANCING ACTIVITIES
Limited Partners' capital contributions............. -- 4,000,000 7,600,000 7,600,000 30,135,000
Redemption of limited partner interest.............. -- -- (4,450,000) -- --
Expenditures on equity financing costs.............. (31,773) (409,181) -- -- --
Proceeds from issuance of redeemable preferred
stock ............................................. -- 10,928,293 4,483,001 51,616,441 219,380
Proceeds from issuance of common stock and ........
subscriptions, net of issuance costs................ 1,807,345 6,542,303 51,974,436 4,483,001 --
PPU borrowings...................................... 1,400,000 4,375,000 2,275,000 2,275,000 --
Proceeds from issuance of notes payable............. 2,146,625 8,136,191 551,850 551,850 --
Proceeds from senior notes payable to banks ........ 45,604,063 36,685,505 18,367,134 18,367,134 --
Repayment of senior notes payable to banks ......... -- -- (12,468,049) (9,718,049) (22,768,340)
Repayment of notes payable.......................... (46,320) -- (1,916,966) (1,668,818) (2,328,096)
Payments on capital lease obligations............... -- (252,823) (576,727) (416,679) (559,266)
Capacity and other liabilities...................... -- 2,101,168 17,483,733 10,662,162 12,179,977
Distributions to joint venture minority
interest........................................... (49,073) (22,873) (25,904) (25,904) --
------------- ------------- ---------------- --------------- ---------------
Net cash provided by financing activities .......... 50,830,867 72,083,583 83,297,508 83,726,138 16,878,655
------------- ------------- ---------------- --------------- ---------------
Net increase (decrease) in cash and cash
equivalents........................................ (4,263,883) 7,814,589 43,892,754 51,820,992 (18,454,966)
Cash and cash equivalents at beginning of
period............................................. 7,668,125 3,404,242 11,218,831 11,218,831 55,111,585
------------- ------------- ---------------- --------------- ---------------
Cash and cash equivalents at end of period ......... $ 3,404,242 $ 11,218,831 $ 55,111,585 $ 63,039,823 $ 36,656,619
============= ============= ================ =============== ===============
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
ORION NETWORK SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO SEPTEMBER 30, 1996 AND FOR
THE NINE MONTHS ENDED SEPTEMBER 1995 AND 1996 IS UNAUDITED)
1. ORGANIZATION
Orion Network Systems, Inc. (Orion) was incorporated in the State of Delaware
on October 26, 1982 (inception) under the name Orion Satellite Corporation, and
in January 1988, changed its name to Orion Network Systems, Inc. Orion has
developed and operates an international satellite communications system for use
in private communications networks to multinational businesses and transmission
capacity for video and other program distribution services. Orion's first
satellite (Orion 1) was successfully launched on November 29, 1994. Orion took
delivery of the Orion 1 satellite on January 20, 1995. As a result, Orion is no
longer considered a development stage enterprise effective January 1995. For
periods prior to January 1995, Orion was in the development stage.
Since 1989, management has been involved primarily in developing Orion's
partnership, International Private Satellite Partners, L.P. (Orion Atlantic), in
order to raise the necessary capital to finance the construction and launch of
up to two telecommunications satellites in geosynchronous orbit over the
Atlantic Ocean and to establish a multinational sales and service organization.
Orion has been financed by equity and debt from individual and corporate
investors. British Aerospace PLC or its affiliates (BAe) and Lockheed Martin
Corporation or its affiliates (Lockheed Martin) are stockholders of Orion,
limited partners in Orion Atlantic and were significant contractors in the
construction and launch of the satellite system.
In June 1991, Orion, through a wholly-owned subsidiary, Orion Satellite
Corporation (OrionSat), received a license from the Federal Communications
Commission (FCC) authorizing it to construct, launch and operate a satellite
system comprised of two satellites to provide international telecommunications
services. Pursuant to an application by OrionSat, the license was transferred to
Orion Atlantic on April 19, 1994, by order of the FCC. In December 1991, the
initial phase of the partnership financing plan was concluded by a closing on
equity commitments in the form of limited partnership interests aggregating $90
million and execution of a credit agreement related to senior debt commitments
for up to $251 million (see further discussion in Note 3). Also in December
1991, notice to proceed with the construction contract for the first satellite
was given to BAe, the prime contractor.
OrionSat is the sole general partner in Orion Atlantic and received a 25%
equity interest as of the initial closing for, among other things, its
contribution of certain rights and interests under its FCC license, certain
contract rights, and other tangible and intangible assets. Orion participates as
a limited partner with a 16 2/3% equity interest and participates fully in the
obligations and rights of the limited partnership. The aggregate ownership
interest by Orion and its subsidiaries in Orion Atlantic is 41 2/3% (see Note
3).
In August 1995, the Company completed its initial public offering of common
stock by selling 4,000,000 common shares at $14 per share. Proceeds to the
Company, net of underwriting discount, aggregated approximately $52.25 million.
In July 1995, in connection with the planned initial public offering, the
shareholders approved a 1 for 1.36 reverse stock split. All references in the
consolidated financial statements with regard to shares, per share amounts and
share prices have been adjusted for the reverse stock split.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION POLICY
The consolidated financial statements include the accounts of Orion, its two
wholly-owned subsidiaries OrionNet, Inc. (OrionNet) and OrionSat, its 83% owned
subsidiary, Asia Pacific Space and Communications Ltd. (Asia Pacific) (see Note
7), the Orion Financial Partnership, in which Orion holds a 50% interest, and
Orion Atlantic, in which Orion holds, at December 31, 1995, a 41 2/3% ownership
F-7
<PAGE>
ORION NETWORK SYSTEMS, INC. -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES-(Continued)
interest. Management control and direction of Orion Atlantic by OrionSat is a
requirement of the FCC in order for Orion Atlantic to continue to hold the
license authority received in June 1991. OrionSat, as the general partner of
Orion Atlantic, exercises such control through the provisions of the partnership
agreement. The amount reflected in the balance sheet as "Limited Partners'
interest in Orion Atlantic" represents amounts invested by entities other than
Orion (net of syndication costs related to the investments) adjusted for those
Limited Partners' share of operating results. All significant intercompany
accounts and transactions have been eliminated.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
Orion considers all highly liquid investments with a maturity of three months
or less when purchased to be cash equivalents. Cash and cash equivalents
includes cash in banks and short term investments, as follows:
DECEMBER 31, 1995
------------------
Cash ................ $ 3,091,277
Money market funds . 6,018,925
FHLMC discount notes 11,389,208
Commercial paper ... 34,612,175
------------------
$55,111,585
==================
The FHLMC discount notes and commercial paper mature between January and
March 1996.
STATEMENT OF CASH FLOWS
Non-cash investing and financing activities and supplemental cash flow
information includes:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------------- --------------------------
1993 1994 1995 1995 1996
-------------- ------------ ------------ ------------- ------------
<S> <C> <C> <C> <C> <C>
Satellite construction costs financed by notes
payable $27,517,175 $ 7,862,050 $ -- $ -- $ --
Conversion of common stock to redeemable
preferred stock -- 3,000,000 -- -- --
Property and equipment financed by capital leases -- 94,323 4,350,766 -- --
Accrued dividend on preferred stock -- 626,400 1,329,007 959,646 1,006,285
Conversion of preferred stock to common stock -- -- 9,000 -- 804,944
Premium on satellite due to redemption of L.P.
interest -- -- 3,066,925 -- --
Redemption of STET interest with notes payable -- -- 8,000,000 -- --
Reduction in amount due to satellite manufacturer -- -- 485,799 -- --
Satellite incentive obligation capitalized -- -- 14,816,406 -- --
Interest paid during the year, net of amounts
capitalized 37,983 45,051 11,312,875 10,857,800 11,436,301
</TABLE>
F-8
<PAGE>
ORION NETWORK SYSTEMS, INC. -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES-(Continued)
NET LOSS PER COMMON SHARE
Net loss per common share is based on the weighted average number of common
shares outstanding during the period. Pursuant to the requirements of the
Securities and Exchange Commission, common stock issued and stock issuable
relating to convertible preferred stock, warrants and options granted within one
year of filing the registration statement relating to the Company's initial
public offering of common stock were treated as outstanding for all periods
prior to the second quarter of 1995.
INTERIM FINANCIAL STATEMENTS
The accompanying financial statements as of September 30, 1996 and for the
nine months ended September 30, 1995 and 1996 are unaudited but include all
adjustments, consisting only of normal recurring accruals, which Orion considers
necessary for a fair presentation of financial position and operating results
for those interim periods. The operating results for the nine months ended
September 30, 1996 are not necessarily indicative of the results that may be
expected for the year ended December 31, 1996.
PROPERTY AND EQUIPMENT
Property and equipment are carried at cost. Depreciation and amortization are
calculated using the straight-line method over their estimated useful lives as
follows:
Satellite and related equipment ..... 10.5 years
Telecommunications equipment ....... 2-7 years
Furniture and computer equipment ... 2-7 years
Costs incurred in connection with the construction and successful deployment
of the satellite and related equipment are capitalized. Such costs include
direct contract cost, allocated indirect costs, launch costs, launch insurance,
construction period interest and the present value of satellite incentive
payments, Orion began depreciating the satellite over its estimated useful life
commencing on the date of operational delivery in orbit (January 20, 1995).
In March 1995, the Financial Accounting Standards Board (FASB) issued
Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of", which requires impairment losses to be
recorded on long-lived assets used in operations when indicators of impairment
are present and the undiscounted cash flows estimated to be generated by those
assets are less than the assets' carrying amount. Statement No. 121 also
addresses the accounting for long-lived assets that are expected to be disposed
of. The effect of adoption was not material.
DEFERRED FINANCING COSTS
Deferred financing costs related to obtaining debt and Orion's share of
equity financing for Orion Atlantic are amortized over the period the debt is
expected to be outstanding. Accumulated amortization at September 30, 1996,
December 31, 1995 and 1994 was $8,589,000, $6,990,000 and $4,860,000
respectively. Amortization through January 1995 was capitalized as part of the
cost of the satellite. Costs of approximately $3.4 million relating to a debt
offering which was postponed in November 1995 have been charged to other
expense.
F-9
<PAGE>
ORION NETWORK SYSTEMS, INC. -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES-(Continued)
OTHER ASSETS
Other assets consist principally of FCC license application costs,
organization costs and goodwill. The Company began amortizing FCC license
application costs related to Orion 1 in January 1995 and will continue to
amortize these costs over the estimated useful life of the satellite.
Organization costs and goodwill are amortized over five and ten years
respectively. Accumulated amortization at September 30, 1996, December 31, 1995
and 1994 was $3,535,000, $3,069,000 and $1,934,000, respectively.
REVENUE RECOGNITION
Orion's revenue results from providing telecommunications and related
services. Revenue is recognized as earned in the period in which services are
provided.
The following summarizes the Company's domestic and foreign revenues for
1995:
Revenues from unaffiliated customers
United States...................... $ 8,528,736
Europe............................. 8,056,146
Revenues from related parties ....... 5,699,000
-------------
Total services revenue............... $22,283,882
=============
INTEREST RATE MODIFICATION AGREEMENTS
Orion may, from time to time, enter into interest-rate swap and cap
agreements to modify the interest characteristics of its outstanding debt from a
floating to a fixed-rate basis. These agreements involve the receipt of floating
rate amounts in an exchange for fixed-rate interest payments over the life of
the agreement without an exchange of the underlying principal amount. The
differential to be paid or received is accrued as interest rates change and
recognized as an adjustment to interest expense related to the debt. The related
amount payable to or receivable from counterparties is included in interest
payable. The fair values of the swap agreements are not recognized in the
financial statements. (See Notes 5 and 8)
INCOME TAXES
The Company adopted the provisions of FASB Statement No. 109, "Accounting for
Income Taxes" effective January 1, 1993, and as a result, uses the liability
method of accounting for income taxes. There was no cumulative effect to this
accounting charge. Under this method, deferred tax assets and liabilities are
determined based on differences between financial reporting and tax bases of
assets and liabilities and are measured using the enacted tax rates and laws
that will be in effect when the differences are expected to reverse.
F-10
<PAGE>
ORION NETWORK SYSTEMS, INC. -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES-(Continued)
Following is a summary of the components of the net deferred tax asset at
December 31, 1995 and 1994 (in thousands):
Tax benefit of temporary differences:
DECEMBER 31,
-----------------------
1994 1995
----------- -----------
Net operating loss carryforwards $ 12,480 $ 19,463
Orion Atlantic losses ........... (2,040) 1,237
Other ........................... 830 1,056
----------- -----------
Total ........................... 11,270 21,756
Valuation allowance ............. (11,270) (21,756)
----------- -----------
Net deferred tax asset .......... $ -- $ --
=========== ===========
At December 31, 1995, Orion has approximately $51,219,000 in net operating
loss carryforwards which expire at varying dates from 2004 through 2010. The use
of these loss carryforwards may be limited under the Internal Revenue Code as a
result of ownership changes experienced by Orion. Due to uncertainty regarding
its ability to realize the benefits of such net operating loss carryforwards,
the Company has established a valuation allowance for the full amount of its net
operating loss carryforwards.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the current
year presentation.
3. ORION ATLANTIC
Orion Atlantic is a Delaware limited partnership formed to provide
international private communications networks and basic transponder capacity and
capacity services (including ancillary ground services) to businesses and
institutions with trans-Atlantic and intra-European needs. The business was
organized by OrionSat, the general partner of Orion Atlantic. The principal
purposes of Orion Atlantic are to finance the construction, launch and operation
of up to two telecommunications satellites in geosynchronous orbit over the
Atlantic Ocean and to establish a multinational sales and service organization.
OrionSat was granted final authority by the FCC on June 27, 1991 to construct,
launch and operate an international communications satellite system, including
two orbital slots at 37.5' W.L. and 47' W.L. OrionSat, the general partner
of Orion Atlantic, entered into an agreement with Orion Atlantic and its limited
partners on December 20, 1991, to convey the FCC license to Orion Atlantic.
OrionSat filed an application to transfer the satellite authorization to Orion
Atlantic in December 1992; the transfer was granted by the FCC on April 19,
1994. Effective January 20, 1995, Orion Atlantic is no longer considered a
development stage enterprise. For periods prior to January 1995, Orion Atlantic
was considered a development stage enterprise.
Eight international corporations, including Orion, invested a total of $90
million in equity as limited partners in Orion Atlantic. Orion Atlantic also has
a credit facility which provided up to $251 million for the first satellite from
a syndicate of major international banks led by Chase Manhattan Bank, N.A. In
addition to their equity investments, the Limited Partners have agreed to lease
capacity on the satellites up to an aggregate $155 million and have entered into
additional contingent capacity lease contracts ("contingent call") up to an
aggregate $271 million, as support for repayment of the senior debt. The firm
capacity leases and contingent calls are payable over a seven-year period after
the first satellite is placed in service. In July 1995, January and July 1996
the Limited Partners (excluding the Company) paid $7.6 million, $18.0 million
and $12.1 million, respectively, pursuant to these contingent calls.
F-11
<PAGE>
ORION NETWORK SYSTEMS, INC. -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. ORION ATLANTIC-(Continued)
Satellite Construction Contract -- In December 1991, the contract for
construction, launch services, and launch and commissioning insurance for two
communications satellites went into effect with OrionSat's rights and
obligations under the contract being assigned to Orion Atlantic. During 1993,
Orion Atlantic terminated its commitment to purchase the second satellite and,
as a result, incurred a $5 million termination charge. Such amount is included
in other income (expense) in the accompanying Statements of Operations. The
satellite was constructed by MMS Space Systems, Limited ("MMS Space Systems").
The fixed base price of the total contract, excluding obligations relating to
satellite performance, aggregated $227 million and has been fully paid at
December 31, 1995. In addition to the fixed base price, the contract requires
payments to be made, in lieu of a further contract price increase, aggregating
approximately $44 million through 2006. Such payments are due, generally, if 24
out of 34 satellite transponders are operating satisfactorily. Shortly after
acceptance of the satellite in January 1995, the Company filed a warranty claim
with the satellite manufacturer relating to one transponder that did not appear
to be performing in accordance with contract specifications. In August 1995,
Orion Atlantic received a one time refund of $2.75 million which was applied as
a mandatory prepayment to the senior notes payable -- banks (See Note 5).
The Company believes that since Orion 1 is properly deployed and operational,
based upon industry data and experience, payment of the obligation mentioned
above is highly probable and the Company has capitalized the present value of
this obligation of approximately $14.8 million as part of the cost of the
satellite. Payment of amounts due under this obligation are delayed until
payment is permitted under the senior notes payable -- banks (See Note 5). The
present value was estimated by discounting the obligation at 14% over the
expected term, assuming payment of the incentives begins upon expiration of the
senior notes payable -- banks in 2002.
Partnership and Limited Partners -- OrionSat has the primary responsibility
for the control, management and operations of Orion Atlantic. Under the
partnership agreement, the limited partners have rights of approval for a
limited number of matters, e.g., terms for acceptance of new partners,
significant budget modifications, and certain borrowings.
The financing and legal structure of Orion Atlantic restricts the use of
partnership resources to the purposes of constructing, launching and operating
the satellite system. Cash will be distributable by Orion Atlantic to the
partners in the future only after sufficient operating revenues have been
generated to pay satellite system operating costs and debt service. Orion and
OrionSat will share pro rata with the partners in $28 million of the first $100
million of cash available for distribution to the partners as a return of
capital. Thereafter, operating cash flow is distributable based on ownership
interests.
Condensed balance sheet information for Orion Atlantic at December 31, 1995
and 1994 follows:
1994 1995
--------------- ---------------
ASSETS
Current assets ........................... $ 5,664,469 $ 14,085,169
Property and equipment, net .............. 306,088,340 303,889,894
Deferred financing costs and other ....... 17,473,547 16,051,517
--------------- ---------------
Total assets.............................. $329,226,356 $334,026,580
=============== ===============
LIABILITIES AND PARTNERSHIP CAPITAL
Current liabilities....................... $ 27,024,035 $ 52,883,250
Long-term debt and other liabilities .... 234,909,566 284,110,104
Partnership capital subject to redemption 10,000,000 --
Partnership capital ...................... 57,292,755 1,533,226
Less: Orion Network Systems, Inc. note .. -- (4,500,000)
--------------- ---------------
Total liabilities and partnership capital $329,226,356 $334,026,580
=============== ===============
F-12
<PAGE>
ORION NETWORK SYSTEMS, INC. -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. ORION ATLANTIC-(Continued)
Redemption of STET Partnership Interest; Issuance of New Interest to Orion.
- -- On November 21, 1995 Orion Atlantic redeemed the limited partnership interest
held by STET (the "STET Redemption"). Such redemption was for $11.5 million,
including $3.5 million of cash and $8.0 million in 12%, promissory notes due
through 1997. STET's firm and contingent capacity leases will remain in place
until released by the Banks under the Orion 1 Credit Facility. STET's existing
contractual arrangements with Orion Atlantic have been modified in a number of
respects, including (i) a reduction of approximately $3.5 million in amounts due
by Orion Atlantic to Telespazio S.p.A., an affiliate of STET, over a ten-year
period under contracts relating to the construction of Orion 2, back-up
tracking, telemetry and command services through a facility in Italy and
engineering consulting services, (ii) the establishment of ground operations and
distribution agreements between Orion Atlantic and Telecom Italia, a subsidiary
of STET, relating to Italy, and the granting to Telecom Italia of exclusive
marketing rights relating to Italy for a period ending December 1998 conditioned
upon Telecom Italia achieving certain sales quotas, and (iii) canceling
exclusive ground operations and sales representation agreements between Orion
Atlantic and STET (or its affiliates) relating to Eastern Europe.
Orion Atlantic funded the STET Redemption by selling a new limited
partnership interest to Orion for $8 million (including $3.5 million in cash and
$4.5 million in 12% promissory notes due through 1997). In connection with the
STET redemption, Orion agreed to indemnify Telecom Italia for payments which
were made in July 1995 of $950,000 and which would be made in the future under
its firm and contingent capacity agreements with Orion Atlantic and posted a $10
million letter of credit to support such indemnity. The Company has accounted
for this transaction as an acquisition of a minority interest and, as a result,
approximately $3.1 million has been allocated to the cost of the satellite and
related equipment.
Other Transactions Involving Limited Partners -- Certain Limited Partners
were also subcontractors under the satellite construction contract. Orion
Atlantic also has contracted with Limited Partners or their affiliates for
certain consulting, post-launch support services and other services related to
developing the business. Approximately $5.0 million has been incurred under
these agreements, all of which was capitalized.
During 1995, Orion Atlantic entered into agreements with certain Limited
Partners (including the Company) under which the participating Limited Partners
would voluntarily give up their rights to receive capacity under their firm
capacity agreements through January 1996. The participating Limited Partners
would continue to make payments for such capacity but would have the right to
receive refunds from Orion Atlantic out of cash available after operating costs
and payments under the Credit Facility. Through December 31, 1995, Orion
Atlantic has received $14.1 million (excluding payments from the Company) under
the firm capacity agreements subject to refund, which amount is included in the
balance sheet caption "Other liabilities." In addition, services revenue
included $5.7 million in 1995 from Limited Partners pursuant to the firm
capacity commitments, not subject to refund.
4. COMMITMENTS AND CONTINGENCIES
Obligations with Respect to Orion Atlantic -- Orion presently has certain
significant obligations to Orion Atlantic and the Limited Partners, including
commitments under satellite capacity agreements between Orion and Orion
Atlantic, under which Orion will be liable to pay Orion Atlantic approximately
$2.5 million per year for seven years for satellite capacity and is contingently
liable for up to an additional $4.3 million per year for up to seven years if
Orion Atlantic experiences cash flow deficits commencing when Orion Atlantic's
first satellite begins commercial operations; and reimbursement (jointly and
severally with OrionSat) with respect to a $10 million letter of credit provided
by OrionSat to a limited partner, which is secured by 259,515 shares of Orion's
common stock held in treasury and cash distributions that Orion and OrionSat may
receive with respect to their partnership interests in Orion Atlantic.
F-13
<PAGE>
ORION NETWORK SYSTEMS, INC. -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. COMMITMENTS AND CONTINGENCIES-(Continued)
Orion 1 satellite -- In November 1995, a portion of the Orion 1 satellite
experienced an anomaly that resulted in a temporary service interruption,
lasting approximately two hours, in the dedicated capacity serving the European
portion of Orion Atlantic's services. The nine affected transponders account for
a majority of Orion Atlantic's present revenues. Full service to all affected
customers was restored using redundant equipment on the satellite. Orion
Atlantic believes, based on the data and the Telesat Report (issued by Telesat
Canada, independent engineering consultants dated November 14, 1995), that,
because the redundant component is functioning fully in accordance with
specifications and the performance record of similar components is strong, the
anomalous behavior is unlikely to affect the expected performance of the
satellite over its useful life. Furthermore, there has been no effect on Orion
Atlantic's ability to provide services to customers. However, in the event that
the currently operating component fails, Orion 1 would experience a significant
loss of usable capacity. In such event, while Orion Atlantic would be entitled
to insurance proceeds of approximately $50 million and could lease replacement
capacity and function as a reseller with respect to such capacity (at reduced
levels of profitability), the loss of capacity would have a material adverse
effect on Orion and on Orion Atlantic.
Orion 2 satellite -- In connection with the proposed financing of Orion 2, a
subsidiary of Orion Atlantic entered into a satellite construction contract for
Orion 2 with MMS Space Systems, subject to completion of proposed financing.
Depending upon the timing and terms and conditions of the financing for Orion 2
and the then satellite design, the Company may seek to renew this satellite
contract with MMS Space Systems. There can be no assurance that the terms of a
new satellite contract will resemble those of the satellite contract with MMS
Space Systems. The Company expects to use Orion Atlantic's Tracking, Telemetry
and Control (TT&C) facility to control Orion 2 (although authorizations will be
needed).
Eutelsat Lease -- In January 1993, Orion Atlantic entered into a lease, which
expired in December 1994, with one of its limited partners under which Orion
Atlantic leased one-half of a transponder on a EUTELSAT satellite for use in
providing private network services prior to the operational delivery of Orion 1.
The lease required quarterly payments of $481,000 of which $855,000 was deferred
by the limited partner until March 1995. Rent under this lease totaled $1.9
million in 1994 and $1.8 million in 1993.
Litigation -- In October 1995, Skydata Corporation ("Skydata"), a former
contractor, filed suit against Orion Atlantic, Orion Satellite Corporation and
Orion, in the United States District Court for the Middle District of Florida,
claiming that certain Orion Atlantic operations using frame relay switches
infringe a Skydata patent. Skydata's suit sought damages in excess of $10
million and asked that any damages assessed be trebled. On December 11, 1995,
the Orion parties filed a motion to dismiss the lawsuit on the grounds of lack
of jurisdiction and violation of a mandatory arbitration agreement. In addition,
on December 19, 1995, the Orion parties filed a Demand for Arbitration against
Skydata with the American Arbitration Association in Atlanta, Georgia,
requesting damages in excess of $100,000 for breach of contract and
declarations, among other things, that Orion and Orion Atlantic own a
royalty-free license to the patent, that the patent is invalid and unenforceable
and that Orion and Orion Atlantic have not infringed on the patent. See Note 11.
While Orion is party to regulatory proceedings incident to the business of
Orion, there are no other material legal proceedings pending or, to the
knowledge of management, threatened against Orion or its subsidiaries.
Other -- Orion has entered into operating leases, principally for office
space. Rent expense was $735,000, $668,000 and $661,000 during 1995, 1994, and
1993, respectively.
F-14
<PAGE>
ORION NETWORK SYSTEMS, INC. -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. COMMITMENTS AND CONTINGENCIES-(Continued)
Future minimum lease payments are as follows:
1996... $ 774,357
1997... 793,716
1998... 887,138
1999 . 907,477
------------
$3,362,688
============
5. LONG-TERM DEBT
Long-term debt consists of the following:
DECEMBER 31,
-------------------------------
1994 1995
--------------- ---------------
Senior notes payable -- banks .... $224,584,097 $230,483,182
Note payable -- TT&C Facility .... 9,348,730 8,774,266
Satellite incentive obligation .... -- 20,002,240
Notes payable -- STET.............. -- 8,000,000
Notes payable -- Limited Partners . 5,775,000 8,050,000
Other.............................. 2,483,319 3,966,708
--------------- ---------------
Total long-term debt ............. 242,191,146 279,276,396
Less: current portion ............. 12,015,663 28,607,110
--------------- ---------------
Long-term debt less current
portion.......................... $230,175,483 $250,669,286
=============== ===============
Total interest (including commitment fees and amortization of deferred financing
costs) incurred for the years ended December 31, 1995, 1994 and 1993 was $26.0,
$27.0, and $16.3 million, respectively. Substantially all of the interest
incurred in 1994 and 1993 has been capitalized, while approximately $1.3 million
of interest was capitalized in 1995.
Aggregate annual maturities of long-term debt consist of the following (in
thousands):
1996........ $ 28,607
1997........ 34,917
1998........ 34,358
1999........ 46,853
2000........ 43,590
Thereafter . 90,951
----------
$279,276
==========
Senior Notes Payable to Banks -- In December 1991, OrionSat, on behalf of
Orion Atlantic, executed a credit agreement for up to $400 million of senior
debt from an international banking syndicate. Amounts advanced under the credit
facility are secured by the assets of Orion Atlantic and are due over seven
years in graduated installments beginning July 31, 1995. The credit agreement
prohibits the extension of credit by Orion Atlantic to any affiliate of the
partnership, as defined. Accordingly, Orion Atlantic may not loan or advance
funds to the Company or its affiliates. The credit agreement also restricts
distributions to the partners. At December 31, 1995, none of Orion Atlantic's
capital was available for distribution. The credit facility has a number of
other customary covenants and requirements, including the Banks' approval of
significant changes to the construction contract and increases in
F-15
<PAGE>
ORION NETWORK SYSTEMS, INC. -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. LONG-TERM DEBT-(Continued)
budgeted costs. The Banks also have full recourse to OrionSat as general
partner, and Orion has pledged its investment in the common stock of OrionSat
and its limited partner ownership interest to the Banks.
Amounts outstanding under the credit facility bear interest at 1.75% over the
LIBOR (7.68% at December 31, 1995). Orion Atlantic has entered into agreements
with Chase Manhattan Bank, N.A. (Chase) for interest rate hedging arrangements
which fixed the maximum interest rate through November 1995 at 11.54%.
Thereafter a self funding interest rate cap agreement is in place relating to a
notional amount declining every six months from $150 million effective November
30, 1995 to $15.6 million effective March 31, 2001. Under the terms of the cap
agreement, when LIBOR equals or exceeds 5.5% Orion Atlantic pays Chase a fee
equal to 3.3% per annum of the notional amount and receives a payment from Chase
in an amount equal to the difference between the actual LIBOR rate and 5.5% on
the notional amount. There was an unrealized loss as of December 31, 1995 of
approximately $4.6 million relating to these arrangements. Commitment fees of
0.5% of the unused Credit Facility are payable semiannually.
Note Payable -- TT&C Facility -- Orion Atlantic entered into a financing
arrangement with General Electric Capital Corporation ("GECC") to finance the
Tracking Telemetry and Control (TT&C) Facility. The TT&C arrangement calls for a
note payable, the maximum amount of which is $11 million of which up to $8.9
million is for payment to Lockheed Martin under the Satellite Control System
Contract, with the remaining balance available to be drawn to finance the cost
of launch insurance required for the benefit of GECC. In June 1995, Orion
Atlantic accepted the TT&C Facility and Orion Atlantic refinanced $9.3 million
from GECC as a seven-year term loan, payable monthly. Orion Atlantic made a
mandatory prepayment of $1 million in January 1996. The interest rate is fixed
at a 13.5%.
The TT&C debt is secured by the TT&C Facility, the Satellite Control System
Contract and Orion Atlantic's leasehold interest in the TT&C Facility land. The
TT&C financing agreement contains similar representations, warranties and
covenants to those in the senior notes.
Satellite incentive obligation -- The obligations relating to satellite
performance (see Note 3) have been recorded at the present value (discounted at
14%, the Company's estimated incremental borrowing rate for unsecured financing)
of the required payments commencing at the maturity of the senior notes payable
to banks and continuing through 2006. Under the terms of the construction
contract, payment of the obligation is delayed until such time as payment is
permitted under the senior notes payable to banks.
Notes Payable -- STET -- In connection with the STET Redemption (see Note 3),
the Company issued STET $8 million of promissory notes which bear interest at
12% per annum. Payments are due as follows: $2.5 million plus accrued interest
on December 31, 1996; $3.5 million plus accrued interest on the earlier of
December 31, 1997 or the refinancing of the senior notes payable to banks; and
the remaining $2.0 million in monthly installments of $0.2 million plus accrued
interest beginning January 1997.
Notes Payable -- Limited Partners -- In 1993, Orion Atlantic received
commitments for Preferred Participation Units (PPUs) aggregating $9.5 million
from certain Limited Partners (including $1.5 million from Orion Network
Systems) for development of Orion Atlantic's network services business.
Holders of PPUs earn interest on aggregate amounts drawn at the rate of 30%
per annum, of which 6% is paid and the remainder accrued, but not paid until
July 1, 1995, at which time interest and principal payments due are subordinated
to operating requirements and senior notes debt service but are payable prior to
distributions to Limited Partners. Principal amounts drawn are payable on
February 1, 1999. Principal amounts may be prepaid without penalty on or after
January 1, 1996.
F-16
<PAGE>
ORION NETWORK SYSTEMS, INC. -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY
The Company has authorized 1,000,000 shares of $0.01 par value preferred
stock.
Redeemable Preferred Stock
In June 1994, Orion issued 11,500 shares of Series A 8% Cumulative Redeemable
Convertible Preferred Stock at $1,000 per share and granted an option to
purchase an additional 3,833 shares of similar preferred stock at $1,000 per
share. Dividends on preferred stock accrue at 8% per year and are payable as and
when declared. Orion may redeem the preferred stock at the amount invested plus
accrued and unpaid dividends. Upon such a redemption, the preferred stockholders
would receive a warrant to acquire at $8.50 per share the number of shares of
common stock into which the preferred stock was convertible. The 11,500 shares
issued are convertible into 1,352,941 shares of common stock ($8.50 per share).
Upon conversion any accrued and unpaid dividends would be waived. Orion may
require conversion of the preferred stock beginning in June 1996 if certain
conditions are met.
The preferred stock has a liquidation preference equal to the amount invested
plus accrued and unpaid dividends. Preferred stockholders are entitled to vote
on an as-converted basis and have the right to put the stock to Orion upon a
merger, change of control or sale of substantially all assets at the greater of
liquidation value or fair value. The put expires upon the completion of a
qualified public equity offering, as defined. If the preferred stock is not
previously redeemed or converted to common stock, the preferred stockholders
also have the right to put the stock to Orion as follows: 33 1/3% beginning in
June 1999; 66 2/3% beginning in June 2000; and 100% beginning in June 2001.
After Orion issued preferred stock (along with warrants and options to make
an additional investment) in June 1994, the Directors and affiliates of
Directors who purchased common stock in December 1993 and the institutions and
other investors who purchased common stock in June 1994 each exercised its right
to receive preferred stock (along with warrants and options to make an
additional investment) in exchange for the common stock previously acquired and
Orion issued an aggregate of 3,000 shares of Series A Preferred Stock and
related options for 1,000 shares to such persons and entities, of which 9 shares
of preferred stock were converted into 1,058 shares of common stock. The
remaining 2,991 shares issued are convertible into 351,882 shares of common
stock and the preferred stock underlying the options are convertible into 98,039
shares of common stock.
In June 1995, certain Directors, affiliates of Directors, and certain holders
of Series A Preferred Stock purchased 4,483 shares of Series B Preferred Stock
for approximately $4.5 million. This purchase was pursuant to an option granted
in June 1995 to purchase $1 of preferred stock similar to the Series A Preferred
Stock for each $3 of Series A Preferred Stock purchased in June 1994, except
that such similar preferred stock would be convertible at any time with Common
Stock at a price within a range of $10.20 to $17.00 per share of common stock
based upon when the option is exercised. The Series B Preferred Stock has
rights, designations and preferences substantially similar to those of the
Series A Preferred Stock, and is subject to similar covenants, except that the
Series B Preferred Stock is convertible into 439,510 shares of Common Stock at
an initial price of $10.20 per share, subject to certain anti-dilution
adjustments, and purchases of Series B Preferred Stock did not result in the
purchaser receiving any rights to purchase additional preferred stock.
Stockholders' Equity
In December 1993, 178,097 shares of Common Stock were issued at $10.20 per
share to new and existing shareholders.
In May 1994, Orion issued 588,235 shares of common stock at $8.50 per share
to Space Systems Loral pursuant to a stock purchase agreement.
In May 1994, 19,424 shares of common stock were issued at $10.20 per share to
new and existing shareholders.
F-17
<PAGE>
ORION NETWORK SYSTEMS, INC. -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY-(Continued)
In June 1994, Orion issued an aggregate of 174,844 shares of common stock to
a limited number of institutions and other investors at a purchase price of
$8.50 per share.
The December 1993 and June 1994 common stock purchases were subsequently
converted to redeemable preferred stock.
Stock Options -- In 1987, Orion adopted a stock option plan. Under this plan,
as amended, 1,470,588 shares of common stock are reserved for issuance upon
exercise of options granted. Shares of common stock may be purchased under this
plan at prices not less than the fair market value, as determined by the Board
of Directors, on the date the option is granted. The Board of Directors also has
granted nonqualified options to purchase 53,341 shares of common stock outside
the plan described at prices ranging from $5.44 to $12.24 per share.
Stock options outstanding at December 31:
<TABLE>
<CAPTION>
1993 1994 1995
--------------- ---------------- ----------------
<S> <C> <C> <C>
Range of exercise price ......... $5.44 - 15.00 $5.44 - 12.24 $5.44 - 12.24
--------------- ---------------- ----------------
Outstanding at beginning of year 555,581 871,464 804,056
Granted during year ............. 374,448 37,867 380,069
Exercised ....................... (165) (31,967) (60,928)
Canceled ........................ (58,400) (73,308) (151,728)
--------------- ---------------- ----------------
Outstanding at end of year ..... 871,464 804,056 971,469
=============== ================ ================
</TABLE>
In November 1993, options for 95,588 shares of common stock were granted to
key executives which may be exercised only upon the achievement of certain
business and financial objectives. In 1995 and 1994, these executives earned the
right to exercise 11,029 and 29,410 of these options based on the achievement of
such objectives.
The options vest annually over a one to five-year period. All options are
exercisable up to seven years from the date of grant. There are approximately
499,119 shares available to be granted under the plan. As of December 31, 1995,
356,226 qualified and nonqualified options were exercisable.
Stock Warrants -- Orion issued stock warrants to a financial advisor in 1991
entitling the financial advisor to purchase 43,049 shares of common stock at a
price of $11.56 a share. Also, in 1991, as an inducement to Chase to provide
partnership bridge equity if required, Orion issued stock warrants entitling
Chase to purchase up to 73,529 shares of common stock at $11.56 per share. These
warrants expire in 1996.
Finally, as an inducement to two limited partners to incur satellite capacity
obligations required by the senior debt lender, Orion issued warrants for the
purchase of an aggregate 129,757 shares of common stock at $11.56 per share.
These warrants expire in 1996. See Note 11.
Warrants have been issued, in conjunction with loans to Orion by certain
stockholders and members of executive management (since repaid or converted to
common stock), to acquire 483,823 shares of Orion's common stock at $11.56 to
$12.92 per share through 1997. The exercise price of these warrants was equal to
or above the fair value of the stock at the time of issuance; accordingly, no
value was allocated to the warrants. Total warrants outstanding were 553,768 at
December 31, 1995 and 735,769 at December 31, 1994 and 1993.
The holders of preferred stock also hold warrants to purchase 1,704,824
shares of common stock at the conversion price of such preferred stock. These
warrants do not become exercisable unless Orion exercises its right to
repurchase the preferred stock at the liquidation value, plus accrued and unpaid
dividends.
F-18
<PAGE>
ORION NETWORK SYSTEMS, INC. -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY-(Continued)
The Company has elected to continue to follow Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25) and related
Interpretations in accounting for its employee stock based award programs,
because the alternative fair value accounting provided for under FASB Statement
No. 123, "Accounting for Stock Based Compensation" which is effective for awards
after January 1, 1996 requires use of option valuation models that were not
developed for use in valuing employee stock options. Under APB 25, when the
exercise price of the employee award equals the market price of the underlying
stock on the date of grant, as has been the case historically with the Company's
awards, no compensation expense is recognized.
7. INVESTMENT IN ASIA PACIFIC
In January 1990, Orion entered into an arrangement with Asia Pacific whereby
each company exchanged into escrow common shares having a market value of
$500,000. In this exchange, Orion received 250,000 shares of Asia Pacific common
stock representing at that time an 11% ownership interest, for which it issued
51,061 shares of common stock at a value of $9.79 per share to Asia Pacific. The
assigned value of the Asia Pacific shares received of $500,000 was recorded as a
reduction to stockholders' equity. In 1992, the Board of Directors of Orion
authorized the acquisition of up to 100% of Asia Pacific's outstanding common
stock. As a result of this new agreement, the January 1990 transaction was
rescinded and the shares held in escrow were returned to the respective
companies. The acquisition of an 83% interest in Asia Pacific was finalized and
executed in December 1992, resulting in the exchange of 289,147 shares of
Orion's common stock for 2,089,392 shares of Asia Pacific common stock. The
acquisition was accounted for as a purchase.
Asia Pacific is a development stage enterprise.
8. FAIR VALUES OF FINANCIAL INSTRUMENTS
Other than amounts due under the senior notes payable to banks, Orion
believes that the carrying amount reported in the balance sheet of its other
financial assets and liabilities approximates their fair value. The fair value
of Orion Atlantic's senior notes payable to banks at December 31, 1995 is
estimated to be $235.1 million based on the principal balance outstanding, net
of the estimated fair value of the interest rate modification agreement, which
approximates an implicit loss of $4.6 million. Credit risk exists if the
counterparty is not able to make the required payments to Orion under these
agreements. Orion believes the risk to be remote.
F-19
<PAGE>
ORION NETWORK SYSTEMS, INC. -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9. CONDENSED FINANCIAL INFORMATION OF ORION
As described in Notes 3 and 5, the net assets, credit facilities and other
resources of Orion Atlantic are restricted to the construction and operation of
the satellite system. Presented below are condensed balance sheets of Orion
(parent company only basis) at December 31, 1995 and 1994 and condensed
statements of operations and cash flows for the years ended December 31, 1995,
1994 and 1993. All material contingencies, obligations and guarantees of Orion
have been separately disclosed in the preceding notes to the financial
statements.
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1994 1995
-------------- ---------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ........................ $ 6,201,941 $ 48,797,627
Receivable from Orion Atlantic ................... 2,071,547 1,217,169
Other current assets ............................. 215,985 611,391
-------------- ---------------
Total current assets............................. 8,489,473 50,626,187
Investment in and advances to subsidiaries:
OrionNet.......................................... 2,477,943 5,993,628
OrionSat.......................................... (2,793,608) (20,496,009)
Asia Pacific ..................................... 1,870,508 1,634,048
Orion Atlantic ................................... 7,800,544 10,585,573
Other assets....................................... 1,710,080 6,256,742
-------------- ---------------
Total assets....................................... $19,554,940 $ 54,600,169
============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities: ..............................
Notes and interest payable to Orion Atlantic ..... $ -- $ 2,482,667
Accounts payable and accrued liabilities.......... 860,191 2,361,291
-------------- ---------------
Total current liabilities........................ 860,191 4,843,958
Notes and interest payable to Orion Atlantic ...... -- 2,077,327
Other liabilities.................................. 789,485 640,542
Redeemable preferred stock......................... 14,554,693 20,357,701
Stockholders' equity............................... 3,350,571 26,680,642
-------------- ---------------
Total stockholders' equity......................... $19,554,940 $ 54,600,169
============== ===============
</TABLE>
CONDENSED STATEMENTS OF OPERATIONS OF ORION NETWORK SYSTEMS, INC.
<TABLE>
<CAPTION>
1993 1994 1995
--------------- --------------- ---------------
<S> <C> <C> <C>
Services revenue.................... $ -- $ -- $ --
Costs and expenses: ................
General and administrative.......... 2,855,646 2,487,201 4,204,011
Interest expense (income)........... 197,673 (243,152) (1,834,589)
--------------- --------------- ---------------
Total costs and expenses............ 3,053,319 2,244,049 2,369,422
Equity in net losses of
subsidiaries........................ 4,832,752 5,720,869 24,545,756
--------------- --------------- ---------------
Net loss............................ $(7,886,071) $(7,964,918) $(26,915,178)
=============== =============== ===============
</TABLE>
F-20
<PAGE>
ORION NETWORK SYSTEMS, INC. -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9. CONDENSED FINANCIAL INFORMATION OF ORION-(Continued)
CONDENSED STATEMENTS OF CASH FLOWS OF ORION NETWORK SYSTEMS, INC.
<TABLE>
<CAPTION>
1993 1994 1995
--------------- --------------- --------------
<S> <C> <C> <C>
Net cash used in operations.......................... $(2,319,221) $(2,709,307) $(4,107,237)
Investing activities:
Advances to subsidiaries............................ (1,115,662) (2,973,264) (3,264,024)
Investment in Orion Atlantic........................ -- -- (5,400,000)
Capital expenditures................................ (106,835) (771,890) (597,698)
Acquisition of Asia Pacific......................... (2,721) -- --
--------------- --------------- --------------
(1,225,218) (3,745,154) (9,261,722)
Financing activities:
Proceeds from issuance of redeemable preferred stock -- 10,928,293 4,483,001
Proceeds from issuance of common stock............... 1,807,345 6,542,303 51,974,436
PPU funding.......................................... (280,000) (765,000) (455,000)
Proceeds from issuance of notes payable.............. 326,511 -- --
Repayment of notes payable........................... (46,318) (5,648,535) (37,792)
--------------- --------------- --------------
1,807,538 11,057,061 55,964,645
--------------- --------------- --------------
Net increase (decrease) in cash ..................... (1,736,901) 4,602,600 42,595,686
Cash and cash equivalents at beginning of year ..... 3,336,242 1,599,341 6,201,941
--------------- --------------- --------------
Cash and cash equivalents at end of year ............ $ 1,599,341 $ 6,201,941 $48,797,627
=============== =============== ==============
</TABLE>
Basis of presentation -- In these parent company-only condensed financial
statements, Orion's investment in subsidiaries is stated at cost less equity
in the losses of subsidiaries since date of inception or acquisition.
10. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is a summary of the quarterly results of operations for the
years-ended December 31, 1995 and 1994:
<TABLE>
<CAPTION>
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
----------- ----------- --------------- -------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
1995
Revenues ................... $ 2,508 $ 5,238 $ 6,201 $ 8,336
Loss from operations........ (11,891) (12,038) (13,525) (9,377)
Loss before minority
interest................... (15,978) (18,248) (19,186) (19,592)
Net loss.................... (5,996) (6,991) (6,998) (6,930)
Net loss per share.......... (0.64) (0.75) (0.78) (0.67)
1994
Revenues ................... $ 616 $ 718 $ 896 $ 1,185
Loss from operations........ (3,211) (4,233) (3,651) (4,636)
Loss before minority
interest................... (3,190) (4,044) (3,638) (4,451)
Net loss.................... (1,786) (1,928) (2,217) (2,034)
Net loss per share.......... (0.19) (0.21) (0.24) (0.22)
</TABLE>
F-21
<PAGE>
ORION NETWORK SYSTEMS, INC. -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
11. SUBSEQUENT EVENTS (UNAUDITED)
In July 1996, Orion entered into an Exchange Agreement (the "Exchange
Agreement") with the Limited Partners that hold 58 1/3% of the partnership
interests in Orion Atlantic. Pursuant to the Exchange Agreement, Orion will
acquire all of the interests held by the Limited Partners, as well as
approximately $38 million of Orion Atlantic indebtedness to Limited Partners in
exchange for a newly issued series of redeemable convertible preferred stock in
Orion and the release of certain credit support obligations of the Limited
Partners. The Exchange Agreement is conditioned upon a number of events
including, among other things, shareholder approval, the British Aerospace and
Matra Marconi Space debenture investments, the acquisition of the minority
interest of Asia Pacific held by British Aerospace, and the refinancing of the
Orion 1 Credit Facility, all as described below.
Orion intends to enter into an agreement with an affiliate of British
Aerospace to acquire their 17% outstanding minority interest in Asia Pacific for
approximately 86,000 shares of Orion Common Stock.
Orion has entered into a Memorandum of Agreement, effective December 6, 1996,
for procurement of Orion 2 spacecraft with Matra Marconi Space with an aggregate
contract value of $200.8 million, excluding launch insurance. On December 13,
1996, OAP entered into an Authorization to Proceed Agreement with Hughes Space
and Communications International for the procurement of Orion 3 spacecraft with
an aggregate contract value, subject to execution of a definitive agreement, of
$208 million, excluding launch insurance. Construction of Orion 3 commenced in
mid-December 1996.
The Company intends to file a Registration Statement with the Securities and
Exchange Commission pursuant to which the Company will offer to sell an
aggregate of $222 million of Units consisting of Senior Notes, due 2007 and
warrants to purchase common stock, and an aggregate of $125 million of Units
consisting of Senior Discount Notes due 2007 and warrants to purchase common
stock (the "Offering"). The proceeds from this offering are intended to be used
primarily to refinance the Orion 1 Credit Facility. Concurrently with the
Offering, British Aerospace and Matra Marconi Space have committed to purchase
$50 million and $10 million of convertible junior subordinated debentures,
respectively. Such debentures are expected to bear interest at 8.75% payable
semiannually in Orion common stock (valued at up to $14.00 per share) until
maturity in 2012. The Offering is conditioned on consummation of the Exchange,
repayment of the Orion 1 Credit Facility with proceeds of the Offering and the
British Aerospace and Matra Marconi Space debenture investments; the Exchange is
conditioned on, among other things, the Orion 2 Satellite Contract, which has
been entered into, and approval of the Orion stockholders, expected to occur
prior to the pricing of the Offering; and the British Aerospace debenture
investment is conditioned on Orion's acquisition of the remaining minority
interest in Asia Pacific, which has occurred or is in the process of occurring.
In November 1996, Orion entered into a contract with DACOM Corp. ("DACOM"), a
Korean communications company, under which DACOM will lease eight dedicated
transponders on Orion 3 for 13 years, in return for approximately $89 million,
which is payable over a period from December 1996 through six months following
the lease commencement date for the transponders (which is scheduled to occur by
January 1999). DACOM is to deposit funds with Orion in accordance with a
milestone schedule. It has the right to terminate the contract at any time prior
to March 31, 1997, upon which termination Orion would be entitled to retain all
deposited funds. Prior to launch, payments will be held in escrow and are
subject to refund pending the successful launch and commencement of commercial
operation of Orion 3. In November 1996, Orion granted an option to Dacom to
purchase 50,000 shares of common stock at a price of $14.00 per share. The
warrant is exercisable for a six-month period beginning six months after the
commencement date, as defined in the Joint Investment Agreement, and ending one
year after commencement date and will terminate at that time or at any time the
Joint Investment Agreement is terminated.
F-22
<PAGE>
ORION NETWORK SYSTEMS, INC. -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
11. SUBSEQUENT EVENTS (UNAUDITED)-(Continued)
In January 1997, Orion issued an aggregate of approximately 86,500 shares of
Common Stock to British Aerospace, one of the Company's principal stockholders
which has a representative on the Company's Board of Directors. Such issuance
was pursuant to the exercise of a warrant granted in December 1991 in connection
with the formation of Orion Atlantic.
Litigation. In connection with the Skydata suit discussed in Note 4, on March
5, 1996, the court granted the Company's motion to dismiss the lawsuit on the
basis that Skydata's claims are subject to arbitration. Skydata appealed the
dismissal to the United States Court of Appeals to the Federal Circuit. Skydata
also filed a counterclaim in the arbitration proceedings asserting a claim for
$2 million damages as a result of the conduct of Orion and its affiliates. On
May 15, 1996, the arbitrator granted the Orion parties' request for an initial
hearing on claims relating to the Orion parties' rights to the patent, including
the co-ownership claim and other contractual claims. This initial hearing was
scheduled to take place in November 1996. On November 9, 1996, Orion and Skydata
executed a letter to settle in full the pending litigation and arbitration. As
part of the settlement, the parties are to release all claims by either side
relating in any way to the patent and/or the pending litigation and arbitration.
In addition, Skydata is to grant Orion (and its affiliates) an unrestricted
paid-up license to make, have made, use or sell products or methods under the
patent and all other corresponding continuation and reissue patents. Orion is to
pay Skydata $437,000 over a period of two years as part of the settlement. The
parties are in the process of documenting the terms of the settlement in a
formal settlement agreement.
F-23
<PAGE>
GLOSSARY
ORION, ITS PARTNERS AND CREDITORS:
Banks A syndicate of international banks that are
parties to the Orion 1 Credit Facility.
British Aerospace British Aerospace Public Limited Company, one of
the world's leading aerospace organizations, and
its affiliates, including its subsidiary British
Aerospace Communications, Inc., a Limited Partner.
Kingston Satellite Services, a joint venture
between Kingston Communications and British
Aerospace, serves as sales representative and
ground operator for Orion in the United Kingdom.
COM DEV COM DEV Satellite Communications Limited, a
Limited Partner and a subsidiary of COM DEV,
Limited. COM DEV, Limited is also a supplier of
value-added satellite communications services,
products for wireless personal communications and
satellite remote sensing data.
GECC General Electric Capital Corporation, the lender
for the TT&C Financing.
Kingston Communications Kingston Communications International Limited, a
Limited Partner and a subsidiary of Kingston
Communications (Hull) plc, the only
municipally-owned telephone company in the United
Kingdom. Kingston Satellite Services, a joint
venture between Kingston Communications and
British Aerospace, serves as sales representative
and ground operator for Orion in the United
Kingdom.
Limited Partners The limited partners in Orion Atlantic, including
British Aerospace Communications, Inc., COM DEV,
Kingston Communications, Lockheed Martin CLS, MCN
Sat US, Inc. and Trans-Atlantic Satellite, Inc.
Lockheed Martin Lockheed Martin Corporation, a major manufacturer
of aerospace and military equipment, and the
ultimate parent company of Lockheed Martin CLS, a
Limited Partner and the launch subcontractor under
the Orion 1 Satellite Contract. Lockheed Martin
CLS acquired the assets of General Dynamics
Commercial Launch Services through a transfer of
assets from Martin Marietta Corporation, which in
turn acquired these and other assets (including
the Atlas family of launch vehicles) from General
Dynamics Corporation in 1994.
Lockheed Martin CLS Lockheed Martin Commercial Launch Services, Inc.,
a Limited Partner and a subsidiary of Martin
Marietta Technologies, Inc., a Lockheed Martin
company. Lockheed Martin CLS acquired the assets
of General Dynamics Commercial Launch Services
through a transfer of assets from Martin Marietta
Corporation, which in turn acquired these and
other assets (including the Atlas family of launch
vehicles) from General Dynamics Corporation in
1994. Lockheed Martin CLS is a commercial launch
services provider and provided launch services to
Orion as the launch subcontractor under the Orion
1 Satellite Contract. Lockheed Martin CLS became a
Limited Partner by acquiring the limited
partnership interest of General Dynamics CLS in
the 1994 transaction described above.
G-1
<PAGE>
Matra Hachette Matra Hachette, an aerospace, defense, industrial
and media company and part of the Lagardere Groupe
of France, and the parent company of MCN Sat US,
Inc., a Limited Partner. Matra Hachette is one of
the parent companies of Matra Marconi Space which
is the parent company of MMS Space Systems, the
prime contractor for Orion 1, and the manufacturer
under the Orion 2 Satellite Contract.
Nissho Iwai Corp Nissho Iwai Corporation, is a trading company in
Japan, and the parent company of Trans-Atlantic
Satellite, Inc., a Limited Partner.
Orion (1) the combined operations of Orion Network
Systems, Inc., a Delaware corporation, and its
subsidiaries (collectively, the "Operating
Company"), prior to the date of the merger of a
newly formed subsidiary ("Merger Sub") of Orion
Newco Services, Inc., a recently formed Delaware
corporation ("Orion Newco"), into the Operating
Company (the "Merger") and (2) Orion and its
subsidiaries, including the Operating Company,
after the Merger.
Orion 1 Credit Facility A facility of up to $251 million of senior debt
provided to finance Orion 1, which will be repaid
with proceeds of the Notes Offering.
Orion Asia Pacific Asia Pacific Space and Communications, Ltd., a
Delaware corporation. Orion acquired 83% of the
stock of such company in December 1992 and will
acquire the remaining 17%, which is held by
British Aerospace, in exchange for approximately
86,000 shares of Common Stock in the OAP
Acquisition.
Orion Atlantic International Private Satellite Partners, L.P., a
Delaware limited partnership of which OrionSat is
the general partner, which owns Orion 1.
OrionNet OrionNet, Inc., a Delaware corporation and wholly
owned subsidiary of Orion.
OrionSat Orion Satellite Corporation, a Delaware
corporation and wholly owned subsidiary of Orion.
Partners The partners in Orion Atlantic, consisting of
OrionSat, as the general partner, and the Limited
Partners (including Orion).
Partnership Agreement The limited partnership agreement of Orion
Atlantic, which includes the terms and conditions
governing the partnership arrangements among the
Partners.
STET STET-Societa Finanziaria Telefonica-per Azioni is
a former Limited Partner and the parent company of
Telecom Italia, the Italian PTT.
STET Redemption The redemption on November 21, 1995 by Orion
Atlantic of the limited partnership interest held
by STET and modification of STET's previously
existing contractual arrangements with Orion
Atlantic.
TT&C Financing A facility of up to $11 million provided by GECC
for Orion's TT&C facility that was converted to a
seven-year term loan on June 1, 1995 and which had
an outstanding balance of $7.2 million as of
September 30, 1996.
G-2
<PAGE>
SATELLITE CONSTRUCTION AND SATELLITE COMMUNICATIONS:
bandwidth The relative range of frequencies that can be
passed through a transmission medium without
distortion. The greater the bandwidth, the greater
the information carrying capacity. Bandwidth is
measured in Hertz.
C-band Certain high frequency radio frequency bands
between 3,400 to 6,725 MHz used by communications
satellites.
constructive total loss If a satellite is completely destroyed or
incapable of operation (except for certain
failures due to circumstances beyond the control
of the manufacturer) during a specified number of
days after launch.
footprint Signal coverage area for a satellite.
Hertz The unit for measuring the frequency with which an
electromagnetic signal cycles through the
zero-value state between the lowest and highest
states. One Hertz (abbreviated as Hz) equals one
cycle per second; kHz (kiloHertz) stands for
thousands of Hertz; MHz (megaHertz) stands for
millions of Hertz.
Hughes Space Hughes Space and Communications International,
Inc., the manufacturer under the Orion 3 Satellite
Contract. Hughes Space is a subsidiary of Hughes
Aircraft Company, which is a subsidiary of General
Motors Corporation.
Ku-band Certain high frequency radio frequency bands
between 10,700 to 14,500 MHz permitting the use of
smaller antennae than the older C-band technology.
Matra Marconi Space Matra Marconi Space UK Limited, the parent
company of MMS Space Systems and a subsidiary of
Matra Marconi Space NV, and the manufacturer under
the Orion 2 Satellite Contract. Matra Marconi
Space NV is owned by Matra Hachette (51 percent)
and General Electric Co. of Britain (49 percent).
Orion 1 The high-power Ku-band communications satellite
operated over the Atlantic Ocean by Orion
Atlantic.
Orion 1 Satellite Contract The fixed price turnkey contract originally
entered into between British Aerospace and Orion
Atlantic for the design, construction, launch and
delivery in orbit of Orion 1. British Aerospace
assigned its rights under the contract to MMS
Space Systems, which was subsequently purchased by
Matra Marconi Space NV and renamed MMS Space
Systems Limited. British Aerospace remains liable
to Orion Atlantic for the performance of the
contract but performance has been assigned to MMS
Space Systems and the Company understands that MMS
Space Systems and Matra Marconi Space NV have
fully indemnified British Aerospace against
liabilities thereunder.
Orion 2 The high-power Ku-band communications satellite to
be operated over the Atlantic Ocean by Orion.
Orion 2 Satellite Contract The spacecraft purchase agreement between Orion
Atlantic and Matra Marconi Space for construction
and launch of Orion 2.
Orion 3 The high-power Ku-band communications satellite to
be operated by Orion in the Asia Pacific region.
G-3
<PAGE>
Orion 3 Satellite Contract The proposed spacecraft purchase agreement between
Orion Asia Pacific, a wholly owned subsidiary of
Orion, and Hughes Space for construction and
launch of Orion 3.
Space Systems or MMS Space
Systems MMS Space Systems Limited, a former subsidiary of
British Aerospace which was sold to Matra Marconi
Space NV, in 1994. Matra Marconi Space NV is owned
by Matra Hachette (51 percent) and General
Electric Co. of Britain (49 percent). MMS Space
Systems served as the prime contractor under the
Orion 1 Satellite Contract.
transponder The part of a satellite which is used for the
reception of communication signals from, and the
frequency conversion, amplification and
transmission to, earth.
TT&C Station A satellite control system, which includes a
satellite control center and a tracking, telemetry
and command station complex at Mt. Jackson,
Virginia.
VSAT Very small aperture terminal earth stations that
can be installed on rooftops or elsewhere at
customer locations, with antennas as small as 0.8
meters but ranging in sizes up to 2.4 meters in
diameter.
REGULATION AND COMPETITION:
Communications Act The U.S. Communications Act of 1934, as amended.
EUTELSAT European regional satellite facilities consortium
owned by approximately 40 European countries.
FCC The United States Federal Communications
Commission.
INTELSAT International Telecommunications Satellite
Organization, an international satellite
facilities consortium owned by approximately 130
government and privately owned telecommunications
companies. References to INTELSAT are intended to
include the signatories thereof unless the context
otherwise requires.
ITU International Telecommunication Union, an
international body formed by treaty that is
responsible for coordinating and registering
orbital slots to satellites.
Orion 1 License The license granted to Orion by the FCC to
construct, launch and operate Orion 1, at
designated orbital location 37.5' West longitude
over the Atlantic Ocean.
PanAmSat Pan American Satellite Corporation, a publicly
traded U.S. company providing trans-Atlantic
satellite service and services to Latin America,
the Pacific Ocean region, and the Indian Ocean
region, using a satellite system separate from
INTELSAT.
PTT Postal, telephone and telegraph organization,
ordinarily a government-owned communications
monopoly.
G-4
<PAGE>
ATTACHMENT A
AGREEMENT AND PLAN OF MERGER
OF
ORION MERGER COMPANY, INC. ("SUB")
WITH AND INTO
ORION NETWORK SYSTEMS, INC. ("ONS"),
AMONG SUB, ONS, AND
ORION NEWCO SERVICES, INC.
<PAGE>
THIS AGREEMENT AND PLAN OF MERGER (the "Agreement") is made and entered into
as of the 8th day of January, 1997, by and among ORION NETWORK SYSTEMS, INC., a
Delaware corporation ("ONS," or, with regard to the period upon and after the
Effective Time of the Merger (as hereinafter defined), the "Surviving
Corporation"), ORION NEWCO SERVICES, INC., a Delaware corporation ("Newco"),
which is a direct wholly-owned subsidiary of ONS, and ORION MERGER COMPANY,
INC., a Delaware corporation ("Sub"), which is a direct wholly-owned subsidiary
of Newco and an indirect wholly-owned subsidiary of ONS (ONS and Sub,
collectively, the "Constituent Corporations," and each, a "Constituent
Corporation").
R E C I T A L S
A. WHEREAS, ONS is a corporation organized and existing under the General
Corporation Law of the State of Delaware (the "DGCL"), and is authorized to
issue a total of Forty-One Million (41,000,000) shares of stock, in two (2)
classes, the first class consisting of Forty Million (40,000,000) shares of
common stock, $.01 par value per share (the "ONS Common Stock"), of which, as of
December 15, 1996, Ten Million Nine Hundred Seventy-Four Thousand One Hundred
and Twenty-One (10,974,121) shares are issued and outstanding (such shares or,
as the context may require, such lesser or greater number of shares of ONS
Common Stock as may be issued and outstanding immediately prior to the Effective
Time of the Merger, the "Outstanding ONS Common Shares") (with, as of December
15, 1996, an additional Three Million One Hundred Ninety-Six Thousand Nine
Hundred and Seventy-Six (3,196,976) shares of ONS Common Stock being issuable
upon conversion of the Outstanding ONS Series A Preferred Shares (as hereinafter
defined) and the Outstanding ONS Series B Preferred Shares (as hereinafter
defined) and upon the exercise of rights under the ONS Options (as hereinafter
defined) and the ONS Warrants (as hereinafter defined)) and Two Hundred
Fifty-Nine Thousand Five Hundred and Fifteen (259,515) shares are issued but not
outstanding (such shares or, as the context may reqire, such lesser or greater
number of shares of ONS Common Stock as may be issued but not outstanding
immediately prior to the Effective Time of the Merger, the "Treasury ONS Common
Shares"), and the second class consisting of One Million (1,000,000) shares of
preferred stock, $.01 par value per share (the "ONS Preferred Stock"), of which
Fifteen Thousand (15,000) shares constitute a series of ONS Preferred Stock
having the designation "Series A 8% Cumulative Redeemable Convertible Preferred
Stock" (the "ONS Series A Preferred Stock") (of which shares of ONS Series A
Preferred Stock Thirteen Thousand Eight Hundred and Seventy-One (13,871) are
issued and outstanding as of December 15, 1996 (such shares or, as the context
may require, such lesser or greater number of shares of ONS Series A Preferred
Stock as may be issued and outstanding immediately prior to the Effective Time
of the Merger, the "Outstanding ONS Series A Preferred Shares")), and of which
Five Thousand (5,000) shares constitute a series of ONS Preferred Stock having
the designation "Series B 8% Cumulative Redeemable Convertible Preferred Stock"
(the "ONS Series B Preferred Stock") (of which shares of ONS Series B Preferred
Stock Four Thousand Two Hundred and Ninety-Eight (4,298) are issued and
outstanding as December 15, 1996 (such shares or, as the context may require,
such lesser or greater number of shares of ONS Series B Preferred Stock as may
be issued and outstanding immediately prior to the Effective Time of the Merger,
the "Outstanding ONS Series B Preferred Shares," and together with the
Outstanding ONS Series A Preferred Shares, the "Outstanding ONS Preferred
Shares")).
B. WHEREAS, Sub is a corporation organized and existing under the DGCL, and
is authorized to issue a total of One Thousand (1,000) shares, in a single class
of common stock, $.01 par value per share (the "Sub Common Stock"), of which, as
of the date hereof, one (1) share is issued and outstanding (the "Outstanding
Sub Common Share") (as of the date hereof, Newco holding of record the
Outstanding Sub Common Share) and no shares are issued but not outstanding.
C. WHEREAS, Newco is a corporation organized and existing under the DGCL, and
is authorized to issue a total of Forty-One Million (41,000,000) shares of
stock, in two (2) classes, the first class consisting of Forty Million
(40,000,000) shares of common stock, $.01 par value per share (the "Newco Common
Stock"), of which, as of the date hereof, one (1) share is issued and
outstanding (the "Outstanding Newco Common Share") (as of the date hereof, ONS
holding of record the Outstanding Newco Common Share) and no shares are issued
but not outstanding, and the second class consisting of One Million (1,000,000)
shares of preferred stock, $.01 par value per share (the "Newco Preferred
Stock"), of
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which Fifteen Thousand (15,000) shares constitute or, prior to the Effective
Time of the Merger will constitute, a series of Newco Preferred Stock having the
designation "Series A 8% Cumulative Redeemable Convertible Preferred Stock" (the
"Newco Series A Preferred Stock") (none of which shares of Newco Series A
Preferred Stock are issued and outstanding as of the date hereof), and of which
Five Thousand (5,000) shares constitute or, prior to the Effective Time of the
Merger will constitute, a series of Newco Preferred Stock having the designation
"Series B 8% Cumulative Redeemable Convertible Preferred Stock" (the "Newco
Series B Preferred Stock") (none of which shares of Newco Series B Preferred
Stock are issued and outstanding as of the date hereof).
D. WHEREAS, the respective Boards of Directors of ONS, Sub, and Newco have
determined that it is advisable and in the best interests of each of ONS, Sub,
and Newco and their respective stockholders that Sub be merged with and into ONS
in accordance with the terms and conditions of this Agreement (the "Merger"),
and accordingly the Board of Directors of each of ONS, Sub, and Newco has
adopted, approved, and authorized this Agreement and the Merger.
E. WHEREAS, it is contemplated that the Merger will be effected in accordance
with Section 251(g) of the DGCL, and it is expected that Ernst & Young LLP
("Ernst & Young"), tax advisor to ONS, will render an opinion (the "Tax
Opinion") that the holders of shares of ONS stock which are converted in the
Merger into the right to receive shares of Newco stock will have the opportunity
to qualify for nonrecognition treatment because the Merger will qualify either
as (a) a reorganization pursuant to Section 368(a) of the Internal Revenue Code
of 1986, as amended (the "Code"), or (b) an exchange satisfying the requirements
of Section 351(a) of the Code.
F. WHEREAS, ONS, Orion Satellite Corporation, a Delaware corporation, and
each of the existing limited partners (other than ONS) (the "Exchanging
Partners") of International Private Satellite Partners, L.P., a Delaware limited
partnership ("Orion Atlantic"), have entered into a Section 351 Exchange
Agreement and Plan of Conversion, dated as of June 1996 (as amended, the
"Exchange Agreement"), pursuant to which ONS has agreed, among other things, to
have Newco issue shares of a series of Newco Preferred Stock having the
designation "Series C 6% Cumulative Redeemable Convertible Preferred Stock" (the
"Newco Series C Preferred Stock"), in exchange for the Exchanging Partners'
respective limited partnership interests in Orion Atlantic and other rights
relating thereto (the "Exchange").
NOW, THEREFORE, in consideration of the premises, the mutual agreements,
promises, covenants, representations, warranties, acknowledgments, and other
terms, conditions, and provisions set forth herein, and other good and valuable
consideration, the sufficiency and receipt of which are hereby acknowledged, the
parties agree as follows:
ARTICLE I
THE MERGER
1.1 The Merger; Filing and Effective Time. Subject to and in accordance with
the terms and conditions of this Agreement and the DGCL, a certificate of merger
regarding the Merger of Sub with and into ONS (the "Delaware Merger
Certificate") shall be executed, acknowledged, and filed with the Secretary of
State of the State of Delaware (the "Delaware Secretary of State") by the
Surviving Corporation at or as soon as practicable after the Closing (as
hereinafter defined). The Merger shall become effective upon such filing of the
Delaware Merger Certificate (the "Effective Time of the Merger").
1.2 Closing. Subject to and in accordance with the terms and conditions of
this Agreement, the closing of the Merger (the "Closing") shall take place as
soon as practicable after satisfaction of the latest to occur of the conditions
set forth in Article V hereof (the "Closing Date"), at the offices of Hogan &
Hartson L.L.P., Columbia Square, 555 13th Street, N.W., Washington, D.C. 20004,
unless another date or place is agreed to in writing by the parties hereto.
1.3 Effect of the Merger. Upon the Effective Time of the Merger, the separate
existence of Sub shall cease and Sub shall be merged with and into ONS. ONS
shall survive the Merger, and the separate corporate existence of ONS as the
Surviving Corporation shall continue unaffected and unimpaired by the Merger.
Upon and after the Effective Time of the Merger, the rights, privileges, powers,
and fran-
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chises of each of the Constituent Corporations, and all property belonging to
each of such Constituent Corporations, shall be vested in the Surviving
Corporation, but all rights of creditors and all liens upon any property of any
of the Constituent Corporations shall be preserved unimpaired, and all debts,
liabilities, and duties of the respective Constituent Corporations shall
thenceforth attach to the Surviving Corporation, and may be enforced against it
to the same extent as if such debts, liabilities, and duties had been incurred
or contracted by the Surviving Corporation, all as more fully provided under the
DGCL.
1.4 Certificate of Incorporation of the Surviving Corporation. The
Certificate of Incorporation of ONS as in effect immediately prior to the
Effective Time of the Merger (the "ONS Charter") shall be the certificate of
incorporation of the Surviving Corporation (the "Surviving Corporation
Charter"), except that the following amendments thereto are to be effected by
the Merger upon the Effective Time of the Merger:
(a) the Surviving Corporation Charter is to be amended by striking Article
FIRST thereof in its entirety and inserting in lieu thereof the following:
"FIRST: The name of the Corporation is Orion Oldco Services, Inc.
(hereinafter called the 'Corporation').";
(b) the Surviving Corporation Charter is to be amended by adding and
inserting, immediately following Article THIRTEENTH thereof, a new Article
FOURTEENTH thereof, to read in its entirety as follows:
"FOURTEENTH: Any act or transaction by or involving the Corporation that
requires for its adoption under the General Corporation Law of the State of
Delaware (the 'DGCL') or this Certificate of Incorporation the approval of the
stockholders of the Corporation shall, pursuant to subsection (g) of Section 251
of the DGCL, require, in addition, the approval of the stockholders of Orion
Newco Services, Inc., a Delaware corporation (the name of which is expected to
be changed to 'Orion Network Systems, Inc.'), or any successor thereto by
merger, by the same vote as is required by the DGCL and/or by this Certificate
of Incorporation."; and
(c) the Surviving Corporation Charter is to be amended by the Surviving
Corporation's certification, in accordance with Section 243 of the DGCL (the
"Paragraph (c) Certification"), that: (i) that certain "Certificate of
Designations, Rights and Preferences of Series A 8% Cumulative Redeemable
Convertible Preferred Stock" of ONS, filed with the Delaware Secretary of State
on June 17, 1994 (the "Series A Certificate of Designations") prohibits the
reissuance, as part of such series of Preferred Stock of the Surviving
Corporation, of shares of Series A Preferred Stock of the Surviving Corporation
that have been retired; and (ii) a number of shares of Series A Preferred Stock
of the Surviving Corporation equal to the number of Outstanding ONS Series A
Preferred Shares immediately prior to the Effective Time of the Merger have been
retired; and
(d) the Surviving Corporation Charter is to be amended to increase and
restore to 15,000 the number of shares of Series A Preferred Stock that the
Surviving Corporation is authorized to issue (such number of authorized shares
of Series A Preferred Stock of the Surviving Corporation having been reduced by
the Paragraph (c) Certification, in accordance with the Series A Certificate of
Designations and Section 243 of the DGCL, as a result of the aforesaid
retirement of shares of Series A Preferred Stock of the Surviving Corporation),
by striking the number (which is less than 15,000) that appears in the one (1)
paragraph resolution appearing at the top of the second page of the Series A
Certificate of Designations (the "Series A Resolution") (to the extent that the
number "15,000" in the Series A Resolution shall have been amended and changed
to such lesser number by virtue of the Paragraph (c) Certification), and
inserting the number "15,000" in lieu thereof; and
(e) the Surviving Corporation Charter is to be amended by the Surviving
Corporation's certification, in accordance with Section 243 of the DGCL (the
"Paragraph (e) Certification"), that: (i) that certain "Certificate of
Designations, Rights and Preferences of Series B 8% Cumulative Redeemable
Convertible Preferred Stock" of ONS, filed with the Delaware Secretary of State
on June 16, 1995 (the "Series B Certificate of Designations") prohibits the
reissuance, as part of such series
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of Preferred Stock of the Surviving Corporation, of shares of Series B Preferred
Stock of the Surviving Corporation that have been retired; and (ii) a number of
shares of Series B Preferred Stock of the Surviving Corporation equal to the
number of Outstanding ONS Series B Preferred Shares immediately prior to the
Effective Time of the Merger have been retired; and
(f) the Surviving Corporation Charter is to be amended to increase and
restore to 5,000 the number of shares of Series B Preferred Stock that the
Surviving Corporation is authorized to issue (such number of authorized shares
of Series B Preferred Stock of the Surviving Corporation having been reduced by
the Paragraph (e) Certification, in accordance with the Series B Certificate of
Designations and Section 243 of the DGCL, as a result of the aforesaid
retirement of shares of Series B Preferred Stock of the Surviving Corporation),
by striking the number (which is less than 5,000) that appears in the one (1)
paragraph resolution beginning at the bottom of the first page of the Series B
Certificate of Designations and carrying over to the second page thereof (the
"Series B Resolution") (to the extent that the number "5,000" in the Series B
Resolution shall have been amended and changed to such lesser number by virtue
of the Paragraph (e) Certification), and inserting the number "5,000" in lieu
thereof.
The Surviving Corporation Charter, as so amended, shall be the certificate of
incorporation of the Surviving Corporation upon and after the Effective Time of
the Merger, unless and until duly amended, altered, changed, repealed, and/or
supplemented in accordance with the DGCL (which power and right to amend, alter,
change, repeal, and/or supplement, at any time and from time to time after the
Effective Time of the Merger, are hereby expressly reserved).
1.5 Bylaws of the Surviving Corporation. The bylaws of ONS as in effect
immediately prior to the Effective Time of the Merger (the "ONS Bylaws") shall
be and continue in full force and effect as the bylaws of the Surviving
Corporation upon and after the Effective Time of the Merger, unless and until
duly amended, altered, changed, repealed, and/or supplemented in accordance with
the DGCL (which power and right to amend, alter, change, repeal, and/or
supplement, at any time and from time to time after the Effective Time of the
Merger, are hereby expressly reserved).
1.6 Directors of the Surviving Corporation. The respective numbers of members
constituting the whole Board of Directors of ONS and each class thereof
immediately prior to the Effective Time of the Merger shall be and continue as
the respective numbers of members constituting the whole Board of Directors of
the Surviving Corporation and each class thereof upon and after the Effective
Time of the Merger, unless and until duly increased or decreased in accordance
with the DGCL (which power and right to increase or decrease, at any time and
from time to time after the Effective Time of the Merger, are hereby expressly
reserved). Each person serving as a member of a particular class of the Board of
Directors of ONS (the "ONS Board") immediately prior to the Effective Time of
the Merger shall be and continue as a member of the same class of the Board of
Directors of the Surviving Corporation upon and after the Effective Time of the
Merger, until such person's successor is elected and qualified or until such
person's earlier death, resignation, disqualification, or removal (which power
and right to remove are hereby expressly reserved).
1.7 Officers of the Surviving Corporation. Each person serving as an officer
of ONS immediately prior to the Effective Time of the Merger shall be and
continue as an officer of the Surviving Corporation, holding the same office or
offices, upon and after the Effective Time of the Merger, until such person's
successor is appointed and qualified or until such person's earlier death,
resignation, disqualification, or removal (which power and right to remove are
hereby expressly reserved).
1.8 Further Assurances. At any time and from time to time upon and after the
Effective Time of the Merger, as and when required or deemed desirable by the
Surviving Corporation or its successors or assigns, there shall be executed,
acknowledged, certified, sealed, delivered, filed, and/or recorded, in the name
and on behalf of any and each Constituent Corporation, such deeds, contracts,
consents, certificates, notices, and other documents and instruments, and there
shall be done or taken or caused to be done or taken, in the name and on behalf
of any and each Constituent Corporation, such further and other things and
actions as shall be appropriate, necessary, or convenient to acknowledge, vest,
effect, perfect, conform of record, or otherwise confirm the Surviving
Corporation's (or its successors' or as-
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signs') right, title, and interest in and to, and possession of, all the
property, interests, assets, rights, privileges, immunities, powers, franchises,
and authority of each Constituent Corporation held immediately prior to the
Effective Time of the Merger, and otherwise to carry out and effect the intent
and purposes of this Agreement and the Merger. The officers and directors of the
Surviving Corporation (or its successors or assigns), and each of them, upon and
after the Effective Time of the Merger, are and shall be fully authorized, in
the name and on behalf of each Constituent Corporation, to do and take and cause
to be done and taken any and all such things and actions, and to execute,
acknowledge, certify, seal, deliver, file, and/or record any and all such deeds,
contracts, consents, certificates, notices, and other documents and instruments.
ARTICLE II
EFFECT OF THE MERGER ON
THE CAPITAL STOCK OF THE CONSTITUENT CORPORATIONS
2.1 Effect on Capital Stock. Upon and as of the Effective Time of the Merger,
by virtue of the Merger and without any action on the part of either of the
Constituent Corporations or Newco, the holders of the respective shares, or any
other person:
(a) Conversion of ONS Shares.
(i) Each of the Outstanding ONS Common Shares and each of the Treasury ONS
Common Shares shall be changed and converted into the right to receive one (1)
validly issued, fully paid, and nonassessable share of Newco Common Stock (such
right to be exercised and deemed to have been exercised by the respective
holders of such Outstanding ONS Common Shares and by ONS as to the Treasury ONS
Common Shares, and such shares of Newco Common Stock to be issued and deemed to
have been issued by Newco, automatically and immediately upon and as of the
Effective Time of the Merger); such Outstanding ONS Common Shares shall no
longer be outstanding and such Outstanding ONS Common Shares and such Treasury
ONS Common Shares automatically shall be retired and resume the status of
authorized and unissued shares of Common Stock of the Surviving Corporation; the
capital of the Surviving Corporation shall be reduced as permitted under the
DGCL by an amount equal to the capital theretofore represented by such
Outstanding ONS Common Shares and such Treasury ONS Common Shares; and the
capital of Newco in respect of such shares of Newco Common Stock shall be an
amount equal to the aggregate par value thereof.
(ii) Each of the Outstanding ONS Series A Preferred Shares shall be changed
and converted into the right to receive one (1) validly issued, fully paid, and
nonassessable share of Newco Series A Preferred Stock (such right to be
exercised and deemed to have been exercised by the respective holders of such
Outstanding ONS Series A Preferred Shares, and such shares of Newco Series A
Preferred Stock to be issued and deemed to have been issued by Newco,
automatically and immediately upon and as of the Effective Time of the Merger;
with rights to accrued, accumulated, and unpaid dividends on each Outstanding
ONS Series A Preferred Share (the "Series A Accumulated Dividends") being
preserved, unimpaired, unchanged, and unaffected by such conversion and the
Merger, such Series A Accumulated Dividends carrying over and pertaining to and
being accrued, accumulated, and unpaid dividends on each such share of Newco
Series A Preferred Stock, and each such share of Newco Series A Preferred Stock
carrying and having such Series A Accumulated Dividends as accrued, accumulated,
and unpaid dividends thereon, notwithstanding that such dividends shall have
accrued and accumulated from a date prior to the issuance of such shares of
Newco Series A Preferred Stock); such Outstanding ONS Series A Preferred Shares
shall no longer be outstanding and automatically shall be retired and resume the
status of authorized and unissued shares of Preferred Stock of the Surviving
Corporation; the capital of the Surviving Corporation shall be reduced as
permitted under the DGCL by an amount equal to the capital theretofore
represented by such Outstanding ONS Series A Preferred Shares; and the capital
of Newco in respect of such shares of Newco Series A Preferred Stock shall be an
amount equal to the aggregate par value thereof.
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(iii) Each of the Outstanding ONS Series B Preferred Shares shall be changed
and converted into the right to receive one (1) validly issued, fully paid, and
nonassessable share of Newco Series B Preferred Stock (such right to be
exercised and deemed to have been exercised by the respective holders of such
Outstanding ONS Series B Preferred Shares, and such shares of Newco Series B
Preferred Stock to be issued and deemed to have been issued by Newco,
automatically and immediately upon and as of the Effective Time of the Merger;
with rights to accrued, accumulated, and unpaid dividends on each Outstanding
ONS Series B Preferred Share (the "Series B Accumulated Dividends") being
preserved, unimpaired, unchanged, and unaffected by such conversion and the
Merger, such Series B Accumulated Dividends carrying over and pertaining to and
being accrued, accumulated, and unpaid dividends on each such share of Newco
Series B Preferred Stock, and each such share of Newco Series B Preferred Stock
carrying and having such Series B Accumulated Dividends as accrued, accumulated,
and unpaid dividends thereon, notwithstanding that such dividends shall have
accrued and accumulated from a date prior to the issuance of such shares of
Newco Series B Preferred Stock); such Outstanding ONS Series B Preferred Shares
shall no longer be outstanding and automatically shall be retired and resume the
status of authorized and unissued shares of Preferred Stock of the Surviving
Corporation; the capital of the Surviving Corporation shall be reduced as
permitted under the DGCL by an amount equal to the capital theretofore
represented by such Outstanding ONS Series B Preferred Shares; and the capital
of Newco in respect of such shares of Newco Series B Preferred Stock shall be an
amount equal to the aggregate par value thereof.
(iv) Fractional Outstanding ONS Shares and fractional Treasury ONS Common
Shares shall be changed and converted into the right to receive fractional
shares of Newco stock at the same ratio (1:1) as whole Outstanding ONS Shares
and whole Treasury ONS Common Shares and shall otherwise be treated the same as
such whole shares for purposes hereof ("Outstanding ONS Shares" meaning all of
the Outstanding ONS Common Shares and all of the Outstanding ONS Preferred
Shares, collectively).
(b) Conversion of Sub Shares. The Outstanding Sub Common Share shall be
changed and converted into a number of validly issued, fully paid, and
nonassessable shares of Common Stock of the Surviving Corporation which is equal
to the number of Outstanding ONS Common Shares immediately prior to the
Effective Time of the Merger, a number of validly issued, fully paid, and
nonassessable shares of Series A Preferred Stock of the Surviving Corporation
which is equal to the number of Outstanding ONS Series A Preferred Shares
immediately prior to the Effective Time of the Merger, and a number of validly
issued, fully paid, and nonassessable shares of Series B Preferred Stock of the
Surviving Corporation which is equal to the number of Outstanding ONS Series B
Preferred Shares immediately prior to the Effective Time of the Merger (such
shares of Common Stock of the Surviving Corporation, such shares of Series A
Preferred Stock of the Surviving Corporation, and such shares of Series B
Preferred Stock of the Surviving Corporation to be issued and deemed to have
been issued by the Surviving Corporation automatically and immediately upon and
as of the Effective Time of the Merger); the capital of the Surviving
Corporation in respect of such shares of Common Stock of the Surviving
Corporation, such shares of Series A Preferred Stock of the Surviving
Corporation, and such shares of Series B Preferred Stock of the Surviving
Corporation shall be an amount equal to the aggregate par value thereof; and
such Outstanding Sub Common Share shall no longer be outstanding and
automatically shall be canceled and cease to exist.
2.2 Notification of Transfer Agent. Prior to the Closing Date, Newco and ONS
shall notify their respective transfer agents of the conversions of shares of
ONS stock and of shares of Sub stock pursuant to Section 2.1.
2.3 Stock Certificates. Upon and as of the Effective Time of the Merger, by
virtue of the Merger and without any action on the part of either of the
Constituent Corporations or Newco, the holders of the respective shares, or any
other person:
(a) Newco. The shares of Newco Common Stock and the shares of Newco Preferred
Stock, which the Outstanding ONS Shares and the Treasury ONS Common Shares,
respectively, shall have been converted into the right to receive, shall be
represented and evidenced by the same stock
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certificates that previously represented and evidenced such Outstanding ONS
Shares and such Treasury ONS Common Shares; and
(b) ONS. The holder of the certificate that immediately prior to the
Effective Time of the Merger evidenced the Outstanding Sub Common Share (the
"Sub Common Stock Certificate") may, at such holder's option, surrender the same
to the Surviving Corporation for cancellation, and such holder shall be entitled
to receive from the Surviving Corporation in exchange therefor certificates
representing and evidencing the number of shares of Common Stock of the
Surviving Corporation, the number of shares of Series A Preferred Stock of the
Surviving Corporation, and the number of shares of Series B Preferred Stock of
the Surviving Corporation into which such holder's Outstanding Sub Common Share
shall have been converted, and, until surrendered, the Sub Common Stock
Certificate shall represent and evidence the number of shares of Common Stock of
the Surviving Corporation, the number of shares of Series A Preferred Stock of
the Surviving Corporation, and the number of shares of Series B Preferred Stock
of the Surviving Corporation into which the Outstanding Sub Common Share
theretofore represented and evidenced thereby shall have been converted.
ARTICLE III
ADDITIONAL AGREEMENTS
3.1 Directors and Officers of Newco Upon the Effective Time of the Merger.
(a) Directors. As of the Effective Time of the Merger: (i) the whole Board of
Directors of Newco shall be divided into the same number of classes into which
the whole Board of Directors of ONS shall be divided immediately prior to the
Effective Time of the Merger; (ii) the respective numbers of members
constituting the whole Board of Directors of Newco and each class thereof shall
be equal to the respective numbers of members constituting the whole Board of
Directors of ONS and each class thereof immediately prior to the Effective Time
of the Merger; and (iii) the Board of Directors of Newco (the "Newco Board") and
each class thereof shall consist of the persons serving as members of the ONS
Board and the corresponding classes thereof immediately prior to the Effective
Time of the Merger. To that end, effective immediately prior to the Effective
Time of the Merger, to the extent necessary to give effect to the intent of the
preceding sentence: (i) the whole Board of Directors of Newco shall be divided
into the same number of classes into which the whole Board of Directors of ONS
is then divided; (ii) the respective numbers of members constituting the whole
Board of Directors of Newco and each class thereof shall be increased or
decreased, as the case may be, to numbers equal to the respective numbers of
members then constituting the whole Board of Directors of ONS and each class
thereof; and (iii) each person then serving as a member of the Newco Board shall
be, and hereby is, removed, and each person then serving as a member of a class
of the ONS Board shall be, and hereby is, elected as a member of the
corresponding class of the Newco Board, to serve as such until such person's
successor is elected and qualified or until such person's earlier death,
resignation, disqualification, or removal (which power and right to remove are
hereby expressly reserved).
(b) Officers. As of the Effective Time of the Merger, the officers of Newco
shall be the persons serving as officers of ONS immediately prior to the
Effective Time of the Merger. To that end, effective immediately prior to the
Effective Time of the Merger, to the extent necessary to give effect to the
intent of the preceding sentence, each person then serving as an officer of
Newco shall be, and hereby is, removed, and each person then serving as an
officer of ONS shall be, and hereby is, appointed as an officer of Newco, to
hold one (1) or more offices of Newco corresponding to the one (1) or more
offices of ONS then held, until such person's successor is appointed and
qualified or until such person's earlier death, resignation, disqualification,
or removal (which power and right to remove are hereby expressly reserved).
3.2 Newco Certificate of Incorporation.
(a) Newco Charter. As of the Effective Time of the Merger, the certificate
of incorporation of Newco shall contain provisions identical to the ONS Charter
(the "Newco Charter"). To that end, prior to the Effective Time of the Merger,
to the extent permissible and to the extent necessary to
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give effect to the intent of the preceding sentence, the certificate of
incorporation of Newco, as the same theretofore may have been amended, altered,
changed, repealed, and/or supplemented, shall be duly amended, altered, changed,
repealed, and/or supplemented, in accordance with the DGCL, and (subject to
paragraph (b) of this Section) such Newco Charter, as so altered, changed,
repealed, and/or supplemented, shall be and remain the certificate of
incorporation of Newco upon and after the Effective Time of the Merger, unless
and until duly amended, altered, changed, repealed, and/or supplemented in
accordance with the DGCL (which power and right to amend, alter, change, repeal,
and/or supplement, at any time and from time to time after the Effective Time of
the Merger, are hereby expressly reserved).
(b) Name Change; Newco Series C Preferred Stock. The Newco Charter shall be
amended and supplemented (which amendment shall be adopted, approved, and
declared advisable by the Newco Board and adopted and approved by ONS in its
capacity as the sole stockholder of Newco prior to the Effective Time of the
Merger, and which supplement shall be adopted and approved by the Newco Board
prior to the Effective Time of the Merger, and which amendment and supplement
are hereby adopted, approved, and declared advisable):
(i) immediately following the Effective Time of the Merger, to change the
name of Newco to "Orion Network Systems, Inc.," by striking Article FIRST
thereof in its entirety and inserting in lieu thereof the following:
"FIRST: The name of the Corporation is Orion Network Systems, Inc.
(hereinafter called the 'Corporation')."; and
(ii) as soon as practicable following the Effective Time of the Merger, to
provide for the Newco Series C Preferred Stock.
3.3 Newco Bylaws. As of the Effective Time of the Merger, the bylaws of Newco
shall contain provisions identical to the ONS Bylaws (the "Newco Bylaws"). To
that end, prior to the Effective Time of the Merger, to the extent necessary to
give effect to the intent of the preceding sentence, the bylaws of Newco, as the
same theretofore may have been amended, altered, changed, repealed, and/or
supplemented, shall be duly amended, altered, changed, repealed, and/or
supplemented, in accordance with the DGCL, and such Newco Bylaws as so amended,
altered, changed, repealed, and/or supplemented, shall be and remain the bylaws
of Newco upon and after the Effective Time of the Merger, unless and until duly
amended, altered, changed, repealed, and/or supplemented in accordance with the
DGCL (which power and right to amend, alter, change, repeal, and/or supplement,
at any time and from time to time after the Effective Time of the Merger, are
hereby expressly reserved).
3.4 Consent. Each of ONS, Sub, and Newco shall promptly apply for or
otherwise seek, and use its best efforts to obtain, all consents and approvals
required to be obtained by it for consummation of the Merger.
3.5 ONS Stockholder Meeting; Sub Stockholder Written Consent. ONS shall call
a special meeting of its stockholders (the "ONS Special Meeting") to be held as
promptly as practicable after the date hereof for the purpose of voting upon,
among other things, ratification of this Agreement (the parties understanding
and acknowledging that it is contemplated that the Merger will be effected in
accordance with Section 251(g) of the DGCL and that no vote of ONS stockholders
adopting, approving, or authorizing this Agreement or the Merger will be
required under the DGCL). Newco, in its capacity as the sole stockholder of Sub,
as promptly as practicable after the date hereof, shall execute and deliver to
Sub a written consent in lieu of a stockholder meeting adopting, approving, and
authorizing this Agreement, in accordance with Section 228 of the DGCL.
3.6 Employee and Director ONS Stock Options. Upon and as of the Effective
Time of the Merger and in connection with the Merger, to the fullest extent
permitted by applicable law, Newco shall assume all of ONS's obligations, and
ONS shall have no further obligations, with respect to any then-outstanding
option to acquire shares of ONS Common Stock issued under ONS's 1987 Employee
Stock Option Plan and Non-Employee Director Stock Option Plan that theretofore
shall not have expired or been duly exercised by the holders thereof (each, if
any, an "ONS Option"), and the due exercise of rights under
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any such option shall entitle the holder thereof to acquire, upon the same terms
and conditions that were applicable under the corresponding ONS Option, a number
of shares of Newco Common Stock identical to the number of shares of ONS Common
Stock that were subject to such corresponding ONS Option (a "Newco Option"). ONS
and Newco agree to take all corporate and other action as shall be necessary to
effectuate the foregoing, and ONS shall use its best efforts to obtain, if
required, prior to the Closing Date, such consent of each holder of an ONS
Option as shall be necessary to effectuate the foregoing. Newco shall take all
corporate and other action necessary to reserve and make available for issuance
upon the due exercise of rights under the Newco Options a sufficient number of
shares of Newco Common Stock, and as soon as practicable following the Effective
Time of the Merger shall provide to the record holders of the Newco Options
appropriate notice of such holder's rights thereunder.
3.7 Warrants. Upon and as of the Effective Time of the Merger and in
connection with the Merger, to the fullest extent permitted by applicable law,
Newco shall assume all of ONS's obligations, and ONS shall have no further
obligations, with respect to any then-outstanding warrant or other right to
purchase shares of ONS Common Stock that theretofore shall not have expired or
been duly exercised by the holder thereof (each, if any, an "ONS Warrant"), and
the due exercise of rights under any such warrant or other right shall entitle
the holder thereof to acquire, upon the same terms and conditions that were
applicable under the corresponding ONS Warrant, a number of shares of Newco
Common Stock identical to the number of shares of ONS Common Stock that were
subject to such corresponding ONS Warrant (a "Newco Warrant"). ONS and Newco
agree to take all corporate and other action as shall be necessary to effectuate
the foregoing, and ONS shall use its best efforts to obtain, if required, prior
to the Closing Date, such consents of the holders of ONS Warrants as shall be
necessary to effectuate the foregoing. Newco shall take all corporate and other
action necessary to reserve and make available for issuance upon the exercise of
rights under the Newco Warrants a sufficient number of shares of Newco Common
Stock, and as soon as practicable following the Effective Time of the Merger
shall provide to the record holders of the Newco Warrants appropriate notice of
such holders' rights thereunder.
3.8 Outstanding Newco Common Share. Upon and as of the Effective Time of the
Merger, ONS shall surrender to Newco the certificate representing the
Outstanding Newco Common Share, and the Outstanding Newco Common Share
automatically shall be retired and resume the status of an authorized and
unissued share of Newco Common Stock, and the capital of Newco shall be reduced
as permitted under the DGCL by an amount equal to the par value thereof.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
4.1 Representations and Warranties of ONS. ONS hereby represents and
warrants:
(a) Organization. It is duly organized, validly existing, and in good
standing as a corporation under the laws of the State of Delaware.
(b) Power and Authority. It has corporate power and authority to enter into,
execute, deliver, and perform its obligations under this Agreement.
(c) Capital Stock. The numbers of authorized shares of ONS Common Stock, ONS
Preferred Stock, ONS Series A Preferred Stock, and ONS Series B Preferred Stock,
the numbers of Outstanding ONS Common Shares, Outstanding ONS Series A Preferred
Shares, and Outstanding ONS Series B Preferred Shares, and the number of
Treasury ONS Common Shares are as set forth in paragraph A of the Recitals to
this Agreement.
4.2 Representations and Warranties of Sub. Sub hereby represents and
warrants:
(a) Organization. It is duly organized, validly existing, and in good
standing as a corporation under the laws of the State of Delaware.
(b) Power and Authority. It has corporate power and authority to enter into,
execute, deliver, and (subject to stockholder approval) perform its obligations
under this Agreement.
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(c) Capital Stock. The number of authorized shares of Sub Common Stock, the
number of Outstanding Sub Common Shares, and the number of shares of Sub Common
Stock issued but not outstanding, are as set forth in paragraph B of the
Recitals to this Agreement.
4.3 Representations and Warranties of Newco. Newco hereby represents and
warrants:
(a) Organization. It is duly organized, validly existing, and in good
standing as a corporation under the laws of the State of Delaware.
(b) Power and Authority. It has corporate power and authority to enter into,
execute, deliver, and (subject to stockholder approval) perform its obligations
under this Agreement.
(c) Capital Stock. The numbers of authorized shares of Newco Common Stock,
Newco Preferred Stock, Newco Series A Preferred Stock, and Newco Series B
Preferred Stock, the numbers of Outstanding Newco Common Shares, outstanding
shares of Newco Series A Preferred Stock, and outstanding shares of Newco Series
B Preferred Stock, and the number of shares of Newco Common Stock issued but not
outstanding, are, or prior to the Effective Time of the Merger will be, as set
forth in paragraph C of the Recitals to this Agreement.
ARTICLE V
CONDITIONS PRECEDENT
5.1 Conditions to Each Party's Obligation to Effect the Merger. The
respective obligations of each party under this Agreement shall be subject to
the satisfaction at or prior to the Closing of the following conditions:
(a) Stockholder Approvals. This Agreement shall have been approved and
adopted or ratified, as the case may be, by the affirmative vote or written
consent, as appropriate and as the case may be, of the holders of: (i) at least
a majority of the votes of the Outstanding ONS Shares present in person or by
proxy at the ONS Special Meeting and entitled to be voted hereon, voting
together as a single class, with each Outstanding ONS Common Share entitled to
one (1) vote and each Outstanding ONS Preferred Share entitled to one (1) vote
for each whole share of ONS Common Stock issuable upon conversion of such
Outstanding ONS Preferred Share as of the applicable date; (ii) the Outstanding
Sub Common Share; and (iii) the Outstanding Newco Common Share.
(b) Governmental Approvals. All authorizations, consents, orders, or
approvals of, or declarations or filings with, or expiration of waiting periods
imposed by, any administrative agency or commission or other governmental
authority or instrumentality, domestic or foreign (a "Governmental Entity"),
necessary for the consummation of the transactions contemplated by this
Agreement, including, but not limited to, such requirements under applicable
state securities laws and the Securities Exchange Act of 1934, as amended, shall
have occurred or been filed or obtained, other than filings relating to the
Merger or affecting Newco's ownership of ONS or any of its subsidiaries or any
of their properties.
(c) Form S-4. The Registration Statement on Form S-4 covering the
registration of the Newco Common Stock, the Newco Series A Preferred Stock, and
the Newco Series B Preferred Stock shall have become effective under the
Securities Act of 1933, as amended, and shall not be the subject of any stop
order or proceedings seeking a stop order, and the Proxy Statement/ Prospectus
furnished to ONS stockholders regarding this Agreement, the Exchange Agreement,
and the transactions contemplated hereby and thereby shall not at the Effective
Time of the Merger be subject to any proceedings commenced or threatened by the
Securities and Exchange Commission.
(d) Legal Action. No temporary restraining order, preliminary or permanent
injunction, or other order issued by any court of competent jurisdiction or
other legal restraint or prohibition (an "Injunction") preventing the
consummation of the Merger shall be in effect, nor shall any proceeding brought
by any Governmental Entity seeking any of the foregoing be pending. In the event
an Injunction shall have been issued, each party agrees to use its reasonable
diligent efforts to have the Injunction lifted.
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(e) Statutes. No statute, rule, or regulation shall have been enacted by any
Governmental Entity that would make the consummation of the Merger illegal.
(f) Tax Opinion; ONS Board Determination. Ernst & Young shall have issued the
Tax Opinion and the ONS Board shall have made a determination that ONS
stockholders do not recognize gain or loss for United States federal income tax
purposes.
(g) Representations and Warranties. Each of the representations and
warranties made by each party herein shall remain true, complete, and accurate
at the Closing Date as if made on and as of the Closing Date.
(h) The Exchange. The Exchange shall have occurred or be occurring
concurrently with the Merger.
ARTICLE VI
TERMINATION, AMENDMENT AND WAIVER
6.1 Termination. This Agreement may be terminated at any time prior to the
Effective Time of the Merger, whether before or after approval or ratification,
as the case may be, by the stockholders of ONS, Sub, and Newco of this
Agreement, the Merger, the Exchange Agreement, the Exchange, or matters
presented in connection herewith or therewith:
(a) by mutual written consent of the parties; or
(b) by any party if any required approval of the stockholders of ONS, Sub, or
Newco shall not have been obtained by April 30, 1997.
When action is taken to terminate this Agreement pursuant to this Section, it
shall be sufficient for such action to be authorized by the Board of Directors
of the party taking such action and for such party then to notify in writing the
other parties of such action.
6.2 Event of Termination. In the event of termination of this Agreement as
provided in Section 6.1 hereof, this Agreement shall forthwith become void and
there shall be no liability or obligation on the part of any party or its
officers or directors to the other parties.
6.3 Expenses. All costs and expenses incurred in connection with this
Agreement and the transactions contemplated hereby shall be paid by the party
incurring such expense.
6.4 Amendment. This Agreement may be amended by the parties hereto, by action
taken by their respective Boards of Directors, at any time before or after
ratification or approval, as the case may be, by the stockholders of ONS, Sub,
or Newco of this Agreement, the Merger, the Exchange Agreement, the Exchange, or
matters presented in connection herewith or therewith, but after any such
stockholder approval, no amendment shall be made which under Section 251(d) of
the DGCL would require the approval (or further approval) of stockholders
without obtaining such further approval. This Agreement may not be amended
except by an instrument in writing signed on behalf of each of the parties
hereto.
ARTICLE VII
GENERAL PROVISIONS
7.1 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or mailed by
registered or certified mail (return receipt requested) to the parties at the
following addresses (or at such other address for a party as shall be specified
by like notice):
(a) If to Newco or Sub, to
Orion Newco Services, Inc.
2440 Research Boulevard
Suite 400
Rockville, Maryland 20850
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(b) If to ONS, to
Orion Network Systems, Inc.
2440 Research Boulevard
Suite 400
Rockville, Maryland 20850
7.2 Severability. If any term or other provision of this Agreement is
invalid, illegal, or incapable of being enforced by any rule of law or public
policy, all other terms, conditions, and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal, or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in an acceptable manner to the end
that the transactions contemplated hereby are fulfilled to the extent possible.
7.3 Entire Agreement. This Agreement, including the Exhibits attached hereto
(if any), constitutes the entire agreement among the parties regarding the
subject matter hereof, and supersedes all prior agreements and undertakings,
both written and oral, among the parties or any of them regarding such subject
matter.
7.4 Assignment. This Agreement shall not be assigned by operation of law or
otherwise.
7.5 Parties in Interest. This Agreement shall be binding upon and inure
solely to the benefit of each party hereto, and nothing in this Agreement,
except as otherwise expressly provided herein, is intended to or shall confer
upon any other person any right, benefit, or remedy of any nature whatsoever
under or by reason of this Agreement.
7.6 Counterparts. This Agreement may be executed in one or more counterparts,
all of which shall be considered one and the same Agreement, and shall become
effective when one or more counterparts have been signed by each of the parties
and delivered to the other parties, it being understood that all parties need
not sign the same counterpart.
7.7 Governing Law. This Agreement shall be governed in all respects,
including validity, interpretation, and effect, by the laws of the State of
Delaware (without reference to conflict of laws rules thereof).
7.8 Agreement. Upon and after the Effective Time of the Merger, an executed
counterpart of this Agreement shall be on file at an office of the Surviving
Corporation, located at 2440 Research Boulevard, Suite 400, Rockville, Maryland
20850, and a copy of this Agreement shall be furnished by the Surviving
Corporation, on request and without cost, to any stockholder of any Constituent
Corporation.
7.9 Certificates of Secretaries. The Certificates of the respective
Secretaries of the parties attached hereto are hereby incorporated by reference
and are to be deemed on and part of this Agreement.
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<PAGE>
IN WITNESS WHEREOF, Newco, Sub and ONS have caused this Agreement to be
executed, acknowledged, and delivered by their respective officers thereunto
duly authorized, all as of the date first written above.
ORION NEWCO SERVICES, INC.
By:
-------------------------------
Name:
------------------------------
Title:
-----------------------------
ORION MERGER COMPANY, INC.
By:
-------------------------------
Name:
------------------------------
Title:
-----------------------------
ORION NETWORK SYSTEMS, INC.
By:
-------------------------------
Name:
------------------------------
Title:
-----------------------------
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<PAGE>
CERTIFICATE OF THE SECRETARY OF
ORION MERGER COMPANY, INC., A DELAWARE CORPORATION
The undersigned, the Secretary of Orion Merger Company, Inc., a Delaware
corporation ("Sub"), does hereby certify that the foregoing Plan and Agreement
of Merger (the "Agreement") of Sub with and into Orion Network Systems, Inc., a
Delaware corporation ("ONS"), by and among Sub, ONS, and Orion Newco Services,
Inc., a Delaware corporation ("Newco"), after first having been duly adopted and
approved by the Board of Directors of Sub and executed and acknowledged by Sub
in accordance with Section 251 of the General Corporation Law of the State of
Delaware (the "DGCL"), has been duly approved and adopted by the sole
stockholder of Sub entitled to vote thereon in accordance with Section 251 of
the DGCL, as of January 8, 1997, by written consent in accordance with Section
228 of the DGCL.
This Certificate shall be attached to and deemed on and a part of the
Agreement.
IN WITNESS WHEREOF, the undersigned has executed this Certificate as of the
8th day of January, 1997.
/s/ Richard H. Shay
-----------------------------------
Richard H. Shay
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<PAGE>
CERTIFICATE OF THE SECRETARY OF
ORION NETWORK SYSTEMS, INC., A DELAWARE CORPORATION
The undersigned, the Secretary of Orion Network Systems, Inc., a Delaware
corporation ("ONS"), does hereby certify that the foregoing Plan and Agreement
of Merger (the "Agreement") of Orion Merger Company, Inc., a Delaware
corporation ("Sub"), with and into ONS, by and among Sub, ONS, and Orion Newco
Services, Inc., a Delaware corporation ("Newco"), has been duly adopted and
approved by the Board of Directors of ONS on January 8, 1997, pursuant to
subsection (g) of Section 251 of the General Corporation Law of the State of
Delaware (the "DGCL"), and that the conditions specified in the first sentence
of said subsection (g) of Section 251 of the DGCL have been satisfied.
This Certificate shall be attached to and deemed on and a part of the
Agreement.
IN WITNESS WHEREOF, the undersigned has executed this Certificate as of the
8th day of January, 1997.
/s/ Richard H. Shay
-----------------------------------
Richard H. Shay
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<PAGE>
CERTIFICATE OF THE SECRETARY OF
ORION NEWCO SERVICES, INC., A DELAWARE CORPORATION
The undersigned, the Secretary of Orion Newco Services, Inc., a Delaware
corporation ("Newco"), does hereby certify that the foregoing Plan and Agreement
of Merger (the "Agreement") of Orion Merger Company, Inc., a Delaware
corporation ("Sub"), with and into Orion Network Systems, Inc., a Delaware
corporation ("ONS"), by and among Sub, ONS, and Newco, after first having been
duly adopted and approved by the Board of Directors of Newco and executed and
acknowledged by Newco, has been duly approved and adopted by the sole
stockholder of Newco entitled to vote thereon, as of January 8, 1997.
This Certificate shall be attached to and deemed on and a part of the
Agreement. IN WITNESS WHEREOF, the undersigned has executed this Certificate as
of the 8th day of January, 1997.
/s/ Richard H. Shay
-----------------------------------
Richard H. Shay
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<PAGE>
ATTACHMENT B
SECTION 351 EXCHANGE AGREEMENT AND PLAN OF CONVERSION
AMONG
INTERNATIONAL PRIVATE SATELLITE PARTNERS, L.P.
ORION NETWORK SYSTEMS, INC.,
ORION SATELLITE CORPORATION,
BRITISH AEROSPACE COMMUNICATIONS, INC.
COM DEV SATELLITE COMMUNICATIONS LIMITED
KINGSTON COMMUNICATIONS INTERNATIONAL LIMITED
LOCKHEED MARTIN COMMERCIAL LAUNCH SERVICES, INC.
MCN SAT US, INC.
AND
TRANS-ATLANTIC SATELLITE, INC.
DATED AS OF
JUNE, 1996
<PAGE>
SECTION 351 EXCHANGE AGREEMENT AND PLAN OF CONVERSION
THIS SECTION 351 EXCHANGE AGREEMENT AND PLAN OF CONVERSION (this "Agreement")
is entered into as of June, 1996, between and among International Private
Satellite Partners, L.P., a Delaware limited partnership ("Orion Atlantic");
Orion Network Systems, Inc., a Delaware corporation ("ONS"); Orion Satellite
Corporation, a Delaware corporation ("OrionSat"); and each of the following
entities that executes and delivers a signature page hereto on or before July
12, 1996: British Aerospace Communications, Inc., a Delaware corporation
("BAe"), COM DEV Satellite Communications Limited, a Canadian corporation ("COM
DEV"), Kingston Communications International Limited, a company incorporated
under the laws of England ("Kingston"), Lockheed Martin Commercial Launch
Services, Inc., a Delaware corporation ("Lockheed Martin"), MCN Sat US, Inc., a
Delaware corporation ("MCN Sat"), and Trans Atlantic Satellite, Inc., a Delaware
corporation ("TA Sat") (collectively, the "Exchanging Partners").
WHEREAS, ONS and the Exchanging Partners (collectively, the "Limited
Partners") collectively own limited partnership interests in Orion Atlantic;
WHEREAS, OrionSat is the sole general partner of Orion Atlantic;
WHEREAS, ONS and the Exchanging Partners desire to (i) form a new Delaware
corporation to be named Orion Newco Services, Inc. ("Newco") substantially
identical in all material respects (including with respect to certificate of
incorporation, bylaws, capital structure, and similar matters) to ONS in the
Newco Formation (as defined below); (ii) have a newly created subsidiary of
Newco merge into ONS in a transaction in which all capital stock of ONS is
exchanged for equivalent capital stock (common or preferred, as applicable, with
the same relative rights and preferences) of Newco, and in which ONS becomes a
wholly owned subsidiary of Newco in the Merger (as defined below); and (iii)
have the Exchanging Partners transfer their limited partnership interests in
Orion Atlantic to Newco in exchange for shares of a newly created class of
Series C 6% Cumulative Convertible Redeemable Preferred Stock of Newco (the
"Newco Preferred Stock") on the terms and conditions set forth herein in the
Exchange (as defined below), all pursuant to Section 351 of the Internal Revenue
Code of 1986, as amended (the "Code"); and
WHEREAS, in connection with the transactions described in the prior
paragraph, the Credit Facility Refinancing, Bond Offering, Bank Agreement
Termination, Capacity Agreement Termination and Convertible Subordinated
Debenture Offering (as defined below) will be pursued. The transactions
contemplated by this Agreement are believed to be necessary to accomplish the
Credit Facility Refinancing, Bond Offering, Bank Agreement Termination, Capacity
Agreement Termination and Convertible Subordinated Debenture Offering, and all
parties hereto, including the Exchanging Partners, which will be the
stockholders of Newco immediately after completion of the Exchange, believe that
they will benefit substantially from the Credit Facility Refinancing, Bond
Offering, Bank Agreement Termination, Capacity Agreement Termination and
Convertible Subordinated Debenture Offering.
NOW, THEREFORE, in consideration of the foregoing and of the mutual covenants
and agreements hereinafter set forth, the parties hereto hereby agree as
follows:
1. DEFINITIONS
For all purposes of this Agreement, certain capitalized terms specified in
Exhibit A shall have the meanings set forth in that Exhibit A, except as
otherwise expressly provided.
2. NEWCO FORMATION
2.1 FORMATION OF NEW CORPORATION
The parties hereto shall form a new Delaware corporation to be named Orion
Newco Services, Inc. which is substantially identical in all material respects
to ONS (the "Newco Formation"). In particular, Newco shall have a certificate of
incorporation and bylaws substantially identical in all material respects to
those of ONS (modified to reflect the different name and Newco being a newly
formed corporation).
B-2
<PAGE>
Pursuant to the certificate of incorporation of Newco, the board of directors of
Newco shall duly adopt, authorize, execute and file Certificates of
Designations, Rights and Preferences of Series A 8% Cumulative Redeemable
Convertible Preferred Stock of Newco substantially identical in all material
respects to the ONS Series A Preferred Stock (as defined below) and of Series B
8% Cumulative Redeemable Convertible Preferred Stock of Newco substantially
identical in all material respects to the ONS Series B Preferred Stock (as
defined below).
2.2 INITIAL OWNERSHIP OF NEWCO
ONS shall be the initial stockholder of Newco, and shall own one share of
Newco common stock.
2.3 REPLICATION OF ONS MANAGEMENT
ONS shall take the steps necessary to make the management of Newco
identical to the management of ONS, including with respect to directors and
officers.
2.4 NEWCO FORMATION DOCUMENTS
ONS shall cause all necessary documents (the "Newco Formation Documents") to
effect the Newco Formation and other matters referred to in Sections 2.1, 2.2
and 2.3 to be prepared and circulated to the Exchanging Partners for review and
comment. The Exchanging Partners agree to submit any comments on the Newco
Formation Documents, consistent with the requirement that Newco be substantially
identical in all material respects to ONS, within 10 Business Days after all
Exchanging Partners have received the initial drafts of such documents and
within five Business Days after receipt of subsequent drafts. ONS shall cause
final drafts of the Newco Formation Documents to be prepared, consistent with
the requirement that Newco be substantially identical in all material respects
to ONS, and circulated to the Exchanging Partners. The Exchanging Partners shall
have a period of five Business Days after all Exchanging Partners have received
such final drafts to raise any objections to the contents of such documents,
consistent with the requirement that Newco be substantially identical in all
material respects to ONS, and the parties shall negotiate in good faith to
resolve any such objections. The resolution of any such objections shall be
reflected in the Newco Formation Documents, and such documents shall be
finalized and implemented. ONS shall cause the Newco Formation Documents, as
finalized and implemented, to be circulated to the Exchanging Partners. If the
finalized Newco Formation Documents are not consistent with the requirement that
Newco be substantially identical in all material respects to ONS and any
discrepancies are not reasonably acceptable to the Exchanging Partners, each of
the Exchanging Partners shall have the right to terminate this Agreement
pursuant to the final paragraph of Section 13.1. If all of the Exchanging
Partners shall not have terminated this Agreement pursuant to the final
paragraph of Section 13.1 within a period of five Business Days after all
Exchanging partners have received such finalized and implemented Newco Formation
Documents, the "Newco Finalization Date" shall be deemed to have occurred on the
last day of such period.
3. EXCHANGE OF INTERESTS
3.1 NEWCO PREFERRED STOCK
Newco shall duly adopt, authorize, execute and file the Certificate of
Designations, Rights and Preferences of Series C 6% Cumulative Redeemable
Convertible Preferred Stock establishing the terms and relative rights and
preferences of such series of Newco Preferred Stock in the form set forth as
Exhibit B to this Agreement (the "Certificate of Designations") and authorize
the issuance and sale to the Exchanging Partners of the aggregate number of
shares of Newco Preferred Stock to be issued to the Exchanging Partners
hereunder (and Newco shall authorize the issuance and sale of such additional
shares of Newco Preferred Stock in an amount equal to the aggregate of the
Adjustment Amounts referred to in Section 3.2(c) hereof). The Certificate of
Designations shall be in full force and effect under the laws of the State of
Delaware as of the Closing Date.
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<PAGE>
3.2 TERMS OF EXCHANGE
On the basis of the representations, warranties and agreements contained
herein, and subject to the terms and conditions hereof, each of the Exchanging
Partners hereby agrees to transfer to Newco at the Closing all of its limited
partnership interests in Orion Atlantic (individually, an "LP Interest" and
collectively the "LP Interests") and other rights relating thereto as specified
below ("Other LP Rights") in exchange for shares of Newco Preferred Stock
(collectively, the "Exchange"), as follows:
(a) Transfers by the Exchanging Partners to Newco.
(i) If BAe is an Exchanging Partner, BAe agrees to transfer to Newco at the
Closing its 25.00% LP Interest; all of its rights and obligations under the
Partnership Agreement, including all of its rights to receive distributions and
allocations thereunder, and all other rights it may have as a limited partner of
Orion Atlantic under applicable law; all of its rights and obligations under the
Refund Agreement, including all of its rights to receive refunds thereunder; all
of its rights and obligations under the Consent and Agreement, including all of
its rights to transfer LP Interests thereunder; all of its rights and
obligations under the Preferred Bidders Agreement; all of its rights under the
Option Agreement; all of its rights under the Subscription Agreement; and all of
its rights and obligations under the Agreement of Principles (collectively, the
"BAe Exchange Assets").
(ii) If COM DEV is an Exchanging Partner, COM DEV agrees to transfer to Newco
at the Closing its 4.17% LP Interest; all of its rights and obligations under
the Partnership Agreement, including all of its rights to receive distributions
and allocations thereunder, and all other rights it may have as a limited
partner of Orion Atlantic under applicable law; all of its rights and
obligations under the Refund Agreement, including all of its rights to receive
refunds thereunder; all of its rights and obligations under the PPU Agreement,
including all of its rights to receive repayment of amounts advanced thereunder
and interest accrued on such advances; all of its rights and obligations under
the Preferred Bidders Agreement; all of its rights under the Option Agreement;
all of its rights under the Subscription Agreement; and all of its rights and
obligations under the Agreement of Principles (collectively, the "COM DEV
Exchange Assets").
(iii) If Kingston is an Exchanging Partner, Kingston agrees to transfer to
Newco at the Closing its 4.17% LP Interest; all of its rights and obligations
under the Partnership Agreement, including all of its rights to receive
distributions and allocations thereunder, and all other rights it may have as a
limited partner of Orion Atlantic under applicable law; all of its rights and
obligations under the PPU Agreement, including all of its rights to receive
repayment of amounts advanced thereunder and interest accrued on such advances,
other than interest paid to Kingston under Section 3.2(d); all of its rights and
obligations under the Preferred Bidders Agreement; all of its rights under the
Option Agreement; all of its rights under the Subscription Agreement; and all of
its rights and obligations under the Agreement of Principles (collectively, the
"Kingston Exchange Assets"). The Kingston Sales Representative Agreements shall
remain in full force without any modifications being effected by this Agreement,
and Orion Atlantic, OrionSat and Kingston agree that even after the Closing and
the transfer of the Kingston LP Interest to Newco, Kingston shall continue to be
treated as if it were a limited partner of Orion Atlantic for purposes of
payment of the Override Commissions under the Kingston Sales Representative
Agreements only.
(iv) If Lockheed Martin is an Exchanging Partner, Lockheed Martin agrees to
transfer to Newco at the Closing its 8.33% LP Interest; all of its rights and
obligations under the Partnership Agreement, including all of its rights to
receive distributions and allocations thereunder, and all other rights it may
have as a limited partner of Orion Atlantic under applicable law; all of its
rights and obligations under the Refund Agreement, including all of its rights
to receive refunds thereunder; all of its rights and obligations under the PPU
Agreement, including all of its rights to receive repayment of amounts advanced
thereunder and interest accrued on such advances; all of its rights and
obligations under the Preferred Bidders Agreement; all of its
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rights under the Option Agreement; all of its rights under the Subscription
Agreement; and all of its rights and obligations under the Agreement of
Principles (collectively, the "Lockheed Martin Exchange Assets").
(v) If MCN Sat is an Exchanging Partner, MCN Sat agrees to transfer (or cause
to be transferred) to Newco at the Closing its 8.33% LP Interest; all of its
rights and obligations under the Partnership Agreement, including all of its
rights to receive distributions and allocations thereunder, and all other rights
it may have as a limited partner of Orion Atlantic under applicable law; all of
the rights and obligations of its Affiliate, MCN Sat Service S.A., under the
Refund Agreement, including all of such Affiliate's rights to receive refunds
thereunder; all of its rights and obligations under the PPU Agreement, including
all of its rights to receive repayment of amounts advanced thereunder and
interest accrued on such advances; all of its rights and obligations under the
Preferred Bidders Agreement; all of its rights under the Option Agreement; all
of its rights under the Subscription Agreement; and all of its rights and
obligations under the Agreement of Principles (collectively, the "MCN Sat
Exchange Assets"). (All references herein to rights or obligations of MCN Sat
shall include those which may still be retained by MMB, the transferor of MCN
Sat's LP Interest.) The MCN Sat Sales Representative Agreements shall remain
in full force without any modifications being effected by this Agreement, and
Orion Atlantic, OrionSat and MCN Sat agree that even after the Closing and the
transfer of the MCN Sat LP Interest to Newco, MCN Sat shall continue to be
treated as if it were a limited partner of Orion Atlantic for purposes of
payment of the Override Commissions under the MCN Sat Sales Representative
Agreements only.
(vi) If TA Sat is an Exchanging Partner, TA Sat shall transfer to Newco at
the Closing its 8.33% LP Interest; all of its rights and obligations under the
Partnership Agreement, including all of its rights to receive distributions and
allocations thereunder, and all other rights it may have as a limited partner of
Orion Atlantic under applicable law; all of its rights and obligations under the
Refund Agreement, including all of its rights to receive refunds thereunder; all
of its rights and obligations under the Preferred Bidders Agreement; all of its
rights under the Option Agreement; all of its rights under the Subscription
Agreement; and all of its rights and obligations under the Agreement of
Principles (collectively, the "TA Sat Exchange Assets").
(b) Transfers by Newco to the Exchanging Partners.
(i) If BAe is an Exchanging Partner, Newco shall transfer to BAe at the
Closing, in exchange for the BAe Exchange Assets, 43,953 shares of Newco
Preferred Stock, plus its respective Adjustment Amount, calculated as set forth
in SECTION 3.2(c).
(ii) If COM DEV is an Exchanging Partner, Newco shall transfer to COM DEV at
the Closing, in exchange for the COM DEV Exchange Assets, 8,302 shares of Newco
Preferred Stock, plus its respective Adjustment Amount, calculated as set forth
in SECTION 3.2(c).
(iii) If Kingston is an Exchanging Partner, Newco shall transfer to Kingston
at the Closing, in exchange for the Kingston Exchange Assets, 10,222 shares of
Newco Preferred Stock, plus its respective Adjustment Amount, calculated as set
forth in SECTION 3.2(c) and PPU Interest Shares calculated as set forth in
SECTION 3.2(d).
(iv) If Lockheed Martin is an Exchanging Partner, Newco shall transfer to
Lockheed Martin at the Closing, in exchange for the Lockheed Martin Exchange
Assets, 17,143 shares of Newco Preferred Stock, plus its respective Adjustment
Amount, calculated as set forth in SECTION 3.2(c).
(v) If MCN Sat is an Exchanging Partner, Newco shall transfer to MCN Sat at
the Closing, in exchange for the MCN Sat Exchange Assets, 15,746 shares of Newco
Preferred Stock, plus its respective Adjustment Amount, calculated as set forth
in SECTION 3.2(c).
(vi) If TA Sat is an Exchanging Partner, Newco shall transfer to TA Sat at
the Closing, in exchange for the TA Sat Exchange Assets, 12,426 shares of Newco
Preferred Stock, plus its respective Adjustment Amount, calculated as set forth
in SECTION 3.2(c).
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The number of shares of Newco Preferred Stock specified in this SECTION
3.2(b), in SECTIONS 3.2(c) and 3.2(d) shall be adjusted proportionately to
reflect any subdivision, stock split, stock dividend, recapitalization,
combination or reverse stock split of ONS capital stock or similar transaction
by ONS between the date hereof and the Closing Date.
(c) Adjustment Amounts.
The numbers of shares of Newco Preferred Stock to be issued to the respective
Exchanging Partners as listed in SECTION 3.2(b) shall be increased by the
Adjustment Amount for such Exchanging Partner, calculated as set forth below.
The "Adjustment Amount" for an Exchanging Partner shall equal (i) the sum of (A)
the amounts paid by such Exchanging Partner for obligations (or an Affiliate of
such Exchanging Partner) pursuant to the Capacity Agreement (as defined below)
and which is subject to being refunded under the Refund Agreement, and by such
Exchanging Partner pursuant to the Contingent Capacity Agreement (as defined
below), in each case to which such Exchanging Partner (or an Affiliate of such
Exchanging Partner) is a party, during the period from July 1, 1996 through the
Closing Date (the "Adjustment Period"), plus (B) the amount of interest accrued
with respect to funds advanced by such Exchanging Partner (or an Affiliate of
such Exchanging Partner) other than Kingston (or an Affiliate of Kingston)
pursuant to the PPU Agreement during the Adjustment Period, minus (ii) the
product of the number of days in the Adjustment Period multiplied by the Tax
Adjustment Factor for such Exchanging Partner, divided by (iii) $1,000. To the
extent that amounts are due or payable from an Exchanging Partner or Affiliate
under its Capacity Agreement or Contingent Capacity Agreement during the
Adjustment Period, but are not actually paid prior to the Closing Date, such
amounts shall not be included in clause (i)(A) of this paragraph. Similarly, to
the extent that amounts are paid by an Exchanging Partner or Affiliate under its
Capacity Agreement or Contingent Capacity Agreement during the Adjustment Period
for obligations of such Exchanging Partner arising after the Closing, such
amount shall be refunded to the Exchanging Partner at the Closing. Nothing in
this paragraph shall affect the obligations of any Exchanging Partner to make
any payment under its Capacity Agreement or Contingent Capacity Agreement during
the Adjustment Period or otherwise, or affect the amount of interest accruing
under the PPU Agreement.
(d) Kingston Investment in PPU Interest Shares.
Notwithstanding the exchange of Kingston Exchange Assets pursuant to SECTIONS
3.2(a)(iii) and 3.2(b)(iii), at the Closing Orion Atlantic shall pay to Kingston
in cash the total interest accrued until Closing with respect to funds advanced
by Kingston pursuant to the PPU Agreement (the "Total Accrued PPU Interest").
Kingston shall at the Closing invest an amount equal to the Total Accrued PPU
Interest in shares of Newco Preferred Stock (the "PPU Interest Shares"). Since
the amount to be paid to Kingston under this paragraph is the same as the amount
to be invested by Kingston, Orion Atlantic shall pay the Total Accrued PPU
Interest directly to Newco at the Closing. The total number of shares of Newco
Preferred Stock to be issued to Kingston for its investment under this paragraph
shall equal (i) the Total Accrued PPU Interest, minus (ii) the product of the
number of days in the Adjustment Period multiplied by the Tax Adjustment Factor
for such Exchanging Partner (to the extent Tax Adjustment Factor was not fully
applied in (c) above), divided by (iii) $1,000.
3.3 ALLOCATION OF NEWCO PREFERRED STOCK
The Newco Preferred Stock to be issued to each Exchanging Partner at the
Closing shall be allocated among such Exchanging Partner's Exchange Assets as
follows: first, to the rights under the PPU Agreement, including rights to
receive repayment of amounts advanced thereunder and interest accrued on such
advances, and the rights under the Refund Agreement, including rights to receive
refunds thereunder, until such Exchanging Partner has received Newco Preferred
Stock with a fair market value equal to such rights; and second, to such
Exchanging Partner's LP Interest and other Exchange Assets.
4. MERGER
4.1 FORMATION OF SUBSIDIARY OF NEWCO
Newco shall form a new Delaware corporation to be named Orion Merger Company,
Inc. ("Merger Sub"), and Newco shall be the sole stockholder of Merger Sub.
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4.2 TERMS OF MERGER
On the basis of the representations, warranties and agreements contained in a
merger agreement, and subject to the terms and conditions hereof, at the Closing
Merger Sub shall be merged into ONS pursuant to the Delaware General Corporation
Law in a merger in which ONS shall be the surviving company and all of the
assets, rights, property, liabilities and obligations of Merger Sub and ONS
shall be vested in ONS as the surviving company (the "Merger"). Pursuant to the
Merger, holders of all of the capital stock of ONS shall receive, as
consideration for their capital stock of ONS, an identical number of shares of
substantially identical capital stock (common or preferred, as applicable, with
the same relative rights and preferences) of Newco.
4.3 TRANSFER OF CERTAIN CONTRACTS
In connection with the Merger, all contracts and agreements relating to
capital stock of ONS in effect at the Closing shall be replaced with contracts
and agreements substantially equivalent in all material respects relating to the
capital stock of Newco, including without limitation, all options, warrants and
other rights to purchase capital stock and all contracts relating to
registration rights, voting of shares, transfer of shares and similar matters.
4.4 MERGER DOCUMENTS
ONS shall cause all necessary documents (the "Merger Documents") to effect
the Merger and other matters referred to in Section 4 to be prepared and
circulated to the Exchanging Partners for review and comment. The Exchanging
Partners agree to submit any comments on the Merger Documents within 10 Business
Days after receipt of the initial drafts of such documents and within five
Business Days after receipt of subsequent drafts. ONS shall cause final drafts
of the Merger Documents to be prepared and circulated to the Exchanging
Partners. The Exchanging Partners shall have a period of five Business Days
after receipt of such final drafts to raise any objections to the contents of
such documents, and the parties shall negotiate in good faith to resolve any
such objections. The resolution of any such objections shall be reflected in the
Merger Documents, and such documents shall be put in final form for execution at
the Closing.
5. ADDITIONAL UNDERTAKINGS AND COVENANTS
ONS and OrionSat, jointly and severally on the one hand, and the Exchanging
Partners, severally and not jointly on the other hand, hereby covenant and agree
with each other as follows:
5.1 CONSENTS AND APPROVALS
ONS and OrionSat shall take all measures reasonably necessary or advisable to
secure such consents, authorizations and approvals of governmental authorities
and of private persons or entities with respect to the transactions contemplated
by this Agreement, and to the performance of all other obligations of such
parties hereunder, as may be required by any applicable statute or regulation of
the United States or any country, state or other jurisdiction or by any
agreement of any kind whatsoever to which any of them is a party or by which any
of them is bound and which are set forth on Schedule 7.3. Notwithstanding
SECTIONS 6.4 and 7.3, subsequent to the execution of this Agreement and prior to
the Closing Date, ONS, OrionSat and the Exchanging Partners shall take all
measures reasonably necessary or advisable to secure such consents,
authorizations and approvals of governmental authorities and of private persons
or entities with respect to the transactions contemplated by this Agreement, and
to the performance of all other obligations of such parties hereunder, as may be
required by any applicable statute or regulation of the United States or any
country, state or other jurisdiction or by any agreement of any kind whatsoever
to which any of them is a party or by which any of them is bound. ONS, OrionSat
and the Exchanging Partners shall (a) cooperate in the filing of all forms,
notifications, reports and information, if any, required or reasonably deemed
advisable pursuant to applicable statutes, rules, regulations or orders of any
governmental or supragovernmental authority in connection with the transactions
contemplated by this Agreement and (b) use their respective good faith efforts
to cause any
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applicable waiting periods thereunder to expire and any objections to the
transactions contemplated hereby to be withdrawn before the Closing.
5.2 APPROVAL BY STOCKHOLDERS OF ONS
In addition to the consents and approvals referred to in Section 5.1 above,
ONS shall take all measures reasonably necessary or advisable to secure all
required consents of the stockholders of ONS (including the consent of holders
of ONS' preferred stock) to the Merger, the Exchange and any related
transactions requiring stockholder consent (collectively, with any required
consent of ONS' preferred stockholders, the "ONS Stockholder Consent"). The
parties acknowledge that in order to obtain the ONS Stockholder Consent, ONS
will need to file a merger proxy statement with the United States Securities and
Exchange Commission ("SEC"), revise the merger proxy statement in response to
comments from the SEC, obtain approval of the SEC of the final version of the
merger proxy statement before it is mailed to ONS stockholders, call a meeting
of stockholders of ONS for approximately 30 days after such merger proxy
statement is mailed to ONS stockholders and obtain the requisite stockholder
vote at the meeting (such merger proxy statement, including all amendments
thereto is referred to herein as the "Merger Proxy Statement"). The Exchanging
Partners shall cooperate with ONS in preparing and filing the Merger Proxy
Statement with the SEC and in obtaining SEC clearance of the Merger Proxy
Statement, including supplying information on each Exchanging Partner which is
reasonably necessary or advisable for ONS to include in the Merger Proxy
Statement or to be provided to any government agency or authority pursuant to
applicable statutes, rules, regulations or orders of any governmental or
supragovernmental authority in connection with the Merger and other transactions
contemplated by this Agreement; provided, however, that none of the Exchanging
Partners shall be required to supply any confidential or proprietary
information. ONS shall use its good faith efforts to cause the ONS Stockholder
Consent to be obtained expeditiously and any objections of ONS Stockholders to
the Merger and other transactions contemplated hereby to be withdrawn before the
Closing.
5.3 REFINANCING OF CREDIT FACILITY; CANCELLATION OF CAPACITY AGREEMENTS
It is presently contemplated that Newco, Orion Atlantic, ONS and OrionSat
will, as of the Closing Date, complete a refinancing (the "Credit Facility
Refinancing") of the indebtedness of Orion Atlantic outstanding under the Credit
Agreement (the "Credit Facility") dated December 6, 1991 among Orion Atlantic,
the Banks named therein (the "Lenders") and The Chase Manhattan Bank (National
Association), as Agent ("Chase") using proceeds of an underwritten offering of
notes or debentures of Newco to the public (a "Bond Offering"). The Credit
Facility Refinancing is to effect the Capacity Agreement Termination and release
of the Capacity Guarantees, as discussed (and defined) below in this SECTION
5.3. ONS shall use its good faith efforts to cause Newco to complete a Bond
Offering on reasonable commercial terms. Notwithstanding the foregoing, the
parties acknowledge and agree that the terms of a Bond Offering are likely to be
determined in large part by the requirements of prospective investors in that
Bond Offering, and that Newco and ONS reserve the right not to proceed with a
Bond Offering if they determine that such Bond Offering would not be in the best
interest of the stockholders of Newco or the stockholders of ONS (who would
become stockholders of Newco in the Merger) generally, including the entities
who would be becoming stockholders of Newco pursuant to the Exchange). ONS
agrees to inform the Exchanging Partners periodically and in a timely fashion of
the progress of the Bond Offering, including the terms being proposed by the
underwriters thereof, and the Exchanging Partners may advise ONS of their views
regarding the terms of the Bond Offering. Newco is to use the proceeds of the
Bond Offering first for the Credit Facility Refinancing (including costs of such
transaction and the costs of terminating the interest rate protection agreements
entered into in connection with the Credit Facility), and if any proceeds
remain, then for financing of a second satellite with coverage of the Atlantic
Ocean region and Europe ("Orion 2") or for working capital.
In connection with the Credit Facility Refinancing, Newco, Orion Atlantic,
ONS, OrionSat and the Exchanging Partners shall take all measures reasonably
necessary or advisable to cause the termination (the "Bank Agreement
Termination"), concurrently with the completion of the Credit Facility
Refinancing, of all agreements between or among the Lenders and Chase, on the
one hand, and one or more of Newco, Orion Atlantic, OrionSat, ONS and the
Exchanging Partners and/or their affiliates on the other
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hand, relating to the Credit Facility or the security or credit support thereof,
including without limitation, in the case of each Exchanging Partner and/or
their affiliates, a Consent and Agreement, an Assignment and Security Agreement
and a Guarantee Agreement (the "Credit Facility Documents"). However, the
previous sentence will not oblige the Exchanging Partners to incur any liability
in connection with the Bank Agreement Termination.
In connection with the Credit Facility Refinancing and the Bank Agreement
Termination, Newco, Orion Atlantic, ONS, OrionSat and the Exchanging Partners
shall take all measures reasonably necessary or advisable to cause the
termination (the "Capacity Agreement Termination"), concurrently with the
completion of the Credit Facility Refinancing and the Bank Agreement
Termination, of all obligations under the Communications Satellite Capacity
Agreements and the Contingent Communications Satellite Capacity Agreements
between Orion Atlantic and each of the Exchanging Partners and/or their
affiliates (the "Capacity Agreements" and the "Contingent Capacity Agreements,"
respectively) arising from and after the Capacity Agreement Termination, and all
guarantees or other credit support of such obligations ("Capacity Guarantees");
provided, however, that (i) the Capacity Agreements of Kingston and MCN Sat
Service S.A. (but not the associated Capacity Guarantees) shall remain in full
force and effect, (ii) the Kingston Capacity Agreement shall be deemed amended,
effective as of the Closing (and Kingston and Orion Atlantic shall execute and
deliver such written documents evidencing such amendment as either may
reasonably request), to reduce to 17 MHz the amount of capacity subject to the
Kingston Capacity Agreement (of which 8 MHz shall be the capacity presently used
by Kingston under the Kingston Capacity Agreement and of which 9 MHz shall be
the capacity presently used by Kingston under one of the BAe Capacity
Agreements), with an option (subject to availability) to increase the amount of
capacity subject to the Kingston Capacity Agreement for use by Kingston in
providing its network service products, but not for resale, up to a maximum of
27 MHz at the same rate and on the same terms and conditions as set forth in the
Kingston Capacity Agreement, but (to the extent easily effected technically)
without any obligation to take such capacity in 9 MHz units or any other
pre-determined denomination, and (iii) the MCN Sat Service S.A. Capacity
Agreement shall be deemed amended, effective as of the Closing (and MCN Sat
Service S.A. and Orion Atlantic shall execute and deliver such written documents
evidencing such amendment as either may reasonably request), to reduce to 18 MHz
the amount of capacity subject thereto.
5.4 AMENDMENT AND RESTATEMENT OF PARTNERSHIP AGREEMENT
The Partnership Agreement shall be amended and restated as of the Closing
Date to read in its entirety as set forth in Exhibit C (the "Third Amended and
Restated Partnership Agreement"), and each of ONS, OrionSat and the Exchanging
Partners agree to execute, and deliver at the Closing, counterparts to the Third
Amended and Restated Partnership Agreement.
5.5 REGISTRATION RIGHTS
Concurrently with the Closing, Newco and each of the Exchanging Partners
shall execute and deliver a Registration Rights Agreement in the form set forth
as Exhibit D (the "Registrations Rights Agreement").
5.6 ACCESS; INVESTIGATIONS BY THE EXCHANGING PARTNERS
ONS shall, through the Closing Date, provide to representatives of the
Exchanging Partners reasonable access to the offices, books, agreements and
records of ONS and its Subsidiaries and Newco, and furnish to representatives of
the Exchanging Partners such financial and operational data and other
information with respect to the business and assets of ONS and its Subsidiaries
and Newco as the Exchanging Partners may reasonably request. The Exchanging
Partners agree at all times through the Closing Date to use reasonable efforts,
at least as stringent as those employed by them with respect to their own
confidential information, (a) to keep confidential all such information that is
identified as being of a confidential nature, (b) not to use such confidential
information on their own behalf, except in connection with the transactions
contemplated hereby, or on behalf of any other person, firm or entity, and (c)
not to disclose such confidential information to any third party (other than to
the Exchanging
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Partners' various counsel, accountants and other consultants in connection
with the transactions contemplated hereby) without ONS' advance written
authorization; provided, however, that the Exchanging Partners shall have no
such obligations with respect to confidential information that (i) was lawfully
obtained by them not subject to restrictions of confidentiality; (ii) is a
matter of public knowledge; or (iii) has been or is hereafter publicly disclosed
other than by or through the Exchanging Partners. In the event this Agreement is
terminated, the Exchanging Partners will return to ONS all documents and other
materials furnished to any one or more of the Exchanging Partners relating to
the transactions contemplated hereunder, whether obtained before or after the
execution of this Agreement. In the event of a breach or threatened breach by
the Exchanging Partners of the provisions of this SECTION 5.6 ONS shall be
entitled to an injunction restraining such Exchanging Partners from disclosing,
in whole or in part, such information. The Exchanging Partners investigation of
the financial and operating data, assets, real property and other information
with respect to the business and assets of ONS and its Subsidiaries and Newco
shall in no way affect the obligations of ONS with respect to the agreements,
representations, warranties, covenants and indemnification provisions set forth
in this Agreement.
5.7 WAIVER OF RIGHT OF FIRST REFUSAL UNDER THE PARTNERSHIP AGREEMENT
Pursuant to Section 13.09(b) of the Partnership Agreement, ONS, OrionSat and
each of the Exchanging Partners hereby amend the Partnership Agreement, as of
the date hereof, to the extent necessary to cause Section 10.04 thereof, which
section contains the partners' right of first refusal with respect to the sale
of limited partnership interests of Orion Atlantic, not to apply to the Exchange
or any of the transactions referred to in this Agreement, and hereby waives any
rights it may have under Section 10.04 of the Partnership Agreement, with
respect to the Exchange or any of the transactions referred to in this
Agreement.
5.8 CONVERTIBLE SUBORDINATED DEBENTURES
It is presently contemplated that Newco will, as of the Closing Date,
complete an offering (the "Convertible Subordinated Debenture Offering") of
approximately $100 million of convertible subordinated debentures of Newco
("Convertible Subordinated Debentures"). ONS shall use its good faith efforts to
cause Newco to complete the Convertible Subordinated Debenture Offering.
Notwithstanding the foregoing, the parties acknowledge and agree that the terms
of a Convertible Subordinated Debenture Offering are likely to be determined in
large part by the requirements of prospective investors in Convertible
Subordinated Debenture Offering, and that Newco and ONS reserve the right not to
proceed with a Convertible Subordinated Debenture Offering if they determine
that such Convertible Subordinated Debenture Offering would not be in the best
interest of the stockholders of Newco or the stockholders of ONS (who would
become stockholders of Newco in the Merger) generally, including the entities
who would be becoming stockholders of Newco pursuant to the Exchange). ONS
agrees to inform the Exchanging Partners periodically and in a timely fashion of
the progress of the Convertible Subordinated Debenture Offering, including the
terms being proposed by the underwriters or placement agents thereof, and the
Exchanging Partners may advise ONS of their views regarding the terms of the
Convertible Subordinated Debenture Offering. ONS intends for Newco to use
BAe's $50 million expected payment for Convertible Subordinated Debentures and
an additional $10 million of the proceeds of the offering for the financing of
Orion 2. While not intended to be legally binding, BAe hereby confirms that it
intends to purchase from Newco $50 million of Convertible Subordinated
Debentures on substantially the same terms as the remainder of the offering of
the Convertible Subordinated Debentures.
5.9 AGREEMENT REGARDING TRANSFER
Concurrent with the Closing, each Exchanging Partner will enter into an
agreement, in the form set forth as Exhibit E hereto, regarding the transfer of
the shares of Newco Common Stock issuable upon conversion of the Newco Preferred
Stock.
5.10 RELEASE OF CLAIMS
Concurrently with the Closing, each of the parties hereto agrees to release
and forever discharge each of the other parties hereto and each of their
Affiliates from and after the Closing, from and against any and all rights,
causes of action, claims, suits, obligations, liabilities, and demands
whatsoever (other
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than those arising from fraud or misrepresentation), in law or in equity,
whether presently known or unknown, to the fullest extent permitted by law by
reason of, related to, or arising out of any one or more of the agreements
referred to in Section 3.2 hereof (other than this Agreement).
5.11 LEGEND, REMOVAL
Each certificate or instrument representing Newco Preferred Stock (or Newco
Common Stock received upon the conversion thereof or as dividends thereon) shall
be imprinted with a legend to the effect that the securities have not been
registered under the Securities Act and may not be transferred or sold except
pursuant to an effective registration under the Securities Act and applicable
state securities laws or an available exemption from such registration. In
connection with the transfer of any Newco Preferred Stock (or Newco Common Stock
received upon the conversion thereof or as dividends thereon) other than
pursuant to an effective registration statement filed by ONS, the holder thereof
shall deliver written notice to Newco describing in reasonable detail the
transfer or proposed transfer, together with an opinion of counsel which (to
Newco's reasonable satisfaction) is knowledgeable in securities law matters to
the effect that such transfer of such securities may be effected without
registration of such securities under the Securities Act. Upon issuance of such
opinion (to the extent it relates to Newco Preferred Stock) or acceptance of
such opinion by Newco's transfer agent (to the extent it relates to Newco
Common Stock), Newco shall promptly upon such contemplated transfer deliver or
caused to be delivered new certificates for such securities which do not bear
the Securities Act legend referred to above in this paragraph. If any Newco
Preferred Stock (or Newco Common Stock received upon the conversion thereof or
as dividends thereon) becomes eligible for sale pursuant to Rule 144(k), Newco
shall, upon the request of the holder of such securities (together with the
opinion referred to above in this paragraph, which shall state that the
provisions of Rule 144(k) have been complied with), remove the legend referred
to above in this paragraph from the certificates for such securities.
5.12 TAX-FREE STATUS
No party hereto shall, nor shall any party hereto permit any of its
affiliates to, take any action, or omit to take any required action, that would,
or would be reasonably likely to, adversely affect the qualification of the
Merger and the Exchange, taken together, as a tax-free transaction described in
Code Section 351(a). Each party hereto shall, for all tax purposes, treat the
Merger and the Exchange, taken together, as a tax-free transaction described in
Code Section 351(a).
6. REPRESENTATIONS AND WARRANTIES OF EXCHANGING PARTNERS
Each of the Exchanging Partners hereby severally represents and warrants to
ONS as follows (provided that the representations and warranties in SECTION 6.8
are made solely by Lockheed Martin):
6.1 TITLE TO LP INTERESTS; OTHER LP RIGHTS
Such Exchanging Partner is, and on the Closing Date will be, the lawful owner
of the LP Interest of such Exchanging Partner, and such Exchanging Partner (or
such Exchanging Partner's Affiliate, as the case may be), is and on the
Closing Date will be, the lawful owner of such Exchanging Partner's (or
Affiliate's) Other LP Rights, as listed in SECTION 3.2. Except as set forth
below, such Exchanging Partner has, and on the Closing Date such Exchanging
Partner will have, good, valid and marketable title, free and clear of all
Encumbrances, to the LP Interest of such Exchanging Partner, and such Exchanging
Partner (or such Exchanging Partner's Affiliate, as the case may be), has, and
on the Closing Date will have, good, valid and marketable title, free and clear
of all Encumbrances, to such Exchanging Partner's (or Affiliate's) Other LP
Rights, as listed in SECTION 3.2, in each case with full right and lawful
authority to transfer the LP Interest and Other LP Rights to Newco pursuant to
this Agreement. Notwithstanding the foregoing, the parties acknowledge that the
LP Interests and certain of the Other LP Rights are pledged to the Lenders under
the Credit Facility Documentation, and that the LP Interests are pledged to
Orion Atlantic under the respective Contingent Capacity Agreements.
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6.2 ORGANIZATION AND STANDING; CAPACITY
Such Exchanging Partner is a corporation duly organized, validly existing and
in good standing under the laws of its respective jurisdiction, and has the full
corporate power and authority to carry on its business as currently conducted.
Each Exchanging Partner has full legal right, capacity, power and authority
(corporate or otherwise) to execute and deliver this Agreement and to consummate
the transactions contemplated hereby.
6.3 AUTHORIZATION
The execution, delivery and performance by the Exchanging Partner of this
Agreement and all other documents contemplated hereby, the fulfillment of and
the compliance with the respective terms and provisions hereof and thereof, and
the consummation of the transactions contemplated hereby and thereby have been
duly authorized by the Board of Directors of such Exchanging Partner (which
authorization has not been modified or rescinded and is in full force and
effect), and will not: (a) conflict with, or materially violate any provision
of, any law having applicability to such Exchanging Partner or any of its
Affiliates which is a party to any agreement with or relating to Orion Atlantic
or any term or provision of the articles of incorporation or organization, or
bylaws or operating agreement of such Exchanging Partner or any of such
Affiliates, as applicable; or (b) conflict with, or result in any material
breach of, or constitute a material default under, any agreement to which such
Exchanging Partner or any of such Affiliates is a party or by which such
Exchanging Partner or any of such Affiliates may be bound.
6.4 RESTRICTIONS AND CONSENTS
Except for certain approvals which may be required by the Japanese government
if TA Sat becomes an Exchanging Partner, there are no agreements, laws or other
restrictions of any kind to which such Exchanging Partner is party or subject
that would prevent or restrict the execution, delivery or performance of this
Agreement.
6.5 BINDING OBLIGATION
This Agreement constitutes a valid and binding obligation of such Exchanging
Partner, enforceable in accordance with its terms. Each document to be executed
by such Exchanging Partner pursuant hereto, when executed and delivered in
accordance with the provisions hereof, will be a valid and binding obligation of
such Exchanging Partner, enforceable in accordance with its terms.
6.6 TRANSFER OF TITLE
At the Closing, Newco will acquire good, valid and marketable title to such
Exchanging Partner's LP Interest and such Exchanging Partner's Other LP
Rights, free and clear of all Encumbrances, other than those imposed by the
terms of the Partnership Agreement and restrictions on resale contained in
federal and state securities laws.
6.7 ACCREDITED INVESTORS
Each Exchanging Partner and any Affiliate of such Exchanging Partner who will
be receiving Newco Preferred Stock is an "accredited investor" as such term is
defined in Rule 501 of the Securities Act.
6.8 NAME CHANGE OF LOCKHEED MARTIN
Lockheed Martin only hereby represents and warrants that it was formerly
named Martin Marietta Commercial Launch Services, Inc., that it is a limited
partner of Orion Atlantic and a party to the agreements referred to in Section
3.2(a)(iv) and that it has provided evidence of its name change to the other
parties hereto.
7. REPRESENTATIONS AND WARRANTIES OF ONS
ONS hereby represents and warrants to the Exchanging Partners as follows:
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7.1 ORGANIZATION AND STANDING
ONS is a corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware, and has the full corporate power and
authority to carry on its business as currently conducted. ONS has the full
legal right, capacity, power and authority (corporate or otherwise) to execute
and deliver this Agreement and the other documents called for herein and to
consummate the transactions contemplated hereby. ONS is qualified as a foreign
corporation in the State of Maryland, and in every other jurisdiction in which
the failure to so qualify would have a Material Adverse Effect.
7.2 AUTHORIZATION
The execution, delivery and performance by ONS of this Agreement and the
other documents contemplated hereby, the fulfillment of and the compliance with
the respective terms and provisions hereof and thereof, and the consummation of
the transactions contemplated hereby and thereby have been duly authorized by
the Board of Directors of ONS (which authorization has not been modified or
rescinded and is in full force and effect), and will not: (a) conflict with, or
materially violate any provision of, any law having applicability to ONS or any
of its Affiliates or any term or provision of the articles of incorporation or
organization, or bylaws or operating agreement of ONS, as applicable; or (b)
conflict with, or result in any material breach of, or constitute a material
default under, any agreement to which ONS or any of its Affiliates is a party or
by which ONS or any of its Affiliates may be bound.
7.3 RESTRICTIONS AND CONSENTS
Except for certain approvals which are set forth on Schedule 7.3, which ONS
will use its reasonable efforts to obtain prior to Closing, there are no
agreements, laws or other restrictions of any kind to which ONS is party or
subject that would prevent or restrict the execution, delivery or performance of
this Agreement. ONS has no reason to believe, as of the date hereof, that any of
the conclusions reached in the memorandum from ONS's communications counsel
previously circulated to the Exchanging Partners and attached hereto as Exhibit
K indicating that the Exchange will not constitute a change of control of ONS
that would require the consent of the U.S. Federal Communications Commission
("FCC"), or otherwise require the consent of that Commission, are incorrect in
any material respect and will promptly notify each Exchanging Partner if ONS
becomes aware of any reason why any such conclusions may become incorrect. If,
notwithstanding such memorandum, such FCC consent is required, ONS will use its
reasonable good faith efforts to obtain such consent prior to Closing.
7.4 BINDING OBLIGATION
This Agreement constitutes, and the Registration Rights Agreement when
executed will constitute, valid and binding obligations of ONS and Newco, as the
case may be, enforceable in accordance with its terms. Each document to be
executed by ONS or Newco pursuant hereto, when executed and delivered in
accordance with the provisions hereof, will be a valid and binding obligation of
ONS or Newco, enforceable in accordance with its terms.
7.5 ISSUANCE OF SHARES
Upon consummation of the transactions contemplated by this Agreement at
Closing, the Newco Preferred Stock will be duly and validly issued, fully paid
and nonassessable and no personal liability attaches to the ownership thereof,
and the Exchanging Partners will acquire the legal, valid and marketable title
to the Newco Preferred Stock, free and clear of all Encumbrances, except as set
forth in this Agreement.
7.6 CAPITALIZATION
As of the date hereof, the authorized capital stock of ONS consists of
40,000,000 shares of ONS Common Stock and 1,000,000 shares of preferred stock,
par value $.01 per share, of which 10,945,133 shares of ONS Common Stock, 13,961
shares of ONS Series A Preferred Stock and 4,211,001 shares of ONS Series B
Preferred Stock are duly authorized and validly issued and outstanding, fully
paid and
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nonassessable. ONS has no other class of stock authorized or outstanding.
Options and warrants to purchase 1,396,851 shares of ONS Common Stock are
outstanding on the date hereof, and when such options are exercised and the
prescribed exercise price paid, the shares of ONS Common Stock issued with
respect to such options will be duly authorized, validly issued, fully paid and
nonassessable. Options to purchase 350.666 shares of ONS preferred stock are
outstanding on the date hereof, the terms of which are to be substantially
identical to the ONS Series A Preferred Stock and the ONS Series B Preferred
Stock other than the conversion price. Except as set forth above, or in the
certificates of designations of the ONS Series A Preferred Stock and ONS Series
B Preferred Stock, as of the date hereof there are no existing options, warrants
or rights to purchase or otherwise acquire from ONS capital stock of ONS of any
class, no outstanding securities of ONS that are convertible into shares of
capital stock of ONS of any class, and no options, warrants or rights to
purchase from ONS any such convertible securities, and ONS has no outstanding
contractual or other obligation to repurchase, redeem or otherwise acquire any
outstanding shares of its capital stock. Upon the issuance of Newco Common Stock
upon the conversion of the Newco Preferred Stock in accordance with the
Certificate of Designations, such Newco Common Stock will be duly and validly
issued, fully paid and non-assessable and no personal liability will attach to
the ownership thereof. As of the Closing Date, Newco will have reserved out of
its authorized but unissued shares of Newco Common Stock, solely for issue upon
such conversion, the number of shares necessary for such purpose. As of the
Closing Date, Newco will have sufficient authorized capital stock (including
Newco Preferred Stock) to meet its obligations hereunder. The issued and
outstanding shares of ONS capital stock have not been, and the Newco Preferred
Stock to be issued to the Exchanging Partners hereunder (and Newco Common Stock
issuable upon the conversion thereof) will not be, issued in violation of any
preemptive or other rights of any person, whether arising by statute, under the
Certificate of Incorporation or By-Laws of Newco or in any other manner.
7.7 NO LIABILITIES
Except as set forth in the consolidated audited financial statements of ONS
as of December 31, 1995, and for the period ended on such date (the "Current
Financial Statements"), or included in the Disclosure Materials, there exist no
material liabilities (whether contingent or absolute, matured or unmatured,
known or unknown) of ONS or any Subsidiary. Immediately prior to the Closing,
Newco will have no liabilities (other than de minimis liabilities relating to
Newco's formation, any liabilities or obligations relating to transactions
contemplated by this Agreement, and any liabilities for expenses relating to the
Credit Facility Refinancing, Bond Offering, Bank Agreement Termination, Capacity
Agreement Termination and Convertible Subordinated Debenture Offering).
7.8 TAXES
ONS and each Subsidiary has filed or has caused to be filed (or has obtained
extensions with respect to) all material federal, state and local tax returns
which are required to be filed and has paid in full or accrued all material
federal, state and local taxes, estimated taxes, interest, penalties,
assessments and deficiencies assessed in connection with such returns. Neither
ONS nor any Subsidiary is a party to any pending action or proceeding, and to
the knowledge of ONS there is no action or proceeding threatened, by any
governmental authority for assessment or collection of taxes, and no unresolved
claim for assessment or collection of taxes has been asserted against ONS or any
Subsidiary, which would have a Material Adverse Effect.
7.9 SUBSIDIARIES
Schedule 7.9 hereto sets forth the name of each Subsidiary and ONS'
ownership in such entity. Each Subsidiary is a corporation, or partnership, duly
organized, validly existing and in good standing under the laws of its state of
incorporation or organization, and each has the full corporate power and
authority to carry on its business as it is now being conducted. Each Subsidiary
is qualified in every jurisdiction in which the failure to so qualify would have
a Material Adverse Effect.
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7.10 BOOKS AND RECORDS
The books of account, stock record, minute books and other records of ONS and
its Subsidiaries have been maintained in accordance with good business
practices, and the matters contained therein are appropriately and accurately
reflected in the Current Financial Statements.
7.11 LITIGATION
Except as set forth in the Disclosure Materials and Schedule 7.11 regarding
the Skydata matter, there are no material claims, actions, suits, proceedings or
investigations pending or, to the knowledge of ONS, threatened or anticipated
against, affecting or involving ONS or any Subsidiary or the transactions
contemplated by this Agreement, at law or in equity, or before any court,
arbitrator or governmental authority, domestic or foreign. Neither ONS nor any
Subsidiary is operating under, subject to or in default with respect to any
order, judgment, injunction or decree of any court, arbitrator or governmental
authority, domestic or foreign that would have a Material Adverse Effect, except
for orders of the Federal Communications Commission pertaining to the authority
of ONS to conduct its operations, and with respect to such orders ONS is in full
compliance.
7.12 SEC FILINGS
Since August 1, 1995, all reports, proxy statements and registration
statements required to be filed by ONS with the SEC pursuant to the Securities
Act, and the Securities and Exchange Act of 1934, as amended (the "1934 Act"),
have been timely filed with the SEC and complied in all material respects with
the requirements of the Securities Act, the 1934 Act and the rules and
regulations under the Securities Act and 1934 Act, and none of such reports,
proxy statements or registration statements contained as of their respective
dates any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. In addition, the Merger Proxy Statement insofar as it relates to
ONS, as of the date of mailing of the Merger Proxy Statement by ONS to its
stockholders and as of the date of the ONS stockholders meeting to which such
Merger Proxy Statement relates, (i) will comply in all material respects with
the provisions of the 1934 Act and the rules and regulations thereunder and (ii)
except with respect to any information relating to the Exchanging Partners
provided to ONS by the Exchanging Partners in writing specifically for use in
the Merger Proxy Statement, will not contain an untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading.
7.13 TRANSACTIONS WITH EXCHANGING PARTNERS
Neither ONS nor any of its Affiliates currently is a party to any transaction
or agreement with any of the Exchanging Partners or their Affiliates relating to
the Exchange, other than this Agreement and the agreements contemplated hereby,
that has not been disclosed to each of the Exchanging Partners or otherwise
publicly disclosed by ONS.
7.14 ABSENCE OF VIOLATIONS
Neither ONS nor any of its Subsidiaries is in default under, nor has it
breached, any material term or material provision of its Certificate of
Incorporation or By-laws or any Material Contract. ONS and its Subsidiaries have
complied with and are in full compliance with all Laws, where the failure to so
comply would have a Material Adverse Effect.
8. RESTRICTED SECURITIES
Each Exchanging Partner hereby severally represents, warrants and covenants
to ONS as follows:
8.1 NO REGISTRATION UNDER THE SECURITIES ACT
Such Exchanging Partner understands that the Newco Preferred Stock to be
acquired by it under this Agreement, and the Newco Common Stock issuable upon
the conversion thereof, have not been registered under the Securities Act, in
reliance upon exemptions contained in the Securities Act or
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interpretations thereof, and cannot be offered for sale, sold or otherwise
transferred unless subsequently so registered or qualify for exemption from
registration under the Securities Act. The Newco Preferred Stock, and the Newco
Common Stock issuable upon the conversion thereof, will not be offered for sale,
sold or otherwise transferred by such Exchanging Partner without either
registration or exemption from registration under the Securities Act.
8.2 ACQUISITION FOR INVESTMENT
The Newco Preferred Stock being acquired under this Agreement by such
Exchanging Partner is being acquired in good faith solely for such Exchanging
Partner's own account, for investment and not with a view toward distribution
within the meaning of the Securities Act. Such Exchanging Partner has, and at
the time of Closing such Exchanging Partner will have, no present plan or
intention to sell or otherwise dispose of the Newco Preferred Stock being
acquired under this Agreement or any Newco Common Stock issuable upon the
conversion of such Newco Preferred Stock; provided, however, that such
Exchanging Partner may decide, from time to time, to sell some or all of such
stock based upon a change in the investment policy of such Exchanging Partner
and provided further, that this provision shall not restrict MCN Sat from
transferring a portion of its Newco Preferred Stock to BAe.
8.3 EVALUATION OF MERITS AND RISKS OF INVESTMENT
Such Exchanging Partner has such knowledge and experience in financial and
business matters that such Exchanging Partner is capable of evaluating the
merits and risks of its investment in the Newco Preferred Stock being acquired
hereunder. Such Exchanging Partner understands and is able to bear any economic
risks associated with such investment (including, without limitation, the
necessity of holding the Newco Preferred Stock for an indefinite period of time,
inasmuch as the Newco Preferred Stock have not been registered under the
Securities Act).
8.4 REVIEW OF DOCUMENTS
Such Exchanging Partner and its advisers, if any, have received, and have had
a reasonable opportunity to review, the following documents (collectively, the
"Disclosure Materials"): (i) Annual Report on Form 10-K for ONS for the fiscal
year ended December 31, 1995; (ii) Quarterly Report on Form 10-Q for ONS for the
fiscal quarter ended March 31, 1996; (iii) Proxy Statement of ONS relating to
the Annual Meeting of Stockholders to be held on May 23, 1996; and (iv) Risk
Factors Relating to Orion and Description of Capital Stock of Orion.
8.5 OPPORTUNITY TO REQUEST INFORMATION
Such Exchanging Partner and its advisers, if any, have had a reasonable
opportunity to ask questions of and receive information and answers from a
person or persons acting on behalf of ONS concerning the transactions
contemplated by this Agreement and all such questions have been answered and all
such information has been provided to their full satisfaction. If this Agreement
is not terminated on or before the Newco Finalization Date, such Exchanging
Partner and its advisers, if any, as of the Newco Finalization Date, will have
had a reasonable opportunity to ask questions of and receive information and
answers from a person or persons acting on behalf of Newco concerning the
transactions contemplated by this Agreement and all such questions will have
been answered and all such information will have been provided to their full
satisfaction. In making their investment, the Exchanging Partners will be
relying solely on their review of the Disclosure Materials (other than any
projections included therein, which are not being relied upon), the
representations and warranties set forth herein, the Newco Formation Documents
and the Merger Documents, and the documents made available for inspection and
the answers to questions referred to in this SECTION 8.5.
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE EXCHANGING PARTNERS
The obligations of each of the Exchanging Partners (and of Lockheed Martin,
in the case of the condition in Section 9.8) under this Agreement are subject to
the fulfillment, at or prior to the Closing, of each of the following conditions
(other than those in SECTION 9.8, which are a condition only to the
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obligations of Lockheed Martin), and failure to satisfy any such condition shall
excuse and discharge all obligations of each of the Exchanging Partners (and of
Lockheed Martin only, in the case of failure of the condition in SECTION 9.8) to
carry out the provisions of this Agreement, unless such failure is agreed to in
writing by each of the Exchanging Partners (and of Lockheed Martin only, in the
case of the condition in SECTION 9.8):
9.1 REPRESENTATIONS AND WARRANTIES
The representations and warranties made by ONS in this Agreement shall be
true and complete in all material respects when made, and on and as of the
Closing Date as though such representations and warranties were made on and as
of such date.
9.2 PERFORMANCE
ONS and OrionSat shall have performed and complied in all material respects
with all agreements and covenants required by this Agreement to be performed or
complied with by ONS and/or OrionSat prior to the Closing Date.
9.3 DOCUMENTS AT CLOSING
All documents required to be furnished by Newco, ONS and OrionSat to the
Exchanging Partners prior to or at the Closing shall have been so furnished.
9.4 REFINANCING OF CREDIT FACILITY, CANCELLATION OF CAPACITY AGREEMENTS
The Credit Facility Refinancing and Capacity Agreement Termination shall have
been completed, other than any actions to be taken by such Exchanging Partner,
and the documents effecting the Capacity Agreement Termination shall be
substantially in the form of Exhibit H hereto or otherwise in form and substance
reasonably satisfactory to each Exchanging Partner. Evidence of the completion
of the Capacity Agreement Termination and Credit Facility Refinancing shall be
the execution of Exhibit H by Chase and the unconditional delivery of the same
at Closing.
9.5 CONSENTS
ONS and OrionSat shall have received all material consents, authorizations
and approvals of governmental, supragovernmental and private parties listed on
Schedule 7.3 which are required to be obtained in order to consummate the
transactions contemplated hereby.
9.6 REGISTRATION
The Registration Rights Agreement shall have been executed and delivered by
Newco.
9.7 SATELLITE CONTRACT
ONS or one of its affiliates shall have entered into a satellite procurement
contract (the "Orion 2 Satellite Contract") with Matra Marconi Space or an
affiliate thereof ("Matra Marconi Space") for the construction and launch of
Orion 2, ONS or one of its affiliates shall have given Matra Marconi Space
notice to proceed under such contract and Amendment No. 10 between Matra Marconi
Space and Orion Atlantic to the Second Amended and Restated Contract, dated
September 26, 1991, as amended shall have become effective and Orion Atlantic
shall not be in default under such Amendment No.
10.
9.8 LAUNCH SUB CONTRACT
Lockheed Martin and Matra Marconi Space shall have entered into a subcontract
to the Orion 2 Satellite Contract relating to the launch of Orion 2.
9.9 NEWCO FORMATION
The Newco Formation Documents shall be consistent with the requirement that
Newco be substantially identical in all material respects to ONS, or any
discrepancies shall be reasonably acceptable to the Exchanging Partners
(provided, however, that such condition shall be deemed to have been satisfied,
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and shall terminate, and be of no further force and effect, if this Agreement
shall not have been terminated on or before the Newco Finalization Date); and
the Newco Formation shall have occurred in accordance with SECTION 2.
9.10 MERGER
The Merger shall have occurred, or shall occur concurrently with the Closing,
in accordance with Section 4.
9.11 TAX OPINION
The Exchanging Partners shall have received an opinion from Ernst & Young,
LLP, tax advisors to Newco, in form and substance reasonably satisfactory to the
Exchanging Partners, dated the Closing Date, which opinion may be based on
appropriate representations of the parties hereto, in form and substance
reasonably satisfactory to such tax advisors, to the effect that the Merger and
the Exchange, taken together, will be a tax-free exchange described in Code
Section 351(a).
10. CONDITIONS PRECEDENT TO OBLIGATIONS OF ONS AND ORIONSAT
The obligations of ONS and OrionSat under this Agreement are subject to the
fulfillment, at or prior to the Closing, of each of the following conditions,
and failure to satisfy any such condition shall excuse and discharge all
obligations of ONS and OrionSat to carry out the provisions of this Agreement,
unless such failure is agreed to in writing by ONS and OrionSat:
10.1 REPRESENTATIONS AND WARRANTIES
The representations and warranties made by the Exchanging Partners in this
Agreement shall be true and complete in all material respects when made, and on
and as of the Closing Date as though such representations and warranties were
made on and as of such date, except for any changes expressly permitted by this
Agreement.
10.2 PERFORMANCE
The Exchanging Partners shall have performed and complied with all material
agreements and covenants required by this Agreement to be performed or complied
with prior to the Closing Date.
10.3 DOCUMENTS AT CLOSING
All documents required to be furnished by the Exchanging Partners to ONS and
OrionSat prior to or at the Closing shall have been so furnished.
10.4 CONSENTS
The Exchanging Partners shall have received all material consents,
authorizations and approvals of governmental, supragovernmental and private
parties which are required to be obtained in order to consummate the
transactions contemplated hereby.
10.5 REFINANCING OF CREDIT FACILITY, CANCELLATION OF CAPACITY AGREEMENTS
The Credit Facility Refinancing, Bank Agreement Termination and Capacity
Agreement Termination shall have been completed, other than any actions to be
taken by ONS and OrionSat.
10.6 PARTNERSHIP AGREEMENT AMENDMENT
The Partnership Agreement shall have been amended as contemplated by SECTION
5.4, other than due to any actions to be taken by ONS and OrionSat.
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10.7 CONSENTS OF THE ONS STOCKHOLDERS
The ONS Stockholder Consent has been obtained for the Merger, the Exchange
and any related transactions requiring stockholder consent.
10.8 COMPLETION OF FINANCING FOR A SECOND SATELLITE
Newco shall have raised at least $100 million from the sale of Convertible
Subordinated Debentures, not including any amounts representing or in
satisfaction of any amounts due by ONS or Orion Atlantic to any Exchanging
Partner or Affiliate thereof, and BAe shall have purchased at least $50 million
of Convertible Subordinated Debentures from Newco.
10.9 SATELLITE CONTRACT
ONS or one of its affiliates shall have entered into the Orion 2 Satellite
Contract with Matra Marconi Space for the construction and launch of Orion 2.
10.10 NEWCO FORMATION
The Newco Formation shall have occurred in accordance with SECTION 2.
10.11 MERGER
The Merger shall have occurred, or be occurring concurrently with the
Closing, in accordance with Section 4; and no ONS stockholder (or former
stockholder of ONS, if the Merger already shall have occurred) shall have
delivered to ONS a written notice of such stockholder's (or former
stockholder's) intention, or otherwise indicated an intention, to dissent to
the Merger or otherwise seek to exercise any right to sell to ONS, or obtain
payment from ONS for, such stockholder's stock in ONS in lieu of such stock
being converted in the Merger to stock of Newco.
11.0 CLOSING
11.1 CLOSINGS
(a) Deposit into Escrow
Simultaneously with execution and delivery of this Agreement, the Exchanging
Partners are entering into an Escrow Agreement in the form attached as Exhibit J
and depositing into escrow with one counsel selected by the Exchanging Partners
(which may be counsel representing one or more of the Exchanging Partners in
other capacities), acting as escrow agent, executed copies of each of the
documents to be delivered by the Exchanging Partners to Newco, ONS or OrionSat
at the Closing. Each of the parties hereto agrees to abide by the terms of such
Escrow Agreement.
(b) Closing
Subject to the terms and conditions of this Agreement, the Closing shall take
place at the offices of Hogan & Hartson L.L.P., 555 Thirteenth Street, N.W.,
Washington, D.C. 20004 on the Closing Date.
11.2 DELIVERIES BY THE EXCHANGING PARTNERS
At or prior to the Closing, the Exchanging Partners shall deliver to Newco,
ONS or OrionSat, as applicable, the following:
(a) documents of transfer of partnership interests and substitution of
limited partners with respect to the LP Interests being transferred to Newco
pursuant to SECTION 2, in the form attached as Exhibit F;
(b) documents transferring the rights included in the Other LP Rights, in the
form attached as Exhibit G.
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(c) counterparts to the Third Amended and Restated Partnership Agreement duly
executed by each of the Exchanging Partners;
(d) a certified copy of the resolutions adopted by the Board of Directors of
each of the Exchanging Partners authorizing the transactions contemplated by
this Agreement; and
(e) such other documents as Newco, ONS or OrionSat may reasonably request,
including without limitation certificates of the officers of the Exchanging
Partners as to the matters set forth in Sections 10.1 and 10.2.
11.3 DELIVERIES BY ONS AND NEWCO
At or prior to the Closing, Newco, ONS or OrionSat, as applicable, shall
deliver to the Exchanging Partners the following:
(a) certificates representing the Newco Preferred Stock being issued to the
Exchanging Partners pursuant to SECTION 2;
(b) the Registration Rights Agreement, duly executed by Newco;
(c) evidence in the form of the documents included as Exhibit H hereto, duly
executed and delivered by all parties thereto other than Exchanging Partners,
that the Capacity Termination Agreement has been effected and that the Capacity
Guarantees have been terminated in their entirety;
(d) a certified copy of the resolutions adopted by the Boards of Directors of
Newco, ONS and OrionSat authorizing the transactions contemplated by this
Agreement;
(e) evidence of receipt of the ONS Stockholder Consent;
(f) good standing certificates as of a date not more than fifteen days prior
to the Closing Date issued by the Secretary of State of the State of Delaware
with respect to Newco, ONS and OrionSat;(
(g) opinion(s) of counsel to Newco and ONS, dated the Closing Date and
addressed to the Exchanging Partners, substantially to the effect set forth on
Exhibit I;
(h) an agreement by Newco to be bound by the indemnity provisions of SECTION
12 (the "Newco Indemnity"); and
(i) such other documents as the Exchanging Partners may reasonably request,
including without limitation certificates of the officers of Newco and ONS as to
the matters set forth in SECTIONS 9.1 and 9.2.
11.4 ORDER OF EFFECTIVENESS
Of the documents being delivered by the Exchanging Partners at the Closing,
the counterparts to the Third Amended and Restated Partnership Agreement duly
executed by each of the Exchanging Partners shall be deemed delivered first, and
upon signature by ONS and OrionSat the Third Amended and Restated Partnership
Agreement shall be deemed in full force and effect, prior to delivery of the (i)
documents of transfer of partnership interests and substitution of limited
partners with respect to the LP Interests being transferred to Newco pursuant to
SECTION 2, in the form attached as Exhibit F, and (ii) documents transferring
the rights included in the Other LP Rights, in the form attached as Exhibit G.
12. SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION; REMEDIES
12.1 SURVIVAL OF REPRESENTATIONS
All representations, warranties, covenants, indemnities and other agreements
made by any party to this Agreement herein or pursuant hereto shall also be
deemed made on and as of the Closing Date as though such representations,
warranties, covenants, indemnities and other agreements were made on
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and as of such date, and all such representations, warranties, covenants,
indemnities and other agreements shall survive the Closing and any
investigation, audit or inspection at any time made by or on behalf of any party
hereto, including the review of the Disclosure Materials under SECTION 8.4.
12.2 AGREEMENT OF NEWCO, ONS AND ORIONSAT TO INDEMNIFY
Subject to the conditions and provisions of this SECTION 12.2, ONS and
OrionSat jointly and severally shall (and Newco shall, pursuant to the Newco
Indemnity) jointly and severally indemnify, defend and hold harmless each of the
EP Indemnified Persons from and after the Closing Date against and in respect of
all Claims asserted against, resulting to, imposed upon or incurred by any of
the EP Indemnified Persons (whether such Claims are by, against or relate to
Newco, ONS or OrionSat or any other party, including, without limitation, a
governmental entity), directly or indirectly, by reason of or resulting from any
of the following:
(i) any of the matters with respect to which they would be obligated to
indemnify the EP Indemnified Persons under Section 7.09(e) of the Partnership
Agreement and which arose before or after the Closing Date, notwithstanding the
Exchanging Partners ceasing to be limited partners of Orion Atlantic as of the
Closing Date; or
(ii) any Claims asserted by one or more of the Lenders or Chase, or their
successors or assigns, arising from and after the Closing Date under (A) any of
the Capacity Agreements, Contingent Capacity Agreements or Capacity Guarantees
which are terminated on or prior to the Closing Date, (B) any agreements or
other documents terminated or to be terminated in connection with the Bank
Agreement Termination, or (C) this Agreement, in each case excluding any Claims
arising from or relating to any breach of any representation or warranty, or
noncompliance with any conditions or other agreements, given or made by any EP
Indemnified Person under any of the agreements or documents referred to above in
this paragraph or any document furnished by or on behalf of any EP Indemnified
Person pursuant thereto.
12.3 CONDITIONS OF INDEMNIFICATION.
The obligations and liabilities of Newco, ONS and OrionSat with respect to
their respective indemnities pursuant to the Newco Indemnity and SECTION 12.2,
resulting from any Claims, shall be subject to the following terms and
conditions:
12.3.1. The party seeking indemnification (the "Indemnified Party") must give
the other party or parties, as the case may be (the "Indemnifying Party"),
notice of any such Claims promptly after the Indemnified Party receives notice
thereof; provided that the failure to give such notice shall not affect the
rights of the Indemnified Party hereunder except to the extent that the
Indemnifying Party shall have suffered actual damage by reason of such failure.
12.3.2. The Indemnifying Party shall have the right to undertake, by counsel
or other representatives of its own choosing, the defense of such Claims at the
Indemnifying Party's risk and expense.
12.3.3. In the event that the Indemnifying Party shall elect not to undertake
such defense, or, within a reasonable time after notice from the Indemnified
Party of any such Claims, shall fail to defend, the Indemnified Party (upon
further written notice to the Indemnifying Party) shall have the right to
undertake the defense, compromise or settlement of such Claims, by counsel or
other representatives of its own choosing, on behalf of and for the account and
risk of the Indemnifying Party (subject to the right of the Indemnifying Party
to assume defense of such Claims at any time prior to settlement, compromise or
final determination thereof). In such event, the Indemnifying Party shall pay to
the Indemnified Party, in addition to the other sums required to be paid
hereunder, the costs and expenses incurred by the Indemnified Party in
connection with such defense, compromise or settlement as and when such costs
and expenses are so incurred.
12.3.4. Anything in this SECTION 12.3 to the contrary notwithstanding, (a) if
there is a reasonable probability that Claims may materially and adversely
affect the Indemnified Party other than as a result of money damages or other
money payments, the Indemnified Party shall have the right, at its own cost
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and expense, to participate in the defense, compromise or settlement of the
Claims, (b) the Indemnifying Party shall not, without the Indemnified Party's
written consent, settle or compromise any Claims or consent to entry of any
judgment which does not include as an unconditional term thereof the giving by
the claimant or the plaintiff to the Indemnified Party of a release from all
liability in respect of such Claims in form and substance satisfactory to the
Indemnified Party, and (c) in the event that the Indemnifying Party undertakes
defense of any Claims, the Indemnified Party, by counsel or other representative
of its own choosing and at its sole cost and expense, shall have the right to
consult with the Indemnifying Party and its counsel or other representatives
concerning such Claims and the Indemnifying Party and the Indemnified Party and
their respective counsel or other representatives shall cooperate with respect
to such Claims and (d) in the event that the Indemnifying Party undertakes
defense of any Claims, the Indemnifying Party shall have an obligation to keep
the Indemnified Party informed of the status of the defense of such Claims and
furnish the Indemnified Party with all documents, instruments and information
that the Indemnified party shall reasonably request in connection therewith.
12.4 SPECIFIC PERFORMANCE; NO CONSEQUENTIAL DAMAGES
In addition to any other remedies which the parties hereto may have at law or
in equity, the parties hereto hereby acknowledge that the LP Interests, the
Other LP Rights and the Newco Preferred Stock are unique, and that the harm to
Newco, ONS and OrionSat, and the Exchanging Partners resulting from breaches by
the other parties of their respective obligations cannot be adequately
compensated by damages. Accordingly, the parties hereto agree that each party
shall have the right to have all obligations, undertakings, agreements,
covenants and other provisions of this Agreement specifically performed by the
other parties, and that the parties hereto shall have the right to obtain an
order or decree of such specific performance in any of the courts of the United
States or of any state or other political subdivision thereof. Notwithstanding
any other provision of this Agreement to the contrary, in no event shall
remedies for breach of this Agreement include a party's incidental or
consequential damages.
13. TERMINATION
13.1 TERMINATION
This Agreement may be terminated at any time before the Closing Date under
any one or more of the following circumstances:
(a) by the mutual written consent of the parties hereto; or
(b) by ONS and OrionSat or by the Exchanging Partners collectively or (as to
a particular Exchanging Partner), by such Exchanging Partner, by written notice
of termination to the other parties hereto, if the Closing has not occurred by
January 30, 1997; provided, however, that the terminating party is not in breach
of any obligations or agreements hereunder that are causing any of the
conditions precedent to Closing not to be satisfied.
In addition, following circulation by ONS to the Exchanging Partners of the
finalized and implemented Newco Formation Documents, if the finalized and
implemented Newco Formation Documents are not consistent with the requirement
that Newco be substantially identical in all material respects to ONS, and any
discrepancies are not reasonably acceptable to such Exchanging Partner(s), then
this Agreement may be terminated at any time on or before the Newco Finalization
Date by the Exchanging Partners collectively or (as to a particular Exchanging
Partner), by such Exchanging Partner, by written notice of termination to the
other parties hereto on or before the close of business on the Newco
Finalization Date.
13.2 EFFECT OF TERMINATION
In the event this Agreement is terminated as provided in this SECTION 13
(other than as to less than all the Exchanging Partners), this Agreement shall
forthwith become wholly void and of no effect, and the parties shall be released
from all future obligations hereunder; provided, however, that the obligations
of the Exchanging Partners as to confidentiality provided in SECTION 5.6, and
the provisions of
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SECTION 14.3 relating to the payment of expenses, shall not be extinguished but
shall survive such termination; provided, further, however, that no party shall
be relieved from its liabilities for breach of representations, warranties,
obligations or agreements prior to termination of this Agreement. The parties
hereto shall have any and all remedies to enforce such obligations provided at
law or in equity (including, without limitation, specific performance).
14. MISCELLANEOUS
14.1 ADDITIONAL ACTIONS AND DOCUMENTS
Each of the parties hereto hereby agrees to take or cause to be taken such
further actions, to execute, deliver and file or cause to be executed, delivered
and filed such further documents, and will obtain such consents, as may be
necessary or as may be reasonably requested in order to fully effectuate the
purposes, terms and conditions of this Agreement.
14.2 BROKER'S FEES OR LIABILITIES
The fees and expenses of Salomon Brothers shall be borne by ONS. Except for
such fees and expenses, each party agrees to indemnify, defend and hold harmless
each of the other parties from and against any and all claims asserted against
such parties for any unpaid liability to any broker, finder or agent for any
brokerage fees, finders' fees or commissions, with respect to the transactions
contemplated by this Agreement.
14.3 EXPENSES
Subject to the provisions of SECTION 14.2, each party hereto shall pay its
own expenses incident to this Agreement and the transactions contemplated
hereunder.
14.4 ASSIGNMENT
The Exchanging Partners shall have the right to assign their respective
rights under the Agreement, in whole or in part, to any of their respective
Affiliates or to designate any of their respective Affiliates to receive
directly the Newco Preferred Stock to be acquired hereunder (in each case, to
the extent permitted by applicable law). ONS, OrionSat and Orion Atlantic shall
have the right to assign their rights under the Agreement, in whole or in part,
to any of their respective Affiliates (to the extent permitted by applicable
law). In no event shall the assignment by ONS, OrionSat, or any Exchanging
Partner of its respective rights under this Agreement, whether before or after
the Closing, release ONS, OrionSat, or any Exchanging Partner from its
respective liabilities and obligations hereunder.
14.5 ENTIRE AGREEMENT; AMENDMENT
This Agreement, including the Schedules, Exhibits and other documents
referred to herein or furnished pursuant hereto constitute the entire agreement
among the parties hereto with respect to the transactions contemplated herein
and therein, and supersede all prior oral or written agreements, commitments or
understandings with respect to the matters provided for herein and therein. No
amendment or modification of this Agreement shall be valid or binding unless set
forth in writing and duly executed and delivered by the party against whom
enforcement of the amendment or modification is sought.
14.6 WAIVER
No delay or failure on the part of any party hereto in exercising any right,
power or privilege under this Agreement or under any other documents furnished
in connection with or pursuant to this Agreement shall impair any such right,
power or privilege or be construed as a waiver of any default or any
acquiescence therein. No single or partial exercise of any such right, power or
privilege shall preclude the further exercise of such right, power or privilege,
or the exercise of any other right, power or
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<PAGE>
privilege. No waiver shall be valid against any party hereto unless made in
writing and signed by the party against whom enforcement of such waiver is
sought and then only to the extent expressly specified therein.
14.7 CONSENT TO JURISDICTION
This Agreement and the duties and obligations of ONS, OrionSat, the
Exchanging Partners hereunder and under each of the documents referred to herein
shall be enforceable against any of ONS, OrionSat, or one or more of the
Exchanging Partners, as the case may be, in the courts of the United States and
of the States of Maryland and Delaware. For such purpose, ONS, OrionSat and each
of the Exchanging Partners hereby irrevocably submit to the non-exclusive
jurisdiction of such courts, and agrees that all claims in respect of this
Agreement and such other documents may be heard and determined in any of such
courts.
14.8 SEVERABILITY
If any part of any provision of this Agreement or any other agreement or
document given pursuant to or in connection with this Agreement shall be invalid
or unenforceable in any respect, such part shall be ineffective to the extent of
such invalidity or unenforceability only, without in any way affecting the
remaining parts of such provision or the remaining provisions of this Agreement.
14.9 GOVERNING LAW
This Agreement, the rights and obligations of the parties hereto, and any
claims or disputes relating thereto, shall be governed by and construed in
accordance with the laws of the State of Delaware (excluding the choice of law
rules thereof).
14.10 NOTICES
All notices, demands, requests, or other communications which may be or are
required to be given, served, or sent by any party to any other party pursuant
to this Agreement shall be in writing and shall be hand delivered, sent by
overnight courier or mailed by first-class, registered or certified mail, return
receipt requested, postage prepaid, or transmitted by telegram, telecopy or
telex, addressed as follows:
(i) If to Orion Atlantic, ONS or OrionSat:
2440 Research Boulevard
Suite 400
Rockville, Maryland 20817
Attn: Richard H. Shay, Esq.
(ii) If to the Exchanging Partners, to each of the
following who is an Exchanging Partner:
British Aerospace Holding, Inc.
22070 Broderick Drive
Sterling, Virginia 20166
Attn: Charles Gaba
COM DEV Satellite Communications Limited
155 Sheldon Drive
Cambridge, Ontario
Canada N1R 7H6
Attn: David Belbeck
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<PAGE>
Kingston Communications International Limited
Telephone House
Carr Lane
Kingston-upon-Hull
HU1 3RE England
Attn: John Bailey
Lockheed Martin Commercial Launch Services, Inc.
Attention: Chester Wheeler
Lockheed Martin Commercial
Launch Services, Inc.
P.O. Box 179
MSM DC-1400
Denver, Colorado 80201-0179
MCN Sat US, Inc.
37, Avenue Louis Breguet B.P.1
78146 V|felizy Villacoublay Cedex
France
Attn: Claude Goumy
Trans-Atlantic Satellite, Inc.
1211 Avenue of the Americas
41st Floor
New York, NY 10036
Attn: Ken Mori
Each party may designate by notice in writing a new address to which any
notice, demand, request or communication may thereafter be so given, served or
sent. Each notice, demand, request, or communication which shall be hand
delivered, sent, mailed, telecopied or telexed in the manner described above, or
which shall be delivered to a telegraph company, shall be deemed sufficiently
given, served, sent, received or delivered for all purposes at such time as it
is delivered to the addressee (with the return receipt, the delivery receipt, or
(with respect to a telecopy or telex) the answerback being deemed conclusive,
but not exclusive, evidence of such delivery) or at such time as delivery is
refused by the addressee upon presentation.
14.11 HEADINGS
Section headings contained in this Agreement are inserted for convenience of
reference only, shall not be deemed to be a part of this Agreement for any
purpose, and shall not in any way define or affect the meaning, construction or
scope of any of the provisions hereof.
14.12 EXECUTION IN COUNTERPARTS
To facilitate execution, this Agreement may be executed in as many
counterparts as may be required. It shall not be necessary that the signatures
of, or on behalf of, each party, or that the signatures of all persons required
to bind any party, appear on each counterpart; but it shall be sufficient that
the signature of, or on behalf of, each party, or that the signatures of the
persons required to bind any party, appear on one or more of the counterparts.
All counterparts shall collectively constitute a single agreement. It shall not
be necessary in making proof of this Agreement to produce or account for more
than a number of counterparts containing the respective signatures of, or on
behalf of, all of the parties hereto.
14.13 LIMITATION ON BENEFITS
The covenants, undertakings and agreements set forth in this Agreement shall
be solely for the benefit of, and shall be enforceable only by, the parties
hereto and their respective successors, heirs, executors, administrators, legal
representatives and permitted assigns, except that (i) the agreements set
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<PAGE>
forth in SECTION 10 also shall be for the benefit of, and enforceable by, EP
Indemnified Persons and their respective successors, heirs, executors,
administrators, legal representatives or permitted assigns, and (ii) agreements
relating to Affiliates of the Exchanging Partners named or referred to
specifically herein also shall be for the benefit of, enforceable by and (to the
extent permitted by law) enforceable against such Affiliates and their
respective successors, heirs, executors, administrators, legal representatives
or permitted assigns.
14.14 BINDING EFFECT
Subject to any provisions hereof restricting assignment, this Agreement shall
be binding upon and shall inure to the benefit of the parties hereto and their
respective successors, heirs, executors, administrators, legal representatives
and assigns.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement, or
have caused this Agreement to be duly executed on their behalf, as of the day
and year first above written.
INTERNATIONAL PRIVATE
SATELLITE PARTNERS, L.P.
By: Orion Satellite Corporation, its
general partner
By: /s/
------------------------------------
ORION NETWORK SYSTEMS, INC.
By: /s/
------------------------------------
ORION SATELLITE CORPORATION
By: /s/
------------------------------------
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<PAGE>
BRITISH AEROSPACE
COMMUNICATIONS, INC.
By: /s/
------------------------------------
COM DEV SATELLITE COMMUNICATIONS LIMITED
By: /s/
------------------------------------
KINGSTON COMMUNICATIONS
INTERNATIONAL LIMITED
By: /s/
------------------------------------
LOCKHEED MARTIN COMMERCIAL
LAUNCH SERVICES, INC.
By: /s/
------------------------------------
MCN SAT US, INC.
By: /s/
------------------------------------
TRANS-ATLANTIC SATELLITE, INC.
By: /s/
------------------------------------
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<PAGE>
EXHIBIT A
TO EXCHANGE
AGREEMENT
DEFINITIONS
"Affiliate" means: (a) with respect to a person, any member of such person's
family; (b) with respect to an entity, any officer, director, stockholder,
partner or investor of or in such entity or of or in any Affiliate of such
entity; and (c) with respect to a person or entity, any person or entity which
directly or indirectly, through one or more intermediaries, Controls, is
Controlled by, or is under common Control with such person or entity.
"Agreement" means the Exchange Agreement, including each of the Schedules and
Exhibits hereto.
"Agreement of Principles" means the Agreement of Principles dated as of April
2, 1992, among Orion Atlantic, OrionSat, ONS and the Exchanging Partners.
"BAe" means British Aerospace Communications, Inc., a Delaware corporation.
"Business Day" means any day on which commercial banks in New York City are
not required or authorized to close.
"Certificate of Designations" means the Certificate of Designations, Rights
and Preferences establishing the terms and relative rights and preferences of
the Newco Preferred Stock in substantially the form set forth as Exhibit B to
this Agreement.
"Claims" means all demands, claims, actions or causes of action, assessments,
losses, damages (including, without limitation, diminution in value),
liabilities, costs and expenses, including, without limitation, interest,
penalties and attorneys' fees and disbursements.
"Closing" means the closing of the exchange of interests pursuant to the
Agreement.
"Closing Date" means such time and date as shall be as proposed by ONS not
more than ten days after satisfaction or waiver of all the conditions specified
in Sections 9 and 10.
"COM DEV" means COM DEV Satellite Communications Limited, a Canadian
corporation.
"Consent and Agreement" means the Consent and Agreement effective as of
December 20, 1991, among Orion Atlantic, OrionSat, ONS and the Exchanging
Partners.
"Control" means possession, directly or indirectly, of power to direct or
cause the direction of management or policies (whether through ownership of
voting securities, by agreement or otherwise).
"Encumbrance" means any mortgage, lien, pledge, encumbrance, security
interest, deed of trust, option, encroachment, reservation, order, decree,
judgment, condition, restriction, charge, agreement, claim or equity of any
kind.
"EP Indemnified Persons' means the Exchanging Partners and their respective
Affiliates, employees, representatives, agents, officers and directors.
"Exhibit" means an exhibit attached to the Agreement.
"Exchange Act" means the Exchange Act of 1934, as amended.
"Kingston" means Kingston Communications International Limited, a company
organized under the laws of England.
"Kingston Sales Representative Agreements" means the Sales Representative
Agreement dated as of June 30, 1994, between Orion Atlantic and a Kingston
Affiliate, Kingston Satellite Systems Limited, as amended, and the Ground
Operations Agreement dated as of June 30, 1994, between Orion Atlantic and
Kingston, as amended.
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<PAGE>
"Laws" means all foreign, federal, state and local statutes, laws,
ordinances, regulations, rules, resolutions, orders, determinations, writs,
injunctions, awards (including, without limitation, awards of any arbitrator),
judgments and decrees applicable to the specified persons or entities and to the
businesses and assets thereof (including, without limitation, Laws relating to
securities registration and regulation; the sale, leasing, ownership or
management of real property; employment practices, terms and conditions, and
wages and hours; building standards, land use and zoning; safety, health and
fire prevention; and environmental protection).
"Limited Partner" means ONS and the Exchanging Partners as limited partners
of Orion Atlantic.
"LP Interest" means a limited partnership interest in Orion Atlantic.
"Lockheed Martin" means Lockheed Martin Commercial Launch Services, Inc., a
Delaware corporation.
"Material Adverse Effect" means a material adverse effect on the business,
results of operations, liabilities, properties, assets or financial condition of
ONS and its Subsidiaries, taken as a whole, or a material adverse effect on the
transactions contemplated by this Agreement.
"Material Contract" means any contract, instrument, commitment or arrangement
of ONS which ONS would be required to file with the SEC as an exhibit to a
registration statement on Form S-1 pursuant to Item 601(b)(10) of Regulation S-K
under the Securities Act.
"MCN Sat" means MCN Sat US, Inc., a Delaware corporation.
"MCN Sat Sales Representative Agreements" means the Sales Representative
Agreement dated as of June 30, 1995 between Orion Atlantic and MCN Sat Service,
S.A., as amended, and the Ground Operations Agreement dated as of June 30, 1995
between Orion Atlantic and MCN Sat Service, S.A., as amended.
"Newco Common Stock" means shares of common stock, par value $.01 per share,
of Newco.
"Newco Preferred Stock" means shares of Series C 6% Cumulative Redeemable
Convertible Preferred Stock of Newco, par value $.01 per share, having the
rights and preferences set forth in the Certificate of Designations.
"ONS" means ONS Network Systems, Inc., a Delaware corporation.
"ONS Common Stock" means shares of common stock, par value $.01 per share, of
ONS.
"ONS Series A Preferred Stock" means the Series A 8% Cumulative Redeemable
Convertible Preferred Stock of ONS.
"ONS Series B Preferred Stock" means the Series B 8% Cumulative Redeemable
Convertible Preferred Stock of ONS.
"Orion Atlantic" means International Private Satellite Partners, L.P., a
Delaware limited partnership.
"Option Agreements" means the applicable Option Agreement effective as of
December 20, 1991, among Orion Atlantic, OrionSat and each of the Exchanging
Partners.
"OrionSat" means Orion Satellite Corporation, a Delaware corporation.
"Partnership Agreement" means the Second Amended and Restated Agreement of
Limited Partnership of International Private Satellite Partners, L.P., as
amended.
"PPU Agreement" means the Preferred Participating Unit Agreements dated as of
October 7, 1993, among Orion Atlantic, OrionSat, and each of ONS, COM DEV,
Kingston, Lockheed Martin and MCN Sat.
"Preferred Bidder Agreement" means the Preferred Bidder Agreement effective
as of December 20, 1991, among Orion Atlantic, OrionSat, ONS and the Exchanging
Partners.
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<PAGE>
"Refund Agreement" means the Refund Agreement, dated December 31, 1994, among
Orion Atlantic, OrionSat, ONS and certain of the Exchanging Partners.
"SEC" means the U.S. Securities and Exchange Commission.
"Section" means a Section (or a subsection) of the Agreement.
"Securities Act" means the Securities Act of 1933, as amended, and all laws
promulgated pursuant thereto or in connection therewith.
"Subscription Agreement" means the Subscription Agreements effective as of
December 20, 1991, between Orion Atlantic and each of the Exchanging Partners.
"Subsidiary" means, with respect to any Person, any corporation, partnership,
association or other business entity of which (i) if a corporation, a majority
of the total voting power of shares of stock entitled (without regard to the
occurrence of any contingency) to vote in the election of directors, managers or
trustees thereof is at the time owned or controlled, directly or indirectly, by
that Person or one or more of the other Subsidiaries of that Person or a
combination thereof, or (ii) if a partnership, association or other business
entity, a majority of the partnership or other similar ownership interest
thereof is at the time owned or controlled, directly or indirectly, by any
Person or one or more Subsidiaries of that person or a combination thereof. For
purposes hereof, a Person or Persons shall be deemed to have a majority
ownership interest in a partnership, association or other business entity if
such Person or Persons shall be allocated a majority of partnership, association
or other business entity gains or losses or shall be or control a general
partner of such partnership, association or other business entity. Without
limiting the foregoing, International Private Satellite Partners, L.P., a
Delaware limited partnership, shall be deemed to be a Subsidiary of the
Corporation for so long as the Corporation or any of its other Subsidiaries is
the general partner thereof.
"TA Sat" means Trans-Atlantic Satellite, Inc., a Delaware corporation.
"Tax Adjustment Factor" means, with respect to (i) BAe, $11,634; (ii) COM
DEV, $1,940; (iii) Kingston, $1,940; (iv) Lockheed Martin, $3,878; (v) MCN Sat,
$3,878; and (vi) TA Sat, $3,878.
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<PAGE>
FIRST AMENDMENT TO SECTION 351 EXCHANGE AGREEMENT
AND PLAN OF CONVERSION
THIS FIRST AMENDMENT TO SECTION 351 EXCHANGE AGREEMENT AND PLAN OF CONVERSION
(this "Amendment") is entered into as of December, 1996, by and among
International Private Satellite Partners, L.P., a Delaware limited partnership
("Orion Atlantic"); Orion Network Systems, Inc., a Delaware corporation ("ONS");
Orion Satellite Corporation, a Delaware corporation ("OrionSat"); and each of
the following entities: British Aerospace Communications, Inc., a Delaware
corporation, COM DEV Satellite Communications Limited, a Canadian corporation,
Kingston Communications International Limited, a company incorporated under the
laws of England, Lockheed Martin Commercial Launch Services, Inc., a Delaware
corporation, MCN Sat US, Inc., a Delaware corporation, and Trans Atlantic
Satellite, Inc., a Delaware corporation (collectively, the "Exchanging
Partners") under the Section 351 Exchange Agreement and Plan of Conversion,
dated as of June __, 1996, between and among Orion Atlantic, ONS, OrionSat and
the Exchanging Partners (the "Exchange Agreement").
WHEREAS, Orion Atlantic, ONS and OrionSat are currently pursuing and will
continue to pursue certain financing transactions that were contemplated by the
Exchange Agreement, and the parties hereto desire to amend the Exchange
Agreement to extend potentially the termination date to provide for the
possibility that such financings will not be completed by January 30, 1997 and
to refund certain payments.
NOW, THEREFORE, for and in consideration of the foregoing and of the mutual
covenants and agreements hereinafter set forth, the parties hereto agree as
follows:
1. CLOSING TERMINATION DATE EXTENSION
The first paragraph of Section 13.1(b) of the Exchange Agreement is hereby
amended to read in its entirety as follows:
(b) by ONS and OrionSat or by the Exchanging Partners collectively or (as to
a particular Exchanging Partner), by such Exchanging Partner, by written notice
of termination to the other parties hereto, if the Closing has not occurred by
April 30, 1997 (the "Closing Termination Date"); provided, however, that the
terminating party is not in breach of any obligations or agreements hereunder
that are causing any of the conditions precedent to Closing not to be satisfied.
2. REFUND OF CERTAIN PAYMENTS
Section 3.2(c) of the Exchange Agreement is hereby amended by adding, at the
end thereof, the following:
Notwithstanding the foregoing provisions of this Section 3.2(c), to the
extent that amounts are paid by one or more Exchanging Partners (or Affiliates
of such Exchanging Partners) (i) pursuant to the Capacity Agreements and which
are subject to being refunded under the Refund Agreement ("Firm Capacity
Payments") during the Adjustment Period for obligations of such Exchanging
Partners (or Affiliates) arising after January 29, 1997 and prior to the Closing
Date, and (ii) pursuant to the Contingent Capacity Agreements ("Contingent
Capacity Payments") during the Adjustment Period for obligations of such
Exchanging Partners (or Affiliates) arising after the date hereof and prior to
the Closing Date (collectively, "Payments Subject to Refund"), then if (and only
if) ONS or Newco completes a Bond Offering prior to the Closing Termination
Date,
(x) to the extent that the gross proceeds from the Bond Offering (excluding
any amounts required to be set aside or pledged for the purpose of pre-funding
interest payments) for ONS or Newco, plus the gross proceeds from the sale of
Convertible Subordinated Debentures to BAe and Matra Marconi Space UK Limited
("Matra Marconi Space") or their Affiliates, exceeds the sum of (1) the amounts
necessary to effect the Credit Facility Refinancing and all other obligations
relating thereto or arising therefrom, including without limitation all
principal and accrued interest due with respect to the Credit Facility and all
breakage fees and costs arising from termination of the interest
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<PAGE>
rate hedge relating to the Credit Facility, (2) $49.4 million, representing the
proposed initial payments to be made by ONS or Newco under the Orion 2 Satellite
Contract and related Orion 2 Option Agreement, (3) $13 million, representing the
incentive payments that will be payable to Matra Marconi Space or its Affiliates
with respect to Orion 1 upon or immediately following the Credit Facility
Refinancing, (4) $3.5 million, representing the amounts that will be payable to
STET upon or immediately following the Credit Facility Refinancing, (5) an
amount reasonably determined by ONS or Newco to be necessary working capital for
ONS or Newco to conduct operations following the Bond Offering and other
transactions (not to exceed $10 million), and (6) the costs and expenses of the
Bond Offering, the Convertible Subordinated Debenture financings and related
transactions (not to exceed $14.3 million), the excess (the "Available Funds")
shall be used to refund the amounts of the Payments Subject to Refund to the
respective Exchanging Partners at the Closing (or, if such excess is not
sufficient to refund all of the Payments Subject to Refund to the respective
Exchanging Partners, the Available Funds shall be used first to refund
Contingent Capacity Payments to the extent of such Available Funds, and second
to refund Firm Capacity Payments to the extent of any remaining Available Funds,
in each case with partial refunds to be made pro rata among the Exchanging
Partners in proportion to their respective applicable Payments Subject to
Refund), and amounts so refunded shall not be included in clause (i)(A) of this
Section 3.2(c); and
(y) any portions of the Payments Subject to Refund not so refunded to the
respective Exchanging Partners at the Closing shall be included in clause (i)(A)
of this Section 3.2(c) as part of the Adjustment Amounts of such Exchanging
Partners.
The refund of Available Funds shall be made at or within three business days
after the Closing. ONS and Newco shall deliver to the Exchanging Partners
simultaneously with such refund a certificate of their respective chief
financial officers setting forth in reasonable detail all calculations or
computations required or contemplated by this Section 3.2(c), including the
amount and application of the Available Funds. ONS and Newco shall provide
promptly, to any Exchanging Partner requesting the same, such additional detail
supporting such calculations and computations and such back-up or supporting
documentation as such Exchanging Partner may reasonably request.
3. TAX ADJUSTMENT
Section 3.2(c)(ii) of the Exchange Agreement is hereby amended to read in its
entirety as follows:
(ii) the product of the number of days in the Adjustment Period through and
including (but not beyond) January 29, 1997 multiplied by the Tax Adjustment
Factor for such Exchanging Partner, divided by
4. SALE OF CONVERTIBLE SUBORDINATED DEBENTURES
Notwithstanding the provisions of Section 5.8 of the Exchange Agreement
contemplating that Newco will, as of the Closing Date, complete a Convertible
Subordinated Debenture Offering of approximately $125 million, it is presently
intended that the Convertible Subordinated Debenture Offering consist only of
purchases of $50 million of Convertible Subordinated Debentures by BAe and $10
million of Convertible Subordinated Debentures by Matra Marconi Space, or
Affiliates thereof. Accordingly, all references in the Exchange Agreement to the
Convertible Subordinated Debenture Offering shall refer only to the $60 million
of Convertible Subordinated Debentures to be purchased by BAe and Matra Marconi
Space, or Affiliates thereof. While not intended to be legally binding, BAe
hereby reconfirms that it or its Affiliates intend to purchase from Newco $50
million of Convertible Subordinated Debentures on terms being negotiated between
BAe and ONS, and MCN Sat hereby confirms that Matra Marconi Space or its
Affiliates intends to purchase from Newco $10 million of Convertible
Subordinated Debentures on terms substantially the same as those ultimately
agreed upon by BAe and ONS for the BAe investment. Section 10.8 of the Exchange
Agreement is hereby amended to read in its entirety as follows:Newco shall have
raised at least $60 million from the sale of Convertible Subordi-
B-33
<PAGE>
nated Debentures, including the sale of $50 million of Convertible Subordinated
Debentures to BAe or its Affiliates and the sale of $10 million of Convertible
Subordinated Debentures to Matra Marconi Space or its Affiliates.
5. ELIMINATION OF KINGSTON INVESTMENT IN PPU INTEREST SHARES
Section 3.2(d) of the Exchange Agreement is hereby amended to delete such
Section in its entirety; Section 3.2(a)(iii) of the Exchange Agreement is hereby
amended to delete the language "other than interest paid to Kingston under
Section 3.2(d)" in its entirety; Section 3.2(b)(iii) of the Exchange Agreement
is hereby amended to delete the language "and PPU Interest Shares calculated as
set forth in Section 3.2(d)" in its entirety; the last paragraph of Section
3.2(b) of the Exchange Agreement is hereby amended to replace the language
"Section 3.2(b), in Sections 3.2(c) and 3.2(d)" with the language "Section
3.2(b) and in Section 3.2(c); and Section 3.2(c) of the Exchange Agreement is
hereby amended to delete the language "other than Kingston (or an Affiliate of
Kingston)" in its entirety.
6. ORION 2 SATELLITE CONTRACT
Section 9.7 of the Exchange Agreement shall be amended to read in its
entirety as follows:
The Option Agreement, dated December 10, 1996, between Orion Atlantic and
Matra Marconi Space ("Orion 2 Option Agreement"), shall be in full force and
effect; Orion Atlantic shall not be in default thereunder; and Orion Atlantic
shall have made all payments required to be made thereunder through the earlier
of the Closing Date and March 31, 1997. Restated Amendment #10, dated December
10, 1996, to the Second Amended and Restated Purchase Contract, dated as of
September 26, 1991, between Orion Atlantic and Matra Marconi Space, as amended,
shall be in full force and effect, and Orion Atlantic shall not be in default
thereunder.
7. MISCELLANEOUS
7(a) Defined Terms
Capitalized terms used in this Amendment and not otherwise defined in this
Amendment shall have the meanings provided for in the Exchange Agreement.
7(b)Governing Law
This Amendment, the rights and obligations of the parties hereto, and any
claims or disputes relating thereto, shall be governed by and construed in
accordance with the same laws as govern the Exchange Agreement.
7(c)Counterparts
To facilitate execution, this Amendment may be executed in as many
counterparts as may be required; and it shall not be necessary that the
signatures of, or on behalf of, each party, or that the signatures of all
persons required to bind any party, appear on each counterpart; but it shall be
sufficient that the signature of, or on behalf of, each party, or that the
signatures of the persons required to bind any party, appear on one or more of
the counterparts. All counterparts shall collectively constitute a single
agreement. It shall not be necessary in making proof of this Amendment to
produce or account for more than a number of counterparts containing the
respective signatures of, or on behalf of, all of the parties hereto.
7(d) Facsimile Execution
To facilitate execution, this Amendment may be executed through the use of
facsimile transmission, and a counterpart of this Amendment that contains the
facsimile signature of a party, which counterpart has been transmitted by
facsimile transmission to each of the other parties hereto at such facsimile
numbers as such other parties shall request, shall constitute an executed
counterpart of this Amendment.
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<PAGE>
7(e) Ratification
The Exchange Agreement, as amended and modified by this First Amendment, is
in all respects ratified and confirmed and the terms, covenants and agreements
thereof shall be and remain in full force and effect. The parties executing this
First Amendment agree that the Exchange Agreement, as amended and modified by
this First Amendment, shall be remain valid and binding upon such parties,
notwithstanding the failure of one or more Exchanging Partners to execute this
First Amendment and notwithstanding any such non-executing Exchanging Partner
seeking to terminate the Exchange Agreement as to such non-executing Exchanging
Partner under Section 13.1(b) of the Exchange Agreement after January 30, 1997
and before April 30, 1997.
7(f) Effectiveness of the Amendment
This First Amendment to Section 351 Exchange Agreement and Plan of Conversion
is being made pursuant to Section 14.5 of the Exchange Agreement which provides
that an amendment to the Exchange Agreement shall be valid and binding when set
forth in writing and duly executed and delivered by the party against whom
enforcement of the amendment is sought. The parties executing this First
Amendment agree that this First Amendment shall be valid and binding upon such
parties, notwithstanding the failure of one or more Exchanging Partners to
execute this First Amendment.
IN WITNESS WHEREOF, the undersigned have duly executed this Amendment, or
have caused this Amendment to be duly executed on their behalf, as of the day
and year first hereinabove set forth.INTERNATIONAL PRIVATE SATELLITE PARTNERS,
L.P.
INTERNATIONAL PRIVATE
SATELLITE PARTNERS, L.P.
By: Orion Satellite Corporation, its
general partner
By: /s/
-----------------------------------
ORION NETWORK SYSTEMS, INC.
By: /s/
-----------------------------------
ORION SATELLITE CORPORATION
By: /s/
-----------------------------------
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<PAGE>
BRITISH AEROSPACE
COMMUNICATIONS, INC.
By: /s/
-----------------------------------
COM DEV SATELLITE COMMUNICATIONS
LIMITED
By: /s/
-----------------------------------
KINGSTON COMMUNICATIONS
INTERNATIONAL LIMITED
By: /s/
-----------------------------------
LOCKHEED MARTIN COMMERCIAL LAUNCH
SERVICES, INC.
By: /s/
-----------------------------------
MCN SAT US, INC.
By: /s/
-----------------------------------
TRANS-ATLANTIC SATELLITE, INC.
By: /s/
-----------------------------------
B-36
<PAGE>
ATTACHMENT C
FORM OF
CERTIFICATE OF DESIGNATIONS,
RIGHTS AND PREFERENCES
OF
SERIES C 6% CUMULATIVE REDEEMABLE
CONVERTIBLE PREFERRED STOCK
OF
ORION NEWCO SERVICES, INC.
PURSUANT TO SECTION 151
OF THE GENERAL CORPORATION LAW
OF THE STATE OF DELAWARE
The undersigned DOES HEREBY CERTIFY that, pursuant to the authority contained
in Article FOURTH of the Certificate of Incorporation of Orion Newco Services,
Inc., a Delaware corporation (the "Corporation"), and in accordance with Section
151 of the General Corporation Law of the State of Delaware, the Board of
Directors of the Corporation has authorized the creation of a series of
Preferred Stock of the Corporation having the designation Series C 6% Cumulative
Redeemable Convertible Preferred Stock and having the powers, rights and
preferences, and the qualifications, limitations and restrictions thereof, as
are set forth in Exhibit A hereto and made a part hereof and that the following
resolution was duly adopted by the Board of Directors of the Corporation:
RESOLVED, that a series of authorized Preferred Stock, par value $0.01 per
share, of the Corporation be, and it hereby is, created; that the shares of such
series shall be, and they hereby are, designated as "Series C 6% Cumulative
Redeemable Convertible Preferred Stock;" that the number of shares constituting
such series shall be, and it hereby is, fixed at _______,000; and that the
powers, rights and preferences and the qualifications, limitations and
restrictions thereof, of the shares of such series are as set forth in Exhibit A
attached hereto and made a part hereof.
IN WITNESS WHEREOF, the Corporation has caused its corporate seal to be
hereunto affixed and this Certificate to be signed by its President and Chief
Executive Officer and attested to by its Vice President, Corporate and Legal
Affairs, and Secretary this day of , 1997.
ORION NEWCO SERVICES, INC.
By:
-----------------------------------
[SEAL] Name: W. Neil Bauer
Title: President/Chief Executive
Officer
ATTEST:
- -------------------------------------
Name: Richard H. Shay, Esq.
Title: Vice President, Corporate and
Legal Affairs/Secretary
<PAGE>
SERIES C 6% CUMULATIVE REDEEMABLE
CONVERTIBLE PREFERRED STOCK
The following sections set forth the powers, rights and preferences, and the
qualifications, limitations and restrictions thereof, of the Corporation's
Series C 6% Cumulative Redeemable Convertible Preferred Stock. Capitalized terms
used herein are defined in Section 10 below.
Section 1. Dividends.
1A. General Obligation. Subject to the preferential rights of Series A
Preferred Stock or Series B Preferred Stock ranking senior to the Preferred
Stock, the record holders of Preferred Stock shall be entitled to receive
dividends, when, as and if declared by the Corporation's board of directors (the
"Board") and to the extent permitted under the General Corporation Law of
Delaware, as amended, as provided in this Section 1, subject to paragraph 1F.
Dividends shall accrue on a daily basis commencing on the Date of Issuance of
each Preferred Share at the simple interest rate of 6% per annum of the
Liquidation Value thereof, and shall be payable as provided in paragraph 1B.
Dividends shall cease accruing upon the earliest to occur of (i) the date on
which the Liquidation Value of such Preferred Share is paid, (ii) the date on
which such Preferred Share is converted into shares of Common Stock hereunder,
or (iii) the Maturity Date. Such dividends shall accrue whether or not they have
been declared and whether or not there are net profits, surplus or other funds
of the Corporation legally available for the payment of dividends.
1B. Payment of Dividends. Subject to the provisions of paragraph 1A and
paragraph 1F, dividends shall be payable, in arrears, following each Dividend
Reference Date within twenty days after such Dividend Reference Date. The amount
of the dividend on each share of Preferred Stock payable following each Dividend
Reference Date shall equal the aggregate amount of all accrued and unpaid
dividends on such share of Preferred Stock from the Prior Dividend Date (or, in
the case of the first dividend paid with respect to such share, the Date of
Issuance of such Preferred Share) through such Dividend Reference Date. To the
extent any dividend is not paid within twenty days after a Dividend Reference
Date, all dividends which have accrued and remain unpaid on each outstanding
Preferred Share through such Dividend Reference Date shall be accumulated and
shall remain accumulated dividends with respect to such Preferred Share until
the date paid. No interest, dividend or sum of money in lieu of interest, shall
be payable in respect of any dividend payment or payments that may be accrued
and unpaid.
1C. Distribution of Partial Dividend Payments. Except in connection with
redemptions or repurchases pursuant to paragraph 3A or 3B below, if at any time
the Corporation pays less than the total amount of dividends then accrued with
respect to the Preferred Stock such payment shall be distributed ratably among
the holders thereof based upon the aggregate accrued but unpaid dividends on the
Preferred Shares held by each such holder and such payment shall be applied
first to dividends which have accrued on such Preferred Shares during the period
since the latest preceding Dividend Reference Date and second to reduce any
previously accumulated dividends with respect to such Preferred Shares.
1D. Payment of Dividends in Common Stock. Except as specifically provided
herein, the Corporation shall pay all dividends with respect to the Preferred
Stock (including, in the case of a redemption, any amount equal to accrued and
unpaid dividends constituting a portion of the Redemption Price) in fully paid
and non-assessable shares of Common Stock. The number of shares of Common Stock
distributable in a dividend on each share of Preferred Stock shall be equal to
the quotient obtained by dividing (a) the amount of such dividend, as determined
under paragraph 1B, by (b) the higher of (i) the Market Price of the Common
Stock on the Dividend Reference Date immediately preceding the dividend payment
and (ii) the Series A/B Dilution Price. When the Corporation pays a dividend to
the holders of Preferred Stock, the Corporation shall provide each holder of
Preferred Stock with a calculation of the aggregate number of shares of Common
Stock payable in such dividend, including the computation of the Market Price.
If any fractional interest in a share of Common Stock would, except for the
provisions of this sentence, be deliverable upon payment of any dividend in
shares of Common Stock, the Corporation, in lieu of delivering the fractional
share therefor, shall pay an amount to the holder thereof equal to the Market
Price of such fractional interest, calculated as set forth above in this
paragraph 1D.
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<PAGE>
1E. Dividends on Junior Securities. The Corporation shall not declare and pay
any dividends on Junior Securities unless all accrued and unpaid dividends on
the Preferred Stock have been paid in full.
1F. Certain Withholding Provisions. Notwithstanding any other provision of
Section 1, and without limiting the generality of the Board's power and
authority with respect to the declaration and payment of dividends, the Board
shall have and may exercise the power and authority to provide that the receipt
by each record holder of Preferred Shares entitled thereto of any dividend paid
by the Corporation as declared on the issued and outstanding Preferred Shares
shall be subject to the condition (the "Tax Payment Condition") that the
Corporation receive, at or prior to the time for payment of such dividend (the
"Payment Time"), from or on behalf of such record holder, payment in full of the
taxes, fees, duties, assessments, or other amounts, if any (the "Tax"), that the
Corporation is required under applicable law to pay or withhold in connection
with the declaration and payment to such record holder of such dividend. If the
Tax Payment Condition applies and has been satisfied, or has been duly waived by
the Corporation, at or prior to the Payment Time, at the Payment Time the
Corporation shall pay such dividend to such record holder. If the Tax Payment
Condition applies but has not been satisfied, and has not been duly waived by
the Corporation, at or prior to the Payment Time, at the Payment Time the
Corporation shall pay the dividend to which such record holder is entitled by
irrevocably depositing and setting aside such dividend with the Secretary of the
Corporation as escrow holder (the "Escrow Holder"). Upon the Escrow Holder's
receipt, from or on behalf of such record holder, of payment in full of the Tax,
plus any interest, penalty, or additional amount to be paid or withheld as a
result of the passage of time from and after the Payment Time (the "Escrow
Termination Time"), the Escrow Holder shall release such dividend to such record
holder and shall release such Tax, and such additional amount if any, to the
Corporation. If such dividend is paid in shares of Common Stock and is not
received at or prior to the Payment Time by the record holder of Preferred
Shares entitled to payment thereof, then (notwithstanding any provision hereof
to the contrary) until the Escrow Termination Time (and only until such time,
whether or not the dividend has been released by the Escrow Holder), such record
holder shall not be entitled to vote such shares of Common Stock for any
purpose, to receive payment of dividends or other distributions on such shares
of Common Stock, or to exercise any other rights or privileges in respect of
such shares of Common Stock, and the Escrow Holder shall have no right to vote
such shares of Common Stock or to exercise any other right or privilege in
respect thereof (whether in accordance with the wishes or directions of such
record holder or otherwise), but the Escrow Holder shall receive and hold in
escrow until the Escrow Termination Time together with such shares of Common
Stock any dividends paid or other distributions made on such shares of Common
Stock and at the Escrow Termination Time shall release such dividends paid or
other distributions made on such shares of Common Stock, if any, along with such
shares of Common Stock.
Section 2. Liquidation.
Subject to the provisions of Section 2 of each of the Series A Certificate
and the Series B Certificate: upon any Liquidation, each holder of Preferred
Stock shall be entitled to be paid, before any distribution or payment is made
upon any Junior Securities, an amount in cash equal to the greater of (a) the
aggregate Liquidation Value (plus an amount equal to all accrued and unpaid
dividends) of all shares of Preferred Stock held by such holder or (b) the
amount which would be distributed with respect to the shares of Common Stock
(including fractional shares for purposes of this calculation) into which such
shares of Preferred Stock are convertible (assuming conversion of all
outstanding Preferred Stock) immediately prior to the record date for such
distribution (or, if there is no such record date, then the date as of which the
holders of Common Stock entitled to such distribution are determined), and the
holders of Preferred Stock shall not be entitled to any further payment; and if
upon any such Liquidation the Corporation's assets to be distributed among the
holders of the Preferred Stock are insufficient to permit payment to such
holders of the aggregate amount which they are entitled to be paid, then the
entire assets to be distributed shall be distributed ratably among such holders
based upon the aggregate Liquidation Value (plus all accrued and unpaid
dividends) of the Preferred Shares held by each such holder. Prior to such
Liquidation, the Corporation shall (to the extent permitted by law) declare for
payment all accrued and unpaid dividends with respect to the Preferred Stock,
which dividends shall be payable in cash notwithstanding the provisions of
paragraph 1D. (Payment of the greater of the amounts specified in clauses (a)
and (b) of this Section 2 in respect of such Preferred Shares shall constitute
C-3
<PAGE>
payment of such declared dividends.) The Corporation shall mail written notice
of such Liquidation, not less than 60 days prior to the payment date stated
therein, to each record holder of Preferred Stock.
Section 3. Redemptions.
3A. Redemption at the Maturity Date. At the Maturity Date the Corporation
shall redeem all of the Preferred Shares then outstanding for a price equal to
the Redemption Price. The Corporation shall pay the Redemption Price for the
Preferred Shares within thirty (30) days after the Maturity Date (or such later
date upon which the certificates evidencing the Preferred Shares are surrendered
to the Corporation).
3B. Redemption at the Option of the Corporation. At any time after the
Initial Redemption Date, or, if prior to the Initial Redemption Date,
immediately prior to the consummation of any consolidation, merger or sale in
which the successor entity or purchasing entity is other than the Corporation,
to the extent that it has funds legally sufficient therefor, the Corporation may
redeem all or, subject to the last sentence of this paragraph, a portion of the
Preferred Shares then outstanding for the Redemption Price. The number of
Preferred Shares to be redeemed from each holder thereof in a partial redemption
pursuant to this paragraph 3B shall be the number of Preferred Shares determined
by multiplying the total number of Preferred Shares to be redeemed by a
fraction, the numerator of which shall be the total Redemption Price of
Preferred Shares then held by such holder and the denominator of which shall be
the aggregate Redemption Price of Preferred Shares then outstanding.
3C. Redemption Payment. For each Preferred Share which is to be redeemed, the
Corporation shall be obligated to pay the Redemption Price to the holder thereof
on the Redemption Date or such later date upon which occurs the surrender by
such holder at the Corporation's principal office of the certificate
representing such Preferred Share. Subject to the provisions of paragraph 4C of
the Series A Certificate and paragraph 4C of the Series B Certificate, if the
funds of the Corporation legally available for payment of the cash portion of
the Redemption Price of Preferred Shares on any Redemption Date are insufficient
to pay the cash portion of the Redemption Price for the total number of
Preferred Shares to be redeemed on such date, those funds which are legally
available shall be used to redeem the maximum possible number of such Preferred
Shares ratably among the holders of the Preferred Shares to be redeemed based
upon the aggregate Redemption Price of the Preferred Shares held by each such
holder and the remaining Preferred Shares called for redemption will remain
outstanding; and at any time thereafter when additional funds of the Corporation
are legally available for the redemption of Preferred Shares, such funds shall
immediately be used to redeem the balance of the Preferred Shares which the
Corporation has become obligated to redeem on any Redemption Date but which it
has not redeemed. Payment of the Redemption Price in respect of such Preferred
Shares shall extinguish all rights to dividends that are accrued and unpaid as
of the Redemption Date with respect to the Preferred Shares which are redeemed
on such Redemption Date.
3D. Notice of Redemption. The Corporation shall mail written notice of each
redemption of any Preferred Stock to each record holder of Preferred Stock not
more than 60 nor less than 30 days prior to the date on which such redemption is
to be made specifying (a) the number of shares of Preferred Stock to be redeemed
by the Corporation and (b) the Redemption Date. Upon mailing any such notice of
redemption, the Corporation shall become obligated to redeem the total number of
Preferred Shares specified in such notice at the time of redemption specified
therein and upon the surrender on or before such time of the certificates
representing such Preferred Shares. If one or more holders of Preferred Shares
being redeemed shall fail to surrender the certificates representing such
Preferred Shares by the Redemption Date, the Corporation shall pay the
Redemption Price by irrevocably depositing or setting aside the required amount
to be paid promptly upon surrender of such certificates. Such deposit or set
aside shall be deemed payment of the Redemption Price to the holder for whom it
is deposited or set aside. In case fewer than the total number of Preferred
Shares represented by any certificate are redeemed, a new certificate
representing the number of unredeemed Preferred Shares shall be issued to the
holder thereof without cost to such holder within three Business Days after
surrender of the certificate representing the redeemed Preferred Shares.
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<PAGE>
3E. Dividends after Redemption Date. No Preferred Share that is redeemed is
entitled to any dividends accruing after the Redemption Date. On the Redemption
Date of any Preferred Share, all rights of the holder of such Preferred Share
shall cease, and such Preferred Share shall be deemed to be no longer
outstanding.
3F. Redeemed or Otherwise Acquired Preferred Shares. Any Preferred Shares
which are redeemed, converted or otherwise acquired by the Corporation thereupon
shall be retired. All such shares shall upon their retirement become authorized
but unissued shares of preferred stock of the Corporation and may not be
reissued as Preferred Stock but may be reissued as part of a new series of
preferred stock to be created by resolution or resolutions of the board of
directors, subject to the conditions or restrictions on issuance set forth in
the certificate of incorporation of the Corporation.
Section 4. Voting Rights.
The holders of the Preferred Stock shall be entitled to notice of all
stockholders meetings in accordance with the Corporation's bylaws, and except as
otherwise required by law, the holders of the Preferred Stock shall be entitled
to vote on all matters submitted to the stockholders for a vote together with
the holders of the Common Stock voting together as a single class with each
share of Common Stock entitled to one vote per share, and each Preferred Share
(including fractional shares) entitled to one vote for each whole share of
Common Stock that would be issuable upon conversion of such Preferred Share at
the time the vote is taken.
Section 5. Conversion.
5A. Conversion Procedure.
(i) At any time and from time to time after the issuance thereof, any holder
of Preferred Stock may convert all or any of the Preferred Shares (including any
fraction of a Preferred Share) held by such holder into a number of shares of
Common Stock equal to the sum of: (a) the number of shares of Common Stock
computed by multiplying the number of Preferred Shares to be converted by the
Liquidation Value of a Preferred Share, and dividing the result by the
Conversion Price then in effect, plus (b) the number of shares of Common Stock
that would be payable if all accrued but unpaid dividends were declared and paid
on the Preferred Shares to be converted. For purposes of determining the amount
of dividends payable or that would be payable with respect to a conversion under
Section 5, the date for determining the Market Price shall be the Business Day
immediately preceding the date on which conversion is deemed to have been
effected.
(ii) Each conversion of Preferred Stock shall be deemed to have been effected
as of the close of business on the date on which the certificate or certificates
representing the Preferred Shares to be converted have been surrendered at the
principal office of the Corporation, together with written notice of the
holder's desire to convert such Preferred Shares. At such time as such
conversion has been effected, the rights of the holder of such Preferred Shares
as such holder shall cease, and the Person or Persons in whose name or names any
certificate or certificates for shares of Common Stock are to be issued upon
such conversion shall be deemed to have become the holder or holders of record
of the shares of Common Stock represented thereby, which Common Stock shall be
deemed to have been issued as of such time. Issuance of Common Stock by the
Corporation to effect any conversion shall extinguish all rights to dividends
that are accrued and unpaid as of the date on which conversion is to be made
with respect to the Preferred Shares which are to be converted on such date.
(iii) The conversion rights of any Preferred Share subject to redemption
hereunder shall terminate on the Redemption Date for such Preferred Share unless
the Corporation has failed to pay to the holder thereof the Redemption Price
thereof.
(iv) Notwithstanding any other provision hereof, if a conversion of any
Preferred Shares is to be made in connection with a Public Offering or prior to
a redemption, such conversion may, at the election of the holder of such
Preferred Shares, be conditioned upon the consummation of the Public Offering or
the redemption occurring on or before a specified date, in which case
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<PAGE>
such conversion shall not be deemed to be effective until the consummation of
the Public Offering or unless the redemption occurs on or before the specified
date.
(v) As soon as possible after a conversion has been effected (but in any
event within three Business Days in the case of subparagraph (a) below), the
Corporation shall deliver to the converting holder:
(a) a certificate or certificates representing the number of shares of Common
Stock issuable by reason of such conversion in such name or names and such
denomination or denominations as the converting holder has specified;
(b) payment of the amount payable under subparagraph (viii) below with
respect to such conversion; and
(c) a certificate representing any Preferred Shares which were represented by
the certificate or certificates delivered to the Corporation in connection with
such conversion but which were not converted.
(vi) The issuance of certificates for shares of Common Stock upon conversion
of Preferred Stock shall be made without charge to the holders of such Preferred
Stock for any issuance tax in respect thereof or other cost incurred by the
Corporation in connection with such conversion and the related issuance of
shares of Common Stock.
(vii) The Corporation shall not close its books against the transfer of
Preferred Stock or of Common Stock issued or issuable upon conversion of
Preferred Stock in any manner which interferes with the timely conversion of
Preferred Stock. The Corporation shall assist and cooperate (but the Corporation
shall not be required to expend substantial efforts or funds) with any holder of
Preferred Shares required to make any governmental filings or obtain any
governmental approval prior to or in connection with any conversion of Preferred
Shares hereunder (including, without limitation, making any filings required to
be made by the Corporation).
(viii) If any fractional interest in a share of Common Stock would, except
for the provisions of this subparagraph, be deliverable upon any conversion of
shares of a holder's Preferred Stock, the Corporation, in lieu of delivering the
fractional share therefor, shall pay an amount to the holder thereof equal to
the Market Price of such fractional interest as of the Business Day immediately
preceding the date of conversion.
(ix) The Corporation shall at all times reserve and keep available out of its
authorized but unissued shares of Common Stock, solely for the purpose of
issuance upon the conversion of the Preferred Stock, not less than the number of
shares of Common Stock issuable upon the conversion of all outstanding Preferred
Stock which may then be exercised. All shares of Common Stock which are so
issuable shall, when issued, be duly and validly issued, fully paid and
nonassessable and free from all taxes, liens and charges. The Corporation shall
take all such actions as may be necessary to ensure that all such shares of
Common Stock may be so issued without violation of any applicable law or
governmental regulation or any requirements of any domestic securities exchange
upon which shares of Common Stock may be listed (except for official notice of
issuance which shall be immediately delivered by the Corporation upon each such
issuance).
5B. Subdivision or Combination of Common Stock. If the Corporation at any
time subdivides (by any stock split, stock dividend, recapitalization or
otherwise) the outstanding shares of one or more classes of Common Stock into a
greater number of shares, the Conversion Price (and the Trigger Price and Series
A/B Dilution Price) in effect immediately prior to such subdivision shall be
proportionately reduced, and if the Corporation at any time combines (by reverse
stock split or otherwise) the outstanding shares of one or more classes of
Common Stock into a smaller number of shares, the Conversion Price (and the
Trigger Price and Series A/B Dilution Price) in effect immediately prior to such
combination shall be proportionately increased.
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<PAGE>
5C. Reorganization, Reclassification, Consolidation, Merger or Sale. In
connection with any Reorganization, (i) the holders of Preferred Stock shall
thereafter have the right to acquire and receive, in lieu of or in addition to
(as the case may be) the shares of Common Stock immediately theretofore
acquirable and receivable upon the conversion of such holder's Preferred Stock,
such shares of stock, securities, cash or other assets (or, if not practicably
attainable, the reasonable equivalent thereof) as such holder would have
received in connection with such Reorganization if such holder had converted its
Preferred Stock immediately prior to such Reorganization, and (ii) dividends and
amounts in respect of dividends hereunder payable in shares of Common Stock
prior to such Reorganization shall be payable, in lieu of each share of Common
Stock, in such shares of stock, securities, cash or other assets (or reasonable
equivalent thereof) as the holder of one share of Common Stock received in
connection with such Reorganization. The Corporation shall make appropriate
provisions to ensure that the requirements of the previous sentence are
effected. In each such case, the Corporation shall also make appropriate
provisions to ensure that the provisions of this Section 5 and Sections 6 and 7
shall thereafter be applicable to the Preferred Stock.
5D. Notices.
(i) Immediately upon any adjustment of the Conversion Price, the Corporation
shall give written notice thereof to all holders of Preferred Stock, setting
forth in reasonable detail and certifying the calculation of such adjustment.
(ii) The Corporation shall give written notice to all holders of Preferred
Stock at least 20 days prior to the date on which the Corporation closes its
books or fixes a record date (a) with respect to any dividend or distribution
upon Common Stock, (b) with respect to any pro rata subscription offer to
holders of Common Stock or (c) for determining rights to vote with respect to
any Liquidation or Reorganization.
5E. Mandatory Conversion. The Corporation may require, by written notice to
all holders of Preferred Stock, the conversion of all of the outstanding
Preferred Stock into a number of shares of Common Stock equal to the sum of: (a)
the number of shares of Common Stock computed by multiplying the number of
Preferred Shares to be converted by the Liquidation Value of a Preferred Share,
and dividing the result by the applicable Conversion Price then in effect, plus
(b) the number of shares of Common Stock that would be payable if all accrued
but unpaid dividends were declared and paid on the Preferred Shares to be
converted; provided that the Closing Price of the Common Stock (adjusted
proportionately for stock dividends, stock splits, combinations, and similar
changes in the Common Stock occurring after the Closing) on at least twenty (20)
of the thirty (30) latest trading days preceding the date of the Corporation's
notice has been greater than or equal to the Conversion Price. If the
Corporation shall require the conversion of the Preferred Stock under this
Section 5E within two years from the Initial Date of Issuance, then the number
of shares of Common Stock into which the shares of Preferred Stock are converted
shall be increased by the number of shares of Common Stock that would be payable
if the Corporation were immediately to declare and pay all dividends that in the
absence of conversion would have accrued on such shares of Preferred Stock over
the six-month period immediately following the date of conversion; provided,
however, that the total dividends and amounts in respect of dividends paid on
the Preferred Stock after the Date of Issuance thereof, including any additional
amounts in respect of dividends paid as a result of a required conversion under
this Section 5E, shall not be less than the amount of dividends that would have
accrued on all outstanding shares of the Preferred Stock for one full year
following the Initial Date of Issuance.
Any conversion of shares of Preferred Stock under this Paragraph 5E shall be
effected and be deemed to have been effected as of the close of business on the
date on which the Corporation provides written notice of such conversion to the
holders of such shares of Preferred Stock (the "Mandatory Conversion Time"), and
as of the Mandatory Conversion Time, the rights of the holders of the converted
shares of Preferred Stock, as such, shall cease and terminate, such converted
shares of Preferred Stock shall be retired in accordance with paragraph 3F, the
shares of Common Stock into which such shares of Preferred Stock are converted
shall be issued and deemed to have been issued, the certificate(s) that
theretofore represented shares of Preferred Stock thereafter shall represent the
number of shares of Common Stock into which the shares of Preferred Stock
theretofore represented thereby shall
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have been converted, and the holder of any such certificate, upon the surrender
thereof to the Corporation, shall be entitled to receive from the Corporation a
new certificate representing the number of shares of Common Stock into which the
shares of Preferred Stock theretofore represented thereby shall have been
converted.
5F. Effect on Conversion Price of Certain Events.
(i) General. In order to prevent dilution of the conversion rights granted
under this Section 5, the Conversion Price shall be subject to adjustment from
time to time pursuant to this paragraph 5F.
(ii) Adjustment of Conversion Price. If and whenever on or after the Date of
Issuance the Corporation issues or sells, or in accordance with this paragraph
5F is deemed to have issued or sold, other than in an Excluded Issuance, any
share of Common Stock for a consideration per share less than the Trigger Price
in effect immediately prior to such time (a "Dilutive Event"), then forthwith
upon such issue or sale in the Dilutive Event the Conversion Price shall be
reduced by multiplying the Conversion Price in effect immediately before the
Dilutive Event by a fraction, the numerator of which is the number of shares of
Common Stock that are Outstanding on an As-Converted Basis (as defined below)
immediately before the Dilutive Event plus the number of shares of Common Stock
that could be purchased at the Trigger Price at the time of the Dilutive Event
for the aggregate consideration paid or payable upon the sale or issuance of
Common Stock in the Dilutive Event, and the denominator of which is the number
of shares of Common Stock that are Outstanding on an As-Converted Basis
immediately before the Dilutive Event plus the number of shares that are
acquired or to be acquired upon the sale or issuance of the Common Stock in the
Dilutive Event. For purposes of this paragraph 5F(ii), "Outstanding on an
As-Converted Basis" immediately before the Dilutive Event means the sum of (i)
all Common Stock issued and outstanding immediately before the Dilutive Event
plus (ii) all Common Stock issuable upon the exercise of Options or conversion
of Convertible Securities outstanding immediately before the Dilutive Event
(other than Preferred Stock).
(iii) Issuance of Rights or Options. If the Corporation in any manner grants
any Options and the price per share for which shares of Common Stock are
issuable upon the exercise of any such Option is less than the Trigger Price in
effect immediately prior to the time of the granting of such Option, then such
shares of Common Stock shall be deemed to have been issued and sold by the
Corporation at the time of the granting of such Options for such price per share
and the Conversion Price shall be adjusted in accordance with paragraph 5F(ii)
above. For purposes of this paragraph, the "price per share" for which shares of
Common Stock are issuable upon the exercise of any Option shall be equal to the
sum of the amounts of consideration (if any) received or receivable by the
Corporation with respect to such shares of Common Stock upon the granting of the
Option and upon exercise of the Option. No further adjustment of the Conversion
Price shall be made upon the actual issue of such Common Stock upon the exercise
of such Options.
(iv) Issuance of Convertible Securities. If the Corporation in any manner
issues or sells any Convertible Security (or Options to purchase any Convertible
Security) and the price per share for shares of Common Stock that are issuable
upon conversion or exchange thereof is less than the Trigger Price in effect
immediately prior to the time of such issue or sale (or the granting of such
Option), then such shares of Common Stock shall be deemed to have been issued
and sold by the Corporation at the time of the issuance or sale of such
Convertible Securities (or the granting of such Option) for such price per share
and the Conversion Price shall be adjusted in accordance with paragraph 5F(ii)
above. For the purposes of this paragraph, the "price per share" for which
shares of Common Stock are issuable upon conversion or exchange of any
Convertible Security (or exercise of any Option therefor) shall be equal to the
sum of the amounts of consideration (if any) received or receivable by the
Corporation upon the issuance of the Convertible Security (or such Option) and
upon the conversion or exchange of such Convertible Security (or exercise of
such Option). No further adjustment of the Conversion
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Price shall be made upon the actual issue of such Common Stock upon conversion
or exchange of any Convertible Security, and if any such issue or sale of such
Convertible Security is made upon exercise of any Options for which adjustments
of the Conversion Price had been or are to be made pursuant to other provisions
of this Section 5, no further adjustment of the Conversion Price shall be made
by reason of such issue or sale.
(v) Change in Option Price or Conversion Rate. If the purchase price provided
for in any Option, the additional consideration (if any) payable upon the issue,
conversion or exchange of any Convertible Security, or the rate at which any
Convertible Security is convertible into or exchangeable for Common Stock change
at any time, any Conversion Price previously adjusted with respect to such
Option or Convertible Security and in effect at the time of such change shall be
readjusted to the Conversion Price which would have been in effect at such time
had such Option or Convertible Security originally provided for such changed
purchase price, additional consideration or changed conversion rate, as the case
may be, at the time initially granted, issued or sold.
(vi) Treatment of Expired Options and Unexercised Convertible Securities.
Upon the expiration of any Option or the termination of any right to convert or
exchange any Convertible Security without the exercise of any such Option or
right, any Conversion Price then in effect hereunder shall be adjusted to the
Conversion Price which would have been in effect at the time of such expiration
or termination had such Option or Convertible Security, to the extent
outstanding immediately prior to such expiration or termination, never been
issued.
(vii) Calculation of Consideration Received. If any Common Stock, Option or
Convertible Security is issued or sold or deemed to have been issued or sold for
cash, the consideration received therefor shall be deemed to be the amount
received by the Corporation therefor. In case any Common Stock, Options or
Convertible Securities are issued or sold for a consideration other than cash,
the amount of the consideration other than cash received by the Corporation
shall be the fair value of such consideration, except where such consideration
consists of securities, in which case the amount of consideration received by
the Corporation shall be the Market Price thereof as of the date of receipt. If
any Common Stock, Option or Convertible Security is issued to the owners of the
non-surviving entity in connection with any merger in which the Corporation is
the surviving corporation, the amount of consideration therefor shall be deemed
to be the fair value of such portion of the assets and business of the
non-surviving entity as is attributable to such Common Stock, Options or
Convertible Securities, as the case may be. The fair value of any consideration
other than cash and securities shall be as determined in good faith by the Board
of Directors of the Corporation.
(viii) Integrated Transactions. In case any Option is issued in connection
with the issue or sale of other securities of the Corporation, together
comprising one integrated transaction in which no specific consideration is
allocated to such Option by the parties thereto, the Option shall be deemed to
have been issued for a consideration of $.01.
(ix) Treasury Shares. For purposes of calculating under this paragraph 5F the
number of shares of Common Stock outstanding at any given time, the number of
shares of Common Stock outstanding at such time does not include shares owned or
held by or for the account of the Corporation or any subsidiary thereof, and the
disposition of any shares so owned or held shall be considered an issue or sale
of Common Stock.
(x) De Minimis Adjustments. Notwithstanding any other provisions of this
Section 5, the Corporation shall not be required to make any adjustment of the
Conversion Price unless such adjustment would require an increase or decrease of
at least one percent (1%) in the Conversion Price as then in effect. Any lesser
adjustment shall be carried forward and shall be made no later than the time of,
and together with, the next subsequent adjustment which, together with any
adjustment or adjustments so carried forward, shall amount to an increase or
decrease of at least one percent (1%) of the Conversion Price as then in effect.
If any action would require adjustment of the Conversion Price pursuant to more
than one subparagraph of this
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paragraph 5F, only one adjustment shall be made as determined in good faith by
the Board of Directors of the Corporation.
Section 6. Liquidating Dividends.
If the Corporation declares or pays a Liquidating Dividend upon the Common
Stock, then the Corporation shall pay to the holders of Preferred Stock at the
time of payment thereof the Liquidating Dividend which would have been paid to
such holders had such Preferred Stock been converted immediately prior to the
record date fixed for determining the stockholders entitled to receive payment
of such Liquidating Dividend, or, if no record date is fixed, the date as of
which the record holders of Common Stock entitled to such dividends are to be
determined.
Section 7. Purchase Rights.
If at any time the Corporation grants, issues or sells any Purchase Rights
pro rata to the record holders of any class of Common Stock, then each holder of
Preferred Stock shall be entitled to acquire, upon the terms applicable to such
Purchase Rights, the aggregate Purchase Rights which such holder would have
acquired if such holder had held the number of shares of Common Stock acquirable
upon conversion of such holder's Preferred Shares immediately before the date on
which a record is taken for the grant, issuance or sale of such Purchase Rights,
or, if no such record is taken, the date as of which the record holders of
Common Stock are to be determined for the grant, issue or sale of such Purchase
Rights.
Section 8. Registration of Transfer.
The Corporation shall keep at its principal office a register for the
registration of issuances and transfers of Preferred Stock. Upon the surrender
of any certificate representing Preferred Stock at such place, the Corporation
shall, at the request of the record holder of such certificate, execute and
deliver (at the Corporation's expense) a new certificate or certificates in
exchange therefor representing in the aggregate the number of Preferred Shares
represented by the surrendered certificate. Each such new certificate shall be
registered in such name and shall represent such number of Preferred Shares as
is requested by the holder of the surrendered certificate and shall be
substantially identical in form to the surrendered certificate, and dividends
shall accrue on the Preferred Stock represented by such new certificate from the
date to which dividends have been fully paid on such Preferred Stock represented
by the surrendered certificate.
Section 9. Replacement.
Upon receipt of evidence reasonably satisfactory to the Corporation (an
affidavit of the registered holder shall be satisfactory) of the ownership and
the loss, theft, destruction or mutilation of any certificate evidencing
Preferred Shares, and in the case of any such loss, theft or destruction, upon
receipt of indemnity reasonably satisfactory to the Corporation (provided that
if the holder is a financial institution or other institutional investor, its
own agreement shall be satisfactory), or, in the case of any such mutilation
upon surrender of such certificate, the Corporation shall (at its expense)
execute and deliver in lieu of such certificate a new certificate of like kind
representing the number of Preferred Shares represented by such lost, stolen,
destroyed or mutilated certificate and dated the date of such lost, stolen,
destroyed or mutilated certificate, and dividends shall accrue on the Preferred
Stock represented by such new certificate from the date to which dividends have
been fully paid on the Preferred Shares represented by such lost, stolen,
destroyed or mutilated certificate.
Section 10. Definitions.
"Bond Offering" means an underwritten offering of notes or debentures of the
Corporation to the public, with or without Options, primarily for the purpose of
refinancing the indebtedness of International Private Satellite Partners, L.P.
("Orion Atlantic") outstanding under the Credit Agreement dated December 6, 1991
among Orion Atlantic, the Banks named therein and The Chase Manhattan Bank
(National Association), as Agent.
"Business Day" means a day on which banks are generally open for business in
New York City.
"Closing" means ______ ___, 1997.
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"Closing Price" of each share of Common Stock or other security means the
composite closing price of the sales of the Common Stock or such other security
on all securities exchanges on which such security may at the time be listed (as
reported in The Wall Street Journal), or, if there has been no sale on any such
exchange on any day, the average of the highest bid and lowest asked prices of
the Common Stock or such other security on all such exchanges at the end of such
day, or, if such security is not so listed, the closing price (or last price, if
applicable) of sales of the Common Stock or such other security in the Nasdaq
National Market (as reported in The Wall Street Journal) on such day, or if such
security is not quoted in the Nasdaq National Market but is traded
over-the-counter, the average of the highest bid and lowest asked prices on such
day in the over-the-counter market as reported by the National Quotation Bureau
Incorporated, or any similar successor organization.
"Common Stock" means, collectively, the Corporation's common stock, par value
$0.01 per share, and any capital stock of any class of the Corporation hereafter
authorized which is not limited to a fixed sum or percentage of par or stated
value in respect to the rights of the holders thereof to participate in
dividends or in the distribution of assets upon any Liquidation of the
Corporation; and if there is a change such that the securities issuable upon
conversion of the Preferred Stock are issued by an entity other than the
Corporation or there is a change in the class of securities so issuable, then
the term "Common Stock" shall mean one share of the security issuable upon
conversion of the Preferred Stock if such security is issuable in shares, or
shall mean the smallest unit in which such security is issuable if such security
is not issuable in shares.
"Conversion Price" shall mean, with respect to any Series C Share, $17.50
(subject to adjustment as provided in Section 5 for events occurring after its
Date of Issuance).
"Convertible Securities" means any stock or other securities of the
Corporation convertible into or exchangeable for Common Stock.
"Convertible Subordinated Debenture Offering" means an offering of
convertible subordinated debentures of the Corporation to the public, which
debentures would be convertible into Common Stock.
"Corporation" means Orion Newco Services, Inc., a Delaware corporation.
"Date of Issuance," with respect to any Preferred Share, means the date on
which the Corporation initially issues such Preferred Share, regardless of the
number of times transfer of such Preferred Share is made on the stock records
maintained by or for the Corporation and regardless of the number of
certificates which may be issued to evidence such Preferred Share.
"Dividend Reference Date" mean [___________] of each year, commencing
__________, 1997, and each of the following: (i) the date on which the
Liquidation Value of such Preferred Share is paid, (ii) the date on which such
Preferred Share is converted into shares of Common Stock hereunder, and (iii)
the Maturity Date.
"Excluded Issuance" means the issue or sale of (i) shares of Common Stock in
respect of any transaction described in paragraph 5B (including without
limitation any stock split, stock dividend or recapitalization), (ii) shares of
Common Stock by the Corporation pursuant to the exercise of Options and
Convertible Securities outstanding immediately prior to the Closing at exercise
prices that are greater than or equal to the respective exercise prices in
effect as of Closing (as adjusted pursuant to the terms of such securities to
give effect to stock dividends or stock splits or a combination of shares in
connection with a recapitalization, merger, consolidation or other
reorganization occurring after the Closing), (iii) up to an aggregate of 150,000
shares of Common Stock by the Corporation for any purpose, (iv) Options to
acquire Common Stock by the Corporation pursuant to a resolution of, or a stock
option plan approved by a resolution of, the Board of Directors of the
Corporation (or the compensation committee thereof) to the Corporation's
employees or directors, (v) shares of Common Stock, Options or Convertible
Securities (or shares of Common Stock pursuant to the exercise of Options and
Convertible Securities) as part of or in connection with a Bond Offering or a
Convertible Subordinated Debenture Offering.
"Initial Date of Issuance" means the Date of Issuance of the first share of
Preferred Stock to be issued.
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"Initial Redemption Date" means the earlier of (i) the close of business on
______, 1999. [two years from the Date of Issuance] or (ii) the effective date
of a Reorganization.
"Junior Securities" means Common Stock and any other capital stock or other
equity securities issued by the Corporation, whether currently existing or
hereafter authorized or issued (other than Series A Preferred or Series B
Preferred or any other series of preferred stock of the Corporation issued
pursuant to an option granted to purchasers of Series A Preferred in connection
with the initial issuances of Series A Preferred by the Corporation).
"Liquidation" means the liquidation, dissolution or winding up of the
Corporation; provided, however, that neither the consolidation or merger of the
Corporation into or with any other entity or entities, nor the sale or transfer
by the Corporation of all or any part of its assets, nor the reduction of the
capital stock of the Corporation, shall be deemed to be a liquidation,
dissolution or winding up of the Corporation.
"Liquidating Dividend" means a dividend upon the Common Stock payable
otherwise than in cash out of legally available funds (determined in accordance
with generally accepted accounting principles, consistently applied) except for
a stock dividend payable in shares of Common Stock.
"Liquidation Value" of any Preferred Share shall be equal to $1,000.
"Market Price" of each share of Common Stock or other security means, with
respect to a specified date, the Closing Price of such share or other security,
averaged over a period of the 20 consecutive Business Days prior to such date.
If during this period such security is not listed on any securities exchange,
quoted in the Nasdaq National Market, or quoted in the over-the-counter market,
the Market Price will be the fair value of such shares of Common Stock or
security determined by agreement between the Corporation and the holders of a
majority of the outstanding Preferred Shares. If such parties are unable to
reach agreement within a reasonable period of time, the fair value of such
security shall be determined by an independent appraiser experienced in valuing
such type of consideration jointly selected by the Corporation and the holders
of a majority of the outstanding Preferred Shares. The determination of such
appraiser shall be final and binding upon the parties, and the fees and expenses
of such appraiser shall be borne by the Corporation.
"Maturity Date" means the close of business on ______ __, 2022. [25 years
from the Date of Issuance]
"Options" means any options, warrants or rights to subscribe for or to
purchase Common Stock or any Convertible Securities.
"Person" means an individual, a partnership, a corporation, an association, a
joint stock company, a limited liability company, a trust, a joint venture, an
unincorporated organization and a governmental entity or any department, agency
or political subdivision thereof.
"Preferred Share" means a share of Series C Preferred.
"Preferred Stock" means the Series C Preferred.
"Prior Dividend Date" means, with respect to a Dividend Reference Date, the
previous Dividend Reference Date following which dividends were paid on shares
of Preferred Stock hereunder (or, if there is no such previous Dividend
Reference Date, the Date of Issuance).
"Public Offering" means any offering by the Corporation of its equity
securities to the public pursuant to an effective registration statement under
the Securities Act of 1933, as then in effect, or any comparable statement under
any similar federal statute then in force; provided, that "Public Offering"
shall not include an offering made in connection with a business acquisition or
combination or an employee benefit plan.
"Purchase Rights" means any Options, Convertible Securities or rights to
purchase stock, warrants, securities or other property.
"Redemption Date" means the date on which the Redemption Price of a Preferred
Share is paid to the holder thereof.
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"Redemption Price" means the Liquidation Value of such Preferred Share,
payable in cash, plus an amount equal to all accrued and unpaid dividends
thereon, payable in shares of Common Stock pursuant to paragraph 1D.
"Reorganization" means any recapitalization, reorganization,
reclassification, consolidation, merger, sale of all or substantially all of the
Corporation's assets to another Person or other transaction which is effected in
such a manner that holders of Common Stock are entitled to receive (either
directly or upon subsequent liquidation) stock, securities or assets with
respect to or in exchange for Common Stock.
"Series A Certificate" means the Certificate of Designations, Rights and
Preferences for the Series A Preferred.
"Series B Certificate" means the Certificate of Designations, Rights and
Preferences for the Series B Preferred.
"Series A Preferred" means the Corporation's Series A 8% Cumulative
Redeemable Convertible Preferred Stock, par value $.01 per share.
"Series B Preferred" means the Corporation's Series B 8% Cumulative
Redeemable Convertible Preferred Stock, par value $.01 per share.
"Series C Preferred" means the Corporation's Series C 6% Cumulative
Redeemable Convertible Preferred Stock, par value $.01 per share.
"Series A/B Dilution Price" means, at any time, the conversion price for the
Series B Preferred as then in effect under the Series B Certificate.
"Series A Share" means a share of Series A Preferred.
"Series B Share" means a share of Series B Preferred.
"Series C Share" means a share of Series C Preferred.
"Trigger Price" shall mean, with respect to any Series C Share, $14.00
(subject to adjustment as provided in Section 5B for events occurring after its
Date of Issuance).
Section 11. Amendment and Waiver.
No amendment, modification or waiver shall be binding or effective with
respect to any provision hereof without the prior affirmative vote or written
consent of the holders of a majority of the Preferred Shares outstanding at the
time such action is taken; provided, however, that without the prior affirmative
vote or written consent of each holder individually holding at least 51% of the
Preferred Stock then outstanding, no such action shall change (i) the rate at
which or the manner in which dividends on the Preferred Stock accrue or the form
of consideration in which such dividends are payable or the times at which such
dividends become payable or the amount payable on redemption of the Preferred
Stock or the times at which redemption of Preferred Stock is to occur, (ii) any
Conversion Price of the Preferred Stock or the number of shares or class of
stock into which the Preferred Stock is convertible, (iii) the priority of
payment of dividends to the Preferred Stock, (iv) the Liquidation Value, (v) the
voting rights of the Preferred Stock, (vi) the rights of the Preferred Stock
upon a reorganization, (vii) the provisions for mandatory conversion of the
Preferred Stock, (viii) the rights of holders of the Preferred Stock to acquire
Purchase Rights, or (ix) the percentage required to approve any change in this
Section 11.
Section 12. Notices.
Except as otherwise expressly provided hereunder, all notices referred to
herein shall be in writing and shall be delivered by registered or certified
mail, return receipt requested and postage prepaid, or by reputable overnight
courier service, charges prepaid, and shall be deemed to have been given when so
mailed or sent (i) to the Corporation, at its principal executive offices and
(ii) to any stockholder, at such holder's address as it appears in the stock
records of the Corporation (unless otherwise indicated by any such holder).
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ATTACHMENT D
SALOMON BROTHERS
December 10, 1996
Orion Network Systems, Inc.
2440 Research Boulevard
Suite 400
Rockville, MD 20850
Dear Sirs:
You have requested our opinion, as investment bankers, as to the fairness,
from a financial point of view, to Orion Network Systems, Inc. ("Orion"), of the
consideration to be paid by Orion in connection with the Exchange (as defined
below). Pursuant to a Section 351 Exchange Agreement and Plan of Conversion (the
"Exchange Agreement") with Orion Satellite Corporation, a Delaware corporation
that is a wholly owned subsidiary of Orion ("OrionSat") and the sole general
partner of International Private Satellite Partners, L.P., a Delaware limited
partnership ("Orion Atlantic"), and each of the existing limited partners of
Orion Atlantic other than Orion (the "Exchanging Partners"), Orion has agreed,
among other things, to have Orion Newco Services, Inc., a newly formed Delaware
corporation with a certificate of incorporation, bylaws, capital structure
(before the issuance of the Newco Preferred Stock defined below) and management
substantially identical in all material respects to those of Orion ("Orion
Newco"), issue 121,988 shares of Orion Newco's Series C 6% Cumulative
Redeemable Convertible Preferred Stock (the "Newco Preferred Stock") in exchange
for the Exchanging Partners' limited partnership interests in Orion Atlantic
and other rights relating thereto (the "Exchange"). The Exchange is intended to
qualify as tax-free under Section 351 of the Internal Revenue Code of 1986, as
amended. As a result of the Exchange, Orion Newco will become the owner of all
the partnership interests in Orion Atlantic (through Orion Newco and Orion as
limited partners and OrionSat as the sole general partner of Orion Atlantic). In
addition, Orion Newco will acquire certain rights currently held by the
Exchanging Partners, including rights to receive repayment of various advances
(aggregating approximately $37.6 million at September 30, 1996) made to Orion
Atlantic. The 121,988 shares of Newco Preferred Stock expected to be issued in
the Exchange will be convertible into approximately 6.9971 million (assuming a
closing of the Exchange as of January 30, 1997; the number of shares will
increase if the closing occurs after that date) shares of common stock, par
value $.01 per share, of Orion Newco ("Orion Newco Common Stock").
We understand that concurrently with, and as a condition to, the consummation
of the Exchange, (i) Orion Newco intends to consummate financings (the
"Financings") consisting of (a) notes and warrants with expected net proceeds of
approximately $250 million to refinance the indebtedness of Orion Atlantic
outstanding under the existing Credit Agreement dated December 6, 1991 among
Orion Atlantic, the banks named therein and Chase Manhattan Bank (National
Association), as agent (the "Orion 1 Credit Facility"), and to release Orion's
and the Exchanging Limited Partners' (including their respective affiliates)
existing commitments and guarantees supporting the Orion 1 Credit Facility, (b)
the issuance and sale of approximately $50 million of Orion Newco's
convertible subordinated debentures to British Aerospace Public Limited Company,
an affiliate of one of the Exchanging Partners and (c) the execution by Orion or
one of its affiliates of an amendment to the satellite procurement contract with
Matra Marconi Space U.K. Limited for the Orion 2 satellite, which was entered
into in July 1996 and is expected to include an agreement by the manufacturer to
commence construction of the Orion 2 satellite based upon a $40 million initial
payment, and (ii) a wholly-owned subsidiary of Orion Newco will be merged with
and into Orion in a tax-free reorganization (the "Merger"). We have not been
asked to express an opinion, and we do not express any opinion, with regard to
the Financings or the Merger.
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In arriving at our opinion, we have reviewed certain publicly available business
and financial information relating to Orion, as well as certain other
information, including financial projections, provided to us by Orion. We have
discussed the past and current operations and financial condition and prospects
of Orion and Orion Atlantic with members of the respective senior management of
such entities. We have also considered such other information, financial
studies, analyses, investigations and financial, economic, market and trading
criteria which we deemed relevant.
We have assumed and relied on the accuracy and completeness of the
information reviewed by us for the purpose of this opinion and we have not
assumed any responsibility for independent verification of such information or
for any independent evaluation or appraisal of the assets of Orion or Orion
Atlantic. With respect to Orion's and Orion Atlantic's financial
projections, we have assumed that they have been reasonably prepared on bases
reflecting the best currently available estimates and judgments of Orion's and
Orion Atlantic's management, as the case may be, as to the future financial
performance of such entity, and while we express no opinion with respect to such
forecasts or the assumptions on which they are based, we have relied on
management's assumption that the Financings will occur concurrently with the
Exchange.
Our opinion is necessarily based upon business, market, economic and other
conditions as they exist on, and can be evaluated as of, the date of this letter
and does not address Orion's underlying business decision to effect the
Exchange or constitute a recommendation to any holder of Orion common stock as
to how such holder should vote with respect to the Merger or the Exchange. Our
opinion as expressed below does not imply any conclusion as to the likely
trading range for the Orion Newco Common Stock following the consummation of the
Exchange, which may vary depending on, among other factors, changes in interest
rates, dividend rates, market conditions, general economic conditions and other
factors that generally influence the price of securities.
We have acted as financial advisor to the Board of Directors of Orion in
connection with the Exchange and will receive a fee for our services, part of
which was paid upon execution by Orion of the engagement agreement with respect
to the Exchange, part of which is payable upon the initial submission of this
opinion and the remainder of which is payable upon consummation of the
Financings. In the ordinary course of our business, we actively trade the
securities of Orion for our own account and for the accounts of customers and,
accordingly, may at any time hold a long or short position in such securities.
Based upon and subject to the foregoing, it is our opinion as investment
bankers that, as of the date hereof, the consideration to be paid in the
Exchange is fair, from a financial point of view, to Orion.
Very truly yours,
SALOMON BROTHERS INC
D-2
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROXY STATEMENT/PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Certificate of Incorporation provides that its directors will
not be liable for monetary damages for breach of the directors' fiduciary duty
of care to the Company and its stockholders. This provision in the Certificate
of Incorporation does not eliminate the duty of care, and in appropriate
circumstances equitable remedies such as an injunction or other forms of
non-monetary relief would remain available under Delaware law. In accordance
with the requirements of Delaware law, as amended, the Certificate of
Incorporation provide that the Company's directors would remain subject to
liability for monetary damages (i) for any breach of their duty of loyalty to
the corporation or its shareholders, (ii) for acts or omissions not in good
faith or involving intentional misconduct or knowing violation of law, (iii)
under Section 174 of the Delaware Code for approval of an unlawful dividend or
an unlawful stock purchase or redemption and (iv) for any transaction from which
the director derived an improper personal benefit. This provision also does not
affect a director's responsibilities under any other laws, such as the federal
securities laws or state or federal environmental laws.
The Company's Certificate of Incorporation also provides that, except as
expressly prohibited by law, the Company shall indemnify any person who was or
is a party (or threatened to be made a party) to any threatened, pending or
completed action, suit or proceeding by reason of the fact that such person is
or was a director or officer of the Company (or is or was serving at the request
of the Company as a director or officer of another enterprise), against
expenses, liabilities and losses (including attorney's fees), judgments, fines
and amounts paid or to be paid in settlement actually and reasonably incurred by
such person in connection with such action, suit or proceeding if such person
acted in good faith and a manner such person reasonably believed to be in or not
opposed to the best interests of the Company, and, with respect to any criminal
action or proceeding, had no reasonable cause to believe his or her conduct was
unlawful. Such indemnification shall not be made in respect of any claim, issue
or matter as to which such person shall have been adjudged to be liable to the
Company unless (and only to the extent that) the Delaware Court of Chancery or
the court in which such action or suit was brought determines that, in view of
all circumstances of the case, such person is fairly and reasonably entitled to
indemnity.
Section 145 of the General Corporation Law of the State of Delaware, as
amended, empowers a corporation incorporated under that statute to indemnify its
directors, officers, employees and agents and its former directors, officers,
employees and agents and those who serve in such capacities with another
enterprise at its request against expenses, as well as judgments, fines and
settlements in nonderivative lawsuits, actually and reasonably incurred by them
in connection with the defense of any action, suit or proceeding in which they
or any of them were or are made parties or are threatened to be made parties by
reason of their serving or having served in such capacity. The power to
indemnify shall only exist where such officer, director, employee or agent has
acted in good faith and in a manner such person reasonably believed to be in or
not opposed to the best interests of the corporation and, in the case of a
criminal action, where such person had no reasonable cause to believe his
conduct was unlawful. However, in an action or suit by or in the right of the
corporation, unless a court shall determine to the contrary, where such a person
has been adjudged liable to the corporation, the corporation shall have no power
of indemnification. Indemnity is mandatory to the extent a claim, issue or
matter has been successfully defended. Indemnification is not deemed exclusive
of any other rights to which those indemnified may be entitled, under any
by-law, agreement, vote of stockholders or otherwise. A Delaware corporation
also has the power to purchase and maintain insurance on behalf of the persons
it has the power to indemnify, whether or not indemnity against such liability
would be allowed under the statute.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Securities Act"), may be permitted to directors,
officers and controlling persons of the Company pursuant to the foregoing
provision or otherwise, the Company has been advised that, in the opinion of the
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<PAGE>
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Securities Act and therefore unenforceable. In the
event that a claim for indemnification against such liabilities is asserted by
such person in connection with the offering of the Securities (other than for
the payment by the corporation of expenses incurred or paid by a director,
officer or controlling person of the corporation in the successful defense of
any action, suit or proceeding), the either corporation will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of the issue.
The Company has insurance policies which will insure directors and officers
against damages from actions and claims incurred in the course of their duties
and will insure the corporations against expenses incurred in defending lawsuits
arising from certain alleged acts of the directors and officers.
ITEM 21. EXHIBITS
<TABLE>
<CAPTION>
<S> <C>
Exhibit
Number Description
2.1 Agreement and Plan of Merger dated January 8, 1997, by and among
Orion Network Systems, Inc., Orion Newco Services, Inc. and Orion
Merger Co, Inc. (Included as Attachment A to the Proxy
Statement/Prospectus which is a part of this Registration
Statement.).
3.1 Form of Restated Certificate of Incorporation of Orion Newco
Services, Inc.
3.2 Bylaws of Orion Newco Services, Inc.
3.3 Certificate of Incorporation of Orion Network Systems, Inc.
(Incorporated by reference to exhibit number 3.1 in Registration
Statement No. 33-80518 on Form S-1 of Orion Network Systems, Inc.)
3.4 Bylaws of Orion Network Systems, Inc. (Incorporated by reference
to exhibit number 3.2 in Registration Statement No. 33-80518 on
Form S-1 of Orion Network Systems, Inc.)
4.1 Forms of Warrant issued by Orion. (Incorporated by reference to
exhibit number 4.1 in Registration Statement No. 33-80518 on Form
S-1 of Orion Network Systems, Inc.)
4.2 Forms of Warrant issued by Orion to holders of Preferred Stock.
(Incorporated by reference to exhibit number 4.2 in Registration
Statement No. 33-80518 on Form S-1 of Orion Network Systems, Inc.)
4.3 Forms of Certificates of Designation of Series A 8% Cumulative
Redeemable Convertible Preferred Stock, Series B 8% Cumulative
Redeemable Convertible Preferred Stock and Series C 6% Cumulative
Redeemable Convertible Preferred Stock.
4.4 Forms of Series A Preferred Stock, Series B Preferred Stock and
Series C Preferred Stock Certificates of Orion.
4.5 Form of Common Stock Certificate of Orion.
4.6 Form of Warrant issued to DACOM Corp.
4.7 Debenture Purchase Agreement, dated January 13, 1997, among Orion
Network Systems, Inc., Orion Newco Services, Inc., and each of
British Aerospace Holdings, Inc. and Matra Marconi Space UK
Limited.
5.1 Opinion of Hogan & Hartson L.L.P.
8.1 Opinion of Ernst & Young L.L.P. with respect to certain tax
matters.
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<PAGE>
10.1 Second Amended and Restated Purchase Agreement, dated September
26, 1991, ("Satellite Contract") by and between OrionSat and
British Aerospace PLC and the First Amendment, dated as of
September 15, 1992, Second Amendment, dated as of November 9,
1992, Third Amendment, dated as of March 12, 1993, Fourth
Amendment, dated as of April 15, 1993, Fifth Amendment, dated as
of September 22, 1993, Sixth Amendment, dated as of April 6, 1994,
Seventh Amendment, dated as of August 9, 1994, Eighth Amendment,
dated as of December 8, 1994, and Amendment No. 9 dated October
24, 1995, thereto. [CONFIDENTIAL TREATMENT HAS BEEN GRANTED FOR
PORTIONS OF THESE DOCUMENTS.] (Incorporated by reference to
exhibits number 10.13 and 10.14 in Registration Statement No.
33-80518 on Form S-1 of Orion Network Systems, Inc.)
10.2 Restated Amendment No. 10, dated December 10, 1996, between Orion
Atlantic and Matra Marconi Space, to the Second Amended and
Restated Purchase Agreement, dated September 26, 1991 by and
between OrionSat and British Aerospace PLC (which contract and
prior exhibits thereto were incorporated by reference as exhibit
number 10.1).
10.3 Ground Support System Agreement, dated as of August 2, 1991, by
and between Orion Atlantic and Telespazio S.p.A. [CONFIDENTIAL
TREATMENT HAS BEEN GRANTED FOR PORTIONS OF THIS DOCUMENT.]
(Incorporated by reference to exhibit number 10.25 in Registration
Statement No. 33-80518 on Form S-1 of Orion Network Systems, Inc.)
10.4 Italian Facility and Services Agreement, dated as of August 2,
1991, by and between OrionSat and Telespazio S.p.A. as amended by
the amendment thereto, dated March 19, 1994. [CONFIDENTIAL
TREATMENT HAS BEEN GRANTED FOR PORTIONS OF THESE DOCUMENTS.]
(Incorporated by reference to exhibit number 10.26 in Registration
Statement No. 33-80518 on Form S-1 of Orion Network Systems, Inc.)
10.5 Contract for a Satellite Control System, dated December 7, 1992,
by and between Orion Atlantic, Telespazio S.p.A. and Martin
Marietta Corporation. [CONFIDENTIAL TREATMENT HAS BEEN GRANTED FOR
PORTIONS OF THIS DOCUMENT.] (Incorporated by reference to exhibit
number 10.31 in Registration Statement No. 33-80518 on Form S-1 of
Orion Network Systems, Inc.)
10.6 Credit Agreement, dated as of November 23, 1993, by and between
Orion Atlantic, OrionSat and General Electric Capital Corporation
("GECC"). [CONFIDENTIAL TREATMENT HAS BEEN GRANTED FOR PORTIONS OF
THIS DOCUMENT.] (Incorporated by reference to exhibit number 10.32
in Registration Statement No. 33-80518 on Form S-1 of Orion
Network Systems, Inc.)
10.7 Security Agreement, dated as of November 23, 1993, by and between
Orion Atlantic, OrionSat and GECC. (Incorporated by reference to
exhibit number 10.33 in Registration Statement No. 33-80518 on
Form S-1 of Orion Network Systems, Inc.)
10.8 Assignment and Security Agreement, dated as of November 23, 1993,
by and between Orion Atlantic, OrionSat and GECC. (Incorporated by
reference to exhibit number 10.34 in Registration Statement No.
33-80518 on Form S-1 of Orion Network Systems, Inc.)
10.9 Consent and Agreement, dated as of November 23, 1993, by and
between Orion Atlantic, Martin Marietta Corporation and GECC.
(Incorporated by reference to exhibit number 10.35 in Registration
Statement No. 33-80518 on Form S-1 of Orion Network Systems, Inc.)
10.10 Deed of Trust, dated as of November 23, 1993, by and between Orion
Atlantic, W. Allen Ames, Jr. and Michael J. Schwel, as Trustees,
and GECC. (Incorporated by reference to exhibit number 10.37 in
Registration Statement No. 33-80518 on Form S-1 of Orion Network
Systems, Inc.)
10.11 Lease Agreement, dated as of November 23, 1993, by and between
OrionNet, Inc. and Orion Atlantic, as amended by an Amendment,
dated January 3, 1995. [CONFIDENTIAL TREATMENT HAS BEEN GRANTED
FOR PORTIONS OF THESE DOCUMENTS.] (Incorporated by reference to
exhibit number 10.38 in Registration Statement No. 33-80518 on
Form S-1 of Orion Network Systems, Inc.)
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<PAGE>
10.12 Note for Interim Loans, dated as of November 23, 1993, by and
between Orion Atlantic and GECC. (Incorporated by reference to
exhibit number 10.42 in Registration Statement No. 33-80518 on
Form S-1 of Orion Network Systems, Inc.)
10.13 Sales Representation Agreement and Ground Operations Service
Agreement, each dated as of May 1, 1994 and June 30, 1994, by and
between each of OrionNet, Inc. and Kingston Communications,
respectively, and Orion Atlantic, as amended by side agreements,
dated May 1, 1994, July 12, 1994 and February 1, 1995.
[CONFIDENTIAL TREATMENT HAS BEEN GRANTED FOR PORTIONS OF THESE
DOCUMENTS.] (Incorporated by reference to exhibit number 10.43 in
Registration Statement No. 33-80518 on Form S-1 of Orion Network
Systems, Inc.)
10.14 Lease Agreement, dated as of October 2, 1992, by and between
OrionNet and Research Grove Associates, as amended by Amendment
No. 1, dated March 26, 1993, Amendment No. 2, dated August 23,
1993, and Amendment No. 3, dated December 20, 1993. (Incorporated
by reference to exhibit number 10.38 in Registration Statement No.
33-80518 on Form S-1 of Orion Network Systems, Inc.)
10.15 Sales Representation Agreement and Ground Operations Service
Agreement, dated as of June 30, 1995, by and between MCN Sat
Service, S.A. and Orion Atlantic. [CONFIDENTIAL TREATMENT HAS BEEN
GRANTED FOR PORTIONS OF THIS DOCUMENT.] (Incorporated by reference
to exhibit number 10.69 in Orion's Registration Statement No.
33-80518 on Form S-1.)
10.16 Volume Purchase Agreement, dated January 18, 1995, by and between
the Company and Dornier GmbH. [CONFIDENTIAL TREATMENT HAS BEEN
GRANTED FOR PORTIONS OF THIS DOCUMENT.] (Incorporated by reference
to exhibit number 10.66 in Registration Statement No. 33-80518 on
Form S-1 of Orion Network Systems, Inc.)
10.17 Product Development, License and Marketing Agreement, dated
January 18, 1995, by and between the Company and Dornier GmbH.
[CONFIDENTIAL TREATMENT HAS BEEN GRANTED FOR PORTIONS OF THIS
DOCUMENT.] (Incorporated by reference to exhibit number 10.65 in
Orion's Registration Statement No. 33-80518 on Form S-1.)
10.18 Sales Representation Agreement, dated as of June 8, 1995, by and
between Nortel Dasa Network Systems GmbH & Co. KG and Orion
Atlantic. [CONFIDENTIAL TREATMENT HAS BEEN GRANTED FOR PORTIONS OF
THIS DOCUMENT.] (Incorporated by reference to exhibit number 10.70
in Registration Statement No. 33-80518 on Form S-1 of Orion
Network Systems, Inc.)
10.19 Orion 2 Spacecraft Purchase Contract, dated July 31, 1996, between
Orion Atlantic and Matra Marconi Space. [CONFIDENTIAL TREATMENT
HAS BEEN REQUESTED FOR PORTIONS OF THIS DOCUMENT.]
10.20 Orion's Amended and Restated 1987 Stock Option Plan as amended.
(Incorporated by reference to exhibit number 10.23 in Registration
Statement No. 33-80518 on Form S-1 of Orion Network Systems, Inc.)
10.21 Purchase Contract, dated December 4, 1991, by and between
OrionNet, Inc., Shenandoah Valley Leasing Company and MCI
Telecommunications Corporation. [CONFIDENTIAL TREATMENT HAS BEEN
GRANTED FOR PORTION OF THIS DOCUMENT.] (Incorporated by reference
to exhibit number 10.30 in Registration Statement No. 33-80518 on
Form S-1 of Orion Network Systems, Inc.)
10.22 Amended and Restated Partnership Agreement of Orion Financial
Partnership, dated as of April 15, 1994, by and between OrionNet
and Computer Leasing Inc. ("CLI"). (Incorporated by reference to
exhibit number 10.44 in Registration Statement No. 33-80518 on
Form S-1 of Orion Network Systems, Inc.)
10.23 Continuing Guaranty, dated as of April 15, 1994, of the Company of
the obligations of OrionNet Finance Corporation. (Incorporated by
reference to exhibit number 10.45 in Registration Statement No.
33-80518 on Form S-1 of Orion Network Systems, Inc.)
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<PAGE>
10.24 Release of Continuing Guaranty, dated as of December 29, 1994, by
the Orion Financial Partnership. (Incorporated by reference to
exhibit number 10.46 in Registration Statement No. 33-80518 on
Form S-1 of Orion Network Systems, Inc.)
10.25 Confirmation of Continuing Guaranty, dated as of December 29,
1994, of the Company of the obligation of OFC. (Incorporated by
reference to exhibit number 10.47 in Registration Statement No.
33-80518 on Form S-1 of Orion Network Systems, Inc.)
10.26 Continuing Guarantee, dated as of December 29, 1994, by Lessor
Capital Funding Limited Partnership in favor of Orion Financial
Partnership. (Incorporated by reference to exhibit number 10.48 in
Registration Statement No. 33-80518 on Form S-1 of Orion Network
Systems, Inc.)
10.27 Master Lease Agreement, dated as of April 15, 1994, by and between
OrionNet and Orion Financial Partnership. (Incorporated by
reference to exhibit number 10.49 in Registration Statement No.
33-80518 on Form S-1 of Orion Network Systems, Inc.)
10.28 Collateral Assignment and Pledge and Security Agreement, dated
April 22, 1994, by and between CLI and Orion Financial
Partnership. (Incorporated by reference to exhibit number 10.50 in
Registration Statement No. 33-80518 on Form S-1 of Orion Network
Systems, Inc.)
10.29 Purchase Agreement, dated as of April 22, 1994, by and between
OrionNet and Orion Financial Partnership. (Incorporated by
reference to exhibit number 10.51 in Registration Statement No.
33-80518 on Form S-1 of Orion Network Systems, Inc.)
10.30 Stock Purchase Agreement, dated as of April 29, 1994, by and
between the Company and SS/L. (Incorporated by reference to
exhibit number 10.53 in Registration Statement No. 33-80518 on
Form S-1 of Orion Network Systems, Inc.)
10.31 Registration Rights Agreement, dated as of April 29, 1994, by and
between the Company and SS/L. (Incorporated by reference to
exhibit number 10.54 in Registration Statement No. 33-80518 on
Form S-1 of Orion Network Systems, Inc.)
10.32 Purchase Agreement, dated as of June 17, 1994, by and between the
Company, CIBC, Fleet and Chisholm. (Incorporated by reference to
exhibit number 10.55 in Registration Statement No. 33-80518 on
Form S-1 of Orion Network Systems, Inc.)
10.33 Stockholders Agreement, dated as of June 17, 1994, by and between
the Company, CIBC, Fleet, Chisholm and certain principal
stockholders of the Company. (Incorporated by reference to exhibit
number 10.56 in Registration Statement No. 33-80518 on Form S-1 of
Orion Network Systems, Inc.)
10.34 Registration Rights Agreement, dated as of June 17, 1994, by and
between the Company, CIBC, Fleet and Chisholm. (Incorporated by
reference to exhibit number 10.57 in Registration Statement No.
33-80518 on Form S-1 of Orion Network Systems, Inc.)
10.35 Purchase Agreement, dated as of June 19, 1995, by and among the
Company, CIBC, Fleet and an affiliate of Fleet. (Incorporated by
reference to exhibit number 10.58 in Registration Statement No.
33-80518 on Form S-1 of Orion Network Systems, Inc.)
10.36 Definitive Agreement, dated April 26, 1990, by and between Orion
Asia Pacific and the Republic of the Marshall Islands and a Stock
Option Agreement related thereto. [CONFIDENTIAL TREATMENT HAS BEEN
GRANTED FOR PORTIONS OF THESE DOCUMENTS.] (Incorporated by
reference to exhibit number 10.60 in Registration Statement No.
33-80518 on Form S-1 of Orion Network Systems, Inc.)
10.37 Option Agreement, dated December 10, 1996, by and between Orion
Atlantic and Matra Marconi Space. [CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED FOR PORTIONS OF THIS DOCUMENT.]
10.38 Memorandum of Agreement for the Procurement of Orion 2 Spacecraft,
dated December 10, 1996, by and between Orion Atlantic and Matra
Marconi Space. [CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR
PORTIONS OF THIS DOCUMENT.]
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<PAGE>
10.39 TT&C Earth Station Agreement, dated as of November 11, 1996, by
and between Orion Asia Pacific and DACOM Corp. [CONFIDENTIAL
TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS DOCUMENT.]
10.40 Joint Investment Agreement, dated as of November 11, 1996, by and
between Orion Asia Pacific and DACOM Corp. [CONFIDENTIAL TREATMENT
HAS BEEN REQUESTED FOR PORTIONS OF THIS DOCUMENT.]
10.41 Orion Network Systems, Inc. Employee Stock Purchase Plan
(Incorporated by reference to exhibit number 4.4 in Registration
Statement No. 333-19021 on Form S-8 of Orion Network Systems,
Inc.)
10.42 Orion Network Systems, Inc. 401(k) Profit Sharing Plan
(Incorporated by reference to exhibit number 4.5 in Registration
Statement No. 333-19021 on Form S-8 of Orion Network Systems,
Inc.)
10.43 Orion Network Systems, Inc. Non-Employee Director Stock Option Plan
10.44 Exchange Agreement dated June __, 1996 among Orion Network
Systems, Orion Atlantic, OrionSat and the Limited Partners
(Incorporated by reference to exhibit 10 in Current Report on Form
8-K dated December 20, 1995, of Orion Network Systems, Inc.)
10.45 First Amendment to Exchange Agreement dated December ___, 1996
among Orion Network Systems, Orion Atlantic, OrionSat and the
Limited Partners.
10.46 Redemption Agreement dated November 21, 1995, by and between STET
and Orion Atlantic, the promissory notes delivered thereunder and
Instrument of Redemption relating thereto (Incorporated by
reference to exhibit number 10.1 in Current Report on Form 8-K
dated November 21, 1995 of Orion Network Systems, Inc.)
10.47 IPSP-Telecom Italia Agreement dated November 21, 1995, by and
between Telecom Italia and Orion Atlantic. [CONFIDENTIAL TREATMENT
HAS BEEN REQUESTED FOR PORTIONS OF THIS DOCUMENT.] (Incorporated
by reference to exhibit number 10.2 in Current Report on Form 8-K
dated November 21, 1995 of Orion Network Systems, Inc.)
10.48 Indemnity Agreement dated November 21, 1995, by and among Telecom
Italia, Orion Atlantic, Orion and STET (Incorporated by reference
to exhibit number 10.3 in Current Report on Form 8-K dated
November 21, 1995 of Orion Network Services, Inc.)
10.49 Subscription Agreement dated November 21, 1995, by and between
Orion and Orion Atlantic, and the promissory note delivered
thereunder (Incorporated by reference to exhibit number 10.5 in
Current Report on Form 8-K dated November 21, 1995 of Orion
Network Systems, Inc.).
10.50 First Amendment to the Italian Facility and Services Agreement
dated November 21, 1995, by and between Orion Atlantic and Nuova
Telespazio (Incorporated by reference to exhibit number 10.7 in
Current Report on Form 8-K dated November 21, 1995 of Orion
Network Systems, Inc.).
10.51 Registration Rights Agreement, dated January 13, 1997, by and
among Orion Newco Services, Inc., British Aerospace Holdings,
Inc., and Matra Marconi Space UK Limited.
21.1 List of subsidiaries of Orion.
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Hogan & Hartson L.L.P. (included in their opinion filed
as Exhibit 5.1).
23.3 Consent of Salomon Brothers Inc.
24.1 Powers of Attorney (included on the signature pages of the
Registration Statement).
99.1 Orders of FCC regarding OrionSat. (Incorporated by reference to
exhibit number 99.1 in Registration Statement No. 33-80518 on Form
S-1 of Orion Network Systems, Inc.).
99.2 Opinion of Salomon Brothers Inc.
</TABLE>
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ITEM 22. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(a)(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement;
(i) To include any prospectus required by Section 10(a)(3) of the Securities
Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the Registration Statement.
Notwithstanding the foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of the
offering.
(b) to respond to requests for information that is incorporated by reference
into the prospectus pursuant to Item 4, 10(b), 11, or 13 of this Form, within
one business day of receipt of such request, and to send the incorporated
documents by first class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the effective date of the
registration statement through the date of responding to the request.
(c) to supply by means of post-effective amendment all information concerning
a transaction, and the company being acquired involved therein, that was not the
subject of and included in the registration statement when it became effective.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, the Registrant has duly caused this Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Rockville, State of Maryland, on the 14th day of January, 1997.
` ORION NEWCO SERVICES, INC.
By: /s/ W. Neil Bauer
--------------------------------
W. Neil Bauer
President
POWER OF ATTORNEY
Know all Men by These Presents, that each individual whose
signature appears below constitutes and appoints W. Neil Bauer and David J.
Frear, and each of them, his true and lawful attorney-in-fact and agent, with
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this Registration Statement, and to file the same,
with all exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in- fact and
agents, or any of them, or their, his or her substitutes or substitute, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ W. Neil Bauer
- ------------------------------- President and Director January 14, 1997
W. Neil Bauer (Principal Executive Officer)
/s/ David J. Frear
- ------------------------------- Vice President, Chief Financial January 14, 1997
David J. Frear Officer and Director
(Principal Financial Officer
and Principal Accounting Officer)
/s/ Richard H. Shay
- -------------------------------- Secretary and Director January 14, 1997
Richard H. Shay
</TABLE>
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As filed with the Securities and Exchange Commission on January ___, 1997
Registration No. 333-_______
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
EXHIBITS
to
FORM S-4
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
---------------
ORION NEWCO SERVICES, INC.
(Exact name of Registrant as specified in its charter)
================================================================================
<PAGE>
EXHIBIT INDEX
Exhibit Page
Number Description Number
- ------ ----------- ------
2.1 Agreement and Plan of Merger dated January 8, 1997, by and among
Orion Network Systems, Inc., Orion Newco Services, Inc. and Orion
Merger Co, Inc. (Included as Attachment A to the Proxy
Statement/Prospectus which is a part of this Registration
Statement.).
3.1 Form of Restated Certificate of Incorporation of Orion Newco *
Services, Inc.
3.2 Bylaws of Orion Newco Services, Inc. *
3.3 Certificate of Incorporation of Orion Network Systems, Inc.
(Incorporated by reference to exhibit number 3.1 in Registration
Statement No. 33-80518 on Form S-1 of Orion Network Systems, Inc.)
3.4 Bylaws of Orion Network Systems, Inc. (Incorporated by reference to
exhibit number 3.2 in Registration Statement No. 33-80518 on Form
S-1 of Orion Network Systems, Inc.)
4.1 Forms of Warrant issued by Orion. (Incorporated by reference to *
exhibit number 4.1 in Registration Statement No. 33-80518 on Form
S-1 of Orion Network Systems, Inc.)
4.2 Forms of Warrant issued by Orion to holders of Preferred Stock. *
(Incorporated by reference to exhibit number 4.2 in Registration
Statement No. 33-80518 on Form S-1 of Orion Network Systems, Inc.)
4.3 Forms of Certificates of Designation of Series A 8% Cumulative *
Redeemable Convertible Preferred Stock, Series B 8% Cumulative
Redeemable Convertible Preferred Stock and Series C 6% Cumulative
Redeemable Convertible Preferred Stock.
4.4 Forms of Series A Preferred Stock, Series B Preferred Stock and *
Series C Preferred Stock Certificates of Orion.
4.5 Form of Common Stock Certificate of Orion. *
4.6 Form of Warrant issued to DACOM Corp. *
4.7 Note Purchase Agreement with British Aerospace and Matra Marconi *
Space
5.1 Opinion of Hogan & Hartson L.L.P.
8.1 Opinion of Ernst & Young L.L.P. with respect to certain tax matters *
10.1 Second Amended and Restated Purchase Agreement, dated September 26,
1991, ("Satellite Contract") by and between OrionSat and British
Aerospace PLC and the First Amendment, dated as of September 15,
1992, Second Amendment, dated as of November 9, 1992, Third
Amendment, dated as of March 12, 1993, Fourth Amendment, dated as of
April 15, 1993, Fifth Amendment, dated as of September 22, 1993,
Sixth Amendment, dated as of April 6, 1994, Seventh Amendment, dated
as of August 9, 1994, Eighth Amendment, dated as of December 8,
1994, and Amendment No. 9 dated October 24, 1995, thereto.
[CONFIDENTIAL TREATMENT HAS BEEN GRANTED FOR PORTIONS OF THESE
DOCUMENTS.] (Incorporated by reference to exhibits number 10.13 and
<PAGE>
Exhibit Page
Number Description Number
- ------ ----------- -----
10.14 in Registration Statement No. 33-80518 on Form S-1 of Orion *
Network Systems, Inc.)
10.2 Restated Amendment No. 10, dated December 10, 1996, between Orion *
Atlantic and Matra Marconi Space, to the Second Amended and Restated
Purchase Agreement, dated September 26, 1991 by and between OrionSat
and British Aerospace PLC (which contract and prior exhibits thereto
were incorporated by reference as exhibit number 10.1).
[CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS
DOCUMENT.]
10.3 Ground Support System Agreement, dated as of August 2, 1991, by and *
between Orion Atlantic and Telespazio S.p.A. [CONFIDENTIAL TREATMENT
HAS BEEN GRANTED FOR PORTIONS OF THIS DOCUMENT.] (Incorporated by
reference to exhibit number 10.25 in Registration Statement No.
33-80518 on Form S-1 of Orion Network Systems, Inc.)
10.4 Italian Facility and Services Agreement, dated as of August 2, 1991, *
by and between OrionSat and Telespazio S.p.A. as amended by the
amendment thereto, dated March 19, 1994. [CONFIDENTIAL TREATMENT HAS
BEEN GRANTED FOR PORTIONS OF THESE DOCUMENTS.] (Incorporated by
reference to exhibit number 10.26 in Registration Statement No.
33-80518 on Form S-1 of Orion Network Systems, Inc.)
10.5 Contract for a Satellite Control System, dated December 7, 1992, by *
and between Orion Atlantic, Telespazio S.p.A. and Martin Marietta
Corporation. [CONFIDENTIAL TREATMENT HAS BEEN GRANTED FOR PORTIONS
OF THIS DOCUMENT.] (Incorporated by reference to exhibit number
10.31 in Registration Statement No. 33-80518 on Form S-1 of Orion
Network Systems, Inc.)
10.6 Credit Agreement, dated as of November 23, 1993, by and between *
Orion Atlantic, OrionSat and General Electric Capital Corporation
("GECC"). [CONFIDENTIAL TREATMENT HAS BEEN GRANTED FOR PORTIONS OF
THIS DOCUMENT.] (Incorporated by reference to exhibit number 10.32
in Registration Statement No. 33-80518 on Form S-1 of Orion Network
Systems, Inc.)
10.7 Security Agreement, dated as of November 23, 1993, by and between *
Orion Atlantic, OrionSat and GECC. (Incorporated by reference to
exhibit number 10.33 in Registration Statement No. 33-80518 on Form
S-1 of Orion Network Systems, Inc.)
10.8 Assignment and Security Agreement, dated as of November 23, 1993, by *
and between Orion Atlantic, OrionSat and GECC. (Incorporated by
reference to exhibit number 10.34 in Registration Statement No.
33-80518 on Form S-1 of Orion Network Systems, Inc.)
10.9 Consent and Agreement, dated as of November 23, 1993, by and between *
Orion Atlantic, Martin Marietta Corporation and GECC. (Incorporated
by reference to exhibit number 10.35 in Registration Statement No.
33-80518 on Form S-1 of Orion Network Systems, Inc.)
<PAGE>
Exhibit Page
Number Description Number
- ------ ----------- -----
10.10 Deed of Trust, dated as of November 23, 1993, by and between Orion *
Atlantic, W. Allen Ames, Jr. and Michael J. Schwel, as Trustees, and
GECC. (Incorporated by reference to exhibit number 10.37 in
Registration Statement No. 33-80518 on Form S-1 of Orion Network
Systems, Inc.)
10.11 Lease Agreement, dated as of November 23, 1993, by and between *
OrionNet, Inc. and Orion Atlantic, as amended by an Amendment, dated
January 3, 1995. [CONFIDENTIAL TREATMENT HAS BEEN GRANTED FOR
PORTIONS OF THESE DOCUMENTS.] (Incorporated by reference to exhibit
number 10.38 in Registration Statement No. 33-80518 on Form S-1 of
Orion Network Systems, Inc.)
10.12 Note for Interim Loans, dated as of November 23, 1993, by and *
between Orion Atlantic and GECC. (Incorporated by reference to
exhibit number 10.42 in Registration Statement No. 33-80518 on Form
S-1 of Orion Network Systems, Inc.)
10.13 Sales Representation Agreement and Ground Operations Service *
Agreement, each dated as of May 1, 1994 and June 30, 1994, by and
between each of OrionNet, Inc. and Kingston Communications,
respectively, and Orion Atlantic, as amended by side agreements,
dated May 1, 1994, July 12, 1994 and February 1, 1995. [CONFIDENTIAL
TREATMENT HAS BEEN GRANTED FOR PORTIONS OF THESE DOCUMENTS.]
(Incorporated by reference to exhibit number 10.43 in Registration
Statement No. 33-80518 on Form S-1 of Orion Network Systems, Inc.)
10.14 Lease Agreement, dated as of October 2, 1992, by and between *
OrionNet and Research Grove Associates, as amended by Amendment No.
1, dated March 26, 1993, Amendment No. 2, dated August 23, 1993, and
Amendment No. 3, dated December 20, 1993. (Incorporated by reference
to exhibit number 10.38 in Registration Statement No. 33-80518 on
Form S-1 of Orion Network Systems, Inc.)
10.15 Sales Representation Agreement and Ground Operations Service *
Agreement, dated as of June 30, 1995, by and between MCN Sat
Service, S.A. and Orion Atlantic. [CONFIDENTIAL TREATMENT HAS BEEN
GRANTED FOR PORTIONS OF THIS DOCUMENT.] (Incorporated by reference
to exhibit number 10.69 in Orion's Registration Statement No.
33-80518 on Form S-1.)
10.16 Volume Purchase Agreement, dated January 18, 1995, by and between *
the Company and Dornier GmbH. [CONFIDENTIAL TREATMENT HAS BEEN
GRANTED FOR PORTIONS OF THIS DOCUMENT.] (Incorporated by reference
to exhibit number 10.66 in Registration Statement No. 33-80518 on
Form S-1 of Orion Network Systems, Inc.)
10.17 Product Development, License and Marketing Agreement, dated January *
18, 1995, by and between the Company and Dornier GmbH. [CONFIDENTIAL
TREATMENT HAS BEEN GRANTED FOR PORTIONS OF THIS DOCUMENT.]
(Incorporated by reference to exhibit number 10.65 in Orion's
Registration Statement No. 33-80518 on Form S-1.)
<PAGE>
Exhibit Page
Number Description Number
- ------ ----------- -----
10.18 Sales Representation Agreement, dated as of June 8, 1995, by and *
between Nortel Dasa Network Systems GmbH & Co. KG and Orion
Atlantic. [CONFIDENTIAL TREATMENT HAS BEEN GRANTED FOR PORTIONS OF
THIS DOCUMENT.] (Incorporated by reference to exhibit number 10.70
in Registration Statement No. 33-80518 on Form S-1 of Orion Network
Systems, Inc.)
10.19 Orion 2 Spacecraft Purchase Contract, dated July 31, 1996, between *
Orion Atlantic and Matra Marconi Space. [CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED FOR PORTIONS OF THIS DOCUMENT.]
10.20 Orion's Amended and Restated 1987 Stock Option Plan as amended. *
(Incorporated by reference to exhibit number 10.23 in Registration
Statement No. 33-80518 on Form S-1 of Orion Network Systems, Inc.)
10.21 Purchase Contract, dated December 4, 1991, by and between OrionNet, *
Inc., Shenandoah Valley Leasing Company and MCI Telecommunications
Corporation. [CONFIDENTIAL TREATMENT HAS BEEN GRANTED FOR PORTION OF
THIS DOCUMENT.] (Incorporated by reference to exhibit number 10.30
in Registration Statement No. 33-80518 on Form S-1 of Orion Network
Systems, Inc.)
10.22 Amended and Restated Partnership Agreement of Orion Financial *
Partnership, dated as of April 15, 1994, by and between OrionNet and
Computer Leasing Inc. ("CLI"). (Incorporated by reference to exhibit
number 10.44 in Registration Statement No. 33-80518 on Form S-1 of
Orion Network Systems, Inc.)
10.23 Continuing Guaranty, dated as of April 15, 1994, of the Company of *
the obligations of OrionNet Finance Corporation. (Incorporated by
reference to exhibit number 10.45 in Registration Statement No.
33-80518 on Form S-1 of Orion Network Systems, Inc.)
10.24 Release of Continuing Guaranty, dated as of December 29, 1994, by *
the Orion Financial Partnership. (Incorporated by reference to
exhibit number 10.46 in Registration Statement No. 33-80518 on Form
S-1 of Orion Network Systems, Inc.)
10.25 Confirmation of Continuing Guaranty, dated as of December 29, 1994, *
of the Company of the obligation of OFC. (Incorporated by reference
to exhibit number 10.47 in Registration Statement No. 33-80518 on
Form S-1 of Orion Network Systems, Inc.)
10.26 Continuing Guarantee, dated as of December 29, 1994, by Lessor *
Capital Funding Limited Partnership in favor of Orion Financial
Partnership. (Incorporated by reference to exhibit number 10.48 in
Registration Statement No. 33-80518 on Form S-1 of Orion Network
Systems, Inc.)
10.27 Master Lease Agreement, dated as of April 15, 1994, by and between *
OrionNet and Orion Financial Partnership. (Incorporated by reference
to exhibit number 10.49 in Registration Statement No. 33-80518 on
Form S-1 of Orion Network Systems, Inc.)
10.28 Collateral Assignment and Pledge and Security Agreement, dated April *
22, 1994, by and between CLI and Orion Financial Partnership.
<PAGE>
Exhibit Page
Number Description Number
- ------ ----------- -----
(Incorporated by reference to exhibit number 10.50 in Registration
Statement No. 33-80518 on Form S-1 of Orion Network Systems, Inc.)
10.29 Purchase Agreement, dated as of April 22, 1994, by and between *
OrionNet and Orion Financial Partnership. (Incorporated by reference
to exhibit number 10.51 in Registration Statement No. 33-80518 on
Form S-1 of Orion Network Systems, Inc.)
10.30 Stock Purchase Agreement, dated as of April 29, 1994, by and between *
the Company and SS/L. (Incorporated by reference to exhibit number
10.53 in Registration Statement No. 33-80518 on Form S-1 of Orion
Network Systems, Inc.)
10.31 Registration Rights Agreement, dated as of April 29, 1994, by and *
between the Company and SS/L. (Incorporated by reference to exhibit
number 10.54 in Registration Statement No. 33-80518 on Form S-1 of
Orion Network Systems, Inc.)
10.32 Purchase Agreement, dated as of June 17, 1994, by and between the *
Company, CIBC, Fleet and Chisholm. (Incorporated by reference to
exhibit number 10.55 in Registration Statement No. 33-80518 on Form
S-1 of Orion Network Systems, Inc.)
10.33 Stockholders Agreement, dated as of June 17, 1994, by and between *
the Company, CIBC, Fleet, Chisholm and certain principal
stockholders of the Company. (Incorporated by reference to exhibit
number 10.56 in Registration Statement No. 33-80518 on Form S-1 of
Orion Network Systems, Inc.)
10.34 Registration Rights Agreement, dated as of June 17, 1994, by and *
between the Company, CIBC, Fleet and Chisholm. (Incorporated by
reference to exhibit number 10.57 in Registration Statement No.
33-80518 on Form S-1 of Orion Network Systems, Inc.)
10.35 Purchase Agreement, dated as of June 19, 1995, by and among the *
Company, CIBC, Fleet and an affiliate of Fleet. (Incorporated by
reference to exhibit number 10.58 in Registration Statement No.
33-80518 on Form S-1 of Orion Network Systems, Inc.)
10.36 Definitive Agreement, dated April 26, 1990, by and between Orion *
Asia Pacific and the Republic of the Marshall Islands and a Stock
Option Agreement related thereto. [CONFIDENTIAL TREATMENT HAS BEEN
GRANTED FOR PORTIONS OF THESE DOCUMENTS.] (Incorporated by reference
to exhibit number 10.60 in Registration Statement No. 33-80518 on
Form S-1 of Orion Network Systems, Inc.)
10.37 Option Agreement, dated December 10, 1996, by and between Orion *
Atlantic and Matra Marconi Space. [CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED FOR PORTIONS OF THIS DOCUMENT.]
10.38 Memorandum of Agreement for the Procurement of Orion 2 Spacecraft, *
dated December 10, 1996, by and between Orion Atlantic and Matra
Marconi Space. [CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR
PORTIONS OF THIS DOCUMENT.]
10.39 TT&C Earth Station Agreement, dated as of November 11, 1996, by and *
<PAGE>
Exhibit Page
Number Description Number
- ------ ----------- -----
between Orion Asia Pacific and DACOM Corp. [CONFIDENTIAL TREATMENT
HAS BEEN REQUESTED FOR PORTIONS OF THIS DOCUMENT.]
10.40 Joint Investment Agreement, dated as of November 11, 1996, by and *
between Orion Asia Pacific and DACOM Corp. [CONFIDENTIAL TREATMENT
HAS BEEN REQUESTED FOR PORTIONS OF THIS DOCUMENT.]
10.41 Orion Network Systems, Inc. Employee Stock Purchase Plan *
(Incorporated by reference to exhibit number 4.4 in Registration
Statement No. 333-19021 on Form S-8 of Orion Network Systems, Inc.)
10.42 Orion Network Systems, Inc. 401(k) Profit Sharing Plan (Incorporated *
by reference to exhibit number 4.5 in Registration Statement No.
333-19021 on Form S-8 of Orion Network Systems, Inc.)
10.43 Orion Network Systems, Inc. Non-Employee Director Stock Option Plan
10.44 Exchange Agreement dated June __, 1996 among Orion Network Systems, *
Orion Atlantic, OrionSat and the Limited Partners (Incorporated by
reference to exhibit 10 in Current Report on Form 8-K dated December
20, 1995, of Orion Network Systems, Inc.)
10.45 First Amendment to Exchange Agreement dated December ___, 1996 among
Orion Network Systems, Orion Atlantic, OrionSat and the Limited
Partners.
10.46 Redemption Agreement dated November 21, 1995, by and between STET
and Orion Atlantic, the promissory notes delivered thereunder and
Instrument of Redemption relating thereto (Incorporated by reference
to exhibit number 10.1 in Current Report on Form 8-K dated November
21, 1995 of Orion Network Systems, Inc.)
10.47 IPSP-Telecom Italia Agreement dated November 21, 1995, by and
between Telecom Italia and Orion Atlantic. [CONFIDENTIAL TREATMENT
HAS BEEN REQUESTED FOR PORTIONS OF THIS DOCUMENT.] (Incorporated by
reference to exhibit number 10.2 in Current Report on Form 8-K dated
November 21, 1995 of Orion Network Systems, Inc.)
10.48 Indemnity Agreement dated November 21, 1995, by and among Telecom
Italia, Orion Atlantic, Orion and STET (Incorporated by reference to
exhibit number 10.3 in Current Report on Form 8-K dated November 21,
1995 of Orion Network Services, Inc.)
10.49 Subscription Agreement dated November 21, 1995, by and between Orion
and Orion Atlantic, and the promissory note delivered thereunder
(Incorporated by reference to exhibit number 10.5 in Current Report
on Form 8-K dated November 21, 1995 of Orion Network Systems, Inc.).
10.50 First Amendment to the Italian Facility and Services Agreement dated
November 21, 1995, by and between Orion Atlantic and Nuova
Telespazio (Incorporated by reference to exhibit number 10.7 in
Current Report on Form 8-K dated November 21, 1995 of Orion Network
Systems, Inc.).
<PAGE>
Exhibit Page
Number Description Number
- ------ ----------- -----
10.51 Cancellation of Consulting Agreement dated November 16, 1995, by and
between Orion Atlantic and Nuova Telespazio (Incorporated by
reference to exhibit number 10.8 in Current Report on Form 8-K dated
November 21, 1995 of Orion Network Systems, Inc.).
12.1 Statement Regarding Computation of Ratio of Earnings to Fixed
Charges.
21.1 List of subsidiaries of Orion.
23.1 Consent of Ernst & Young LLP
23.2 Consent of Hogan & Hartson L.L.P. (included in their opinion filed *
as Exhibit 5.1).
23.3 Consent of Salomon Brothers Inc.
24.1 Powers of Attorney (included on the signature pages of the
Registration Statement).
99.1 Orders of FCC regarding OrionSat. (Incorporated by reference to *
exhibit number 99.1 in Registration Statement No. 33-80518 on Form
S-1 of Orion Network Systems, Inc.).
99.2 Opinion of Salomon Brothers Inc.
RESTATED CERTIFICATE OF INCORPORATION OF
ORION NEWCO SERVICES, INC.
Orion Newco Services, Inc., a corporation organized and existing under
the General Corporation Law of the State of Delaware (the "Corporation"), does
hereby certify that:
1. The present name of the Corporation is Orion Newco Services, Inc.
The Corporation was originally incorporated under the same name, and its
original certificate of incorporation was filed with the Secretary of State of
the State of Delaware on June 26, 1996.
2. This Restated Certificate of Incorporation restates and integrates
and further amends the certificate of incorporation of the Corporation (the
"Certificate of Incorporation"), and has been duly adopted in accordance with
Sections 242 and 245 of the General Corporation Law of the State of Delaware
(the "DGCL").
3. The text of the Certificate of Incorporation is hereby restated and
integrated and further amended to read in its entirety as set forth on Exhibit A
attached hereto and incorporated herein by this reference.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
duly executed and acknowledged in accordance with Section 103 of the DGCL.
ORION NEWCO SERVICES, INC.
By:
-----------------------
Name:
---------------------
Title:
--------------------
<PAGE>
RESTATED CERTIFICATE OF INCORPORATION
OF
ORION NEWCO SERVICES, INC.
FIRST: The name of the Corporation is Orion Newco Services, Inc.
(hereinafter called the "Corporation").
SECOND: The registered office of the Corporation in the State of
Delaware is 1209 Orange Street, Wilmington, Delaware 19801, County of New
Castle. The name of the Corporation's registered agent at said address is The
Corporation Trust Company.
THIRD: The purpose of the Corporation is to engage in any lawful
acts or activities for which corporations may be organized under the General
Corporation Law of Delaware.
FOURTH: The total number of shares of all classes of stock that
the Corporation shall have authority to issue is Forty-One Million (41,000,000)
shares, consisting of Forty Million (40,000,000) shares of common stock, par
value $.01 per share, and One Million (1,000,000) shares of preferred stock, par
value $.01 per share.
A. Common Stock. Each holder of shares of common stock shall be
entitled to one vote for each share of common stock held of record on all
matters on which the holders of common stock are entitled to vote. There shall
be no cumulative voting rights for the election of directors.
B. Preferred Stock. The Board of Directors is authorized,
subject to limitations prescribed by the Delaware General Corporation Law and
the provisions of this Article FOURTH to provide, by resolution or resolutions
from time to time adopted without further stockholder approval, and filing a
Certificate pursuant to the applicable provision of the Delaware General
Corporation Law, for the issuance of the shares of Preferred Stock in series, to
establish from time to time the number of shares to be included in each such
series, and to fix the designation, powers, preferences and such rights of the
shares of each such series and the qualifications, limitations and restrictions
thereof. The authority of the Board of Directors with respect to each series
shall include, but not be limited to, determination of the following:
1. The number of shares constituting that series and the
distinctive designation of that series.
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<PAGE>
2. The dividend rate on the shares of that series, whether
dividends shall be cumulative, and, if so, from which date or dates, and the
relative rights of priority, if any, of payment of dividends on shares of that
series;
3. Whether that series shall have voting rights, in addition to
the voting rights provided by law, and, if so, the terms of such voting rights;
4. Whether that series shall have conversion privileges, and, if
so, the terms and conditions of such conversion, including provision for
adjustment of the conversion rate in such events as the Board of Directors shall
determine;
5. Whether or not the shares of that series shall be redeemable,
and, if so, the terms and conditions of such redemption, including the dates
upon or after which they shall be redeemable, and the amount per share payable
in case of redemption, which amount may vary under different conditions and at
different redemption dates;
6. Whether that series shall have a sinking fund for the
redemption or purchase of shares of that series, and, if so, the terms and
amount of such sinking fund;
7. The rights of the shares of that series in the event of
voluntary or involuntary liquidation, dissolution or winding up of the
Corporation, and the relative rights of priority, if any, of payment of shares
of that series; and
8. Any other relative rights, preferences and limitations of
that series.
FIFTH: The name and mailing address of the incorporator (the
"Incorporator") are Daniel M. Pattarini, 555 Thirteenth Street, NW, Washington,
D.C. 20004. The powers of the Incorporator shall terminate upon the filing of
this Certificate of Incorporation, and the names and mailing addresses of the
persons who are to serve as the directors of the Corporation until the first
annual meeting of the stockholders of the Corporation or until their successors
are elected and qualified are as follows:
NAME MAILING ADDRESS
W. Neil Bauer 2440 Research Boulevard
Rockville, MD 20850
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<PAGE>
David J. Frear 2440 Research Boulevard
Rockville, MD 20850
Richard H. Shay 2440 Research Boulevard
Rockville, MD 20850
SIXTH: The authorized number of directors of this corporation
shall be not less than 3 and not more than 15. The number of directors within
this range shall be stated in the Corporation's Bylaws, as may be amended from
time to time. When the number of directors is changed the Board of Directors
shall determine the class or classes to which the increased or decreased number
of directors shall be apportioned; provided that the directors in each class
shall be as nearly equal in number as possible. No decrease in the number of
directors shall have the effect of shortening the term of any incumbent
director.
Effective as of the annual meeting of stockholders in 1997, the
Board of Directors shall be divided into three classes, designated as Class I,
Class II, and Class III, as nearly equal in number as possible, and the term of
office of directors of one class shall expire at each annual meeting of
stockholders, and in all cases until their successors shall be elected and shall
qualify, or until their earlier resignation, removal from office, death or
incapacity. The initial term of office of Class I shall expire at the annual
meeting of stockholders in 1998, that of Class II shall expire at the annual
meeting in 1999, and that of Class III shall expire at the annual meeting in
2000, and in all cases as to each director until his successor shall be elected
and shall qualify, or until his earlier resignation, removal from office, death
or incapacity.
Subject to the foregoing, at each annual meeting of stockholders
the successors to the class of directors whose term shall then expire shall be
elected to hold office for a term expiring at the third succeeding annual
meeting and until their successors shall be elected and qualified.
The directors remaining in office acting by a majority vote,
although less than a quorum, or by a sole remaining director, are hereby
expressly delegated the power to fill any vacancies in the Board of Directors,
however occurring, whether by an increase in the number of directors, death,
resignation, retirement, disqualification, removal from office or otherwise, and
any director so chosen shall hold office until the next election of the class
for which such director shall have been chosen and until his successor shall
have been elected and qualified, or until his earlier resignation, removal from
office death or incapacity.
3
<PAGE>
SEVENTH: In furtherance and not in limitation of the powers
conferred by the laws of the State of Delaware, the Board of Directors of the
Corporation is expressly authorized and empowered to adopt, amend and repeal
bylaws of the Corporation.
EIGHTH: No director of the Corporation shall be liable to the
Corporation or its stockholders for monetary damages for breach or fiduciary
duty as a director, provided that nothing contained in this Article EIGHTH shall
eliminate or limit the liability of a director (i) for any breach of the
director's duty of loyalty to the Corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the Delaware General
Corporation Law, or (iv) for any transaction from which the director derived an
improper personal benefit.
NINTH: The Corporation reserves the right at any time and from
time to time, to amend, alter, change or repeal any provision contained in this
Certificate of Incorporation and other provisions authorized by the laws of the
State of Delaware at the time in force may be added or inserted, in the manner
now or hereafter prescribed by law, except that Articles FOURTH, FIFTH, TENTH,
ELEVENTH, TWELFTH, THIRTEENTH, FOURTEENTH and this Article NINTH may not be
altered, amended, or repealed except by the affirmative vote of at least
two-thirds (2/3) of the shares entitled to vote thereon and the affirmative vote
of the Board of Directors; and all rights, preferences and privileges of
whatsoever nature conferred upon stockholders, directors or any other persons
whomsoever by and pursuant to this Certificate of Incorporation in its present
form or as hereafter amended are granted subject to the rights reserved in this
Article NINTH.
TENTH: Notwithstanding any other provision of this Certificate
of Incorporation to the contrary, outstanding shares of stock of the Corporation
shall always be subject to redemption by the Corporation, by action of the Board
of Directors, if in the judgment of the Board of Directors such action should be
taken, pursuant to Section 151(b) of the Delaware General Corporation Law or any
other applicable provision of law, to the extent necessary to prevent the loss
or secure the reinstatement of any license or franchise from any governmental
agency held by the Corporation or any of its subsidiaries to conduct any portion
of the business of the Corporation or any of its subsidiaries, which license or
franchise is conditioned upon some or all of the holders of the Corporation's
stock possessing prescribed qualifications. The terms and conditions of such
redemption shall be as follows:
(a) the redemption price of the shares to be redeemed pursuant
to this Article TENTH shall be determined by the Board of
Directors and shall be at least equal to the lesser of (i) the
Redemption Value or (ii) if such stock was purchased by such
Disqualified Holders within one year
4
<PAGE>
of the Redemption Date, such Disqualified Holder's purchase
price for such shares;
(b) the redemption price of such shares may be paid in cash,
Redemption Securities or any combination thereof;
(c) if less than all the shares held by Disqualified Holders are
to be redeemed, the shares to be redeemed shall be selected in
such manner as shall be determined by the Board of Directors,
which may include selection first of the most recently purchased
shares thereof, selection by lot or selection in any other
manner determined by the Board of Directors;
(d) at least 30 days' written notice of the Redemption Date
shall be given to the record holders of the shares selected to
be redeemed (unless waived in writing by any such holder),
provided that the Redemption Date may be the date on which
written notice shall be given to record holders if the cash or
Redemption Securities necessary to effect the redemption shall
have been deposited in trust for the benefit of such record
holders and subject to immediate withdrawal by them upon
surrender of the stock certificates of their shares to be
redeemed;
(e) from and after the Redemption Date, any and all rights of
whatever nature which may be held by the owners of shares
selected for redemption (including without limitation any rights
to vote or participate in dividends declared on stock of the
same class or series as such shares) shall cease and terminate
and such owners shall thenceforth be entitled only to receive
the cash or Redemption Securities payable upon redemption; and
(f) such other terms and conditions as the Board of Directors
shall determine.
For purposes of this Article TENTH:
(i) "Disqualified Holder" shall mean any
holder of shares of stock of the Corporation whose
holding of such stock, either individually or when
taken together with the holding of shares of stock of
the Corporation by any other holders, may result, in
the judgment of the Board of Directors, in the loss of,
or the failure to secure the reinstatement of, any
license or franchise from any governmental agency held
by the Corporation on any of its subsidiaries to
conduct any portion of the business of the Corporation
or any of its subsidiaries.
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<PAGE>
(ii) "Redemption Value" of a share of the
Corporation's stock of any class or series shall mean
the average Closing Price for such a share for each of
the 45 most recent days on which shares of stock of
such class or series shall have been traded preceding
the day on which notice of redemption shall be given
pursuant to paragraph (d) of this Article TENTH;
provided, however, that if shares of stock of such
class or series are not traded on any securities
exchange or in the over-the-counter market, "Redemption
Value" shall be determined by the Board of Directors in
good faith. "Closing Price" on any day means the
reported closing sales price or, in case no such sale
takes place, the average of the reported closing bid
and asked prices on the principal United States
securities exchange registered under the Securities
Exchange Act of 1934 on which such stock is listed, or,
if such stock is not listed on any such exchange, the
highest closing sales price or bid quotation for such
stock on the National Association of Securities
Dealers, Inc. Automated Quotations System or any system
then in use, or if no such prices or quotations are
available, the fair market value on the day in question
as determined by the Board of Directors in good faith.
(iii) "Redemption Date" shall mean the date
fixed by the Board of Directors for the redemption of
any shares of stock of the Corporation pursuant to this
Article TENTH.
(iv) "Redemption Securities" shall mean any
debt or equity securities of the Corporation, any of
its subsidiaries or any other corporation, or any
combination thereof, having such terms and conditions
(including, without limitation, in the case of debt
securities, repayment over a period of up to thirty
years, or a longer period) as shall be approved by the
Board of Directors and which, together with any cash to
be paid as part of the redemption price, in the opinion
of any nationally recognized investment banking firm
selected by the Board of Directors (which may be a firm
which provides other investment banking, brokerage or
other services to the Corporation), has a value, at the
time notice of redemption is given pursuant to
paragraph (d) of this Article, at least equal to the
price required to be paid pursuant to paragraph (a) of
this Article TENTH (assuming, in the case of Redemption
Securities to be publicly traded, such Redemption
Securities were fully distributed and subject only to
normal trading activity).
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ELEVENTH: Control Share Acquisitions
A. Control Shares. As used in this Article ELEVENTH, "control
share" means shares of the Corporation that would have voting power that when
added to all the other shares of the Corporation owned by a person or in respect
to which that person may exercise or direct the exercise of voting power, would
entitle that person, immediately after acquisition of the shares (directly or
indirectly, alone or as part of a group), to exercise or direct the exercise of
the voting power of the Corporation in the election of directors within any of
the following ranges of voting power:
(1) One-fifth or more but less that a third of all voting power.
(2) One-third or more but less than a majority of all voting
power.
(3) A majority or more of all voting power.
B. Control Share Acquisition.
1. As used in this Article ELEVENTH, "control share acquisition"
means the acquisition (directly or indirectly) by any person of ownership of, or
the power to direct the exercise of voting power with respect to, issued and
outstanding control shares.
2. For purposes of this Article ELEVENTH, shares acquired within
ninety (90) days or shares acquired pursuant to a plan to make a control share
acquisition are considered to have been acquired in the same acquisition.
3. For purposes of this Article ELEVENTH, a person who acquires
shares in the ordinary course of business for the benefit of others in good
faith and not for the purpose of circumventing this Article ELEVENTH has voting
power only of shares in respect of which that person would be able to exercise
or direct the vote without further instruction from others.
4. The acquisition of any shares of the Corporation does not
constitute a control share acquisition if the acquisition is consummated in any
of the following circumstances:
(1) Before April 1, 1992.
(2) Pursuant to a binding contract existing before April 1,
1992.
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(3) Pursuant to the laws of descent and distribution.
(4) Pursuant to the satisfaction of a pledge or other security
interest created in good faith and not for the purpose of circumventing
this Article ELEVENTH.
(5) Pursuant to a merger or plan of share exchange if the
Corporation is a party to the agreement of merger of plan of share
exchange.
(6) Pursuant to a tender or exchange offer that is made pursuant
to an agreement to which the Corporation is a party.
(7) Directly from the Corporation, or from any of its wholly
owned subsidiaries.
5. The acquisition of any shares of the Corporation in good
faith and not for the purpose of circumventing this Article ELEVENTH by or from
(1) any person whose voting rights had previously been authorized by
stockholders in compliance with this Article ELEVENTH, or (2) any person whose
previous acquisition of shares of the Corporation would have constituted a
control share acquisition but for the circumstances specified in the paragraph
above, does not constitute a control share acquisition, unless the acquisition
entitles the person (directly or indirectly, alone or as a part of a group) to
exercise or direct the exercise of voting power of the Corporation in the
election of directors in excess of the voting power otherwise authorized.
C. Interested Shares. As used in this Article ELEVENTH,
"interested shares" mean the shares of the Corporation in respect of which any
of the following persons may exercise or direct the exercise of the voting power
of the Corporation in the election of directors:
(1) An acquiring person or member of a group with respect to a
control share acquisition.
(2) Any officer of the Corporation.
(3) Any employee of the Corporation who is also a director of
the Corporation.
D. Acquiring Person Statement. Any person who proposes to make
or has made a control share acquisition may at the person's election deliver an
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acquiring person statement to the Corporation at the Corporation's principal
office. The acquiring person statement must set forth all of the following:
(1) The identity of the acquiring person and each other member
of any group of which the person is a part for purposes of determining
control shares.
(2) A statement that the acquiring person statement is given
pursuant to this Article ELEVENTH.
(3) The number of shares of the Corporation owned (directly or
indirectly) by the acquiring person and each other member of the group.
(4) The range of voting power under which the control share
acquisition falls or would, if consummated, fall.
(5) If the control share acquisition has not taken place:
(a) a description in reasonable detail of the terms of the
proposed control share acquisition; and
(b) representations of the acquiring person, together with a
statement in reasonable detail of the facts upon which they
are based, that the proposed control share acquisition, if
consummated, will not be contrary to law and that the
acquiring person has the financial capacity to make to
proposed control share acquisition.
E. Special Meeting of Stockholders.
1. If the acquiring person so requests at the time of
delivery of an acquiring person statement and gives an undertaking to pay the
Corporation's expenses of a special meeting, within ten (10) days thereafter,
the directors of the Corporation shall call a special meeting of the
stockholders of the Corporation for the purpose of considering the voting rights
to be accorded to the shares acquired or to be acquired in the control share
acquisition.
2. Unless the acquiring person agrees in writing to another
date, the special meeting of the stockholders shall be held within fifty (50)
days after the receipt by the Corporation of the request.
3. If no request is made, the voting rights to be accorded
the shares acquired in the control share
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acquisition shall be presented at the next special or annual meeting of
stockholders.
4. If the acquiring person so requests in writing at the
time of the delivery of the acquiring person statement, the special meeting must
not be held sooner than thirty (30) days after the receipt by the Corporation of
the acquiring person's statement.
F. Notice.
------
1. If a special meeting is requested, notice of the special
meeting of stockholders shall be given as promptly as reasonably practicable by
the Corporation to all stockholders of record as of the record date set for the
meeting, whether or not entitled to vote at the meeting.
2. Notice of the special or annual stockholder meeting at
which the voting rights are to be considered must include or be accompanied by
both of the following:
(1) a copy of the acquiring person statement
delivered to the Corporation pursuant to this Article
ELEVENTH.
(2) A statement by the Board of the Directors
of the Corporation, authorized by its directors, of its
position or recommendation, or that it is taking no
position or making no recommendation, with respect to
the proposed control share acquisition.
G. Voting Rights.
-------------
1. Control shares acquired in a control share acquisition
have the same voting rights as were accorded the shares before the control share
acquisition only to the extent granted by resolutions approved by the
stockholders of the Corporation.
2. To be adopted under this section, the resolutions shall
be approved by a majority of all the votes which could be cast in a vote on the
election of directors by all the outstanding shares other than interested
shares. Interested shares shall not be entitled to vote on the matter, and in
determining whether a quorum exists, all interested shares shall be disregarded.
For the purpose of this subsection, the interested share shall be determined as
of the record date for determining the stockholders entitled to vote at the
meeting.
H. Redemption.
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1. Control shares acquired in a control share acquisition
with respect to which no acquiring person statement has been filed with the
Corporation may, at any time during the period ending sixty (60) days after the
last acquisition of control shares by the acquiring person, be subject to
redemption by the Corporation at the redemption price specified in paragraph 3
of this subsection.
2. Control shares acquired in a control share acquisition
are not subject to redemption after an acquiring person statement has been filed
unless the shares are not accorded full voting rights by the stockholders as
provided above.
3. The redemption price for shares to be redeemed under this
section shall be the number of such shares multiplied by the dollar amount
(rounded to the nearest cent) equal to the average per share price, including
any brokerage commissions, transfer taxes and soliciting dealer's fees, paid by
the acquiring person for such shares. The Corporation may rely conclusively on
public announcements by, or filings with the Securities and Exchange Commission
by, the acquiring person as to the prices so paid.
I. Dissenters Rights.
-----------------
1. In the event control shares acquired in a control share
acquisition are accorded full voting rights and the acquiring person has
acquired control shares with a majority or more of all voting power, all
shareholders of the Corporation, other than the acquiring person, have the right
to dissent from the granting of voting rights and to demand payment of the fair
value of their shares under Section 262 of the Delaware General Corporation Law
as though such granting of voting rights were a corporate action described in
paragraph (b) of Section 262, except that the provisions of subsection (1) of
paragraph (b) of Section 262 shall not be applicable.
2. For purposes of this section "fair value" of shares under
Section 262 of the Delaware General Corporation Law shall in no event be less
than the highest price per share paid in the control share acquisition, as
adjusted for any subsequent stock dividends or reverse stock splits or similar
changes.
TWELFTH: Certain Business Combinations
A. Vote Required for Certain Business Combinations.
-----------------------------------------------
1. Higher Vote for Certain Business Combinations. In
addition to any affirmative vote required by law or this
Certificate of Incorporation, and except as otherwise
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expressly provided in subsection B of this Article
TWELFTH:
(a) any merger or consolidation of the
Corporation or any Subsidiary (as
hereinafter defined) with (i) any
Interested Stockholder (as
hereinafter defined) or (ii) any
other corporation (whether or not
itself an Interested Stockholder)
which is, or after such merger or
consolidation would be, an Affiliate
(as hereinafter defined) of an
Interested Stockholder; or
(b) any sale, lease, exchange, mortgage,
pledge, transfer or other disposition
(in one transaction or a series of
transactions) to or with any
Interested Stockholder or any
Affiliate of any Interested
Stockholder of any assets of the
Corporation or any Subsidiary having
an aggregate Fair Market Value (as
hereinafter defined) of $1,000,000 or
more, or
(c) the issuance or transfer by the
Corporation or any Subsidiary (in one
transaction or a series of
transactions) of any securities of
the Corporation or any Subsidiary to
any Interested Stockholder or any
Affiliate of any Interested
Stockholder in exchange for cash,
securities or other property (or a
combination thereof) having an
aggregate Fair Market Value of
$1,000,000 or more; or
(d) the adoption of any plan or proposal
for the liquidation or dissolution of
the Corporation proposed by or on
behalf of an Interested Stockholder
or any Affiliate of any Interested
Stockholder; or
(e) any reclassification of securities
(including any reverse stock split),
or recapitalization of the
Corporation, or any merger or
consolidation of the Corporation with
any of its Subsidiaries or any other
transaction (whether or not with or
into or otherwise involving an
Interested Stockholder) which has the
effect, directly or indirectly, of
increasing the proportionate share of
the outstanding shares of any class
of equity or convertible securities
of the Corporation or any Subsidiary
which is directly or
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indirectly owned by any Interested
Stockholder or any Affiliate of any
Interested Stockholder;
shall require the affirmative vote of (A) the
holders of at least a majority of the voting
power of the then outstanding shares of
capital stock of the Corporation entitled to
vote generally in the election of directors
(the "Voting Stock"), voting together as a
single class and (B) the holders of at least a
majority of the Voting Stock, voting together
as a single class, excluding for purposes of
calculating both the affirmative vote and the
number of outstanding shares of Voting Stock
all shares of Voting Stock of which the
beneficial owner is an Interested Stockholder
or any Affiliate of an Interested Stockholder
referred to in clauses (a) through (e) in this
paragraph 1. Such affirmative vote shall be
required notwithstanding the fact that no vote
may be required, or that a lesser percentage
may be specified, by law.
2. "Definition of "Business Combination." The term "Business
Combination" as used in this Article TWELFTH
shall mean any transaction which is referred
to in any one or more of clauses (a) through
(e) of paragraph 1 of this subsection A.
B. When Higher Vote is Not Required. The provisions of
subsection A of this Article TWELFTH shall not be
applicable to any particular Business Combination, and
such Business Combination shall require only such
affirmative vote as is required by law and any other
provision of this Certificate of Incorporation, if all
of the conditions specified in either of the following
paragraphs 1 and 2 are met:
1. Approval by Continuing Directors. The Business Combination
shall have been approved by a majority of the
Continuing Directors (as hereinafter defined).
2. Price and Procedure Requirements. All of the following
conditions shall have been met:
(a) The aggregate amount of the cash and
the Fair Market Value (as hereinafter
defined) as of the date of the
consummation of the Business
Combination of consideration other
than cash to be received per
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share by holders of common stock in
such Business Combination shall be at
least equal to the highest of the
following:
(i) (if applicable) the highest per
share price (including any brokerage
commissions, transfer taxes and
soliciting dealers' fees) paid by the
Interested Stockholder for any shares
of common stock acquired by it (A)
within the two-year period
immediately prior to the first public
announcement of the proposal of the
Business Combination (the
"Announcement Date") or (B) in the
transaction in which it became an
Interested Stockholder, whichever is
higher; or
(ii) the Fair Market Value per share
of common stock on the Announcement
Date or on the date on which the
Interested Stockholder became an
Interested Stockholder (such latter
date is referred to in this Article
TWELFTH as the "Determination Date"),
whichever is higher.
(b) The aggregate amount of the cash and
the Fair Market Value as of the date
of the consummation of the Business
Combination of consideration other
than cash to be received per share by
holders of shares of any other class
of outstanding Voting Stock shall be
at least equal to the highest of the
following (it being intended that the
requirements of this paragraph 2(b)
shall be required to be met with
respect to every class of outstanding
Voting Stock, whether or not the
Interested Stockholder has previously
acquired any shares of a particular
class of Voting Stock):
(i) (if applicable) the highest per
share price (including any brokerage
commissions, transfer taxes and
soliciting dealers' fees) paid by the
Interested Stockholder for any shares
of such class of Voting Stock
acquired by it (A) within the
two-year period immediately prior to
the Announcement Date or (B) in the
transaction in which it became an
Interested Stockholder, whichever is
higher;
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(ii) (if applicable) the highest
preferential amount per share to
which the holders of shares of such
class of Voting Stock are entitled in
the event of any voluntary or
involuntary liquidation, dissolution
or winding up of the Corporation; and
(iii) The Fair Market Value per share
of such class of Voting Stock on the
Announcement Date or on the
Determination Date, whichever is
higher.
(c) The consideration to be received by
holders of a particular class of
Voting Stock (including common stock)
in the Business Combination shall be
in cash or in the same form as the
Interested Stockholder has previously
paid for shares of such Voting Stock.
If the Interested Stockholder has
paid for shares of any class of
Voting Stock with varying forms of
consideration, the form of
consideration for such Voting Stock
shall be either cash or the form used
to acquire the largest number of
shares of such Voting Stock
previously acquired by it.
(d) After such Interested Stockholder has
become an Interested Stockholder and
prior to the consummation of such
Business Combination: (i) there shall
have been (A) no reduction in the
annual rate of dividends paid on the
capital stock (except as necessary to
reflect any subdivision of the
capital stock), except as approved by
a majority of the Continuing
Directors, and (B) an increase in
such annual rate of dividends as
necessary to reflect any
reclassification (including any
reverse stock split),
recapitalization, reorganization or
any similar transaction which has the
effect of reducing the number of
outstanding shares of common stock,
unless the failure so to increase
such annual rate is approved by a
majority of the Continuing Directors;
and (ii) such Interested Stockholder
shall have not become the beneficial
owner of any additional shares of
Voting Stock except as part of the
transaction which results in such
Interested Stockholder becoming an
Interested Stockholder.
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<PAGE>
(e) After such Interested Stockholder has
become an Interested Stockholder,
such Interested Stockholder shall not
have received the benefit, directly
or indirectly (except proportionately
as a stockholder), of any loans,
advances, guarantees, pledges or
other financial assistance or any tax
credits or other tax advantages
provided by the Corporation, whether
in anticipation of or in connection
with such Business Combination or
otherwise.
(f) A proxy or information statement
describing the proposed Business
Combination and complying with the
requirements of the Securities
Exchange Act of 1934 (the "Exchange
Act") and the rules and regulations
thereunder (or any subsequent
provisions replacing such Act, rules
or regulations) shall be mailed to
public stockholders of the
Corporation at least 20 days prior to
the consummation of such Business
Combination (whether or not such
proxy or information statement is
required to be mailed pursuant to
such Act or subsequent provisions).
C. Certain Definitions. For the purposes of this Article
TWELFTH:
1. A "person" shall mean any individual, firm,
corporation or other entity.
2. "Interested Stockholder" shall mean any person
(other than the Corporation or any Subsidiary)
who or which:
(a) is the beneficial owner, directly or
indirectly, of more than 20% of the
voting power of the outstanding
Voting Stock; or
(b) is an Affiliate of the Corporation
and at any time within the two-year
period immediately prior to the date
in question was the beneficial owner,
directly or indirectly, of 20% or
more of the voting power of the then
outstanding Voting Stock; or
(c) is an assignee of or has otherwise
succeeded to any shares of Voting
Stock which were at any time within
the two-year period immediately prior
to the
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<PAGE>
date in question beneficially owned
by any Interested Stockholder, if
such assignment or succession shall
have occurred in the course of a
transaction or series of transactions
not involving a public offering
within the meaning of the Securities
Act of 1933.
3. A person shall be a "beneficial owner" of any
Voting Stock:
(a) which such person or any of its
Affiliates or Associates (as
hereinafter defined) beneficially
owns, directly or indirectly; or
(b) which such person or any of its
Affiliates or Associates has (i) the
right to acquire (whether such right
is exercisable immediately or only
after the passage of time), pursuant
to any agreement, arrangement or
understanding or upon the exercise of
conversion rights, exchange rights,
warrants or options, or otherwise, or
(ii) the right to vote pursuant to
any agreement, arrangement or
understanding; or
(c) which are beneficially owned,
directly or indirectly, by any other
person with which such person or any
of its Affiliates or Associates has
any agreement, arrangement or
understanding for the purpose of
acquiring, holding, voting or
disposing of any shares of Voting
Stock.
4. For the purposes of determining whether a
person is an Interested Stockholder pursuant
to paragraph 2 of this subsection C, the
number of shares of Voting Stock deemed to be
outstanding shall include shares deemed owned
through application of paragraph 3 of this
subsection C but shall not include any other
shares of Voting Stock which may be issuable
pursuant to any agreement, arrangement or
understanding, or upon exercise of conversion
rights, warrants or options, or otherwise.
5. "Affiliate" or "Associate" shall have the
respective meanings ascribed to such terms in
Rule l2b-2 of the General Rules and
Regulations under the Exchange Act.
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6. "Subsidiary" means any corporation of which a
majority of any class of equity security is
owned, directly or indirectly, by the
Corporation; provided, however, that for the
purposes of the definition of Interested
Stockholder set forth in paragraph 2 of this
subsection C, the term "Subsidiary" shall mean
only a corporation of which a majority of each
class of equity security is owned, directly or
indirectly, by the Corporation.
7. "Continuing Director" means any member of the
Board of Directors of the Corporation who is
unaffiliated with the Interested Stockholder
and was a member of the Board of Directors of
the Corporation prior to the time that the
Interested Stockholder became an Interested
Stockholder, and any successor of a Continuing
Director who is unaffiliated with the
Interested Stockholder and is recommended to
succeed a Continuing Director by a majority of
Continuing Directors then on the Board of
Directors of the Corporation.
8. "Fair Market Value" means:
(a) in the case of stock, the highest
closing sale price during the 30-day
period immediately preceding the date
in question of a share of such stock
on the principal United States
securities exchange registered under
the Exchange Act on which such stock
is listed, or, if such stock is not
listed on any such exchange, the
highest closing bid quotation with
respect to a share of such stock
during the 30-day period preceding
the date in question on the National
Association of Securities Dealers,
Inc. Automated Quotations System or
any system then in use, or if no such
quotations are available, the fair
market value on the date in question
of a share of such stock as
determined by the Board of Directors
of the Corporation in good faith; and
(b) In the case of property other than
cash or stock, the fair market value
of such property on the date in
question as determined by the Board
of Directors of the Corporation in
good faith.
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D. Powers of the Board of Directors. A majority of the
directors of the Corporation shall have the power and
duty to determine for the purposes of this Article
TWELFTH, on the basis of information known to them
after reasonable inquiry, (1) whether a person is an
Interested Stockholder, (2) the number of shares of
Voting Stock beneficially owned by any person, (3)
whether a person is an Affiliate or Associate of
another, and (4) whether the assets which are the
subject of any Business Combination have, or the
consideration to be received for the issuance or
transfer of securities by the Corporation or any
Subsidiary in any Business Combination has an aggregate
Fair Market Value of $1,000,000 or more.
E. No Effect on Fiduciary Obligations of Interested
Stockholders. Nothing contained in this Article TWELFTH
shall be construed to relieve any Interested
Stockholder from any fiduciary obligation imposed by
law.
THIRTEENTH: Indemnification.
A. Authorization of Indemnification. Each person who was or is a
party or is threatened to be made a party to or is involved in any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative and whether by or in the right of the
corporation or otherwise (a "proceeding"), by reason of the fact that he or she,
or a person of whom he or she is the legal representative, is or was a director
or officer of the corporation or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation or
of a partnership, joint venture, trust or other enterprise, including service
with respect to an employee benefit plan, shall be (and shall be deemed to have
a contractual right to be) indemnified and held harmless by the corporation (and
any successor to the corporation by merger or otherwise) to the fullest extent
authorized by, and subject to the conditions and (except as provided herein)
procedures set forth in the Delaware General Corporation Law, as the same exists
or may hereafter be amended (but any such amendment shall not be deemed to limit
or prohibit the rights of indemnification hereunder for past acts or omissions
of any such person insofar as such amendment limits or prohibits the
indemnification rights that said law permitted the corporation to provide prior
to such amendment), against all expenses, liabilities and losses (including
attorney's fees, judgments, fines, ERISA taxes or penalties and amounts paid or
to be paid in settlement) reasonably incurred or suffered by such person in
connection therewith; provided, however, that the corporation shall indemnify
any such person seeking indemnification in connection with a proceeding (or part
thereof) initiated by such person (except for a suit or action pursuant to
subsection B only if such proceeding (or part thereof) was authorized by the
board of directors of the corporation.
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Persons who are not directors or officers of the corporation may be similarly
indemnified in respect of such service to the extent authorized at any time by
the board of directors of the corporation. The indemnification conferred in this
subsection A also shall include the right to be paid by the corporation (and
such successor) the expenses (including attorney's fees) incurred in the defense
of or other involvement in any such proceeding in advance of its final
disposition (including in the case of a director or former director expenses of
separate legal counsel, up to a maximum of $50,000, but only in the event that
the director or former director as the indemnified party reasonably determines,
assuming an outcome unfavorable to such indemnified party, that there is a
reasonable probability that such proceeding may materially and adversely affect
such indemnified party, or that there may be legal defenses available to such
indemnified party that are different from or in addition to those available to
the corporation); provided, however, that, if and to the extent the Delaware
General Corporation Law requires, the payment of such expenses (including
attorney's fees) incurred by a director or officer in advance of the final
disposition of a proceeding shall be made only upon delivery to the corporation
of an undertaking by or on behalf of such director or officer to repay all
amounts so paid in advance if it shall ultimately be determined that such
director or officer is not entitled to be indemnified under this subsection A or
otherwise; and provided further, that, such expenses incurred by other employees
and agents may be so paid in advance upon such terms and conditions, if any, as
the board of directors deems appropriate.
B. Right of Claimant to Bring Action against the Corporation. If
a claim under subsection A of this section is not paid in full by the
corporation within sixty days after a written claim has been received by the
corporation, the claimant may at any time thereafter bring an action against the
corporation to recover the unpaid amount of the claim and, if successful in
whole or in part, the claimant shall be entitled to be paid also the expenses of
prosecuting such action. It shall be a defense to any such action (other than an
action brought to enforce a claim for expenses incurred in connection with any
proceeding in advance of its final disposition where the required undertaking,
if any is required, has been tendered to the corporation) that the claimant has
not met the standards of conduct which make it permissible under the Delaware
General Corporation Law for the corporation to indemnify the claimant for the
amount claimed or is otherwise not entitled to indemnification under subsection
A of this section but the burden of proving such defense shall be on the
corporation. The failure of the corporation (in the manner provided under the
Delaware General Corporation Law) to have made a determination prior to or after
the commencement of such action that indemnification of the claimant is proper
in the circumstances because he or she has met the applicable standard of
conduct set forth in the Delaware General Corporation Law shall not be a defense
to the action or create a presumption that the claimant has not met the
applicable standard of conduct. An actual determination by the corporation (in
the manner provided under the Delaware
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General Corporation Law) after the commencement of such action that the claimant
has not met such applicable standard of conduct shall not be a defense to the
action, but shall create a presumption that the claimant has not met the
applicable standard of conduct.
C. Non-exclusivity. The rights to indemnification and advance
payment of expenses provided by subsection A of this section shall not be deemed
exclusive of any other rights to which those seeking indemnification and advance
payment of expenses may be entitled under any bylaw, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in his
or her official capacity and as to action in another capacity while holding such
office.
D. Survival of Indemnification. The indemnification and advance
payment of expenses and rights thereto provided by, or granted pursuant to,
subsection A of this section shall, unless otherwise provided when authorized or
ratified, continue as to a person who has ceased to be a director, officer,
employee or agent and shall inure to the benefit of the personal
representatives, heirs, executors and administrators of such person.
E. Insurance. The corporation shall have power to purchase and
maintain insurance on behalf of any person who is or was a director, officer,
employee or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation or
of a partnership, joint venture, trust or other enterprise, against any
liability asserted against such person or incurred by such person in any such
capacity, or arising out of such person's status as such, and related expenses,
whether or not the corporation would have the power to indemnify such person
against such liability under the provisions of the Delaware General Corporation
Law.
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FOURTEENTH: Any actions required or permitted to be taken by the
stockholders must be effected at a duly called annual or special meeting of such
stockholders and may not be effected by any consent in writing by such
stockholders.
IN WITNESS WHEREOF, the undersigned, being the
Incorporator hereinabove named, for the purpose of forming a corporation
pursuant to the Delaware General Corporation Law, hereby certifies that the
facts hereinabove stated are truly set forth, and accordingly executes this
Certificate of Incorporation this 26th day of June, 1996.
Incorporator
By:
--------------------------------
22
BYLAWS
OF
ORION NEWCO SERVICES, INC.
1. Offices.
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1.1 Registered Office. The registered office of the corporation
shall be in the City of Wilmington, County of New Castle, State of Delaware, and
the registered agent in charge thereof shall be The Corporation Trust Company,
Corporation Trust Center, 1209 Orange Street, Wilmington, Delaware 19801.
1.2 Other Offices. The corporation may also have offices at such
other places, both within and without the State of Delaware, as the board of
directors may from time to time determine or the business of the corporation may
require.
2. Meetings of Stockholders.
2.1 Place of Meetings. All meetings of the stockholders for the
election of directors shall be held in the City of Washington, District of
Columbia, at such place as may be fixed from time to time by the board of
directors, or at such other place, within or without the State of Delaware, as
shall be designated from time to time by the board of directors and stated in
the notice of the meeting or in a duly executed waiver of notice thereof.
Meetings of stockholders for any other purpose may be held at such time and
place, within or without the State of Delaware, as shall be stated in the notice
of the meeting or in a duly executed waiver of notice thereof.
2.2 Annual Meetings. Annual meetings of stockholders, commencing
with the year 1997, shall be held on the first Thursday of May, if not a legal
holiday, and if a legal holiday, then on the next secular day following, at
10:00
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a.m., or at such other date and time as shall be designated from time to
time by the board of directors and stated in the notice of the meeting or in a
duly executed waiver of notice thereof, at which stockholders shall elect a
board of directors and transact such other business as may properly be brought
before the meeting.
2.3 Special Meetings. Special meetings of the stockholders, for
any purpose or purposes, unless otherwise prescribed by statute or by the
certificate of incorporation, may be called by the board of directors or by the
president, and shall be called by the president or secretary at the request in
writing of two or more stockholders owning at least 35% in amount of the entire
capital stock of the corporation issued and outstanding and entitled to vote if
no special meeting of stockholders has been called and held at the request of
stockholders within the six months preceding such written request. Such request
shall include a statement of the purpose or purposes of the proposed meeting.
2.4 Notice of Meetings. Written notice of the annual meeting,
stating the place, date and hour of the meeting, shall be given to each
stockholder entitled to vote at such meeting not less than ten nor more than
sixty days before the date of the meeting. Written notice of a special meeting
of stockholders, stating the place, date and hour of the meeting and the purpose
or purposes for which the meeting is called, shall be given to each stockholder
entitled to vote at such meeting not less than ten nor more than sixty days
before the date of the meeting.
2.5 Business at Special Meetings. Business transacted at any
special meeting of stockholders shall be limited to the purposes stated in the
notice.
2.6 List of Stockholders. The officer who has charge of the
stock ledger of the corporation shall prepare and make, at least ten days before
every meeting of stockholders, a complete list of the stockholders entitled to
vote at the meeting, arranged in alphabetical order and showing the address of
each stockholder and the number of shares registered in the name of each
stockholder.
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Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present. The stock ledger shall be the only evidence as to who are the
stockholders entitled to examine the stock ledger, the list required by this
section or the books of the corporation, or to vote in person or by proxy at any
meeting of stockholders.
2.7 Quorum at Meetings. Except as otherwise provided by statute
or by the certificate of incorporation, the holders of a majority of the stock
issued and outstanding and entitled to vote thereat, present in person or
represented by proxy, shall constitute a quorum at all meetings of the
stockholders for the transaction of business. If, however, such quorum shall not
be present or represented at any such meeting of the stockholders, the
stockholders entitled to vote thereat, present in person or represented by
proxy, shall have power to adjourn the meeting from time to time to another time
and place, without notice other than announcement at the meeting of such other
time and place. At the adjourned meeting at which a quorum shall be present or
represented, any business may be transacted which might have been transacted at
the original meeting. If the adjournment is for more than thirty days, or if
after the adjournment a new record date is fixed for the adjourned meeting, a
notice of the adjourned meeting shall be given to each stockholder of record
entitled to vote at the meeting.
2.8 Voting and Proxies. Unless otherwise provided in the
certificate of incorporation, and subject to the provisions of Section 6.4 of
these Bylaws, each
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stockholder shall be entitled to one vote on each matter, in person or by proxy,
for each share of the corporation's capital stock having voting power which is
held by such stockholder. No proxy shall be voted or acted upon after three
years from its date, unless the proxy provides for a longer period. A duly
executed proxy shall be irrevocable if it states that it is irrevocable and if,
and only as long as, it is coupled with an interest sufficient in law to support
an irrevocable power. A proxy may be made irrevocable regardless of whether the
interest with which it is coupled is an interest in the stock itself or an
interest in the corporation generally.
2.9 Required Vote. When a quorum is present at any meeting of
stockholders, all matters shall be determined, adopted and approved by the vote
(which need not be by ballot) of the holders of a majority of the stock having
voting power, present in person or represented by proxy, unless the proposed
action is one upon which, by express provision of statutes or of the certificate
of incorporation, a different vote is specified and required, in which case such
express provision shall govern and control the decision of such question.
Notwithstanding the foregoing, candidates for election as members of the board
of directors who receive the highest number of votes, up to the number of
directors to be chosen, shall stand elected, and an absolute majority of the
votes cast shall not be a prerequisite to the election of any candidate to the
board of directors.
2.10. Stockholder Actions. Any action required or permitted to
be taken by the stockholders must be effected at a duly called annual or special
meeting of such stockholders and may not be effected by any consent in writing
by such stockholders.
2.11. Nominating Committee. Only persons who are nominated in
accordance with the procedures set forth in this Section 2.11 shall be eligible
for election as directors. Nominations of persons for election to the Board of
Directors of the corporation may be made at a meeting of stockholders by or at
the direction
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of the Board of Directors or by any stockholder of the corporation entitled to
vote for the election of directors at the meeting who complies with the notice
procedures set forth in this Section 2.11. Such nominations, other than those
made by or at the direction of the Board of Directors, shall be made pursuant to
timely notice in writing to the Secretary of the Corporation. To be timely, a
stockholder's notice shall be delivered to or mailed and received at the
principal executive offices of the corporation not less than 50 days nor more
than 90 days prior to the meeting; provided, however, that in the event that
less than 60 days' notice or prior public disclosure of the date of the meeting
is given or made to stockholders, notice by the stockholder to be timely must be
so received not later than the close of business on the 10th day following the
day on which such notice of the date of the meeting was mailed or such public
disclosure was made. Such stockholder's notice shall set forth (a) as to each
person whom the stockholder proposes to nominate for election or re-election as
a director, (i) the name, age, business address and residence address of such
person, (ii) the principal occupation or employment of such person, (iii) the
class and number of shares of the corporation which are beneficially owned by
such person, and (iv) any other information relating to such person that is
required to be disclosed in solicitations of proxies for election of directors,
or is otherwise required, in each case pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended (including without limitation such
person's written consent to being named in the proxy statement as a nominee and
to serving as a director if elected); and (b) as to the stockholder giving the
notice (i) the name and address, as they appear on the corporation's books, of
such stockholder and (ii) the class and number of shares of the corporation
which are beneficially owned by such stockholder. At the request of the Board of
Directors, any person nominated by the Board of Directors for election as a
director shall furnish to the Secretary of the Corporation that information
required to be set
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forth in a stockholder's notice of nomination which pertains to the nominee. No
later than the tenth day following the date of receipt of a stockholder
nomination submitted pursuant to this Section 2.11, the president of the
corporation shall, if the facts warrant, determine and notify in writing the
stockholder making such nomination that such nomination was not made in
accordance with the time limits and/or other procedures prescribed by the
Bylaws. If no such notification is mailed to such stockholder within such
ten-day period, such nomination shall be deemed to have been made in accordance
with the provisions of this Section 2.11. No person shall be eligible for
election as a director of the corporation unless nominated in accordance with
the procedures set forth in this Section 2.11.
2.12. Business at Annual Meeting. At an annual meeting of the
stockholders, only such business shall be conducted as shall have been properly
brought before the meeting. To be properly brought before an annual meeting,
business must be (a) specified in the notice of meeting (or any supplement
thereto) given by or at the direction of the Board of Directors, (b) otherwise
properly brought before the meeting by or at the direction of the Board of
Directors, or (c) otherwise properly brought before the meeting by a
stockholder. For business to be properly brought before an annual meeting by a
stockholder, the stockholder must have given timely notice thereof in writing to
the Secretary of the Corporation. To be timely, a stockholder's notice must be
delivered to or mailed and received at the principal executive offices of the
corporation not less than 50 days nor more than 90 days prior to the meeting;
provided, however, that in the event that less than 60 days' notice or prior
public disclosure of the date of the meeting is given or made to stockholders,
notice by the stockholder to be timely must be so received not later than the
close of business on the 10th day following the day on which such notice of the
date of the annual meeting was mailed or such public disclosure was made. A
stockholder's notice to the Secretary shall set forth
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as to each matter the stockholder proposes to bring before the annual meeting
(a) a brief description of the business desired to be brought before the annual
meeting and the reasons for conducting such business at the annual meeting, (b)
the name and address, as they appear on the corporation's books, of the
stockholder proposing such business, (c) the class and number of shares of the
corporation which are beneficially owned by the stockholder, and (d) any
material interest of the stockholder in such business. No later than the tenth
day following the date of receipt of a shareholder notice pursuant to this
Section 2.12, the president of the corporation shall, if the facts warrant,
determine and notify in writing the stockholder submitting such notice that such
notice was not made in accordance with the time limits and/or other procedures
prescribed by the Bylaws. If no such notification is mailed to such shareholder
within such ten-day period, such stockholder notice containing a matter of
business shall be deemed to have been made in accordance with the provisions of
this Section 2.12. Notwithstanding anything in these Bylaws to the contrary, no
business shall be conducted at an annual meeting except in accordance with the
procedures set forth in this Section 2.12.
3. Directors.
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3.1 Powers. The business and affairs of the corporation shall be
managed by or under the direction of the board of directors, which may exercise
all such powers of the corporation and do all such lawful acts and things as are
not by statute or by the certificate of incorporation or by these Bylaws
directed or required to be exercised or done by the stockholders.
3.2. Number and Election. The number of directors which shall
constitute the whole board shall be eleven members and shall be divided into
three
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classes as specified or determined pursuant to the Certificate of Incorporation
of the corporation as in effect from time to time.
3.3. Vacancies. Vacancies and newly created directorships
resulting from any increase in the authorized number of directors shall be
filled in the manner specified in the Certificate of Incorporation of the
corporation as in effect from time to time.
3.4 Place of Meetings. The board of directors of the corporation
may hold meetings, both regular and special, either within or without the State
of Delaware.
3.5 First Meeting of Each Board. The first meeting of each newly
elected board of directors shall be held at such time and place as shall be
specified in a notice given as hereinafter provided for special meetings of the
board of directors, or as shall be specified in a written waiver of notice
signed by all of the directors.
3.6 Regular Meetings. Regular meetings of the board of directors
may be held without notice at such time and at such place as shall from time to
time be determined by the board of directors.
3.7 Special Meetings. Special meetings of the board may be
called by the president on one day's notice to each director, either personally
or by telephone, by mail or by telegram; special meetings shall be called by the
chairman or secretary in like manner and on like notice on the written request
of one-third of the total number of directors.
3.8 Quorum and Vote at Meetings. At all meetings of the board,
one director if a board of one director is authorized, or such greater number of
directors as is not less than a majority of the total number of directors, shall
constitute a quorum for the transaction of business. The vote of a majority of
the directors present at any meeting at which there is a quorum shall be the act
of the board of
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directors, except as may be otherwise specifically provided by statute or by the
certificate of incorporation. If a quorum shall not be present at any meeting of
the board of directors, the directors present thereat may adjourn the meeting to
another time and place, without notice other than announcement at the meeting of
such other time and place.
3.9 Telephone Meetings. Members of the board of directors or any
committee designated by the board may participate in a meeting of such board or
committee by means of conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear each other,
and participation in a meeting pursuant to this section shall constitute
presence in person at such meeting.
3.10 Action Without Meeting. Unless otherwise restricted by the
certificate of incorporation or these Bylaws, any action required or permitted
to be taken at any meeting of the board of directors or of any committee thereof
may be taken without a meeting, if all members of the board or committee, as the
case may be, consent thereto in writing, and the writing or writings are filed
with the minutes of proceedings of the board of directors or committee.
3.11 Committees of Directors. The board of directors may by
resolution passed by a majority of the whole board, designate one or more
committees, each committee to consist of one or more of the directors of the
corporation. The board may designate one or more directors as alternate members
of any committee, who may replace any absent or disqualified member at any
meeting of the committee. If a member of a committee shall be absent from any
meeting, or disqualified from voting thereat, the remaining member or members
present and not disqualified from voting, whether or not such member or members
constitute a quorum, may, by unanimous vote, appoint another member of the board
of directors to act at the meeting in the place of such absent or disqualified
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member. Any such committee, to the extent provided in the resolution of the
board of directors, shall have and may exercise all the powers and authority of
the board of directors in the management of the business and affairs of the
corporation, and may authorize the seal of the corporation to be affixed to all
papers which may require it; but no such committee shall have the power or
authority in reference to amending the certificate of incorporation (except that
a committee may, to the extent authorized in the resolution or resolutions
providing for the issuance of shares of stock adopted by the board of directors
pursuant to Section 151(a) of the General Corporation Law of the State of
Delaware (hereinafter the "GCL"), fix any of the preferences or rights of such
shares relating to dividends, redemption, dissolution, any distribution of
assets of the corporation or the conversion into, or the exchange of such shares
for, shares of any other class or classes or any other series of the same or any
other class or classes of stock of the corporation), adopting an agreement of
merger or consolidation pursuant to Sections 251 or 252 of the GCL, recommending
to the stockholders the sale, lease or exchange of all or substantially all of
the corporation's property and assets, recommending to the stockholders a
dissolution of the corporation or a revocation of a dissolution, or amending the
Bylaws of the corporation; and, unless otherwise expressly provided in the
resolution, no such committee shall have the power or authority to declare a
dividend, to authorize the issuance of stock, or to adopt a certificate of
ownership and merger pursuant to Section 253 of the GCL. Such committee or
committees shall have such name or names as may be determined from time to time
by resolution adopted by the board of directors. Unless otherwise specified in
the resolution of the board of directors designating the committee, at all
meetings of each such committee of directors, a majority of the total number of
members of the committee shall constitute a quorum for the transaction of
business, and the vote of a majority of the members of the
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committee present at any meeting at which there is a quorum shall be the act of
the committee. Each committee shall keep regular minutes of its meetings and
report the same to the board of directors, when required.
3.12 Compensation of Directors. Unless otherwise restricted by
the certificate of incorporation, the board of directors shall have the
authority to fix the compensation of directors. The directors may be paid their
expenses, if any, of attendance at each meeting of the board of directors and
may be paid a fixed sum for attendance at each meeting of the board of directors
or a stated salary as director. No such payment shall preclude any director from
serving the corporation in any other capacity and receiving compensation
therefor. Members of special or standing committees may be paid like
compensation for attending committee meetings.
4. Notices of Meetings.
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4.1 Notice Procedure. Whenever, whether under the provisions of
any statute or of the certificate of incorporation or of these Bylaws, notice is
required to be given to any director or stockholder, such requirement shall not
be construed to require the giving of personal notice. Such notice may be given
in writing, by mail, addressed to such director or stockholder, at his address
as it appears on the records of the corporation, with postage thereon prepaid,
and such notice shall be deemed to be given at the time when the same is
deposited in the United States mail. Notice to directors may also be given by
telex, telegram or telephone.
4.2 Waivers of Notice. Whenever the giving of any notice is
required by statute, the certificate of incorporation or these Bylaws, a waiver
thereof, in writing, signed by the person or persons entitled to said notice,
whether before or after the event as to which such notice is required, shall be
deemed equivalent to
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notice. Attendance of a person at a meeting shall constitute a waiver of notice
of such meeting, except when the person attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the stockholders, directors or members of a committee of directors need be
specified in any written waiver of notice, unless so required by the certificate
of incorporation, by statute or by these Bylaws.
5. Officers.
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5.1 Positions. The officers of the corporation shall be a
president and a secretary, and such other officers as the board of directors may
appoint, including one or more vice presidents, a treasurer, assistant
secretaries and assistant treasurers, who shall exercise such powers and perform
such duties as shall be determined from time to time by the board. Any number of
offices may be held by the same person, unless the certificate of incorporation
or these Bylaws otherwise provide; provided, however, that in no event shall the
president and the secretary be the same person.
5.2 Appointment. The officers of the corporation shall be chosen
by the board of directors at its first meeting after each annual meeting of
stockholders.
5.3 Compensation. The compensation of all officers of the
corporation shall be fixed by the board of directors.
5.4 Term of Office. The officers of the corporation shall hold
office until their successors are chosen and qualify or until their earlier
resignation or removal. Any officer may resign at any time upon written notice
to the corporation. Any officer elected or appointed by the board of directors
may be
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removed at any time, with or without cause, by the affirmative vote of a
majority of the board of directors. Any vacancy occurring in any office of the
corporation shall be filled by the board of directors. All officers of the
corporation shall be required to retire at the end of the month during which
they attain 65 years of age.
5.5 Fidelity Bonds. The corporation may secure the fidelity of
any or all of its officers or agents by bond or otherwise.
5.6 Chairman. The chairman shall preside at all meetings of the
stockholders and board of directors and shall be ex officio a member of all
standing committees of the board of directors.
5.7 President. The president shall be the chief executive
officer of the corporation, shall be ex officio a member of all standing
committees, shall assume all responsibility for the management and operation of
the business of the corporation, and shall ensure that all orders and
resolutions of the board of directors are carried into effect. The president
shall have the authority to execute bonds, mortgages and other contracts
requiring a seal, under the seal of the corporation, except where required or
permitted by law to be otherwise signed and executed and except where the
signing and execution thereof shall be expressly delegated by the board of
directors to some officer or agent of the corporation.
5.8 Vice Chairman or Vice Presidents. If the directors shall
appoint one or more vice presidents, such vice chairman or vice presidents shall
perform such duties and have such powers as may be vested in such vice
presidents by the board of directors or by the president. One of such vice
presidents may be designated the chief operating officer of the corporation and
have general management of the day-to-day operations of the corporation, subject
to the authority of the president.
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5.9 Secretary. The secretary shall attend all meetings of the
board of directors and all meetings of the stockholders, and shall record all
the proceedings of the meetings of the stockholders and of the board of
directors in a book to be kept for that purpose, and shall perform like duties
for the standing committees, when required. The secretary shall give, or cause
to be given, notice of all meetings of the stockholders and special meetings of
the board of directors, and shall perform such other duties as may be prescribed
by the board of directors or by the president, under whose supervision the
secretary shall be. The secretary shall have custody of the corporate seal of
the corporation, and the secretary, or an assistant secretary, shall have
authority to affix the same to any instrument requiring it, and when so affixed
it may be attested by the signature of the secretary or by the signature of such
assistant secretary. The board of directors may give general authority to any
other officer to affix the seal of the corporation and to attest the affixing by
such officer's signature. The secretary or an assistant secretary may also
attest all instruments signed by the president or any vice president.
5.10 Assistant Secretary. The assistant secretary, or if there
be more than one, the assistant secretaries in the order determined by the board
of directors (or if there shall have been no such determination, then in the
order of their election), shall, in the absence of the secretary or in the event
of the secretary's inability or refusal to act, perform the duties and exercise
the powers of the secretary, and shall perform such other duties and have such
other powers as the board of directors may from time to time prescribe.
5.11 Treasurer.
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5.11.1 Duties. The treasurer shall have the custody of the
corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the corporation, and shall
deposit all moneys
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and other valuable effects in the name and to the credit of the corporation in
such depositories as may be designated by the board of directors. The treasurer
shall disburse the funds of the corporation as ordered by the board of
directors, taking proper vouchers for such disbursements, and shall render to
the president, and to the board of directors at its regular meetings, or when
the board of directors so requires, an account of all transactions as treasurer
and of the financial condition of the corporation.
5.11.2 Bond. If required by the board of directors, the
treasurer shall give the corporation a bond in such sum and with such surety or
sureties as shall be satisfactory to the board of directors for the faithful
performance of the duties of the treasurer's office and for the restoration to
the corporation, in case of the treasurer's death, resignation, retirement or
removal from office, of all books, papers, vouchers, money and other property of
whatever kind, in the treasurer's possession or under the treasurer's control
and belonging to the corporation.
5.12 Assistant Treasurer. The assistant treasurer, or if there
shall be more than one, the assistant treasurers in the order determined by the
board of directors (or if there shall have been no such determination, then in
the order of their election), shall, in the absence of the treasurer or in the
event of the treasurer's inability or refusal to act, perform the duties and
exercise the powers of the treasurer, and shall perform such other duties and
have such other powers as the board of directors may from time to time
prescribe.
6. Capital Stock.
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6.1 Certificates of Stock; Uncertificated Shares. The shares of
the corporation shall be represented by certificates, provided that the board of
directors may provide by resolution or resolutions that some or all of any or
all classes or series of the corporation's stock shall be uncertificated shares.
Any such
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resolution shall not apply to shares represented by a certificate until such
certificate is surrendered to the corporation. Notwithstanding the adoption of
such a resolution by the board of directors, every holder of stock represented
by certificates and upon request every holder of uncertificated shares shall be
entitled to have a certificate signed by, or in the name of the corporation by
the president or vice president, and by the treasurer and/or assistant
treasurer, or the secretary or an assistant secretary of such corporation
representing the number of shares registered in certificate form. Any or all the
signatures on the certificate may be facsimile. In case any officer, transfer
agent or registrar whose signature or facsimile signature appears on a
certificate shall have ceased to be such officer, transfer agent or registrar
before such certificate is issued, it may be issued by the corporation with the
same effect as if such person were such officer, transfer agent or registrar at
the date of issue.
6.2 Lost Certificates. The board of directors may direct a new
certificate or certificates of stock or uncertificated shares to be issued in
place of any certificate or certificates theretofore issued by the corporation
and alleged to have been lost, stolen or destroyed, upon the making of an
affidavit of that fact by the person claiming that the certificate of stock has
been lost, stolen or destroyed. When authorizing such issuance of a new
certificate or certificates, the board of directors may, in its discretion and
as a condition precedent to the issuance thereof, require the owner of such
lost, stolen or destroyed certificate or certificates, or such owner's legal
representative, to advertise the same in such manner as the board shall require
and/or to give the corporation a bond, in such sum as the board may direct, as
indemnity against any claim that may be made against the corporation on account
of the certificate alleged to have been lost, stolen or destroyed or on account
of the issuance of such new certificate or uncertificated shares.
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6.3 Transfers. The transfer of stock and certificates that
represent the stock and the transfer of uncertificated shares shall be effected
in accordance with the laws of the State of Delaware. Any restriction on the
transfer of a security imposed by the corporation shall be noted conspicuously
on the security.
6.4 Fixing Record Date. In order that the corporation may
determine the stockholders entitled to notice of, or to vote at, any meeting of
stockholders or any adjournment thereof, or to express consent to corporate
action in writing without a meeting, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action, the board of directors may fix, in
advance, a record date, which shall not be more than sixty nor less than ten
days before the date of such meeting, nor more than sixty days prior to any
other action. A determination of stockholders of record entitled to notice of,
or to vote at, a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the board of directors may fix a new record
date for the adjourned meeting.
6.5 Registered Stockholders. The corporation shall be entitled
to recognize the exclusive right of a person registered on its books as the
owner of shares to receive dividends, to receive notifications, to vote as such
owner, and to exercise all the rights and powers of an owner; and the
corporation shall not be bound to recognize any equitable or other claim to or
interest in such share or shares on the part of any other person, whether or not
it shall have express or other notice thereof, except as otherwise provided by
the laws of the State of Delaware.
-17-
<PAGE>
7. Indemnification.
---------------
Indemnification of certain persons by the corporation shall be
as specified in or determined pursuant to the Certificate of Incorporation of
the Corporation as is in effect from time to time.
8. General Provisions.
------------------
8.1 Dividends. Dividends upon the capital stock of the
corporation, subject to the provisions of the certificate of incorporation and
the laws of the State of Delaware, may be declared by the board of directors at
any regular or special meeting. Subject to the provisions of the General
Corporation Law of the State of Delaware, such dividends may be paid either out
of surplus, as defined in the General Corporation Law of the State of Delaware,
or in the event that there shall be no such surplus, out of the net profits for
the fiscal year in which the dividend is declared and/or the preceding fiscal
year. Dividends may be paid in cash, in property, or in shares of the
corporation's capital stock, subject to the provisions, if any, of the
certificate of incorporation.
8.2 Reserves. The directors of the corporation may set apart,
out of the funds of the corporation available for dividends, a reserve or
reserves for any proper purpose and may abolish any such reserve.
8.3 Execution of Instruments. All checks or demands for money
and notes of the corporation shall be signed by such officer or officers or such
other person or persons as the board of directors may from time to time
designate.
8.4 Fiscal Year. The fiscal year of the corporation shall be
fixed by resolution of the board of directors.
8.5 Seal. The corporate seal shall have inscribed thereon the
name of the corporation, the year of its organization and the words "Corporate
Seal,
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<PAGE>
Delaware". The seal may be used by causing it or a facsimile thereof to be
impressed or affixed or otherwise reproduced.
Section 9. Amendments. These Bylaws may be altered, amended or
repealed and new bylaws may be adopted by a majority of the Board of Directors,
except that Sections 2.3, 2.10, 2.11, 2.12, 3.2, 3.3 and this Section 9 may not
be altered, amended, or repealed except by at the affirmative vote of at least
two-thirds the shares entitled to vote thereon or the affirmative vote of the
Board of Directors.
* * * *
-19-
CERTIFICATE OF DESIGNATIONS,
RIGHTS AND PREFERENCES
OF
SERIES A 8% CUMULATIVE REDEEMABLE
CONVERTIBLE PREFERRED STOCK
OF
ORION NEWCO SERVICES, INC.
- --------------------------------------------------------------------------------
Pursuant to Section 151
of the General Corporation Law
of the State of Delaware
- --------------------------------------------------------------------------------
The undersigned DOES HEREBY CERTIFY that, pursuant to the
authority contained in Article FOURTH of the Certificate of Incorporation of
Orion Newco Services, Inc., a Delaware corporation (the "Corporation"), and in
accordance with Section 151 of the General Corporation Law of the State of
Delaware, the Board of Directors of the Corporation has authorized the creation
of Series A 8% Cumulative Redeemable Convertible Preferred Stock having the
designations, rights and preferences as are set forth in Exhibit A hereto and
made a part hereof and that the following resolution was duly adopted by the
Board of Directors of the Corporation:
RESOLVED, that a series of authorized Preferred
Stock, par value $.01 per share, of the Corporation be, and it hereby
is, created; that the shares of such series shall be, and they hereby
are,
<PAGE>
designated as "Series A 8% Cumulative Redeemable Convertible Preferred
Stock"; that the number of shares constituting such series shall be,
and it hereby is, 15,000; and that the designations, rights and
preferences of the shares of such series are as set forth in Exhibit A
attached hereto and made a part hereof.
IN WITNESS WHEREOF, the Corporation has caused its corporate seal to be
hereunto affixed and this Certificate to be signed by its President and Chief
Executive Officer and attested to by its Vice President, Corporate and Legal
Affairs, and Secretary this ____ day of __________, 199__.
ORION NEWCO SERVICES, INC.
By:
------------------------------
[SEAL] Name: W. Neil Bauer
Title: President/Chief Executive
Officer
ATTEST:
- -----------------------------------------
Name: Richard H. Shay, Esq.
Title: Vice President, Corporate and
Legal Affairs/Secretary
- 2 -
<PAGE>
EXHIBIT A
SERIES A 8% CUMULATIVE REDEEMABLE
CONVERTIBLE PREFERRED STOCK
---------------------------
The following sections set forth the designations, rights and
preferences of the Corporation's Series A Preferred. Capitalized terms used
herein are defined in Section 12 below.
Section 1. Dividends.
---------
1A. General Obligation. When and as declared by the
Corporation's board of directors and to the extent permitted under the General
Corporation Law of Delaware, the Corporation shall pay preferential dividends to
the holders of the Preferred Stock as provided in this Section 1. Except as
otherwise provided herein, dividends on each Preferred Share shall accrue on a
daily basis at the rate of 8% per annum of the sum of the Liquidation Value
thereof plus all accumulated and unpaid dividends thereon, from and including
the Date of Issuance of such Preferred Share to and including the date on which
the Liquidation Value of such Preferred Share (plus all accrued and unpaid
dividends thereon) is paid or the date on which such Preferred Share is
converted into shares of Common Stock hereunder. Such dividends shall accrue
whether or not they have been declared and whether or not there are profits,
surplus or other funds of the Corporation legally available for the payment of
dividends.
1B. Dividend Reference Dates. To the extent not paid on a
Dividend Reference Date, with the initial Dividend Reference Date being February
28, 1997, all dividends which have accrued on each Preferred Share outstanding
since the latest preceding Dividend Reference Date (or the Date of Issuance of
such Preferred Share, if later) ending upon each such Dividend Reference Date,
and, in the case of each Preferred Share outstanding that was issued upon the
Old ONS Preferred Share Conversion, all dividends that were accrued,
accumulated, and unpaid at the time of the Old ONS Preferred Share Conversion on
the Old ONS Preferred Share that was converted into such Preferred Share, shall
be accumulated and shall remain accumulated dividends with respect to such
Preferred Share until paid.
1C. Distribution of Partial Dividend Payments. Except in
connection with redemptions or repurchases (i) pursuant to paragraph 4A or 4B
below, (ii) in compliance with paragraph 4H below, or (iii) as provided in the
Purchase Agreement, if at any time the Corporation pays less than the total
amount of dividends then accrued with respect to the Preferred Stock, such
payment shall be distributed ratably among the holders thereof based upon the
<PAGE>
aggregate accrued but unpaid dividends on the Preferred Shares held by each such
holder and such payment shall be applied first to dividends which have accrued
on such Preferred Shares during the period since the latest preceding Dividend
Reference Date and second to reduce any accumulated dividends with respect to
such Preferred Shares.
Section 2. Liquidation.
-----------
Upon any Liquidation, each holder of Preferred Stock shall be
entitled to be paid, before any distribution or payment is made upon any Junior
Securities, an amount in cash equal to the greater of (a) the aggregate
Liquidation Value (plus all accrued and unpaid dividends) of all shares of
Preferred Stock held by such holder or (b) the amount which would be distributed
with respect to the shares of Common Stock (including fractional shares for
purposes of this calculation) into which such shares of Preferred Stock are
convertible (assuming conversion of all outstanding Preferred Stock) immediately
prior to the record date for such distribution (or, if there is no such record
date, then the date as of which the holders of Common Stock entitled to such
distribution are determined); and the holders of Preferred Stock shall not be
entitled to any further payment. If upon any such Liquidation the Corporation's
assets to be distributed among the holders of the Preferred Stock are
insufficient to permit payment to such holders of the aggregate amount which
they are entitled to be paid, then the entire assets to be distributed shall be
distributed ratably among such holders based upon the aggregate Liquidation
Value (plus all accrued and unpaid dividends) of the Preferred Shares held by
each such holder. Prior to such Liquidation, the Corporation shall declare for
payment all accrued and unpaid dividends with respect to the Preferred Stock.
(Payment of the greater of the amounts specified in clauses (a) and (b) of this
Section 2 in respect of such Preferred Shares shall constitute payment of such
declared dividends.) The Corporation shall mail written notice of such
Liquidation, not less than 60 days prior to the payment date stated therein, to
each record holder of Preferred Stock.
Section 3. [Reserved.]
--------
Section 4. Redemptions.
-----------
4A. Redemption at Option of Corporation.
-----------------------------------
(i) The Corporation may at any time redeem all or, subject to
paragraph 4E below, any of the Preferred Shares then outstanding at the
Redemption Price, provided that no redemption pursuant to this paragraph 4A
shall be for Preferred Shares with an aggregate Liquidation Value of less than
$1,000,000 (or such lesser number of Preferred Shares then outstanding).
-2-
<PAGE>
(ii) The Corporation may in connection with a Reorganization
redeem all or any of the Preferred Shares then outstanding at the Redemption
Price, payable at the time of the consummation of the Reorganization as follows:
(a) first, in Freely Tradeable Securities in an amount
not to exceed the lesser of (1) the Redemption Price
of such Preferred Shares and (2) the amount of Freely
Tradeable Securities that, if such holder had
converted such Preferred Shares into Common Stock
immediately prior to such Reorganization, would have
been issued to such holder in connection with such
Reorganization in respect of such shares of Common
Stock; and
(b) second, the balance of the Redemption Price (if any)
in cash.
Notwithstanding paragraph 4H hereof, if the Corporation seeks the consent of the
holders of Preferred Stock to any Reorganization under subparagraph 3D(iv) of
the Purchase Agreement, and the affirmative consent of the holders required
thereunder is not obtained, the Corporation may redeem at or prior to the time
of the consummation of such Reorganization and pursuant to this paragraph
4A(ii), all (but not less than all) of the Preferred Shares held by those
holders that did not affirmatively consent to such transaction.
4B. Redemptions at the Option of the Holder.
---------------------------------------
At any time after the fifth anniversary of the Closing,
subject to subparagraph 4B(ii) below, each holder of Preferred Stock may request
redemption of all or a portion of the Preferred Shares owned by such holder for
a price equal to the Redemption Price. Within five Business Days after receipt
of such request, the Corporation shall give written notice to all other holders
of Preferred Stock, and such other holders may request redemption of their
Preferred Shares by delivering written notice to the Corporation within 10
Business Days after receipt of the Corporation's notice. The Corporation shall
pay the Redemption Price of all Preferred Shares whose redemption has been duly
requested pursuant to this paragraph 4B within 30 days after its receipt of the
initial request for such redemption.
Notwithstanding the above, the Corporation shall not be
obligated pursuant to this paragraph 4B to redeem any Preferred Share initially
issued to a Small Business Investment Company licensed by the U.S. Small
Business Administration before the fifth anniversary of the Date of Issuance of
such Preferred Share, provided that all such outstanding Preferred Shares shall
be counted as held by their holders for purposes of all pro rata and other
calculations.
(ii) Notwithstanding the provisions of subparagraph 4B(i)
above, the Corporation shall not be obligated to repurchase, pursuant to this
paragraph
-3-
<PAGE>
4B:
(a) on a cumulative basis, (x) before the sixth
anniversary of the Closing, a number of shares of Preferred Stock in
excess of one-third of all shares of Preferred Stock issued by the
Corporation at any time (for purposes of such calculation, taking into
account both repurchases under this paragraph 4B and repurchases under
paragraph 6A of the Purchase Agreement), and (y) before the seventh
anniversary of the Closing, a number of shares of Preferred Stock in
excess of two-thirds of all shares of Preferred Stock issued by the
Corporation at any time (for purposes of such calculation, taking into
account both repurchases under this paragraph 4B and repurchases under
paragraph 6A of the Purchase Agreement) (and at no time shall any
initial holder and its transferees be entitled to sell shares of
Preferred Stock to the Corporation pursuant to this paragraph 4B to the
extent that the aggregate number of such shares of Preferred Stock sold
by such Persons at or before that time pursuant to this paragraph 4B or
pursuant to paragraph 6A of the Purchase Agreement (limited in the case
of a transferee to shares of Preferred Stock acquired directly or
indirectly from, or acquired in respect of Preferred Stock acquired
directly or indirectly from, such initial holder) would, on a
cumulative basis, exceed an amount equal to (I) the maximum cumulative
number of shares which the Corporation may be required to redeem under
this subparagraph 4B(ii)(a) at such time, multiplied by (II) a fraction
(x) the numerator of which is the aggregate number, without
duplication, of shares of Preferred Stock issued by the Corporation at
any time that was held by such holders (limited in the case of a
transferee to shares of Preferred Stock acquired directly or indirectly
from, or acquired in respect of Preferred Stock acquired directly or
indirectly from, such initial holder), and (y) the denominator of which
is the aggregate number, without duplication, of shares of Preferred
Stock issued by the Corporation at any time); and
(b) for a period of 180 days after the date the
Corporation redeems shares of Preferred Stock pursuant to paragraph
4B(i), any shares of Preferred Stock pursuant to a request for
redemption under paragraph 4B(i) that is requested subsequent to, and
not as part of, such prior redemption.
4C. Redemption Payment. For each Preferred Share which is to
be redeemed (and except as otherwise provided in paragraph 4A(ii) above), the
Corporation shall be obligated on the Redemption Date to pay to the holder
thereof (upon surrender by such holder at the Corporation's principal office of
the certificate representing such Preferred Share) an amount in immediately
available funds equal to the Redemption Price of such Preferred Share. If the
funds of the Corporation legally available for redemption of Preferred Shares on
any Redemption Date are insufficient to redeem the total number of Preferred
Shares to be redeemed on such date, those funds which are legally available
shall be used to
-4-
<PAGE>
redeem the maximum possible number of Preferred Shares ratably among the holders
of the Preferred Shares to be redeemed based upon the aggregate Redemption Price
of the Preferred Shares held by each such holder and the remaining Preferred
Shares will remain outstanding. At any time thereafter when additional funds of
the Corporation are legally available for the redemption of Preferred Shares,
such funds shall immediately be used to redeem the balance of the Preferred
Shares which the Corporation has become obligated to redeem on any Redemption
Date but which it has not redeemed. In connection with any redemption of
Preferred Stock pursuant to this Section 4, the Corporation shall declare for
payment all dividends that are accrued and unpaid as of the Redemption Date with
respect to the Preferred Shares which are to be redeemed on such Redemption
Date. (Payment of the Redemption Price in respect of such Preferred Shares shall
constitute payment of such declared dividends.)
4D. Notice of Redemption. The Corporation shall mail written
notice of each redemption of any Preferred Stock to each record holder thereof
not more than 60 nor less than 30 days prior to the date on which such
redemption is to be made in the case of a redemption pursuant to paragraph 4A,
and not less than 5 Business Days prior to the date on which such redemption is
to be made in the case of a redemption pursuant to paragraph 4B. Upon mailing
any such notice of redemption, the Corporation shall become obligated to redeem
the total number of Preferred Shares specified in such notice at the time of
redemption specified therein. In case fewer than the total number of Preferred
Shares represented by any certificate are redeemed, a new certificate
representing the number of unredeemed Preferred Shares shall be issued to the
holder thereof without cost to such holder within three Business Days after
surrender of the certificate representing the redeemed Preferred Shares.
4E. Determination of the Number of Each Holder's Preferred
Shares to be Redeemed. The number of Preferred Shares to be redeemed from each
holder thereof in redemptions pursuant to paragraph 4A(i) shall be the number of
Preferred Shares determined by multiplying the total number of Preferred Shares
to be redeemed by a fraction, the numerator of which shall be the total
Redemption Price of Preferred Shares then held by such holder and the
denominator of which shall be the aggregate Redemption Price of Preferred Shares
then outstanding.
4F. Dividends After Redemption Date. No Preferred Share is
entitled to any dividends accruing after the Redemption Date. On the Redemption
Date of any Preferred Share, all rights of the holder of such Preferred Share
shall cease, and such Preferred Share shall not be deemed to be outstanding.
4G. Redeemed or Otherwise Acquired Preferred Shares. Any
Preferred Shares which are redeemed or otherwise acquired by the Corporation
thereupon shall be retired. All such shares shall upon their retirement become
authorized but unissued shares of preferred stock of the Corporation and may not
-5-
<PAGE>
be reissued as Preferred Stock but may be reissued as part of a new series of
preferred stock to be created by resolution or resolutions of the board of
directors, subject to the conditions or restrictions on issuance set forth in
the certificate of incorporation of the Corporation.
4H. Other Redemptions or Acquisitions. Neither the Corporation
nor any Subsidiary shall redeem or otherwise acquire any Preferred Stock, except
as expressly authorized herein or pursuant to the Purchase Agreement or pursuant
to a purchase offer made pro rata to all holders of Preferred Stock on the basis
of the aggregate Redemption Price of the Preferred Shares owned by each such
holder.
Section 5. Voting Rights.
-------------
The holders of the Preferred Stock shall be entitled to notice
of all stockholders meetings in accordance with the Corporation's bylaws, and
except as otherwise required by law, the holders of the Preferred Stock shall be
entitled to vote on all matters submitted to the stockholders for a vote
together with the holders of the Common Stock voting together as a single class
with each share of Common Stock entitled to one vote per share, and each
Preferred Share (including fractional shares) entitled to one vote for each
share of Common Stock that would be issuable upon conversion of such Preferred
Share at the time the vote is taken.
Section 6. Conversion.
----------
6A. Conversion Procedure.
--------------------
(i) At any time and from time to time after the issuance
thereof, any holder of Preferred Stock may convert all or any of the Preferred
Shares (including any fraction of a Preferred Share) held by such holder into a
number of shares of Common Stock computed by multiplying the number of Preferred
Shares to be converted by the Liquidation Value and dividing the result by the
Conversion Price then in effect.
(ii) Each conversion of Preferred Stock shall be deemed to
have been effected as of the close of business on the date on which the
certificate or certificates representing the Preferred Shares to be converted
have been surrendered at the principal office of the Corporation. At such time
as such conversion has been effected, the rights of the holder of such Preferred
Shares as such holder shall cease, all accrued and unpaid dividends on such
Preferred Shares shall be deemed to have been forfeited immediately prior to
such conversion, and the Person or Persons in whose name or names any
certificate or certificates for shares of Common Stock are to be issued upon
such conversion shall be deemed to have become the holder or holders of record
of the shares of Common Stock represented thereby.
-6-
<PAGE>
(iii) The conversion rights of any Preferred Share subject to
redemption hereunder shall terminate on the Redemption Date for such Preferred
Share unless the Corporation has failed to pay to the holder thereof the
Redemption Price thereof.
(iv) Notwithstanding any other provision thereof, if a
conversion of any Preferred Shares is to be made in connection with a Public
Offering, such conversion may, at the election of the holder of such Preferred
Shares, be conditioned upon the consummation of the Public Offering, in which
case such conversion shall not be deemed to be effective until the consummation
of the Public Offering.
(v) As soon as possible after a conversion has been effected
(but in any event within five Business Days in the case of subparagraph (a)
below), the Corporation shall deliver to the converting holder:
(a) a certificate or certificates representing the
number of shares of Common Stock issuable by reason of such conversion
in such name or names and such denomination or denominations as the
converting holder has specified;
(b) payment of the amount payable under subparagraph
(viii) below with respect to such conversion; and
(c) a certificate representing any Preferred Shares
which were represented by the certificate or certificates delivered to
the Corporation in connection with such conversion but which were not
converted.
(vi) The issuance of certificates for shares of Common Stock
upon conversion of Preferred Stock shall be made without charge to the holders
of such Preferred Stock for any issuance tax in respect thereof or other cost
incurred by the Corporation in connection with such conversion and the related
issuance of shares of Common Stock.
(vii) The Corporation shall not close its books against the
transfer of Preferred Stock or of Common Stock issued or issuable upon
conversion of Preferred Stock in any manner which interferes with the timely
conversion of Preferred Stock. The Corporation shall assist and cooperate (but
the Corporation shall not be required to expend substantial efforts or funds)
with any holder of Preferred Shares required to make any governmental filings or
obtain any governmental approval prior to or in connection with any conversion
of Preferred Shares hereunder (including, without limitation, making any filings
required to be made by the Corporation).
-7-
<PAGE>
(viii) If any fractional interest in a share of Common Stock
would, except for the provisions of this subparagraph, be deliverable upon any
conversion of a holder's Preferred Stock, the Corporation, in lieu of delivering
the fractional share therefor, shall pay an amount to the holder thereof equal
to the Market Price of such fractional interest as of the date of conversion.
(ix) The Corporation shall at all times reserve and keep
available out of its authorized but unissued shares of Common Stock, solely for
the purpose of issuance upon the conversion of the Preferred Stock or exercise
of the Warrants, such number of shares of Common Stock issuable upon the
conversion of all outstanding Preferred Stock and exercise of all outstanding
Warrants which may then be exercised. All shares of Common Stock which are so
issuable shall, when issued, be duly and validly issued, fully paid and
nonassessable and free from all taxes, liens and charges. The Corporation shall
take all such actions as may be necessary to ensure that all such shares of
Common Stock may be so issued without violation of any applicable law or
governmental regulation (excluding Investment Regulations) or any requirements
of any domestic securities exchange upon which shares of Common Stock may be
listed (except for official notice of issuance which shall be immediately
delivered by the Corporation upon each such issuance).
6B. Conversion Price.
----------------
(i) In order to prevent dilution of the conversion rights
granted under this subdivision, the Conversion Price shall be subject to
adjustment from time to time pursuant to this Section 6.
(ii) If and whenever on or after the Date of Issuance of any
Preferred Share the Corporation issues or sells, or in accordance with paragraph
6C is deemed to have issued or sold, other than in an Excluded Issuance, any
share of Common Stock for a consideration per share less than the Conversion
Price in effect immediately prior to such time with respect to any such
Preferred Share, then forthwith upon such issue or sale the Conversion Price of
such Preferred Share shall be reduced to the lowest net price per share at which
any such share of Common Stock has been issued or sold or is deemed to have been
issued or sold.
6C. Effect on Conversion Price of Certain Events. Solely for
purposes of determining the adjusted Conversion Price under paragraph 6B, the
following shall be applicable:
(i) Issuance of Rights or Options. If the Corporation in any
manner grants any Options and the lowest price per share for which any one share
of Common Stock is issuable upon the exercise of any such Option or upon
conversion or exchange of any Convertible Security is less than any Conversion
Price in effect immediately prior to the time of the granting of such Option,
then such share of Common Stock shall be deemed to have been issued and sold by
the Corporation at
-8-
<PAGE>
the time of the granting of such Options for such price per share and such
Conversion Price shall be adjusted in accordance with paragraph 6B(ii) above.
For purposes of this paragraph, the "lowest price per share for which any one
share of Common Stock is issuable" shall be equal to the sum of the lowest
amounts of consideration (if any) received or receivable by the Corporation with
respect to any one share of Common Stock upon the granting of the Option, upon
exercise of the Option and upon conversion or exchange of the Convertible
Security. No further adjustment of such Conversion Price shall be made upon the
actual issue of such Common Stock or of such Convertible Security upon the
exercise of such Options or upon the actual issue of such Common Stock upon
conversion or exchange of such Convertible Security.
(ii) Issuance of Convertible Securities. If the Corporation in
any manner issues or sells any Convertible Security and the lowest price per
share for which any one share of Common Stock is issuable upon conversion or
exchange thereof is less than any Conversion Price in effect immediately prior
to the time of such issue or sale, then such share of Common Stock shall be
deemed to have been issued and sold by the Corporation at the time of the
issuance or sale of such Convertible Securities for such price per share and
such Conversion Price shall be adjusted in accordance with paragraph 6B(ii)
above. For the purposes of this paragraph, the "lowest price per share for which
any one share of Common Stock is issuable" shall be equal to the sum of the
lowest amounts of consideration (if any) received or receivable by the
Corporation with respect to any one share of Common Stock upon the issuance of
the Convertible Security and upon the conversion or exchange of such Convertible
Security. No further adjustment of such Conversion Price shall be made upon the
actual issue of such Common Stock upon conversion or exchange of any Convertible
Security, and if any such issue or sale of such Convertible Security is made
upon exercise of any Options for which adjustments of such Conversion Price had
been or are to be made pursuant to other provisions of this Section 6, no
further adjustment of such Conversion Price shall be made by reason of such
issue or sale.
(iii) Change in Option Price or Conversion Rate. If the
purchase price provided for in any Option, the additional consideration (if any)
payable upon the issue, conversion or exchange of any Convertible Security, or
the rate at which any Convertible Security is convertible into or exchangeable
for Common Stock change at any time, any Conversion Price previously adjusted
with respect to such Option or Convertible Security and in effect at the time of
such change shall be readjusted to the Conversion Price which would have been in
effect at such time had such Option or Convertible Security originally provided
for such changed purchase price, additional consideration or changed conversion
rate, as the case may be, at the time initially granted, issued or sold.
(iv) Treatment of Expired Options and Unexercised Convertible
Securities. Upon the expiration of any Option or the termination of any right to
-9-
<PAGE>
convert or exchange any Convertible Security without the exercise of any such
Option or right, any Conversion Price then in effect hereunder shall be adjusted
to the Conversion Price which would have been in effect at the time of such
expiration or termination had such Option or Convertible Security, to the extent
outstanding immediately prior to such expiration or termination, never been
issued.
(v) Calculation of Consideration Received. If any Common
Stock, Option or Convertible Security is issued or sold or deemed to have been
issued or sold for cash, the consideration received there for shall be deemed to
be the amount received by the Corporation therefor. In case any Common Stock,
Options or Convertible Securities are issued or sold for a consideration other
than cash, the amount of the consideration other than cash received by the
Corporation shall be the fair value of such consideration, except where such
consideration consists of securities, in which case the amount of consideration
received by the Corporation shall be the Market Price thereof as of the date of
receipt. If any Common Stock, Option or Convertible Security is issued to the
owners of the non-surviving entity in connection with any merger in which the
Corporation is the surviving corporation, the amount of consideration there for
shall be deemed to be the fair value of such portion of the assets and business
of the non-surviving entity as is attributable to such Common Stock, Options or
Convertible Securities, as the case may be. The fair value of any consideration
other than cash and securities shall be determined jointly by the Corporation
and the holders of 70% of the outstanding Preferred Shares. If such parties are
unable to reach agreement within a reasonable period of time, the fair value of
such consideration shall be determined by an independent appraiser experienced
in valuing such type of consideration jointly selected by the Corporation and
the holders of 70% of the outstanding Preferred Shares. The determination of
such appraiser shall be final and binding upon the parties, and the fees and
expenses of such appraiser shall be borne by the Corporation.
(vi) Integrated Transactions. In case any Option is issued in
connection with the issue or sale of other securities of the Corporation,
together comprising one integrated transaction in which no specific
consideration is allocated to such Option by the parties thereto, the Option
shall be deemed to have been issued for a consideration of $.01.
(vii) Treasury Shares. The number of shares of Common Stock
outstanding at any given time does not include shares owned or held by or for
the account of the Corporation or any Subsidiary, and the disposition of any
shares so owned or held shall be considered an issue or sale of Common Stock.
(viii) Record Date. If the Corporation fixes a record date for
determining the holders of Common Stock entitled (a) to receive a dividend or
other distribution payable in Common Stock, Options or in Convertible Securities
or (b) to subscribe for or purchase Common Stock, Options or Convertible
Securities, then such record date shall be deemed to be the date of the issue or
sale of the shares of
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<PAGE>
Common Stock deemed to have been issued or sold upon the declaration of such
dividend or upon the making of such other distribution or the date of the
granting of such right of subscription or purchase, as the case may be.
6D. Subdivision or Combination of Common Stock. If the
Corporation at any time subdivides (by any stock split, stock dividend,
recapitalization or otherwise) one or more classes of its outstanding shares of
Common Stock into a greater number of shares, any Conversion Price in effect
immediately prior to such subdivision shall be proportionately reduced, and if
the Corporation at any time combines (by reverse stock split or otherwise) one
or more classes of its outstanding shares of Common Stock into a smaller number
of shares, any Conversion Price in effect immediately prior to such combination
shall be proportionately increased.
6E. Reorganization, Reclassification, Consolidation, Merger or
Sale. In connection with any Organic Change, the Corporation shall make
appropriate provisions (in form and substance reasonably satisfactory to the
holders of 70% of the Preferred Shares then outstanding) to insure that each of
the holders of Preferred Stock shall thereafter have the right to acquire and
receive, in lieu of or in addition to (as the case may be) the shares of Common
Stock immediately theretofore acquirable and receivable upon the conversion of
such holder's Preferred Stock, such shares of stock, securities or assets as
such holder would have received in connection with such Organic Change if such
holder had converted its Preferred Stock immediately prior to such Organic
Change. In each such case, the Corporation shall also make appropriate
provisions (in form and substance reasonably satisfactory to the holders of 70%
of the Preferred Shares then outstanding) to insure that the provisions of this
Section 6 and Sections 7 and 8 hereof shall thereafter be applicable to the
Preferred Stock (including, in the case of any such consolidation, merger or
sale in which the successor entity or purchasing entity is other than the
Corporation, an immediate adjustment of the Conversion Price to the value for
the Common Stock reflected by the terms of such consolidation, merger or sale,
and a corresponding immediate adjustment in the number of shares of Common Stock
acquirable and receivable upon conversion of Preferred Stock, if the value so
reflected is less than the Conversion Price in effect immediately prior to such
consolidation, merger or sale).
6F. Certain Events. If any event occurs of the type
contemplated by the provisions of this Section 6 but not expressly provided for
by such provisions (including, without limitation, the granting of stock
appreciation rights, phantom stock rights or other rights with equity features),
then the Corporation's board of directors shall make an appropriate adjustment
in each Conversion Price so as to protect the rights of the holders of Preferred
Stock; provided that no such adjustment shall increase any Conversion Price as
otherwise determined pursuant to this Section 6 or decrease the number of shares
of Conversion Stock issuable upon conversion of each share of Preferred Stock.
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<PAGE>
6G. Notices.
-------
(i) Immediately upon any adjustment of any Conversion Price,
the Corporation shall give written notice thereof to all holders of Preferred
Stock, setting forth in reasonable detail and certifying the calculation of such
adjustment.
(ii) The Corporation shall give written notice to all holders
of Preferred Stock at least 20 days prior to the date on which the Corporation
closes its books or fixes a record date (a) with respect to any dividend or
distribution upon Common Stock, (b) with respect to any pro rata subscription
offer to holders of Common Stock or (c) for determining rights to vote with
respect to any Organic Change or Liquidation.
(iii) The Corporation shall also give written notice to
holders of Preferred Stock at least 20 days prior to the date on which any
Organic Change shall take place.
6H. Mandatory Conversion. The Corporation may require by
written notice to all holders of Preferred Stock, the conversion of all of the
outstanding Preferred Stock, at the then applicable Conversion Price or Prices,
at any time after the second anniversary of the Closing, provided that (a) the
Closing Price of the Common Stock (adjusted proportionately for stock dividends,
stock splits, combinations, and similar changes in the Common Stock occurring
after the Closing) on at least 30 of the 45 latest trading days preceding the
date of the Corporation's notice has been greater than (i) $12.50 per share, if
such notice is delivered prior to the last day of the 30th month after Closing,
(ii) $15.62 per share, if such notice is delivered after the last day of the
30th month after Closing but prior to the third anniversary of the Closing, or
(iii) $18.75 per share, if such notice is delivered on or after the third
anniversary of the Closing, (b) the number of Public Float Securities
outstanding exceeds 20% of the number of shares of Common Stock outstanding on a
"fully diluted" basis (i.e., after giving effect to the exercise, exchange and
conversion of all rights, options, warrants and convertible securities that are,
directly or indirectly, exercisable or exchangeable for, or convertible into,
Common Stock, determined without regard to any vesting limitations or
restrictions on exercise, exchange or conversion), and (c) the holders of the
Preferred Stock are not then subject to (and will not, as a result of such
exercise, become subject to) any agreement restricting the sale of the Common
Stock issued upon the conversion of the Preferred Stock.
Section 7. Liquidating Dividends.
---------------------
If the Corporation declares or pays a Liquidating Dividend
upon the Common Stock, then the Corporation shall pay to the holders of
Preferred Stock at the time of payment thereof the Liquidating Dividends which
would have been paid
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<PAGE>
on the shares of Common Stock had such Preferred Stock been converted
immediately prior to the record date fixed for determining the stockholders
entitled to receive payment of such Liquidating Dividend, or, if no record date
is fixed, the date as of which the record holders of Common Stock entitled to
such dividends are to be determined.
Section 8. Purchase Rights.
---------------
If at any time the Corporation grants, issues or sells any
Purchase Rights pro rata to the record holders of any class of Common Stock,
then each holder of Preferred Stock shall be entitled to acquire, upon the terms
applicable to such Purchase Rights, the aggregate Purchase Rights which such
holder could have acquired if such holder had held the number of shares of
Common Stock acquirable upon conversion of such holder's Preferred Shares
immediately before the date on which a record is taken for the grant, issuance
or sale of such Purchase Rights, or, if no such record is taken, the date as of
which the record holders of Common Stock are to be determined for the grant,
issue or sale of such Purchase Rights.
Section 9. Consequences of Certain Events of Noncompliance.
-----------------------------------------------
(i) If an Event of Noncompliance of the type described in
subparagraph (ii) of the definition of Event of Noncompliance has occurred and
has continued for a period of 30 days and is continuing or any other Event of
Noncompliance has occurred and is continuing, the annual dividend rate on the
Preferred Stock shall increase immediately by an increment of two percentage
points. Thereafter, until such time as no Event of Noncompliance exists, the
annual dividend rate shall increase automatically at the end of each succeeding
90-day period by an additional increment of two percentage points (but in no
event shall the annual dividend rate exceed 14%). Any increase of the dividend
rate resulting from the operation of this paragraph shall terminate as of the
close of business on the date on which no Event of Noncompliance exists, subject
to subsequent increases pursuant to this paragraph.
(ii) If both (a) either (1) an Event of Noncompliance of the
type described in subparagraph (i) or (iii) of the definition of Event of
Noncompliance has occurred and is continuing, or (2) an Event of Noncompliance
of the type described in subparagraph (ii) or (iv) of the definition of Event of
Noncompliance has occurred and has continued for a period of 60 days and is
continuing and (b) the holder or holders of 70% of the Preferred Stock then
outstanding have given written notice to the Corporation of their intent to
exercise their rights under this paragraph (ii) in connection with such Event of
Noncompliance (which notice may be given at any time after the occurrence of
such Event of Noncompliance) and 30 days have lapsed since the date such notice
was given, then the holder or holders of 70% of the Preferred Stock then
outstanding shall have the option to demand (by written notice delivered to the
Corporation at any time thereafter until such time as
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<PAGE>
there is no Event of Noncompliance in existence) redemption of all or any
portion of the Preferred Stock owned by such holder or holders at a price per
Preferred Share equal to the Liquidation Value thereof (plus all accrued and
unpaid dividends thereon). The Corporation shall give prompt written notice of
such election to the other holders of Preferred Stock (but in any event within
five days after receipt of the initial demand for redemption), and each such
other holder shall have the option to demand redemption of all or any portion of
such holder's Preferred Stock by giving written notice thereof to the
Corporation within seven days after receipt of the Corporation's notice. The
Corporation shall redeem all Preferred Stock as to which rights under this
paragraph have been exercised within 15 days after receipt of the initial demand
for redemption.
(iii) If any Event of Noncompliance exists, each holder of
Preferred Stock shall also have any other rights which such holder is entitled
to under any contract or agreement at any time and any other rights which such
holder may have pursuant to applicable law.
Section 10. Registration of Transfer.
------------------------
The Corporation shall keep at its principal office a register
for the registration of Preferred Stock. Upon the surrender of any certificate
representing Preferred Stock at such place, the Corporation shall, at the
request of the record holder of such certificate, execute and deliver (at the
Corporation's expense) a new certificate or certificates in exchange therefor
representing in the aggregate the number of Preferred Shares represented by the
surrendered certificate. Each such new certificate shall be registered in such
name and shall represent such number of Preferred Shares as is requested by the
holder of the surrendered certificate and shall be substantially identical in
form to the surrendered certificate, and dividends shall accrue on the Preferred
Stock represented by such new certificate from the date to which dividends have
been fully paid on such Preferred Stock represented by the surrendered
certificate.
Section 11. Replacement.
-----------
Upon receipt of evidence reasonably satisfactory to the
Corporation (an affidavit of the registered holder shall be satisfactory) of the
ownership and the loss, theft, destruction or mutilation of any certificate
evidencing Preferred Shares of any series of Preferred Stock, and in the case of
any such loss, theft or destruction, upon receipt of indemnity reasonably
satisfactory to the Corporation (provided that if the holder is a financial
institution or other institutional investor, its own agreement shall be
satisfactory), or, in the case of any such mutilation upon surrender of such
certificate, the Corporation shall (at its expense) execute and deliver in lieu
of such certificate a new certificate of like kind representing the number of
Preferred Shares of such series represented by such lost, stolen, destroyed or
mutilated certificate and dated the date of such lost, stolen, destroyed
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<PAGE>
or mutilated certificate, and dividends shall accrue on the Preferred Stock
represented by such new certificate from the date to which dividends have been
fully paid on such lost, stolen, destroyed or mutilated certificate.
Section 12. Definitions.
-----------
"Business Day" means a day on which banks are generally open
for business in New York City.
"Closing" has the meaning given such term in the Purchase
Agreement.
"Closing Price" of each share of Common Stock or other
security means the composite closing price of the sales of the Common Stock or
such other security on all securities exchanges on which such security may at
the time be listed (as reported in The Wall Street Journal), or, if there has
been no sale on any such exchange on any day, the average of the highest bid and
lowest asked prices of the Common Stock or such other security on all such
exchanges at the end of such day, or, if such security is not so listed, the
closing price (or last price, if applicable) of sales of the Common Stock or
such other security in the Nasdaq National Market (as reported in The Wall
Street Journal) on such day, or if such security is not quoted in the Nasdaq
National Market but is traded over-the-counter, the average of the highest bid
and lowest asked prices on such day in the over-the-counter market as reported
by the National Quotation Bureau Incorporated, or any similar successor
organization.
"Common Stock" means, collectively, the Corporation's common
stock, par value $0.01 per share, and any capital stock of any class of the
Corporation hereafter authorized which is not limited to a fixed sum or
percentage of par or stated value in respect to the rights of the holders
thereof to participate in dividends or in the distribution of assets upon any
Liquidation of the Corporation; and if there is a change such that the
securities issuable upon conversion of the Preferred Stock are issued by an
entity other than the Corporation or there is a change in the class of
securities so issuable, then the term "Common Stock" shall mean one share of the
security issuable upon conversion of the Preferred Stock if such security is
issuable in shares, or shall mean the smallest unit in which such security is
issuable if such security is not issuable in shares.
"Conversion Price" shall mean, with respect to any Series A
Share, $6.25 (subject to adjustment as provided in Section 6 for events
occurring after the Closing).
"Convertible Security" means any stock or other securities of
the Corporation convertible into or exchangeable for Common Stock.
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<PAGE>
"Corporation" means Orion Newco Services, Inc., a Delaware
corporation.
"Date of Issuance," with respect to any Preferred Share, means
the date on which the Corporation initially issues such Preferred Share,
regardless of the number of times transfer of such Preferred Share is made on
the stock records maintained by or for the Corporation and regardless of the
number of certificates which may be issued to evidence such Preferred Share.
"Dividend Reference Dates" mean August 31, November 30,
February 28 and May 31 of each year.
"Excluded Issuance" means the issue or sale of (i) shares of
Common Stock in respect of any transaction described in paragraph 6D or pursuant
to the Old ONS Merger Agreement, (ii) up to an aggregate of 2,203,960 shares of
Common Stock by the Corporation pursuant to the exercise of Options and
Convertible Securities outstanding immediately prior to the Closing at exercise
prices that are greater than or equal to the respective exercise prices in
effect as of Closing (as adjusted pursuant to the terms of such securities to
give effect to stock dividends or stock splits or a combination of shares in
connection with a recapitalization, merger, consolidation or other
reorganization occurring after the Closing), (iii) up to an aggregate of 150,000
shares of Common Stock by the Corporation for any purpose, or (iv) Options to
acquire Common Stock by the Corporation pursuant to a resolution of, or a stock
option plan approved by a resolution of, the Board of Directors of the
Corporation (or the compensation committee thereof) to the Corporation's
employees, the per share exercise price of which is greater than or equal to the
fair market value of a share of Common Stock at the time such Option is issued,
as determined by the Board of Directors of the Corporation (or the compensation
committee thereof).
"Event of Noncompliance" means and shall be deemed to have
occurred if:
(i) the Corporation fails to make any redemption
payment with respect to the Preferred Stock which it is obligated to
make hereunder, whether or not such payment is legally permissible or
is prohibited by any agreement to which the Corporation is subject;
(ii) the Corporation breaches or otherwise fails to
perform or observe any other covenant or agreement set forth herein or
in the Purchase Agreement; provided, first, that no Event of
Noncompliance shall be deemed to have occurred under this subparagraph
(ii) if the Corporation reasonably establishes that the Event of
Noncompliance is not material to the financial condition, operating
results, operations or assets of the Corporation and its Subsidiaries,
taken as a whole, or to any holder's investment in the Preferred
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<PAGE>
Stock; and provided, second, that, so long as the Corporation commences
promptly and continues to exercise reasonable and diligent efforts to
cure the Event of Noncompliance (if cure is possible) within a
reasonable time after its occurrence, the applicable grace periods set
forth in paragraph (i) and in clause (a) of paragraph (ii) of Section 9
shall be extended with respect to such Event of Noncompliance for a
period of time equal to the period during which such efforts are
continuing;
(iii) any representation, warranty or certification
by or on behalf of the Corporation contained in the Purchase Agreement
or required to be furnished to any holder of Preferred Stock pursuant
to the Purchase Agreement is false or misleading in any material
respect on the date made; provided, however, that any Event of
Noncompliance under this clause (iii) resulting from the delivery of a
certification that is made in good faith but is false or misleading
shall be deemed to be cured from and after the date a certification
correcting the earlier false or misleading certification is delivered
to the holders of the Preferred Stock, which delivery shall occur
promptly after the facts or events that caused such earlier
certification to be false or misleading become known to the
Corporation; or
(iv) the Corporation or any Subsidiary makes an
assignment for the benefit of creditors or admits in writing its
inability to pay its debts generally as they become due; or an order,
judgment or decree is entered adjudicating the Corporation or any
Subsidiary bankrupt or insolvent; or any order for relief with respect
to the Corporation or any Subsidiary is entered under the Federal
Bankruptcy Code; or the Corporation or any Subsidiary petitions or
applies to any tribunal for the appointment of a custodian, trustee,
receiver or liquidator of the Corporation or any Subsidiary or of any
substantial part of the assets of the Corporation or any Subsidiary, or
commences any proceeding (other than a proceeding for the voluntary
liquidation and dissolution of a Subsidiary) relating to the
Corporation or any Subsidiary under any bankruptcy, reorganization,
arrangement, insolvency, readjustment of debt, dissolution or
liquidation law of any jurisdiction; or any such petition or
application is filed, or any such proceeding is commenced, against the
Corporation or any Subsidiary and either (a) the Corporation or any
such Subsidiary by any act indicates its approval thereof, consent
thereto or acquiescence therein or (b) such petition, application or
proceeding is not dismissed within 60 days.
"Freely Tradeable Securities" has the meaning given such term
in the Purchase Agreement.
"Fundamental Change" has the meaning given such term in the
Purchase Agreement.
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<PAGE>
"Investment Regulations" means, as applicable, Title III of
the Small Business Investment Act of 1958, as amended, and the regulations
promulgated thereunder, Regulation Y (Title 12, Code of Federal Regulations,
Part 225) under Section 5(b) of the Bank Holding Company Act of 1956, as
amended, or other similar laws or regulations governing a regulated Person's
investment authority.
"Junior Securities" means Common Stock and any other capital
stock or other equity securities issued by the Corporation, whether currently
existing or hereafter authorized or issued.
"Liquidation" means the liquidation, dissolution or winding up
of the Corporation; provided, however, that neither the consolidation or merger
of the Corporation into or with any other entity or entities, nor the sale or
transfer by the Corporation of all or any part of its assets, nor the reduction
of the capital stock of the Corporation, shall be deemed to be a liquidation,
dissolution or winding up of the Corporation.
"Liquidating Dividend" means a dividend upon the Common Stock
payable otherwise than in cash out of earnings or earned surplus (determined in
accordance with generally accepted accounting principles, consistently applied)
except for a stock dividend payable in shares of Common Stock.
"Liquidation Value" of any Preferred Share shall be equal to
$1,000.
"Market Price" of each share of Common Stock or other security
means the Closing Price of such share or other security, averaged over a period
of 21 days consisting of the day as of which the Market Price is being
determined and the 20 consecutive Business Days prior to such day. If during
this period such security is not listed on any securities exchange, quoted in
the Nasdaq National Market, or quoted in the over-the-counter market, the Market
Price will be the fair value of such security determined by agreement between
the Company and the holders of 70% of the outstanding Preferred Shares. If such
parties are unable to reach agreement within a reasonable period of time, the
fair value of such security shall be determined by an independent appraiser
experienced in valuing such type of consideration jointly selected by the
Corporation and the holders of 70% of the outstanding Preferred Shares. The
determination of such appraiser shall be final and binding upon the parties, and
the fees and expenses of such appraiser shall be borne by the Corporation.
"Old ONS" Orion Network Systems, Inc., a Delaware Corporation
incorporated in 1982.
"Old ONS Merger Agreement" means the Agreement and Plan of
2Merger dated as of January 8, 1997, by and among the Corporation, Old ONS and
Orion Merger Company, Inc.
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"Old ONS Preferred Share" means one (1) share of the series of
the preferred stock of Old ONS having the designation "Series A 8% Cumulative
Redeemable Convertible Preferred Stock," as set forth in that certain
"Certificate of Designations, Rights and Preferences of Series A 8% Cumulative
Redeemable Convertible Preferred Stock of Orion Network Systems, Inc." filed
with the Secretary of State of the State of Delaware on June 17, 1994.
"Old ONS Preferred Share Conversion" means the conversion of
Old ONS Preferred Shares into the right to receive Preferred Shares, pursuant to
the Old ONS Merger Agreement.
"Options" means any right or option to subscribe for or to
purchase Common Stock or any Convertible Securities.
"Organic Change" means any recapitalization, reorganization,
reclassification, consolidation, merger, sale of all or substantially all of the
Corporation's assets to another Person or other transaction which is effected in
such a manner that holders of Common Stock are entitled to receive (either
directly or upon subsequent liquidation) stock, securities or assets with
respect to or in exchange for Common Stock.
"Person" means an individual, a partnership, a corporation, an
association, a joint stock company, a limited liability company, a trust, a
joint venture, an unincorporated organization and a governmental entity or any
department, agency or political subdivision thereof.
"Preferred Share" means a share of Preferred Stock.
"Preferred Stock" means the Series A Preferred.
"Public Float Securities" means, as of any date of
determination, those shares of the Corporation's Common Stock that (i)
previously have been sold to the public in an offering registered under the
Securities Act or through a broker, dealer or market maker under Rule 144 of the
Securities Act, (ii) are listed for trading on a "national securities exchange"
(within the meaning of the Securities Exchange Act of 1934, as amended) or
quoted on the "National Market System" or "National List" published by the
National Association of Securities Dealers Automated Quotations System or any
successor list, and (iii) are held by Persons other than the Corporation or any
of its "affiliates" (within the meaning of Rule 144 under the Securities Act).
"Public Offering" means any offering by the Corporation of its
equity securities to the public pursuant to an effective registration statement
under the Securities Act of 1933, as then in effect, or any comparable statement
under any
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<PAGE>
similar federal statute then in force; provided, that "Public Offering" shall
not include an offering made in connection with a business acquisition or
combination or an employee benefit plan.
"Purchase Agreement" means the Purchase Agreement, dated as of
June 17, 1994, by and among Old ONS and certain investors, as such agreement may
from time to time be amended in accordance with its terms, the performance of
Old ONS's obligations under which the Corporation has assumed pursuant to an
agreement dated as of _______, 199__, by and among Old ONS, the Corporation, and
such investors.
"Purchase Rights" mean any Options, Convertible Securities or
rights to purchase stock, warrants, securities or other property.
"Redemption Date" means the date on which Price of a Preferred
Share is paid to the holder thereof.
"Redemption Price" means, with respect to any Preferred Share
being redeemed, the Liquidation Value of such Preferred Share plus all accrued
and unpaid dividends thereon.
"Reorganization" means any merger or consolidation of the
Corporation with any Person where both (i) either (a) the Corporation is not the
surviving corporation, (b) the terms of the Preferred Stock are altered in any
respect, or (c) the Preferred Stock is exchanged for cash, securities or other
property, and (ii) such merger or consolidation does not constitute a
Fundamental Change.
"Securities Act" means the Securities Act of 1933, as amended.
"Series A Preferred" means the Corporation's Series A 8%
Cumulative Redeemable Convertible Preferred Stock, par value $.01 per share.
"Series A Share" means a share of Series A Preferred.
"Subsidiary" means, with respect to any Person, corporation,
partnership, association or other business entity of which (i) if a corporation,
a majority of the total voting power of shares of stock entitled (without regard
to the occurrence of any contingency) to vote in the election of directors,
managers or trustees thereof is at the time owned or controlled, directly or
indirectly, by that Person or one or more of the other Subsidiaries of that
Person or a combination thereof, or (ii) if a partnership, association or other
business entity, a majority of the partnership or other similar ownership
interest thereof is at the time owned or controlled, directly or indirectly, by
any Person or one or more Subsidiaries of that person or a combination thereof.
For purposes hereof, a Person or Persons shall be
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deemed to have a majority ownership interest in a partnership, association or
other business entity if such Person or Persons shall be allocated a majority of
partnership, association or other business entity gains or losses or shall be or
control a general partner of such partnership, association or other business
entity. Without limiting the foregoing, International Private Satellite
Partners, L.P., a Delaware limited partnership, shall be deemed to be a
Subsidiary of the Corporation for so long as the Corporation or any of its other
Subsidiaries is the general partner thereof.
"Warrants" means the Common Stock purchase warrants issued
pursuant to the Purchase Agreement (whether at the Closing or thereafter
pursuant to paragraph ID or Section 7 thereof) and any warrant issued in
exchange, substitution or replacement thereof.
Section 13. Amendment and Waiver.
--------------------
No amendment, modification or waiver shall be binding or
effective with respect to any provision of Sections 1 to 13 hereof without the
prior written consent of the holders of 70% of the Preferred Shares outstanding
at the time such action is taken; provided, that no such action shall change (i)
the rate at which or the manner in which dividends on the Preferred Stock accrue
or the times at which such dividends become payable or the amount payable on
redemption of the Preferred Stock or the times at which redemption of Preferred
Stock is to occur, without the prior written consent of the holders of at least
90% of the Preferred Shares then outstanding, (ii) any Conversion Price of the
Preferred Stock or the number of shares or class of stock into which the
Preferred Stock is convertible, without the prior written consent of the holders
of at least 90% of the Preferred Stock then outstanding or (iii) the percentage
required to approve any change in clauses (i) and (ii) above, without the prior
written consent of the holders of at least 90% of the Preferred Stock then
outstanding.
Section 14. Notices.
-------
Except as otherwise expressly provided hereunder, all notices
referred to herein shall be in writing and shall be delivered by registered or
certified mail, return receipt requested and postage prepaid, or by reputable
overnight courier service, charges prepaid, and shall be deemed to have been
given when so mailed or sent (i) to the Corporation, at its principal executive
offices and (ii) to any stockholder, at such holder's address as it appears in
the stock records of the Corporation (unless otherwise indicated by any such
holder).
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CERTIFICATE OF DESIGNATIONS,
RIGHTS AND PREFERENCES
OF
SERIES B 8% CUMULATIVE REDEEMABLE
CONVERTIBLE PREFERRED STOCK
OF
ORION NEWCO SERVICES, INC.
- --------------------------------------------------------------------------------
Pursuant to Section 151
of the General Corporation Law
of the State of Delaware
- --------------------------------------------------------------------------------
The undersigned DOES HEREBY CERTIFY that, pursuant to the
authority contained in Article FOURTH of the Certificate of Incorporation of
Orion Newco Services, Inc., a Delaware corporation (the "Corporation"), and in
accordance with Section 151 of the General Corporation Law of the State of
Delaware, the Board of Directors of the Corporation has authorized the creation
of Series B 8% Cumulative Redeemable Convertible Preferred Stock having the
designations, rights and preferences as are set forth in Exhibit A hereto and
made a part hereof and that the following resolution was duly adopted by the
Board of Directors of the Corporation:
<PAGE>
RESOLVED, that a series of authorized Preferred
Stock, par value $.01 per share, of the Corporation be, and it hereby
is, created; that the shares of such series shall be, and they hereby
are, designated as "Series B 8% Cumulative Redeemable Convertible
Preferred Stock"; that the number of shares constituting such series
shall be, and it hereby is, 5,000; and that the designations, rights
and preferences of the shares of such series are as set forth in
Exhibit A attached hereto and made a part hereof.
IN WITNESS WHEREOF, the Corporation has caused its corporate seal to be
hereunto affixed and this Certificate to be signed by its President and Chief
Executive Officer and attested to by its Vice President, Corporate and Legal
Affairs, and Secretary this ____ day of __________, 199__.
ORION NEWCO SERVICES, INC.
By:
------------------------------
[SEAL] Name: W. Neil Bauer
Title: President/Chief Executive
Officer
ATTEST:
- ---------------------------------------------
Name: Richard H. Shay, Esq.
Title: Vice President, Corporate and
Legal Affairs/Secretary
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<PAGE>
EXHIBIT A
---------
SERIES B 8% CUMULATIVE REDEEMABLE
CONVERTIBLE PREFERRED STOCK
The following sections set forth the designations, rights and
preferences of the Corporation's Series B Preferred. Capitalized terms used
herein are defined in Section 12 below.
Section 1. Dividends.
---------
1A. General Obligation. When and as declared by the
Corporation's board of directors and to the extent permitted under the General
Corporation Law of Delaware, the Corporation shall pay preferential dividends to
the holders of the Preferred Stock as provided in this Section 1. Except as
otherwise provided herein, dividends on each Preferred Share shall accrue on a
daily basis at the rate of 8% per annum of the sum of the Liquidation Value
thereof plus all accumulated and unpaid dividends thereon, from and including
the Date of Issuance of such Preferred Share to and including the date on which
the Liquidation Value of such Preferred Share (plus all accrued and unpaid
dividends thereon) is paid or the date on which such Preferred Share is
converted into shares of Common Stock hereunder. Such dividends shall accrue
whether or not they have been declared and whether or not there are profits,
surplus or other funds of the Corporation legally available for the payment of
dividends.
1B. Dividend Reference Dates. To the extent not paid on a
Dividend Reference Date, with the initial Dividend Reference Date being February
28, 1997, all dividends which have accrued on each Preferred Share outstanding
since the latest preceding Dividend Reference Date (or the Date of Issuance of
such Preferred Share, if later) ending upon each such Dividend Reference Date,
and, in the case of each Preferred Share outstanding that was issued upon the
Old ONS Preferred Share Conversion, all dividends that were accrued,
accumulated, and unpaid at the time of the Old ONS Preferred Share Conversion on
the Old ONS Preferred Share that was converted into such Preferred Share, shall
be accumulated and shall remain accumulated dividends with respect to such
Preferred Share until paid.
1C. Distribution of Partial Dividend Payments. Except in
connection with redemptions or repurchases (i) pursuant to paragraph 4A or 4B
below, (ii) in compliance with paragraph 4H below, or (iii) as provided in the
Purchase Agreement, if at any tide the Corporation pays less than the
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total amount of dividends then accrued with respect to the Preferred Stock such
payment shall be distributed ratably among the holders thereof based upon the
aggregate accrued but unpaid dividends on the Preferred Shares held by each such
holder and such payment shall be applied first to dividends which have accrued
on such Preferred Shares during the period since the latest preceding Dividend
Reference Date and second to reduce any accumulated dividends with respect to
such Preferred Shares.
Section 2. Liquidation.
-----------
Subject to the provisions of Section 2 of the Series A
Certificate: upon any Liquidation, each holder of Preferred Stock shall be
entitled to be paid, before any distribution or payment is made upon any Junior
Securities, an amount in cash equal to the greater of (a) the aggregate
Liquidation Value (plus all accrued and unpaid dividends) of all shares of
Preferred Stock held by such holder or (b) the amount which would be distributed
with respect to the shares of Common Stock (including fractional shares for
purposes of this calculation) into which such shares of Preferred Stock are
convertible (assuming conversion of all outstanding Preferred Stock) immediately
prior to the record date for such distribution (or, if there is no such record
date, then the date as of which the holders of Common Stock entitled to such
distribution are determined), and the holders of Preferred Stock shall not be
entitled to any further payment; and if upon any such Liquidation the
Corporation's assets to be distributed among the holders of the Preferred Stock
are insufficient to permit payment to such holders of the aggregate amount which
they are entitled to be paid, then the entire assets to be distributed shall be
distributed ratably among such holders based upon the aggregate Liquidation
Value (plus all accrued and unpaid dividends) of the Preferred Shares held by
each such holder. Prior to such Liquidation, the Corporation shall declare for
payment all accrued and unpaid dividends with respect to the Preferred Stock.
(Payment of the greater of the amounts specified in clauses (a) and (b) of this
Section 2 in respect of such Preferred Shares shall constitute payment of such
declared dividends.) The Corporation shall mail written notice of such
Liquidation, not less than 60 days prior to the payment date stated therein, to
each record holder of Preferred Stock.
Section 3. [Reserved.]
--------
Section 4. Redemptions.
-----------
4A. Redemption at Option of Corporation.
-----------------------------------
(i) The Corporation may at any time redeem all or, subject to
paragraph 4E below, any of the Preferred Shares then outstanding at the
Redemption Price, provided that no redemption pursuant to this paragraph 4A
shall be for Preferred Shares with an aggregate Liquidation Value of less
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than $1,000,000 (less the aggregate liquidation value of any Series A Shares
being redeemed) or such lesser number of Preferred Shares then outstanding.
(ii) The Corporation may in connection with a Reorganization
redeem all or any of the Preferred Shares then outstanding at the Redemption
Price, payable at the time of the consummation of the Reorganization as follows:
(a) first, in Freely Tradeable Securities in an
amount not to exceed the lesser of (1) the Redemption Price of such
Preferred Shares and (2) the amount of Freely Tradeable Securities
that, if such holder had converted such Preferred Shares into Common
Stock immediately prior to such Reorganization, would have been issued
to such holder in connection with such Reorganization in respect of
such shares of Common Stock; and
(b) second, the balance of the Redemption Price (if
any) in cash.
Notwithstanding paragraph 4H hereof, if the Corporation seeks the consent of the
holders of Preferred Stock to any Reorganization under subparagraph 3D(iv) of
the Purchase Agreement, and the affirmative consent of the holders required
thereunder is not obtained, the Corporation may redeem at or prior to the time
of the consummation of such Reorganization and pursuant to this paragraph
4A(ii), all (but not less than all) of the Preferred Shares held by those
holders that did not affirmatively consent to such transaction.
4B. Redemptions at the Option of the Holder.
---------------------------------------
(i) At any time after the fifth anniversary of the Closing,
subject to subparagraph 4B(ii) below, each holder of Preferred Stock may request
redemption of all or a portion of the Preferred Shares owned by such holder for
a price equal to the Redemption Price. Within five Business Days after receipt
of such request (or of any similar request under paragraph 4B(i) of the Series A
Certificate), the Corporation shall give written notice to all other holders of
Preferred Stock, and such other holders may request redemption of their
Preferred Shares by delivering written notice to the Corporation within 10
Business Days after receipt of the Corporation's notice. The Corporation shall
pay the Redemption Price of all Preferred Shares whose redemption has been duly
requested pursuant to this paragraph 4B within 30 days after its receipt of the
initial request for such redemption.
Notwithstanding the above, the Corporation shall not be
obligated pursuant to this paragraph 4B to redeem any Preferred Share initially
issued to a Small Business Investment Company licensed by the U.S. Small
Business Administration before the fifth anniversary of the Date
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of Issuance of such Preferred Share, provided that all such outstanding
Preferred Shares shall be counted as held by their holders for purposes of all
pro rata and other calculations.
(ii) Notwithstanding the provisions of subparagraph 4B(i)
above, the Corporation shall not be obligated to repurchase, pursuant to this
paragraph 4B:
(a) on a cumulative basis, (x) before the sixth
anniversary of the Closing, a number of shares of Preferred Stock,
which when taken together with the number of Series A Shares similarly
repurchased, exceeds one-third of all shares of Series A Preferred and
Series B Preferred issued by the Corporation at any time (for purposes
of such calculation, taking into account both repurchases under this
paragraph 4B, repurchases under paragraph 4B of the Series A
Certificate and repurchases under paragraph 6A of the Purchase
Agreement), and (y) before the seventh anniversary of the Closing, a
number of shares of Preferred Stock, which when taken together with the
number of Series A Shares similarly repurchased, exceeds two-thirds of
all shares of Series A Preferred and Series B Preferred issued by the
Corporation at any time (for purposes of such calculation, taking into
account both repurchases under this paragraph 4B, repurchases under
paragraph 4B of the Series A Certificate and repurchases under
paragraph 6A of the Purchase Agreement) (and at no time shall any
initial holder and its transferees be entitled to sell shares of
Preferred Stock to the Corporation pursuant to this paragraph 4B to the
extent that the aggregate number of shares of Series A Preferred and
Series B Preferred sold by such Persons at or before that time pursuant
to this paragraph 4B, pursuant to paragraph 4B of the Series A
Certificate or pursuant to paragraph 6A of the Purchase Agreement
(limited in the case of a transferee to shares of Series A Preferred
and Series B Preferred acquired directly or indirectly from, or
acquired in respect of Series A Preferred or Series B Preferred
acquired directly or indirectly from, such initial holder) would, on a
cumulative basis, exceed an amount equal to (I) the maximum cumulative
number of shares which the Corporation may be required to redeem under
this subparagraph 43(ii) (a) at such time, multiplied by (II) a
fraction (x) the numerator of which is the aggregate number, without
duplication, of shares of Series A Preferred and Series B Preferred
issued by the Corporation at any time that was held by such holders
(limited in the case of a transferee to shares of Series A Preferred
and Series B Preferred acquired directly or indirectly from, or
acquired in respect of Series A Preferred and Series B Preferred
acquired directly or indirectly from, such initial holder), and (y) the
denominator of which is the aggregate number, without duplication, of
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shares of Series A Preferred and Series B Preferred issued by the
Corporation at any time); and
(b) for a period of 180 days after the date the
Corporation redeems shares of Series B Preferred pursuant to paragraph
4B(i) (or Series A Preferred pursuant to paragraph 4B(i) of the Series
A Certificate), any shares of Preferred Stock pursuant to a request for
redemption under paragraph 4B(i) that is requested subsequent to, and
not as part of, such prior redemption.
4C. Redemption Payment. For each Preferred Share which is to
be redeemed (and except as otherwise provided in paragraph 4A(ii) above), the
Corporation shall be obligated on the Redemption Date to pay to the holder
thereof (upon surrender by such holder at the Corporations principal office of
the certificate representing such Preferred Share) an amount in immediately
available funds equal to the Redemption Price of such Preferred Share. Subject
to the provisions of paragraph 4C of the Series A Certificate: if the funds of
the Corporation legally available for redemption of Preferred Shares on any
Redemption Date are insufficient to redeem the total number of Preferred Shares
to be redeemed on such date, those funds which are legally available shall be
used to redeem the maximum possible number of Preferred Shares ratably among the
holders of the Preferred Shares to be redeemed based upon the aggregate
Redemption Price of the Preferred Shares held by each such holder and the
remaining Preferred Shares will remain outstanding; and at any time thereafter
when additional funds of the Corporation are legally available for the
redemption of Preferred Shares, such funds shall immediately be used to redeem
the balance of the Preferred Shares which the Corporation has become obligated
to redeem on any Redemption Date but which it has not redeemed. In connection
with any redemption of Preferred Stock pursuant to this Section 4, the
Corporation shall declare for payment all dividends that are accrued and unpaid
as of the Redemption Date with respect to the Preferred Shares which are to be
redeemed on such Redemption Date. (Payment of the Redemption Price in respect of
such Preferred Shares shall constitute payment of such declared dividends.)
4D. Notice of Redemption. The Corporation shall mail written
notice of each redemption of any Series A Preferred or Series B Preferred to
each record holder of Preferred Stock not more than 60 nor less than 30 days
prior to the date on which such redemption is to be made in the case of a
redemption pursuant to paragraph 4A (or paragraph 4A of the Series A
Certificate), and not less than 5 Business Days prior to the date on which such
redemption is to be made in the case of a redemption pursuant to paragraph 4B
(or paragraph 4B of the Series A Certificate). Upon mailing any such notice of
redemption, the Corporation shall become obligated to
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redeem the total number of Preferred Shares specified in such notice at the time
of redemption specified therein. In case fewer than the total number of
Preferred Shares represented by any certificate are redeemed, a new certificate
representing the number of unredeemed Preferred Shares shall be issued to the
holder thereof without cost to such holder within three Business Days after
surrender of the certificate representing the redeemed Preferred Shares.
4E. Determination of the Number of Each Holder's Preferred
Shares to be Redeemed. The number of Preferred Shares to be redeemed from each
holder thereof in redemptions pursuant to paragraph 4A(i) shall be the number of
Preferred Shares determined by multiplying the total number of Preferred Shares
to be redeemed by a fraction, the numerator of which shall be the total
Redemption Price of Preferred Shares then held by such holder and the
denominator of which shall be the aggregate Redemption Price of Preferred Shares
then outstanding.
4F. Dividends after Redemption Date. No Preferred Share is
entitled to any dividends accruing after the Redemption Date. On the Redemption
Date of any Preferred Share, all rights of the holder of such Preferred Share
shall cease, and such Preferred Share shall not be deemed to be outstanding.
4G. Redeemed or Otherwise Acquired Preferred Shares. Any
Preferred Shares which are redeemed or otherwise acquired by the Corporation
thereupon shall be retired. All such shares shall upon their retirement become
authorized but unissued shares of preferred stock of the Corporation and may not
be reissued as Preferred Stock but may be reissued as part of a new series of
preferred stock to be created by resolution or resolutions of the board of
directors, subject to the conditions or restrictions on issuance set forth in
the certificate of incorporation of the Corporation.
4H. Other Redemptions or Acquisitions. Neither the Corporation
nor any Subsidiary shall redeem or otherwise acquire any Preferred Stock, except
as expressly authorized herein or pursuant to the Purchase Agreement or pursuant
to a purchase offer made pro rata to all holders or Preferred Stock on the basis
of the aggregate Redemption Price of the Preferred Shares owned by each such
holder.
Section 5 Voting Rights.
-------------
The holders of the Preferred Stock shall be entitled to notice
of all stockholders meetings in accordance with the Corporation's bylaws, and
except as otherwise required by law, the holders of the Preferred Stock shall be
entitled to vote on all matters submitted to the stockholders for a vote
together with the holders of the Common Stock voting together as a single
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class with each share of Common Stock entitled to one vote per share, and each
Preferred Share (including fractional shares) entitled to one vote for each
share of Common Stock that would be issuable upon conversion of such Preferred
Share at the time the vote is taken.
Section 6. Conversion.
----------
6A. Conversion Procedure.
--------------------
(i) At any time and from time to time after the issuance
thereof, any holder of Preferred Stock may convert all or any of the Preferred
Shares (including any fraction of a Preferred Share) held by such holder into a
number of shares of Common Stock computed by multiplying the number of Preferred
Shares to be converted by the Liquidation Value and dividing the result by the
applicable Conversion Price then in effect.
(ii) Each conversion of Preferred Stock shall be deemed to
have been effected as of the close of business on the date on which the
certificate or certificates representing the Preferred Shares to be converted
have been surrendered at the principal office of the Corporation. At such time
as such conversion has been effected, the rights of the holder of such Preferred
Shares as such holder shall cease, all accrued and unpaid dividends on such
Preferred Shares shall be deemed to have been forfeited immediately prior to
such conversion, and the Person or Persons in whose name or names any
certificate or certificates for shares of Common Stock are to be issued upon
such conversion shall be deemed to have become the holder or holders of record
of the shares of Common Stock represented thereby.
(iii) The conversion rights of any Preferred Share subject to
redemption hereunder shall terminate on the Redemption Date for such Preferred
Share unless the Corporation has failed to pay to the holder thereof the
Redemption Price thereof.
(iv) Notwithstanding any other provision hereof, if a
conversion of any Preferred Shares is to be made in connection with a Public
Offering, such conversion may, at the election of the holder of such Preferred
Shares, be conditioned upon the consummation of the Public Offering, in which
case such conversion shall not be deemed to be effective until the consummation
of the Public Offering
(v) As soon as possible after a conversion has been effected
(but in any event within five Business Days in the case of subparagraph (a)
below), the Corporation shall deliver to the converting holder:
(a) a certificate or certificates representing the number of
shares of Common Stock issuable by reason of such conversion in such name
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or names and such denomination or denominations as the converting holder has
specified;
(b) payment of the amount payable under subparagraph (viii)
below with respect to such conversion; and
(c) a certificate representing any Preferred Shares which were
represented by the certificate or certificates delivered to the Corporation in
connection with such conversion but which were not converted.
(vi) The issuance of certificates for shares of Common Stock
upon conversion of Preferred Stock shall be made without charge to the holders
of such Preferred Stock for any issuance tax in respect thereof or other cost
incurred by the Corporation in connection with such conversion and the related
issuance of shares of Common Stock.
(vii) The Corporation shall not close its books against the
transfer of Preferred Stock or of Common Stock issued or issuable upon
conversion of Preferred Stock in any manner which interferes with the timely
conversion of Preferred Stock. The Corporation shall assist and cooperate (but
the Corporation shall not be required to expend substantial efforts or funds)
with any holder of Preferred Shares required to make any governmental filings or
obtain any governmental approval prior to or in connection with any conversion
of Preferred Shares hereunder (including, without limitation, making any filings
required to be made by the Corporation).
(viii) If any fractional interest in a share of Common Stock
would, except for the provisions of this subparagraph, be deliverable upon any
conversion of a holder's Preferred Stock, the Corporation, in lieu of delivering
the fractional share therefor, shall pay an amount to the holder thereof equal
to the Market Price of such fractional interest as of the date of conversion.
(ix) The Corporation shall at all times reserve and keep
available out of its authorized but unissued shares of Common Stock, solely for
the purpose of issuance upon the conversion of the Preferred Stock or exercise
of the Warrants, such number of shares of Common Stock issuable upon the
conversion of all outstanding Preferred Stock and exercise of all outstanding
Warrants which may then be exercised. All shares of Common Stock which are so
issuable shall, when issued, be duly and validly issued, fully paid and
nonassessable and free from all taxes, liens and charges. The Corporation shall
take all such actions as may be necessary to ensure that all such shares of
Common Stock may be so issued without violation of any applicable law or
governmental regulation (excluding Investment Regulations) or any requirements
of any domestic securities exchange upon
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which shares of Common Stock may be listed (except for official notice of
issuance which shall be immediately delivered by the Corporation upon each such
issuance).
6B. Conversion Price.
----------------
(i) In order to prevent dilution of the conversion rights
granted under this subdivision, the Conversion Price shall be subject to
adjustment from time to time pursuant to this Section 6.
(ii) If and whenever on or after the Date of Issuance of any
Preferred Share the Corporation issues or sells, or in accordance with paragraph
6C is deemed to have issued or sold, other than in an Excluded Issuance, any
share of Common Stock for a consideration per share less than the Conversion
Price in effect immediately prior to such time with respect to any such
Preferred Share, then forthwith upon such issue or sale the Conversion Price of
such Preferred Share shall be reduced to the lowest net price per share at which
any such share of Common Stock has been issued or sold or is deemed to have been
issued or sold.
6C. Effect on Conversion Price of Certain Events. Solely for
purposes of determining the adjusted Conversion Price under paragraph 6B, the
following shall be applicable:
(i) Issuance of Rights or Options. If the Corporation in any
manner grants any Options and the lowest price per share for which any one share
of Common Stock is issuable upon the exercise of any such Option or upon
conversion or exchange of any Convertible Security is less than any Conversion
Price in effect immediately prior to the time of the granting of such Option,
then such share of Common Stock shall be deemed to have been issued and sold by
the Corporation at the time of the granting of such Options for such price per
share and such Conversion Price shall be adjusted in accordance with paragraph
6B(ii) above. For purposes of this paragraph, the "lowest price per share for
which any one share of Common Stock is issuable" shall be equal to the sum of
the lowest amounts of consideration (if any) received or receivable by the
Corporation with respect to any one share of Common Stock upon the granting of
the Option, upon exercise of the Option and upon conversion or exchange of the
Convertible Security. No further adjustment of such Conversion Price shall be
made upon the actual issue of such Common Stock or of such Convertible Security
upon the exercise of such Options or upon the actual issue of such Common Stock
upon conversion or exchange of such Convertible Security.
(ii) Issuance of Convertible Securities. If the Corporation in
any manner issues or sells any Convertible Security and the lowest price per
share for which any one share of Common Stock is issuable upon conversion
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or exchange thereof is less than any Conversion Price in effect immediately
prior to the time of such issue or sale, then such share of Common Stock shall
be deemed to have been issued and sold by the Corporation at the time of the
issuance or sale of such Convertible Securities for such price per share and
such Conversion Price shall be adjusted in accordance with paragraph 6B(ii)
above. For the purposes of this paragraph, the "lowest price per share for which
any one share of Common Stock is issuable" shall be equal to the sum of the
lowest amounts of consideration (if any) received or receivable by the
Corporation with respect to any one share of Common Stock upon the issuance of
the Convertible Security and upon the conversion or exchange of such Convertible
Security. No further adjustment of such Conversion Price shall be made upon the
actual issue of such Common Stock upon conversion or exchange of any Convertible
Security, and if any such issue or sale of such Convertible Security is made
upon exercise of any Options for which adjustments of such Conversion Price had
been or are to be made pursuant to other provisions of this Section 6, no
further adjustment of such Conversion Price shall be made by reason of such
issue or sale.
(iii) Change in Option Price or Conversion Rate. If the
purchase price provided for in any Option, the additional consideration (if any)
payable upon the issue, conversion or exchange of any Convertible Security, or
the rate at which any Convertible Security is convertible into or exchangeable
for Common Stock change at any time, any Conversion Price previously adjusted
with respect to such Option or Convertible Security and in effect at the time of
such change shall be readjusted to the Conversion Price which would have been in
effect at such time had such Option or Convertible Security originally provided
for such changed purchase price, additional consideration or changed conversion
rate, as the case may be, at the time initially granted, issued or sold.
(iv) Treatment of Expired Options and Unexercised Convertible
Securities. Upon the expiration of any Option or the termination of any right to
convert or exchange any Convertible Security without the exercise of any such
Option or right, any Conversion Price then in effect hereunder shall be adjusted
to the Conversion Price which would have been in effect at the time of such
expiration or termination had such Option or Convertible Security, to the extent
outstanding immediately prior to such expiration or termination, never been
issued.
(v) Calculation of Consideration Received. If any Common
Stock, Option or Convertible Security is issued or sold or deemed to have been
issued or sold for cash, the consideration received therefor shall be deemed to
be the amount received by the Corporation therefor. In case any Common Stock,
Options or Convertible Securities are issued or sold for a consideration other
than cash, the amount of the consideration other than
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cash received by the Corporation shall be the fair value of such consideration,
except where such consideration consists of securities, in which case the amount
of consideration received by the Corporation shall be the Market Price thereof
as of the date of receipt. If any Common Stock, Option or Convertible Security
is issued to the owners of the non-surviving entity in connection with any
merger in which the Corporation is the surviving corporation, the amount of
consideration therefor shall be deemed to be the fair value of such portion of
the assets and business of the non-surviving entity as is attributable to such
Common Stock, Options or Convertible Securities, as the case may be. The fair
value of any consideration other than cash and securities shall be determined
jointly by the Corporation and the holders of 70% of the outstanding Preferred
Shares. If such parties are unable to reach agreement within a reasonable period
of time, the fair value of such consideration shall be determined by an
independent appraiser experienced in valuing such type of consideration jointly
selected by the Corporation and the holders of 70% of the outstanding Preferred
Shares. The determination of such appraiser shall be final and binding upon the
parties, and the fees and expenses of such appraiser shall be borne by the
Corporation.
(vi) Integrated Transactions. In case any Option is issued in
connection with the issue or sale of other securities of the Corporation,
together comprising one integrated transaction in which no specific
consideration is allocated to such Option by the parties thereto, the Option
shall be deemed to have been issued for a consideration of $.01.
(vii) Treasury Shares. The number of shares of Common Stock
outstanding at any given time does not include shares owned or held by or for
the account of the Corporation or any Subsidiary, and the disposition of any
shares so owned or held shall be considered an issue or sale of Common Stock.
(viii) Record Date. If the Corporation fixes a record date for
determining the holders of Common Stock entitled (a) to receive a dividend or
other distribution payable in Common Stock, Options or in Convertible Securities
or (b) to subscribe for or purchase Common Stock, Options or Convertible
Securities, then such record date shall be deemed to be the date of the issue or
sale of the shares of Common Stock deemed to have been issued or sold upon the
declaration of such dividend or upon the making of such other distribution or
the date of the granting of such right of subscription or purchase, as the case
may be.
6D. Subdivision or Combination of Common Stock. If the
Corporation at any time subdivides (by any stock split, stock dividend,
recapitalization or otherwise) one or more classes of its outstanding shares of
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Common Stock into a greater number of shares, any Conversion Price in effect
immediately prior to such subdivision shall be proportionately reduced, and if
the Corporation at any time combines (by reverse stock split or otherwise) one
or more classes of its outstanding shares of Common Stock into a smaller number
of shares, any Conversion Price in effect immediately prior to such combination
shall be proportionately increased.
6E. Reorganization, Reclassification, Consolidation, Merger or
Sale. In connection with any Organic Change, the Corporation shall make
appropriate provisions (in form and substance reasonably satisfactory to the
holders of 70% of the Preferred Shares then outstanding) to insure that each of
the holders of Preferred Stock shall thereafter have the right to acquire and
receive, in lieu of or in addition to (as the case may be) the shares of Common
Stock immediately theretofore acquirable and receivable upon the conversion of
such holder's Preferred Stock, such shares of stock, securities or assets as
such holder would have received in connection with such Organic Change if such
holder had converted its Preferred Stock immediately prior to such Organic
Change. In each such case, the Corporation shall also make appropriate
provisions (in form and substance reasonably satisfactory to the holders of 70%
of the Preferred Shares then outstanding) to insure that the provisions of this
Section 6 and Sections 7 and 8 hereof shall thereafter be applicable to the
Preferred Stock (including, in the case of any such consolidation, merger or
sale in which the successor entity or purchasing entity is other than the
Corporation, an immediate adjustment of the Conversion Price to the value for
the Common Stock reflected by the terms of such consolidation, merger or sale,
and a corresponding immediate adjustment in the number of shares of Common Stock
acquirable and receivable upon conversion of Preferred Stock, if the value so
reflected is less than the Conversion Price in effect immediately prior to such
consolidation, merger or sale).
6F. Certain Events. If any event occurs of the type
contemplated by the provisions of this Section 6 but not expressly provided for
by such provisions (including, without limitation, the granting of stock
appreciation rights, phantom stock rights or other rights with equity features),
then the Corporation's board of directors shall make an appropriate adjustment
in each Conversion Price so as to protect the rights of the holders of Preferred
Stock; provided that no such adjustment shall increase any Conversion Price as
otherwise determined pursuant to this Section 6 or decrease the number of shares
of Conversion Stock issuable upon conversion of each share of Preferred Stock.
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6G. Notices.
-------
(i) Immediately upon any adjustment of the Conversion Price,
the Corporation shall give written notice thereof to all holders of Preferred
Stock, setting forth in reasonable detail and certifying the calculation of such
adjustment.
(ii) The Corporation shall give written notice to all holders
of Preferred Stock at least 20 days prior to the date on which the Corporation
closes its books or fixes a record date (a) with respect to any dividend or
distribution upon Common Stock, (b) with respect to any pro rata subscription
offer to holders of Common Stock or (c) for determining rights to vote with
respect to any Organic Change or Liquidation.
(iii) The Corporation shall also give written notice to the
holders of Preferred Stock at least 20 days prior to the date on which any
Organic Change shall take place.
6H. Mandatory Conversion. The Corporation may require by
written notice to all holders of Preferred Stock, the conversion of all of the
outstanding Preferred Stock at the then applicable Conversion Price, at any time
after the second anniversary of the Closing, provided that (a) the Closing Price
of the Common Stock (adjusted proportionately for stock dividends, stock splits,
combinations, and similar changes in the Common Stock occurring after the
Closing) on at least 30 of the 45 latest trading days preceding the date of the
Corporation's notice has been greater than (i) $12.50 per share, if such notice
is delivered prior to the last day of the 30th month after Closing, (ii) $15.62
per share, if such notice is delivered after the last day of the 30th month
after Closing but prior to the third anniversary of the Closing, or (iii) $18.75
per share, if such notice is delivered on or after the third anniversary of the
Closing, (b) the number of Public Float Securities outstanding exceeds 20% of
the number of shares of Common Stock outstanding on a "fully-diluted" basis
(i.e., after giving effect to the exercise, exchange arid conversion of all
rights, options, warrants and convertible securities that are, directly or
indirectly, exercisable or exchangeable for, or convertible into, Common Stock,
determined without regard to any vesting limitations or restrictions on
exercise, exchange or conversion), and (c) the holders of the Preferred Stock
are not then subject to (and will not, as a result of such exercise, become
subject to) any agreement restricting the sale of the Common Stock issued upon
the conversion of the Preferred Stock.
Section 7. Liquidation Dividends.
---------------------
If the Corporation declares or pays a Liquidating Dividend
upon the Common Stock, then the Corporation shall pay to the holders of
Preferred Stock at the time of payment thereof the Liquidating Dividends which
would
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have been paid on the shares of Common Stock had such Preferred Stock been
converted immediately prior to the record date fixed for determining the
stockholders entitled to receive payment of such Liquidating Dividend, or, if no
record date is fixed, the date as of which the record holders of Common Stock
entitled to such dividends are to be determined.
Section 8. Purchase Rights.
---------------
If at any time the Corporation grants, issues or sells any
Purchase Rights pro rata to the record holders of any class of Common Stock,
then each holder of Preferred Stock shall be entitled to acquire, upon the terms
applicable to such Purchase Rights, the aggregate Purchase Rights which such
holder could have acquired if such holder had held the number of shares of
Common Stock acquirable upon conversion of such holder's Preferred Shares
immediately before the date on which a record is taken for the grant, issuance
or sale of such Purchase Rights, or, if no such record is taken, the date as of
which the record holders of Common Stock are to be determined for the grant,
issue or sale of such Purchase Rights.
Section 9. Consequences of Certain Events of Noncompliance.
-----------------------------------------------
(i) If an Event of Noncompliance of the type described in
subparagraph (ii) of the definition of Event of Noncompliance has occurred and
has continued for a period of 30 days and is continuing or any other Event of
Noncompliance has occurred and is continuing, the annual dividend rate on the
Preferred Stock shall increase immediately by an increment of two percentage
points, Thereafter, until such time as no Event of Noncompliance exists, the
annual dividend rate shall increase automatically at the end of each succeeding
90-day period by an additional increment of two percentage points (but in no
event shall the annual dividend rate exceed 14%). Any increase of the dividend
rate resulting from the operation of this paragraph shall terminate as of the
close of business on the date on which no Event of Noncompliance exists, subject
to subsequent increases pursuant to this paragraph.
(ii) If both (a) either (1) an Event of Noncompliance of the
type described in subparagraph (i) or (iii) of the definition of Event of
Noncompliance has occurred and is continuing, or (2) an Event of Noncompliance
of the type described in subparagraph (ii) or (iv) of the definition of Event of
Noncompliance has occurred and has continued for a period of 60 days and is
continuing and (b) the holder or holders of 70% of the Preferred Stock then
outstanding have given written notice to the Corporation of their intent to
exercise their rights under this paragraph (ii) in connection with such Event of
Noncompliance (which notice may be given at any time after the occurrence of
such Event of Noncompliance) and 30 days
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have lapsed since the date such notice was given, then the holder or holders of
70% of the Preferred Stock then outstanding shall have the option to demand (by
written notice delivered to the Corporation at any time thereafter until such
time as there is no Event of Noncompliance in existence) redemption of all or
any portion of the Preferred Stock owned by such holder or holders at a price
per Preferred Share equal to the Liquidation Value thereof (plus all accrued and
unpaid dividends thereon). The Corporation shall give prompt written notice of
such election (or of any similar election under paragraph 9(ii) of the Series A
Certificate) to the other holders of Preferred Stock (but in any event within
five days after receipt of the initial demand for redemption), and each such
other holder shall have the option to demand redemption of all or any portion of
such holder's Preferred Stock by giving written notice thereof to the
Corporation within seven days after receipt of the Corporation's notice. The
Corporation shall redeem all Preferred Stock as to which rights under this
paragraph have been exercised within 15 days after receipt of the initial demand
for redemption.
(iii) If any Event of Noncompliance exists, each holder of
Preferred Stock shall also have any other rights which such holder is entitled
to under any contract or agreement at any time and any other rights which such
holder may have pursuant to applicable law.
Section 10. Registration of Transfer.
------------------------
The Corporation shall keep at its principal office a register
for the registration of Preferred Stock. Upon the surrender of any certificate
representing Preferred Stock at such place, the Corporation shall, at the
request of the record holder of such certificate, execute and deliver (at the
Corporation's expense) a new certificate or certificates in exchange therefor
representing in the aggregate the number of Preferred Shares represented by the
surrendered certificate. Each such new certificate shall be registered in such
name and shall represent such number of Preferred Shares as is requested by the
holder of the surrendered certificate and shall be substantially identical in
form to the surrendered certificate, and dividends shall accrue on the Preferred
Stock represented by such new certificate from the date to which dividends have
been fully paid on such Preferred Stock represented by the surrendered
certificate.
Section 11. Replacement.
-----------
Upon receipt of evidence reasonably satisfactory to the
Corporation (an affidavit of the registered holder shall be satisfactory) of the
ownership and the loss, theft, destruction or mutilation of any certificate
evidencing Preferred Shares of any series of Preferred Stock, and in the case of
any such loss, theft or destruction, upon receipt of indemnity reasonably
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<PAGE>
satisfactory to the Corporation (provided that if the holder is a financial
institution or other institutional investor, its own agreement shall be
satisfactory), or, in the case of any such mutilation upon surrender of such
certificate, the Corporation shall (at its expense) execute and deliver in lieu
of such certificate a new certificate of like kind representing the number of
Preferred Shares of such series represented by such lost, stolen, destroyed or
mutilated certificate and dated the date of such lost, stolen, destroyed or
mutilated certificate, and dividends shall accrue on the Preferred Stock
represented by such new certificate from the date to which dividends have been
fully paid on such lost, stolen, destroyed or mutilated certificate.
Section 12. Definitions.
-----------
"Business Day" means a day on which banks are generally open
for business in New York City.
"Closing" means June 17, 1994.
"Closing Price" of each share of Common Stock or other
security means the composite closing price of the sales of the Common Stock or
such other security on all securities exchanges on which such security may at
the time be listed (as reported in The Wall Street Journal), or, if there has
been no sale on any such exchange on any day, the average of the highest bid and
lowest asked prices of the Common Stock or such other security on all such
exchanges at the end of such day, or, if such security is not so listed, the
closing price (or last price, if applicable) of sales of the Common Stock or
such other security in the Nasdaq National Market (as reported in The Wall
Street Journal) on such day, or if such security is not quoted in the Nasdaq
National Market but is traded over-the-counter, the average of the highest bid
and lowest asked prices on such day in the over-the-counter market as reported
by the National Quotation Bureau Incorporated, or any similar successor
organization.
"Common Stock" means, collectively, the Corporation's common
stock, par value $0.01 per share, and any capital stock of any class of the
Corporation hereafter authorized which is not limited to a fixed sum or
percentage of par or stated value in respect to the rights of the holders
thereof to participate in dividends or in the distribution of assets upon any
Liquidation of the Corporation; and if there is a change such that the
securities issuable upon conversion of the Preferred Stock are issued by an
entity other than the Corporation or there is a change in the class of
securities so issuable, then the term "Common Stock" shall mean one share of the
security issuable upon conversion of the Preferred Stock if such security is
issuable in shares, or shall mean the smallest unit in which such security is
issuable if such security is not issuable in shares.
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"Conversion Price" shall mean, with respect to any Series B
Share, $7.50 (subject to adjustment as provided in Section 6 for events
occurring after its Date of Issuance).
"Convertible Security" means any stock or other securities of
the Corporation convertible into or exchangeable for Common Stock.
"Corporation" means Orion Newco Services, Inc. a Delaware
corporation.
"Date of Issuance," with respect to any Preferred Share, means
the date on which the Corporation initially issues such Preferred Share,
regardless of the number of times transfer of such Preferred Share is made on
the stock records maintained by or for the Corporation and regardless of the
number of certificates which may be issued to evidence such Preferred Share.
"Dividend Reference Dates" mean August 31, November 30,
February 28 and May 31 of each year.
"Excluded Issuance" means the issue or sale of (i) shares of
Common Stock in respect of any transaction described in paragraph 6D or pursuant
to the Old ONS Merger Agreement, (ii) up to an aggregate of 2,203,960 shares of
Common Stock by the Corporation pursuant to the exercise of Options and
Convertible Securities outstanding immediately prior to the Closing at exercise
prices that are greater than or equal to the respective exercise prices in
effect as of Closing (as adjusted pursuant to the terms of such securities to
give effect to stock dividends or stock splits or a combination of shares in
connection with a recapitalization, merger, consolidation or other
reorganization occurring after the Closing), (iii) up to an aggregate of 150,000
shares of Common Stock by the Corporation for any purpose, or (iv) Options to
acquire Common Stock by the Corporation pursuant to a resolution of, or a stock
option plan approved by a resolution of, the Board of Directors of the
Corporation (or the compensation committee thereof) to the Corporation's
employees, the per share exercise price of which is greater than or equal to the
fair market value of a share of Common Stock at the time such Option is issued,
as determined by the Board of Directors of the Corporation (or the compensation
committee thereof).
"Event of Noncompliance" means and shall be deemed to have
occurred if:
(i) the Corporation fails to make any redemption
payment with respect to the Preferred Stock which it is obligated to
make hereunder, whether or not such payment is legally permissible or
is prohibited by any agreement to which the Corporation is subject;
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(ii) the Corporation breaches or otherwise fails to
perform or observe any other covenant or agreement set forth herein or
in the Purchase Agreement; provided, first, that no Event of
Noncompliance shall be deemed to have occurred under this subparagraph
(ii) if the Corporation reasonably establishes that the Event of
Noncompliance is not material to the financial condition, operating
results, operations or assets of the Corporation and its Subsidiaries,
taken as a whole, or to any holder's investment in the Preferred Stock;
and provided, second, that, so long as the Corporation commences
promptly and continues to exercise reasonable and diligent efforts to
cure the Event of Noncompliance (if cure is possible) within a
reasonable time after its occurrence, the applicable grace periods set
forth in paragraph (i) and in clause (a) of paragraph (ii) of Section 9
shall be extended with respect to such Event of Noncompliance for a
period of time equal to the period during which such efforts are
continuing;
(iii) any representation, warranty or certification
by or on behalf of the Corporation contained in the Purchase Agreement
or required to be furnished to any holder of Preferred Stock pursuant
to the Purchase Agreement is false or misleading in any material
respect on the date made; provided, however, that any Event of
Noncompliance under this clause (iii) resulting from the delivery of a
certification that is made in good faith but is false or misleading
shall be deemed to be cured from and after the date a certification
correcting the earlier false or misleading certification is delivered
to the holders of the Preferred Stock, which delivery shall occur
promptly after the facts or events that caused such earlier
certification to be false or misleading become known to the
Corporation; or
(iv) the Corporation or any Subsidiary makes an
assignment for the benefit of creditors or admits in writing its
inability to pay its debts generally as they become due; or an order,
judgment or decree is entered adjudicating the Corporation or any
Subsidiary bankrupt or insolvent; or any order for relief with respect
to the Corporation or any Subsidiary is entered under the Federal
Bankruptcy Code; or the Corporation or any Subsidiary petitions or
applies to any tribunal for the appointment of a custodian, trustee,
receiver or liquidator of the Corporation or any Subsidiary or of any
substantial part of the assets of the Corporation or any Subsidiary, or
commences any proceeding (other than a proceeding for the voluntary
liquidation and dissolution of a Subsidiary) relating to the
Corporation or any Subsidiary under any bankruptcy, reorganization,
arrangement, insolvency, readjustment of debt, dissolution or
liquidation law of any jurisdiction; or any such petition or
application
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is filed, or any such proceeding is commenced, against the Corporation
or any Subsidiary and either (a) the Corporation or any such Subsidiary
by any act indicates its approval thereof, consent thereto or
acquiescence therein or (b) such petition, application or proceeding is
not dismissed within 60 days.
"Freely Tradeable Securities" has the meaning given such term
in the Purchase Agreement.
"Fundamental Change" has the meaning given such term in the
Purchase Agreement.
"Investment Regulations" means, as applicable, Title III of
the Small Business Investment Act of 1958, as amended, and the regulations
promulgated thereunder, regulation Y (Title 12, Code of Federal Regulations,
Part 225) under Section 5(b) of the Bank Holding Company Act of 1956, as
amended, or other similar laws or regulations governing a regulated Person's
investment authority.
"Junior Securities" means Common Stock and any other capital
stock or other equity securities issued by the Corporation, whether currently
existing or hereafter authorized or issued (other than Series A Preferred).
"Liquidation" means the liquidation, dissolution or winding up
of the Corporation; provided, however, that neither the consolidation or merger
of the Corporation into or with any other entity or entities, nor the sale or
transfer by the Corporation of all or any part of its assets, nor the reduction
or the capital stock of the Corporation, shall be deemed to be a liquidation,
dissolution or winding up of the Corporation.
Liquidating Dividend" means a dividend upon the Common Stock
payable otherwise than in cash out of earnings or earned surplus (determined in
accordance with generally accepted accounting principles, consistently applied)
except for a stock dividend payable in shares of Common Stock.
"Liquidation Value" of any Preferred Share shall be equal to
$1,000.
"Market Price" of each share of Common Stock or other security
means the Closing Price of such share or other security, averaged over a period
of 21 days consisting of the day as of which the Market Price is being
determined and the 20 consecutive Business Days prior to such day. If during
this period such security is not listed on any securities exchange, quoted in
the Nasdaq National Market, or quoted in the over-the-counter market, the Market
Price will be the fair value of such security determined
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by agreement between the Company and the holders of 70% of the outstanding
Preferred Shares. If such parties are unable to reach agreement within a
reasonable period of time, the fair value of such security shall be determined
by an independent appraiser experienced in valuing such type of consideration
jointly selected by the Corporation and the holders of 70% of the outstanding
Preferred Shares. The determination of such appraiser shall be final and binding
upon the parties, and the fees and expenses of such appraiser shall be borne by
the Corporation.
"Old ONS" means Orion Network Systems, Inc., a Delaware
Corporation incorporated in 1982.
"Old ONS Merger Agreement" means the Agreement and Plan of
Merger dated as of January 8, 1997, by and among the Corporation, Old ONS and
Orion Merger Company, Inc.
"Old ONS Preferred Share" means one (1) share of the series of
the preferred stock of Old ONS having the designation "Series B 8% Cumulative
Redeemable Convertible Preferred Stock," as set forth in that certain
"Certificate of Designations, Rights and Preferences of Series B 8% Cumulative
Redeemable Convertible Preferred Stock of Orion Network Systems, Inc." filed
with the Secretary of State of the State of Delaware on June 16, 1995.
"Old ONS Preferred Share Conversion" means the conversion of
Old ONS Preferred Shares into the right to receive Preferred Shares, pursuant to
the Old ONS Merger Agreement.
"Options" means any right or option to subscribe for or to
purchase Common Stock or any Convertible Securities.
"Organic Change" means any recapitalization, reorganization,
reclassification, consolidations, merger, sale of all or substantially all of
the Corporation's assets to another Person or other transaction which is
effected in such a manner that holders of Common Stock are entitled to receive
(either directly or upon subsequent liquidation) stock, securities or assets
with respect to or in exchange for Common Stock.
"Person" means an individual, a partnership, a corporation, an
association, a joint stock company, a limited liability company, a trust, a
joint venture, an unincorporated organization and a governmental entity or any
department, agency or political subdivision thereof.
"Preferred Share" means a share of Series B Preferred.
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"Preferred Stock" means the Series B Preferred.
"Public Float Securities" means, as of any date of
determination, those shares of the Corporation's Common Stock that (i)
previously have been sold to the public in an offering registered under the
Securities Act or through a broker, dealer or market maker under Rule 144 of the
Securities Act, (ii) are listed for trading on a "national securities exchange"
(within the meaning of the Securities Exchange Act of 1934, as amended) or
quoted on the "National Market System" or "National List" published by the
National Association of Securities Dealers Automated Quotations System or any
successor list, and (iii) are held by Persons other than the Corporation or any
of its "affiliates" (within the meaning of Rule 144 under the Securities Act).
"Public Offering" means any offering by the Corporation of its
equity securities to the public pursuant to an effective registration statement
under the Securities Act of 1933, as then in effect, or any comparable statement
under any similar federal statute then in force; provided, that "Public
Offering" shall not include an offering made in connection with a business
acquisition or combination or an employee benefit plan.
"Purchase Agreement" means the Purchase Agreement, dated as of
June 15, 1995, by and among Old ONS and certain investors, as such agreement may
from time to time be amended in accordance with its terms, the performance of
Old ONS's obligations under which the Corporation has assumed pursuant to an
agreement dated as of ___________, 199__, by and among Old ONS, the Corporation,
and such investors.
"Purchase Rights" mean any Options, Convertible Securities or
rights to purchase stock, warrants, securities or other property.
"Redemption Date" means the date on which the Redemption Price
of a Preferred Share is paid to the holder thereof.
"Redemption Price" means, with respect to any Preferred Share
being redeemed, the Liquidation Value of such Preferred Share plus all accrued
and unpaid dividends thereon.
"Reorganization" means any merger or consolidation of the
Corporation with any Person where both (i) either (a) the Corporation is not the
surviving corporation, (b) the terms of the Preferred Stock are altered in any
respect, or (c) the Preferred Stock is exchanged for cash, securities or other
property, and (ii) such merger or consolidation does not constitute a
Fundamental Change.
"Securities Act" means the Securities Act of 1933, as amended.
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"Series A Certificate" means the Certificate of Designations,
Rights and Preferences for the Series A Preferred.
"Series A Preferred" means the Corporation's Series A 8%
Cumulative Redeemable Convertible Preferred Stock, par value $.01 per share.
"Series B Preferred" means the Corporation's Series B 8%
Cumulative Redeemable Convertible Preferred Stock, par value $.01 per share.
"Series A Share" means a share of Series A Preferred.
"Series B Share" means a share of Series B Preferred.
"Subsidiary" means, with respect to any Person, any
corporation, partnership, association or other business entity of which (i) if a
corporation, a majority of the total voting power of shares of stock entitled
(without regard to the occurrence of any contingency) to vote in the election of
directors, managers or trustees thereof is at the time owned or controlled,
directly or indirectly, by that Person or one or more of the other Subsidiaries
of that Person or a combination thereof, or (ii) if a partnership, association
or other business entity, a majority of the partnership or other similar
ownership interest thereof is at the time owned or controlled, directly or
indirectly, by any Person or one or more Subsidiaries of that person or a
combination thereof. For purposes hereof, a Person or Persons shall be deemed to
have a majority ownership interest in a partnership, association or other
business entity if such Person or Persons shall be allocated a majority of
partnership, association or other business entity gains or losses or shall be or
control a general partner of such partnership, association or other business
entity. Without limiting the foregoing, International Private Satellite
Partners, L.P., a Delaware limited partnership, shall be deemed to be a
Subsidiary of the Corporation for so long as the Corporation or any of its other
Subsidiaries is the general partner thereof.
"Warrants" means the Common Stock purchase warrants issued
pursuant to the Purchase Agreement (whether at the Closing or thereafter
pursuant to paragraph ID or Section 7 thereof) and any warrant issued in
exchange, substitution or replacement thereof.
Section 13. Amendment and Waiver.
--------------------
No amendment, modification or waiver shall be binding or
effective with respect to any provision of Sections 1 to 13 hereof without the
prior written consent of the holders of 70% of the Preferred Shares outstanding
at the time such action is taken; provided, that no such action
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shall change (i) the rate at which or the manner in which dividends on the
Preferred Stock accrue or the times at which such dividends become payable or
the amount payable on redemption of the Preferred Stock or the times at which
redemption of Preferred Stock is to occur, without the prior written consent of
the holders of at least 90% of the Preferred Shares then outstanding, (ii) any
Conversion Price of the Preferred Stock or the number of shares or class of
stock into which the Preferred Stock is convertible, without the prior written
consent of the holders of at least 90% of the Preferred Stock then outstanding
or (iii) the percentage required to approve any change in clauses (i) and (ii)
above, without the prior written consent of the holders of at least 90% of the
Preferred Stock then outstanding.
Section 14. Notices.
-------
Except as otherwise expressly provided hereunder, all notices
referred to herein shall be in writing and shall be delivered by registered or
certified mail, return receipt requested and postage prepaid, or by reputable
overnight courier service, charges prepaid, and shall be deemed to have been
given when so mailed or sent (i) to the Corporation, at its principal executive
offices and (ii) to any stockholder, at such holder's address as it appears in
the stock records of the Corporation (unless otherwise indicated by any such
holder).
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EXHIBIT B
CERTIFICATE OF DESIGNATIONS,
RIGHTS AND PREFERENCES
OF
SERIES C 6% CUMULATIVE REDEEMABLE
CONVERTIBLE PREFERRED STOCK
OF
ORION NEWCO SERVICES, INC.
- --------------------------------------------------------------------------------
Pursuant to Section 151
of the General Corporation Law
of the State of Delaware
- --------------------------------------------------------------------------------
The undersigned DOES HEREBY CERTIFY that, pursuant to the authority
contained in Article FOURTH of the Certificate of Incorporation of Orion Newco
Services, Inc., a Delaware corporation (the "Corporation"), and in accordance
with Section 151 of the General Corporation Law of the State of Delaware, the
Board of Directors of the Corporation has authorized the creation of a series of
Preferred Stock of the Corporation having the designation Series C 6% Cumulative
Redeemable Convertible Preferred Stock and having the powers, rights and
preferences, and the qualifications, limitations and restrictions thereof, as
are set forth in Exhibit A hereto and made a part hereof and that the following
resolution was duly adopted by the Board of Directors of the Corporation:
RESOLVED, that a series of authorized Preferred
Stock, par value $0.01 per share, of the Corporation be, and
it hereby is, created; that the shares of such series shall
be, and they hereby are, designated as "Series C 6%
<PAGE>
Cumulative Redeemable Convertible Preferred Stock;" that the
number of shares constituting such series shall be, and it
hereby is, fixed at _______,000; and that the powers, rights
and preferences and the qualifications, limitations and
restrictions thereof, of the shares of such series are as set
forth in Exhibit A attached hereto and made a part hereof.
IN WITNESS WHEREOF, the Corporation has caused its corporate seal to be
hereunto affixed and this Certificate to be signed by its President and Chief
Executive Officer and attested to by its Vice President, Corporate and Legal
Affairs, and Secretary this ____ day of __________, 1996.
ORION NEWCO SERVICES, INC.
By:
------------------------------
[SEAL] Name: W. Neil Bauer
Title: President/Chief Executive
Officer
ATTEST:
- -----------------------------------------
Name: Richard H. Shay, Esq.
Title: Vice President, Corporate and
Legal Affairs/Secretary
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<PAGE>
EXHIBIT A
---------
SERIES C 6% CUMULATIVE REDEEMABLE
CONVERTIBLE PREFERRED STOCK
The following sections set forth the powers, rights and
preferences, and the qualifications, limitations and restrictions thereof, of
the Corporation's Series C 6% Cumulative Redeemable Convertible Preferred Stock.
Capitalized terms used herein are defined in Section 10 below.
Section 1. Dividends.
---------
1A. General Obligation. Subject to the preferential rights of
Series A Preferred Stock or Series B Preferred Stock ranking senior to the
Preferred Stock, the record holders of Preferred Stock shall be entitled to
receive dividends, when, as and if declared by the Corporation's board of
directors (the "Board") and to the extent permitted under the General
Corporation Law of Delaware, as amended, as provided in this Section 1, subject
to paragraph 1F. Dividends shall accrue on a daily basis commencing on the Date
of Issuance of each Preferred Share at the simple interest rate of 6% per annum
of the Liquidation Value thereof, and shall be payable as provided in paragraph
1B. Dividends shall cease accruing upon the earliest to occur of (i) the date on
which the Liquidation Value of such Preferred Share is paid, (ii) the date on
which such Preferred Share is converted into shares of Common Stock hereunder,
or (iii) the Maturity Date. Such dividends shall accrue whether or not they have
been declared and whether or not there are net profits, surplus or other funds
of the Corporation legally available for the payment of dividends.
1B. Payment of Dividends. Subject to the provisions of
paragraph 1A and paragraph 1F, dividends shall be payable, in arrears, following
each Dividend Reference Date within twenty days after such Dividend Reference
Date. The amount of the dividend on each share of Preferred Stock payable
following each Dividend Reference Date shall equal the aggregate amount of all
accrued and unpaid dividends on such share of Preferred Stock from the Prior
Dividend Date (or, in the case of the first dividend paid with respect to such
share, the Date of Issuance of such Preferred Share) through such Dividend
Reference Date. To the extent any dividend is not paid within twenty days after
a Dividend Reference Date, all dividends which have accrued and remain unpaid on
each outstanding Preferred Share through such Dividend Reference Date shall be
accumulated and shall remain accumulated dividends with respect to such
Preferred Share until the date paid. No interest, dividend or sum of money in
lieu of interest, shall be payable in respect of any dividend payment or
payments that may be accrued and unpaid.
<PAGE>
1C. Distribution of Partial Dividend Payments. Except in
connection with redemptions or repurchases pursuant to paragraph 3A or 3B below,
if at any time the Corporation pays less than the total amount of dividends then
accrued with respect to the Preferred Stock such payment shall be distributed
ratably among the holders thereof based upon the aggregate accrued but unpaid
dividends on the Preferred Shares held by each such holder and such payment
shall be applied first to dividends which have accrued on such Preferred Shares
during the period since the latest preceding Dividend Reference Date and second
to reduce any previously accumulated dividends with respect to such Preferred
Shares.
1D. Payment of Dividends in Common Stock. Except as
specifically provided herein, the Corporation shall pay all dividends with
respect to the Preferred Stock (including, in the case of a redemption, any
amount equal to accrued and unpaid dividends constituting a portion of the
Redemption Price) in fully paid and non-assessable shares of Common Stock. The
number of shares of Common Stock distributable in a dividend on each share of
Preferred Stock shall be equal to the quotient obtained by dividing (a) the
amount of such dividend, as determined under paragraph 1B, by (b) the higher of
(i) the Market Price of the Common Stock on the Dividend Reference Date
immediately preceding the dividend payment and (ii) the Series A/B Dilution
Price. When the Corporation pays a dividend to the holders of Preferred Stock,
the Corporation shall provide each holder of Preferred Stock with a calculation
of the aggregate number of shares of Common Stock payable in such dividend,
including the computation of the Market Price. If any fractional interest in a
share of Common Stock would, except for the provisions of this sentence, be
deliverable upon payment of any dividend in shares of Common Stock, the
Corporation, in lieu of delivering the fractional share therefor, shall pay an
amount to the holder thereof equal to the Market Price of such fractional
interest, calculated as set forth above in this paragraph 1D.
1E. Dividends on Junior Securities. The Corporation shall not
declare and pay any dividends on Junior Securities unless all accrued and unpaid
dividends on the Preferred Stock have been paid in full.
1F. Certain Withholding Provisions. Notwithstanding any other
provision of Section 1, and without limiting the generality of the Board's power
and authority with respect to the declaration and payment of dividends, the
Board shall have and may exercise the power and authority to provide that the
receipt by each record holder of Preferred Shares entitled thereto of any
dividend paid by the Corporation as declared on the issued and outstanding
Preferred Shares shall be subject to the condition (the "Tax Payment Condition")
that the Corporation receive, at or prior to the time for payment of such
dividend (the "Payment Time"), from or on behalf of such record holder, payment
in full of the taxes, fees, duties, assessments, or other amounts, if any (the
"Tax"), that the Corporation is required under applicable law to pay or withhold
in connection with the declaration and payment to such record holder of such
dividend. If the Tax Payment Condition
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<PAGE>
applies and has been satisfied, or has been duly waived by the Corporation, at
or prior to the Payment Time, at the Payment Time the Corporation shall pay such
dividend to such record holder. If the Tax Payment Condition applies but has not
been satisfied, and has not been duly waived by the Corporation, at or prior to
the Payment Time, at the Payment Time the Corporation shall pay the dividend to
which such record holder is entitled by irrevocably depositing and setting aside
such dividend with the Secretary of the Corporation as escrow holder (the
"Escrow Holder"). Upon the Escrow Holder's receipt, from or on behalf of such
record holder, of payment in full of the Tax, plus any interest, penalty, or
additional amount to be paid or withheld as a result of the passage of time from
and after the Payment Time (the "Escrow Termination Time"), the Escrow Holder
shall release such dividend to such record holder and shall release such Tax,
and such additional amount if any, to the Corporation. If such dividend is paid
in shares of Common Stock and is not received at or prior to the Payment Time by
the record holder of Preferred Shares entitled to payment thereof, then
(notwithstanding any provision hereof to the contrary) until the Escrow
Termination Time (and only until such time, whether or not the dividend has been
released by the Escrow Holder), such record holder shall not be entitled to vote
such shares of Common Stock for any purpose, to receive payment of dividends or
other distributions on such shares of Common Stock, or to exercise any other
rights or privileges in respect of such shares of Common Stock, and the Escrow
Holder shall have no right to vote such shares of Common Stock or to exercise
any other right or privilege in respect thereof (whether in accordance with the
wishes or directions of such record holder or otherwise), but the Escrow Holder
shall receive and hold in escrow until the Escrow Termination Time together with
such shares of Common Stock any dividends paid or other distributions made on
such shares of Common Stock and at the Escrow Termination Time shall release
such dividends paid or other distributions made on such shares of Common Stock,
if any, along with such shares of Common Stock.
Section 2. Liquidation.
-----------
Subject to the provisions of Section 2 of each of the Series A
Certificate and the Series B Certificate: upon any Liquidation, each holder of
Preferred Stock shall be entitled to be paid, before any distribution or payment
is made upon any Junior Securities, an amount in cash equal to the greater of
(a) the aggregate Liquidation Value (plus an amount equal to all accrued and
unpaid dividends) of all shares of Preferred Stock held by such holder or (b)
the amount which would be distributed with respect to the shares of Common Stock
(including fractional shares for purposes of this calculation) into which such
shares of Preferred Stock are convertible (assuming conversion of all
outstanding Preferred Stock) immediately prior to the record date for such
distribution (or, if there is no such record date, then the date as of which the
holders of Common Stock entitled to such distribution are determined), and the
holders of Preferred Stock shall not be entitled to any further payment; and if
upon any such Liquidation the Corporation's assets to be distributed among the
holders of the Preferred Stock are insufficient to permit
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<PAGE>
payment to such holders of the aggregate amount which they are entitled to be
paid, then the entire assets to be distributed shall be distributed ratably
among such holders based upon the aggregate Liquidation Value (plus all accrued
and unpaid dividends) of the Preferred Shares held by each such holder. Prior to
such Liquidation, the Corporation shall (to the extent permitted by law) declare
for payment all accrued and unpaid dividends with respect to the Preferred
Stock, which dividends shall be payable in cash notwithstanding the provisions
of paragraph 1D. (Payment of the greater of the amounts specified in clauses (a)
and (b) of this Section 2 in respect of such Preferred Shares shall constitute
payment of such declared dividends.) The Corporation shall mail written notice
of such Liquidation, not less than 60 days prior to the payment date stated
therein, to each record holder of Preferred Stock.
Section 3. Redemptions.
-----------
3A. Redemption at the Maturity Date. At the Maturity Date the
Corporation shall redeem all of the Preferred Shares then outstanding for a
price equal to the Redemption Price. The Corporation shall pay the Redemption
Price for the Preferred Shares within thirty (30) days after the Maturity Date
(or such later date upon which the certificates evidencing the Preferred Shares
are surrendered to the Corporation).
3B. Redemption at the Option of the Corporation. At any time
after the Initial Redemption Date, or, if prior to the Initial Redemption Date,
immediately prior to the consummation of any consolidation, merger or sale in
which the successor entity or purchasing entity is other than the Corporation,
to the extent that it has funds legally sufficient therefor, the Corporation may
redeem all or, subject to the last sentence of this paragraph, a portion of the
Preferred Shares then outstanding for the Redemption Price. The number of
Preferred Shares to be redeemed from each holder thereof in a partial redemption
pursuant to this paragraph 3B shall be the number of Preferred Shares determined
by multiplying the total number of Preferred Shares to be redeemed by a
fraction, the numerator of which shall be the total Redemption Price of
Preferred Shares then held by such holder and the denominator of which shall be
the aggregate Redemption Price of Preferred Shares then outstanding.
3C. Redemption Payment. For each Preferred Share which is to
be redeemed, the Corporation shall be obligated to pay the Redemption Price to
the holder thereof on the Redemption Date or such later date upon which occurs
the surrender by such holder at the Corporation's principal office of the
certificate representing such Preferred Share. Subject to the provisions of
paragraph 4C of the Series A Certificate and paragraph 4C of the Series B
Certificate, if the funds of the Corporation legally available for payment of
the cash portion of the Redemption Price of Preferred Shares on any Redemption
Date are insufficient to pay the cash portion of the Redemption Price for the
total number of Preferred Shares to be
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redeemed on such date, those funds which are legally available shall be used to
redeem the maximum possible number of such Preferred Shares ratably among the
holders of the Preferred Shares to be redeemed based upon the aggregate
Redemption Price of the Preferred Shares held by each such holder and the
remaining Preferred Shares called for redemption will remain outstanding; and at
any time thereafter when additional funds of the Corporation are legally
available for the redemption of Preferred Shares, such funds shall immediately
be used to redeem the balance of the Preferred Shares which the Corporation has
become obligated to redeem on any Redemption Date but which it has not redeemed.
Payment of the Redemption Price in respect of such Preferred Shares shall
extinguish all rights to dividends that are accrued and unpaid as of the
Redemption Date with respect to the Preferred Shares which are redeemed on such
Redemption Date.
3D. Notice of Redemption. The Corporation shall mail written
notice of each redemption of any Preferred Stock to each record holder of
Preferred Stock not more than 60 nor less than 30 days prior to the date on
which such redemption is to be made specifying (a) the number of shares of
Preferred Stock to be redeemed by the Corporation and (b) the Redemption Date.
Upon mailing any such notice of redemption, the Corporation shall become
obligated to redeem the total number of Preferred Shares specified in such
notice at the time of redemption specified therein and upon the surrender on or
before such time of the certificates representing such Preferred Shares. If one
or more holders of Preferred Shares being redeemed shall fail to surrender the
certificates representing such Preferred Shares by the Redemption Date, the
Corporation shall pay the Redemption Price by irrevocably depositing or setting
aside the required amount to be paid promptly upon surrender of such
certificates. Such deposit or set aside shall be deemed payment of the
Redemption Price to the holder for whom it is deposited or set aside. In case
fewer than the total number of Preferred Shares represented by any certificate
are redeemed, a new certificate representing the number of unredeemed Preferred
Shares shall be issued to the holder thereof without cost to such holder within
three Business Days after surrender of the certificate representing the redeemed
Preferred Shares.
3E. Dividends after Redemption Date. No Preferred Share that
is redeemed is entitled to any dividends accruing after the Redemption Date. On
the Redemption Date of any Preferred Share, all rights of the holder of such
Preferred Share shall cease, and such Preferred Share shall be deemed to be no
longer outstanding.
3F. Redeemed or Otherwise Acquired Preferred Shares. Any
Preferred Shares which are redeemed, converted or otherwise acquired by the
Corporation thereupon shall be retired. All such shares shall upon their
retirement become authorized but unissued shares of preferred stock of the
Corporation and may not be reissued as Preferred Stock but may be reissued as
part of a new series
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of preferred stock to be created by resolution or resolutions of the board of
directors, subject to the conditions or restrictions on issuance set forth in
the certificate of incorporation of the Corporation.
Section 4. Voting Rights.
-------------
The holders of the Preferred Stock shall be entitled to notice
of all stockholders meetings in accordance with the Corporation's bylaws, and
except as otherwise required by law, the holders of the Preferred Stock shall be
entitled to vote on all matters submitted to the stockholders for a vote
together with the holders of the Common Stock voting together as a single class
with each share of Common Stock entitled to one vote per share, and each
Preferred Share (including fractional shares) entitled to one vote for each
whole share of Common Stock that would be issuable upon conversion of such
Preferred Share at the time the vote is taken.
Section 5. Conversion.
5A. Conversion Procedure.
--------------------
(i) At any time and from time to time after the issuance
thereof, any holder of Preferred Stock may convert all or any of the Preferred
Shares (including any fraction of a Preferred Share) held by such holder into a
number of shares of Common Stock equal to the sum of: (a) the number of shares
of Common Stock computed by multiplying the number of Preferred Shares to be
converted by the Liquidation Value of a Preferred Share, and dividing the result
by the Conversion Price then in effect, plus (b) the number of shares of Common
Stock that would be payable if all accrued but unpaid dividends were declared
and paid on the Preferred Shares to be converted. For purposes of determining
the amount of dividends payable or that would be payable with respect to a
conversion under Section 5, the date for determining the Market Price shall be
the Business Day immediately preceding the date on which conversion is deemed to
have been effected.
(ii) Each conversion of Preferred Stock shall be deemed to
have been effected as of the close of business on the date on which the
certificate or certificates representing the Preferred Shares to be converted
have been surrendered at the principal office of the Corporation, together with
written notice of the holder's desire to convert such Preferred Shares. At such
time as such conversion has been effected, the rights of the holder of such
Preferred Shares as such holder shall cease, and the Person or Persons in whose
name or names any certificate or certificates for shares of Common Stock are to
be issued upon such conversion shall be deemed to have become the holder or
holders of record of the shares of Common Stock represented thereby, which
Common Stock shall be deemed to have been issued as of such time. Issuance of
Common Stock by the Corporation to effect any conversion shall extinguish all
rights to dividends that are accrued and unpaid as of the date
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on which conversion is to be made with respect to the Preferred Shares which are
to be converted on such date.
(iii) The conversion rights of any Preferred Share subject to
redemption hereunder shall terminate on the Redemption Date for such Preferred
Share unless the Corporation has failed to pay to the holder thereof the
Redemption Price thereof.
(iv) Notwithstanding any other provision hereof, if a
conversion of any Preferred Shares is to be made in connection with a Public
Offering or prior to a redemption, such conversion may, at the election of the
holder of such Preferred Shares, be conditioned upon the consummation of the
Public Offering or the redemption occurring on or before a specified date, in
which case such conversion shall not be deemed to be effective until the
consummation of the Public Offering or unless the redemption occurs on or before
the specified date.
(v) As soon as possible after a conversion has been effected
(but in any event within three Business Days in the case of subparagraph (a)
below), the Corporation shall deliver to the converting holder:
(a) a certificate or certificates representing the number
of shares of Common Stock issuable by reason of such
conversion in such name or names and such
denomination or denominations as the converting
holder has specified;
(b) payment of the amount payable under subparagraph
(viii) below with respect to such conversion; and
(c) a certificate representing any Preferred Shares which
were represented by the certificate or certificates
delivered to the Corporation in connection with such
conversion but which were not converted.
(vi) The issuance of certificates for shares of Common Stock
upon conversion of Preferred Stock shall be made without charge to the holders
of such Preferred Stock for any issuance tax in respect thereof or other cost
incurred by the Corporation in connection with such conversion and the related
issuance of shares of Common Stock.
(vii) The Corporation shall not close its books against the
transfer of Preferred Stock or of Common Stock issued or issuable upon
conversion of Preferred Stock in any manner which interferes with the timely
conversion of Preferred Stock. The Corporation shall assist and cooperate (but
the Corporation shall not be required to expend substantial efforts or funds)
with any holder of Preferred Shares required to make any governmental filings or
obtain any governmental approval prior to or in connection with any conversion
of Preferred Shares hereunder
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(including, without limitation, making any filings required to be made by the
Corporation).
(viii) If any fractional interest in a share of Common Stock
would, except for the provisions of this subparagraph, be deliverable upon any
conversion of shares of a holder's Preferred Stock, the Corporation, in lieu of
delivering the fractional share therefor, shall pay an amount to the holder
thereof equal to the Market Price of such fractional interest as of the Business
Day immediately preceding the date of conversion.
(ix) The Corporation shall at all times reserve and keep
available out of its authorized but unissued shares of Common Stock, solely for
the purpose of issuance upon the conversion of the Preferred Stock, not less
than the number of shares of Common Stock issuable upon the conversion of all
outstanding Preferred Stock which may then be exercised. All shares of Common
Stock which are so issuable shall, when issued, be duly and validly issued,
fully paid and nonassessable and free from all taxes, liens and charges. The
Corporation shall take all such actions as may be necessary to ensure that all
such shares of Common Stock may be so issued without violation of any applicable
law or governmental regulation or any requirements of any domestic securities
exchange upon which shares of Common Stock may be listed (except for official
notice of issuance which shall be immediately delivered by the Corporation upon
each such issuance).
5B. Subdivision or Combination of Common Stock. If the
Corporation at any time subdivides (by any stock split, stock dividend,
recapitalization or otherwise) the outstanding shares of one or more classes of
Common Stock into a greater number of shares, the Conversion Price (and the
Trigger Price and Series A/B Dilution Price) in effect immediately prior to such
subdivision shall be proportionately reduced, and if the Corporation at any time
combines (by reverse stock split or otherwise) the outstanding shares of one or
more classes of Common Stock into a smaller number of shares, the Conversion
Price (and the Trigger Price and Series A/B Dilution Price) in effect
immediately prior to such combination shall be proportionately increased.
5C. Reorganization, Reclassification, Consolidation, Merger or
Sale. In connection with any Reorganization, (i) the holders of Preferred Stock
shall thereafter have the right to acquire and receive, in lieu of or in
addition to (as the case may be) the shares of Common Stock immediately
theretofore acquirable and receivable upon the conversion of such holder's
Preferred Stock, such shares of stock, securities, cash or other assets (or, if
not practicably attainable, the reasonable equivalent thereof) as such holder
would have received in connection with such Reorganization if such holder had
converted its Preferred Stock immediately prior to such Reorganization, and (ii)
dividends and amounts in respect of dividends hereunder payable in shares of
Common Stock prior to such Reorganization shall be payable, in lieu of each
share of Common Stock, in such
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shares of stock, securities, cash or other assets (or reasonable equivalent
thereof) as the holder of one share of Common Stock received in connection with
such Reorganization. The Corporation shall make appropriate provisions to ensure
that the requirements of the previous sentence are effected. In each such case,
the Corporation shall also make appropriate provisions to ensure that the
provisions of this Section 5 and Sections 6 and 7 shall thereafter be applicable
to the Preferred Stock.
5D. Notices.
-------
(i) Immediately upon any adjustment of the Conversion Price,
the Corporation shall give written notice thereof to all holders of Preferred
Stock, setting forth in reasonable detail and certifying the calculation of such
adjustment.
(ii) The Corporation shall give written notice to all holders
of Preferred Stock at least 20 days prior to the date on which the Corporation
closes its books or fixes a record date (a) with respect to any dividend or
distribution upon Common Stock, (b) with respect to any pro rata subscription
offer to holders of Common Stock or (c) for determining rights to vote with
respect to any Liquidation or Reorganization.
5E. Mandatory Conversion. The Corporation may require, by
written notice to all holders of Preferred Stock, the conversion of all of the
outstanding Preferred Stock into a number of shares of Common Stock equal to the
sum of: (a) the number of shares of Common Stock computed by multiplying the
number of Preferred Shares to be converted by the Liquidation Value of a
Preferred Share, and dividing the result by the applicable Conversion Price then
in effect, plus (b) the number of shares of Common Stock that would be payable
if all accrued but unpaid dividends were declared and paid on the Preferred
Shares to be converted; provided that the Closing Price of the Common Stock
(adjusted proportionately for stock dividends, stock splits, combinations, and
similar changes in the Common Stock occurring after the Closing) on at least
twenty (20) of the thirty (30) latest trading days preceding the date of the
Corporation's notice has been greater than or equal to the Conversion Price. If
the Corporation shall require the conversion of the Preferred Stock under this
Section 5E within two years from the Initial Date of Issuance, then the number
of shares of Common Stock into which the shares of Preferred Stock are converted
shall be increased by the number of shares of Common Stock that would be payable
if the Corporation were immediately to declare and pay all dividends that in the
absence of conversion would have accrued on such shares of Preferred Stock over
the six-month period immediately following the date of conversion; provided,
however, that the total dividends and amounts in respect of dividends paid on
the Preferred Stock after the Date of Issuance thereof, including any additional
amounts in respect of dividends paid as a result of a required conversion under
this Section 5E, shall not be less than the
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amount of dividends that would have accrued on all outstanding shares of the
Preferred Stock for one full year following the Initial Date of Issuance.
Any conversion of shares of Preferred Stock under this
Paragraph 5E shall be effected and be deemed to have been effected as of the
close of business on the date on which the Corporation provides written notice
of such conversion to the holders of such shares of Preferred Stock (the
"Mandatory Conversion Time"), and as of the Mandatory Conversion Time, the
rights of the holders of the converted shares of Preferred Stock, as such, shall
cease and terminate, such converted shares of Preferred Stock shall be retired
in accordance with paragraph 3F, the shares of Common Stock into which such
shares of Preferred Stock are converted shall be issued and deemed to have been
issued, the certificate(s) that theretofore represented shares of Preferred
Stock thereafter shall represent the number of shares of Common Stock into which
the shares of Preferred Stock theretofore represented thereby shall have been
converted, and the holder of any such certificate, upon the surrender thereof to
the Corporation, shall be entitled to receive from the Corporation a new
certificate representing the number of shares of Common Stock into which the
shares of Preferred Stock theretofore represented thereby shall have been
converted.
5F. Effect on Conversion Price of Certain Events.
--------------------------------------------
(i) General. In order to prevent dilution of the conversion
rights granted under this Section 5, the Conversion Price shall be subject to
adjustment from time to time pursuant to this paragraph 5F.
(ii) Adjustment of Conversion Price. If and whenever on or
after the Date of Issuance the Corporation issues or sells, or in accordance
with this paragraph 5F is deemed to have issued or sold, other than in an
Excluded Issuance, any share of Common Stock for a consideration per share less
than the Trigger Price in effect immediately prior to such time (a "Dilutive
Event"), then forthwith upon such issue or sale in the Dilutive Event the
Conversion Price shall be reduced by multiplying the Conversion Price in effect
immediately before the Dilutive Event by a fraction, the numerator of which is
the number of shares of Common Stock that are Outstanding on an As-Converted
Basis (as defined below) immediately before the Dilutive Event plus the number
of shares of Common Stock that could be purchased at the Trigger Price at the
time of the Dilutive Event for the aggregate consideration paid or payable upon
the sale or issuance of Common Stock in the Dilutive Event, and the denominator
of which is the number of shares of Common Stock that are Outstanding on an
As-Converted Basis immediately before the Dilutive Event plus the number of
shares that are acquired or to be acquired upon the sale or issuance of the
Common Stock in the Dilutive Event. For purposes of this paragraph 5F(ii),
"Outstanding on an As-Converted Basis" immediately before the Dilutive Event
means the sum of (i) all Common Stock issued and outstanding immediately before
the Dilutive Event plus (ii) all Common Stock issuable upon the
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exercise of Options or conversion of Convertible Securities outstanding
immediately before the Dilutive Event (other than Preferred Stock).
(iii) Issuance of Rights or Options. If the Corporation in any
manner grants any Options and the price per share for which shares of Common
Stock are issuable upon the exercise of any such Option is less than the Trigger
Price in effect immediately prior to the time of the granting of such Option,
then such shares of Common Stock shall be deemed to have been issued and sold by
the Corporation at the time of the granting of such Options for such price per
share and the Conversion Price shall be adjusted in accordance with paragraph
5F(ii) above. For purposes of this paragraph, the "price per share" for which
shares of Common Stock are issuable upon the exercise of any Option shall be
equal to the sum of the amounts of consideration (if any) received or receivable
by the Corporation with respect to such shares of Common Stock upon the granting
of the Option and upon exercise of the Option. No further adjustment of the
Conversion Price shall be made upon the actual issue of such Common Stock upon
the exercise of such Options.
(iv) Issuance of Convertible Securities. If the Corporation in
any manner issues or sells any Convertible Security (or Options to purchase any
Convertible Security) and the price per share for shares of Common Stock that
are issuable upon conversion or exchange thereof is less than the Trigger Price
in effect immediately prior to the time of such issue or sale (or the granting
of such Option), then such shares of Common Stock shall be deemed to have been
issued and sold by the Corporation at the time of the issuance or sale of such
Convertible Securities (or the granting of such Option) for such price per share
and the Conversion Price shall be adjusted in accordance with paragraph 5F(ii)
above. For the purposes of this paragraph, the "price per share" for which
shares of Common Stock are issuable upon conversion or exchange of any
Convertible Security (or exercise of any Option therefor) shall be equal to the
sum of the amounts of consideration (if any) received or receivable by the
Corporation upon the issuance of the Convertible Security (or such Option) and
upon the conversion or exchange of such Convertible Security (or exercise of
such Option). No further adjustment of the Conversion Price shall be made upon
the actual issue of such Common Stock upon conversion or exchange of any
Convertible Security, and if any such issue or sale of such Convertible Security
is made upon exercise of any Options for which adjustments of the Conversion
Price had been or are to be made pursuant to other provisions of this Section 5,
no further adjustment of the Conversion Price shall be made by reason of such
issue or sale.
(v) Change in Option Price or Conversion Rate. If the purchase
price provided for in any Option, the additional consideration (if any) payable
upon the issue, conversion or exchange of any Convertible Security, or the rate
at which any Convertible Security is convertible into or exchangeable for Common
Stock change at any time, any Conversion Price previously adjusted with respect
to such Option or Convertible Security and in effect at the time of such change
shall be
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readjusted to the Conversion Price which would have been in effect at such time
had such Option or Convertible Security originally provided for such changed
purchase price, additional consideration or changed conversion rate, as the case
may be, at the time initially granted, issued or sold.
(vi) Treatment of Expired Options and Unexercised Convertible
Securities. Upon the expiration of any Option or the termination of any right to
convert or exchange any Convertible Security without the exercise of any such
Option or right, any Conversion Price then in effect hereunder shall be adjusted
to the Conversion Price which would have been in effect at the time of such
expiration or termination had such Option or Convertible Security, to the extent
outstanding immediately prior to such expiration or termination, never been
issued.
(vii) Calculation of Consideration Received. If any Common
Stock, Option or Convertible Security is issued or sold or deemed to have been
issued or sold for cash, the consideration received therefor shall be deemed to
be the amount received by the Corporation therefor. In case any Common Stock,
Options or Convertible Securities are issued or sold for a consideration other
than cash, the amount of the consideration other than cash received by the
Corporation shall be the fair value of such consideration, except where such
consideration consists of securities, in which case the amount of consideration
received by the Corporation shall be the Market Price thereof as of the date of
receipt. If any Common Stock, Option or Convertible Security is issued to the
owners of the non-surviving entity in connection with any merger in which the
Corporation is the surviving corporation, the amount of consideration therefor
shall be deemed to be the fair value of such portion of the assets and business
of the non-surviving entity as is attributable to such Common Stock, Options or
Convertible Securities, as the case may be. The fair value of any consideration
other than cash and securities shall be as determined in good faith by the Board
of Directors of the Corporation.
(viii) Integrated Transactions. In case any Option is issued
in connection with the issue or sale of other securities of the Corporation,
together comprising one integrated transaction in which no specific
consideration is allocated to such Option by the parties thereto, the Option
shall be deemed to have been issued for a consideration of $.01.
(ix) Treasury Shares. For purposes of calculating under this
paragraph 5F the number of shares of Common Stock outstanding at any given time,
the number of shares of Common Stock outstanding at such time does not include
shares owned or held by or for the account of the Corporation or any subsidiary
thereof, and the disposition of any shares so owned or held shall be considered
an issue or sale of Common Stock.
(x) De Minimis Adjustments. Notwithstanding any other
provisions of this Section 5, the Corporation shall not be required to make any
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adjustment of the Conversion Price unless such adjustment would require an
increase or decrease of at least one percent (1%) in the Conversion Price as
then in effect. Any lesser adjustment shall be carried forward and shall be made
no later than the time of, and together with, the next subsequent adjustment
which, together with any adjustment or adjustments so carried forward, shall
amount to an increase or decrease of at least one percent (1%) of the Conversion
Price as then in effect. If any action would require adjustment of the
Conversion Price pursuant to more than one subparagraph of this paragraph 5F,
only one adjustment shall be made as determined in good faith by the Board of
Directors of the Corporation.
Section 6. Liquidating Dividends.
---------------------
If the Corporation declares or pays a Liquidating Dividend
upon the Common Stock, then the Corporation shall pay to the holders of
Preferred Stock at the time of payment thereof the Liquidating Dividend which
would have been paid to such holders had such Preferred Stock been converted
immediately prior to the record date fixed for determining the stockholders
entitled to receive payment of such Liquidating Dividend, or, if no record date
is fixed, the date as of which the record holders of Common Stock entitled to
such dividends are to be determined.
Section 7. Purchase Rights.
---------------
If at any time the Corporation grants, issues or sells any
Purchase Rights pro rata to the record holders of any class of Common Stock,
then each holder of Preferred Stock shall be entitled to acquire, upon the terms
applicable to such Purchase Rights, the aggregate Purchase Rights which such
holder would have acquired if such holder had held the number of shares of
Common Stock acquirable upon conversion of such holder's Preferred Shares
immediately before the date on which a record is taken for the grant, issuance
or sale of such Purchase Rights, or, if no such record is taken, the date as of
which the record holders of Common Stock are to be determined for the grant,
issue or sale of such Purchase Rights.
Section 8. Registration of Transfer.
------------------------
The Corporation shall keep at its principal office a register
for the registration of issuances and transfers of Preferred Stock. Upon the
surrender of any certificate representing Preferred Stock at such place, the
Corporation shall, at the request of the record holder of such certificate,
execute and deliver (at the Corporation's expense) a new certificate or
certificates in exchange therefor representing in the aggregate the number of
Preferred Shares represented by the surrendered certificate. Each such new
certificate shall be registered in such name and shall represent such number of
Preferred Shares as is requested by the holder of the surrendered certificate
and shall be substantially identical in form to the surrendered certificate, and
dividends shall accrue on the Preferred Stock
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represented by such new certificate from the date to which dividends have been
fully paid on such Preferred Stock represented by the surrendered certificate.
Section 9. Replacement.
-----------
Upon receipt of evidence reasonably satisfactory to the
Corporation (an affidavit of the registered holder shall be satisfactory) of the
ownership and the loss, theft, destruction or mutilation of any certificate
evidencing Preferred Shares, and in the case of any such loss, theft or
destruction, upon receipt of indemnity reasonably satisfactory to the
Corporation (provided that if the holder is a financial institution or other
institutional investor, its own agreement shall be satisfactory), or, in the
case of any such mutilation upon surrender of such certificate, the Corporation
shall (at its expense) execute and deliver in lieu of such certificate a new
certificate of like kind representing the number of Preferred Shares represented
by such lost, stolen, destroyed or mutilated certificate and dated the date of
such lost, stolen, destroyed or mutilated certificate, and dividends shall
accrue on the Preferred Stock represented by such new certificate from the date
to which dividends have been fully paid on the Preferred Shares represented by
such lost, stolen, destroyed or mutilated certificate.
Section 10. Definitions.
-----------
"Bond Offering" means an underwritten offering of notes or
debentures of the Corporation to the public, with or without Options, primarily
for the purpose of refinancing the indebtedness of International Private
Satellite Partners, L.P. ("Orion Atlantic") outstanding under the Credit
Agreement dated December 6, 1991 among Orion Atlantic, the Banks named therein
and The Chase Manhattan Bank (National Association), as Agent.
"Business Day" means a day on which banks are generally open
for business in New York City.
"Closing" means ______ ___, 1996.
"Closing Price" of each share of Common Stock or other
security means the composite closing price of the sales of the Common Stock or
such other security on all securities exchanges on which such security may at
the time be listed (as reported in The Wall Street Journal), or, if there has
been no sale on any such exchange on any day, the average of the highest bid and
lowest asked prices of the Common Stock or such other security on all such
exchanges at the end of such day, or, if such security is not so listed, the
closing price (or last price, if applicable) of sales of the Common Stock or
such other security in the Nasdaq National Market (as reported in The Wall
Street Journal) on such day, or if such security is not quoted in the Nasdaq
National Market but is traded over-the-counter, the average of the highest bid
and lowest asked prices on such day in the over-the-counter
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market as reported by the National Quotation Bureau Incorporated, or any similar
successor organization.
"Common Stock" means, collectively, the Corporation's common
stock, par value $0.01 per share, and any capital stock of any class of the
Corporation hereafter authorized which is not limited to a fixed sum or
percentage of par or stated value in respect to the rights of the holders
thereof to participate in dividends or in the distribution of assets upon any
Liquidation of the Corporation; and if there is a change such that the
securities issuable upon conversion of the Preferred Stock are issued by an
entity other than the Corporation or there is a change in the class of
securities so issuable, then the term "Common Stock" shall mean one share of the
security issuable upon conversion of the Preferred Stock if such security is
issuable in shares, or shall mean the smallest unit in which such security is
issuable if such security is not issuable in shares.
"Conversion Price" shall mean, with respect to any Series C
Share, $17.50 (subject to adjustment as provided in Section 5 for events
occurring after its Date of Issuance).
"Convertible Securities" means any stock or other securities
of the Corporation convertible into or exchangeable for Common Stock.
"Convertible Subordinated Debenture Offering" means an
offering of convertible subordinated debentures of the Corporation to the
public, which debentures would be convertible into Common Stock.
"Corporation" means Orion Newco Services, Inc., a Delaware
corporation.
"Date of Issuance," with respect to any Preferred Share, means
the date on which the Corporation initially issues such Preferred Share,
regardless of the number of times transfer of such Preferred Share is made on
the stock records maintained by or for the Corporation and regardless of the
number of certificates which may be issued to evidence such Preferred Share.
"Dividend Reference Date" mean [___________] of each year,
commencing __________, 1996, and each of the following: (i) the date on which
the Liquidation Value of such Preferred Share is paid, (ii) the date on which
such Preferred Share is converted into shares of Common Stock hereunder, and
(iii) the Maturity Date.
"Excluded Issuance" means the issue or sale of (i) shares of
Common Stock in respect of any transaction described in paragraph 5B (including
without limitation any stock split, stock dividend or recapitalization), (ii)
shares of Common Stock by the Corporation pursuant to the exercise of Options
and Convertible Securities outstanding immediately prior to the Closing at
exercise prices that are
-15-
<PAGE>
greater than or equal to the respective exercise prices in effect as of Closing
(as adjusted pursuant to the terms of such securities to give effect to stock
dividends or stock splits or a combination of shares in connection with a
recapitalization, merger, consolidation or other reorganization occurring after
the Closing), (iii) up to an aggregate of 150,000 shares of Common Stock by the
Corporation for any purpose, (iv) Options to acquire Common Stock by the
Corporation pursuant to a resolution of, or a stock option plan approved by a
resolution of, the Board of Directors of the Corporation (or the compensation
committee thereof) to the Corporation's employees or directors, (v) shares of
Common Stock, Options or Convertible Securities (or shares of Common Stock
pursuant to the exercise of Options and Convertible Securities) as part of or in
connection with a Bond Offering or a Convertible Subordinated Debenture
Offering.
"Initial Date of Issuance" means the Date of Issuance of the
first share of Preferred Stock to be issued.
"Initial Redemption Date" means the earlier of (i) the close
of business on ______, 1998. [two years from the Date of Issuance] or (ii) the
effective date of a Reorganization.
"Junior Securities" means Common Stock and any other capital
stock or other equity securities issued by the Corporation, whether currently
existing or hereafter authorized or issued (other than Series A Preferred or
Series B Preferred or any other series of preferred stock of the Corporation
issued pursuant to an option granted to purchasers of Series A Preferred in
connection with the initial issuances of Series A Preferred by the Corporation).
"Liquidation" means the liquidation, dissolution or winding up
of the Corporation; provided, however, that neither the consolidation or merger
of the Corporation into or with any other entity or entities, nor the sale or
transfer by the Corporation of all or any part of its assets, nor the reduction
of the capital stock of the Corporation, shall be deemed to be a liquidation,
dissolution or winding up of the Corporation.
"Liquidating Dividend" means a dividend upon the Common Stock
payable otherwise than in cash out of legally available funds (determined in
accordance with generally accepted accounting principles, consistently applied)
except for a stock dividend payable in shares of Common Stock.
"Liquidation Value" of any Preferred Share shall be equal to
$1,000.
"Market Price" of each share of Common Stock or other security
means, with respect to a specified date, the Closing Price of such share or
other security, averaged over a period of the 20 consecutive Business Days prior
to such date. If during this period such security is not listed on any
securities exchange, quoted in the Nasdaq National Market, or quoted in the
over-the-counter market,
-16-
<PAGE>
the Market Price will be the fair value of such shares of Common Stock or
security determined by agreement between the Corporation and the holders of a
majority of the outstanding Preferred Shares. If such parties are unable to
reach agreement within a reasonable period of time, the fair value of such
security shall be determined by an independent appraiser experienced in valuing
such type of consideration jointly selected by the Corporation and the holders
of a majority of the outstanding Preferred Shares. The determination of such
appraiser shall be final and binding upon the parties, and the fees and expenses
of such appraiser shall be borne by the Corporation.
"Maturity Date" means the close of business on ______ __,
2021. [25 years from the Date of Issuance]
"Options" means any options, warrants or rights to subscribe
for or to purchase Common Stock or any Convertible Securities.
"Person" means an individual, a partnership, a corporation, an
association, a joint stock company, a limited liability company, a trust, a
joint venture, an unincorporated organization and a governmental entity or any
department, agency or political subdivision thereof.
"Preferred Share" means a share of Series C Preferred.
"Preferred Stock" means the Series C Preferred.
"Prior Dividend Date" means, with respect to a Dividend
Reference Date, the previous Dividend Reference Date following which dividends
were paid on shares of Preferred Stock hereunder (or, if there is no such
previous Dividend Reference Date, the Date of Issuance).
"Public Offering" means any offering by the Corporation of its
equity securities to the public pursuant to an effective registration statement
under the Securities Act of 1933, as then in effect, or any comparable statement
under any similar federal statute then in force; provided, that "Public
Offering" shall not include an offering made in connection with a business
acquisition or combination or an employee benefit plan.
"Purchase Rights" means any Options, Convertible Securities or
rights to purchase stock, warrants, securities or other property.
"Redemption Date" means the date on which the Redemption Price
of a Preferred Share is paid to the holder thereof.
"Redemption Price" means the Liquidation Value of such
Preferred Share, payable in cash, plus an amount equal to all accrued and unpaid
dividends thereon, payable in shares of Common Stock pursuant to paragraph 1D.
-17-
<PAGE>
"Reorganization" means any recapitalization, reorganization,
reclassification, consolidation, merger, sale of all or substantially all of the
Corporation's assets to another Person or other transaction which is effected in
such a manner that holders of Common Stock are entitled to receive (either
directly or upon subsequent liquidation) stock, securities or assets with
respect to or in exchange for Common Stock.
"Series A Certificate" means the Certificate of Designations,
Rights and Preferences for the Series A Preferred.
"Series B Certificate" means the Certificate of Designations,
Rights and Preferences for the Series B Preferred.
"Series A Preferred" means the Corporation's Series A 8%
Cumulative Redeemable Convertible Preferred Stock, par value $.01 per share.
"Series B Preferred" means the Corporation's Series B 8%
Cumulative Redeemable Convertible Preferred Stock, par value $.01 per share.
"Series C Preferred" means the Corporation's Series C 6%
Cumulative Redeemable Convertible Preferred Stock, par value $.01 per share.
"Series A/B Dilution Price" means, at any time, the conversion
price for the Series B Preferred as then in effect under the Series B
Certificate.
"Series A Share" means a share of Series A Preferred.
"Series B Share" means a share of Series B Preferred.
"Series C Share" means a share of Series C Preferred.
"Trigger Price" shall mean, with respect to any Series C
Share, $14.00 (subject to adjustment as provided in Section 5B for events
occurring after its Date of Issuance).
Section 11. Amendment and Waiver.
--------------------
No amendment, modification or waiver shall be binding or
effective with respect to any provision hereof without the prior affirmative
vote or written consent of the holders of a majority of the Preferred Shares
outstanding at the time such action is taken; provided, however, that without
the prior affirmative vote or written consent of each holder individually
holding at least 51% of the Preferred Stock then outstanding, no such action
shall change (i) the rate at which or the manner in which dividends on the
Preferred Stock accrue or the form of consideration in which such dividends are
payable or the times at which such dividends become payable or the amount
payable on redemption of the Preferred
-18-
<PAGE>
Stock or the times at which redemption of Preferred Stock is to occur, (ii) any
Conversion Price of the Preferred Stock or the number of shares or class of
stock into which the Preferred Stock is convertible, (iii) the priority of
payment of dividends to the Preferred Stock, (iv) the Liquidation Value, (v) the
voting rights of the Preferred Stock, (vi) the rights of the Preferred Stock
upon a reorganization, (vii) the provisions for mandatory conversion of the
Preferred Stock, (viii) the rights of holders of the Preferred Stock to acquire
Purchase Rights, or (ix) the percentage required to approve any change in this
Section 11.
Section 12. Notices.
-------
Except as otherwise expressly provided hereunder, all notices
referred to herein shall be in writing and shall be delivered by registered or
certified mail, return receipt requested and postage prepaid, or by reputable
overnight courier service, charges prepaid, and shall be deemed to have been
given when so mailed or sent (i) to the Corporation, at its principal executive
offices and (ii) to any stockholder, at such holder's address as it appears in
the stock records of the Corporation (unless otherwise indicated by any such
holder).
-19-
Incorporated Under the Laws of Delaware
Number Shares
SEE TRANSFER RESTRICTIONS ON REVERSE SIDE
ORION NETWORK SYSTEMS, INC.
SERIES A 8% CUMULATIVE REDEEMABLE CONVERTIBLE PREFERRED SHARES
Authorized to Issue 40,000,000 Common Shares and 1,000,000 Preferred Shares
(Including 15,000 Series A 8% Cumulative Redeemable Convertible Preferred Shares
-Par Value $.01 per share)
THIS CERTIFIES THAT ** Specimen** is the
-----------------------------------------------------
registered holder of ** Specimen** Shares
-----------------------------------------------------
of the capital stock of the aboved named corporation, fully paid and
non-assesable, transferable only on the books of the Corporation by the holder
hereof in person or by Attorney upon surrender of this Certificate properly
endorsed.
IN WITNESS WHEREOF, the said Corporation has caused this Certificate to be
signed by its duly authorized officers and its Corporate Seal to be hereunto
affixed
this day of A.D. 19
-------------- --------------- --
- --------------------------------- ----------------------------
Secretary President
<PAGE>
The Company will furnish without charge to each holder of Preferred Stock
represented by this certificate, upon request of such stockholder, the powers,
designations, preferences and relative, participating optional, or other special
rights of the class of stock represented hereby and the qualificaations,
limitations or restrictions of such preferences and/or rights.
The securities represented by this certificate were originally issued on
June 17, 1994, and have not been registered under the Securities Act of 1933, as
amended, and may not be transferred or sold except pursuant to an effective
registration statement under the Securities Act of 1933, as amended, and
applicable state Securities laws or an available exemption from such
registration. The transfer of the securities represented by this certificate is
subject to the conditions and restrictions specified in the Purchase Agreement,
dated as of June 17, 1994 between the issuer (the "Company") and certain
conditions have been fulfilled with respect to such transfer. A copy of such
conditions shall be furnished by the Company to the holder hereof upon written
request and without charge.
The securities represented by this certificate are subject to certain
voting agreements and restrictions on transfer contained in a Stockholder
Agreement dated as of June 17, 1994, among the Company and certain of the
Company's stockholders. A copy of such Stockholders Agreement will furnished
without charge to the holder hereof upon written request.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM as tenants in common UNIF GIFT MIN ACT -...Custodian...
TEN ENT as tenants by entireties (Cust) (Minor)
JT TEN as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants Act......................
in common (State)
Additional abbreviations may also be used though no in the above list.
For the value received, _____________________ hereby sell, assign and
transfer unto ________________________________________________________________
________________________________________________________________________ Shares
represented by the within Certificate, and do hereby irrevocable constitute and
appoint ________________________________________________________ Attorney to
transfer the said Shares on the books of the within named Corporation with full
power and substitution in the premises.
Dated ___________________________ 19__
In the presence of __________________________________________________
____________________________________________
<PAGE>
Incorporated Under the Laws of Delaware
Number Shares
SEE TRANSFER RESTRICTIONS ON REVERSE SIDE
ORION NETWORK SYSTEMS, INC.
SERIES B 8% CUMULATIVE REDEEMABLE CONVERTIBLE PREFERRED SHARES
Authorized to Issue 40,000,000 Common Shares and 1,000,000 Preferred Shares
(Including 5,000 Series B 8% Cumulative Redeemable Convertible Preferred Shares
-Par Value $.01 per share)
THIS CERTIFIES THAT ** Specimen** is the
-----------------------------------------------------
registered holder of ** Specimen** Shares
-----------------------------------------------------
of the capital stock of the aboved named corporation, fully paid and
non-assesable, transferable only on the books of the Corporation by the holder
hereof in person or by Attorney upon surrender of this Certificate properly
endorsed.
IN WITNESS WHEREOF, the said Corporation has caused this Certificate to be
signed by its duly authorized officers and its Corporate Seal to be hereunto
affixed
this day of A.D. 19
-------------- --------------- --
- --------------------------------- ----------------------------
Secretary President
<PAGE>
The Company will furnish without charge to each holder of Preferred Stock
represented by this certificate, upon request of such stockholder, the powers,
designations, preferences and relative, participating optional, or other special
rights of the class of stock represented hereby and the qualificaations,
limitations or restrictions of such preferences and/or rights.
The securities represented by this certificate were originally issued on
June 19, 1995, and have not been registered under the Securities Act of 1933, as
amended, and may not be transferred or sold except pursuant to an effective
registration statement under the Securities Act of 1933, as amended, and
applicable state Securities laws or an available exemption from such
registration. The transfer of the securities represented by this certificate is
subject to the conditions and restrictions specified in the Purchase Agreement,
dated as of June 16, 1995 between the issuer (the "Company") and certain
conditions have been fulfilled with respect to such transfer. A copy of such
conditions shall be furnished by the Company to the holder hereof upon written
request and without charge.
The securities represented by this certificate are subject to certain
voting agreements and restrictions on transfer contained in a Stockholder
Agreement dated as of June 17, 1994, among the Company and certain of the
Company's stockholders. A copy of such Stockholders Agreement will furnished
without charge to the holder hereof upon written request.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM as tenants in common UNIF GIFT MIN ACT -...Custodian...
TEN ENT as tenants by entireties (Cust) (Minor)
JT TEN as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants Act......................
in common (State)
Additional abbreviations may also be used though no in the above list.
For the value received, _____________________ hereby sell, assign and
transfer unto ________________________________________________________________
________________________________________________________________________ Shares
represented by the within Certificate, and do hereby irrevocable constitute and
appoint ________________________________________________________ Attorney to
transfer the said Shares on the books of the within named Corporation with full
power and substitution in the premises.
Dated ___________________________ 19__
In the presence of __________________________________________________
____________________________________________
<PAGE>
Incorporated Under the Laws of Delaware
Number Shares
SEE TRANSFER RESTRICTIONS ON REVERSE SIDE
ORION NETWORK SYSTEMS, INC.
SERIES C 6% CUMULATIVE REDEEMABLE CONVERTIBLE PREFERRED SHARES
Authorized to Issue 40,000,000 Common Shares and 1,000,000 Preferred Shares
(Including 125,000 Series C 6% Cumulative Redeemable Convertible Preferred
Shares-Par Value $.01 per share)
THIS CERTIFIES THAT ** Specimen** is the
-----------------------------------------------------
registered holder of ** Specimen** Shares
-----------------------------------------------------
of the capital stock of the aboved named corporation, fully paid and
non-assesable, transferable only on the books of the Corporation by the holder
hereof in person or by Attorney upon surrender of this Certificate properly
endorsed.
IN WITNESS WHEREOF, the said Corporation has caused this Certificate to be
signed by its duly authorized officers and its Corporate Seal to be hereunto
affixed
this day of A.D. 19
-------------- --------------- --
- --------------------------------- ----------------------------
Secretary President
<PAGE>
THE COMPANY WILL FURNISH WITHOUT CHARGE TO EACH HOLDER OF PREFERRED STOCK
REPRESENTED BY THIS CERTIFICATE, UPON REQUEST OF SUCH STOCKHOLDER, THE POWERS,
DESIGNATIONS, PREFERENCES AND RELATIVE, PARTICIPATING OPTIONAL, OR OTHER SPECIAL
RIGHTS OF THE CLASS OF STOCK REPRESENTED HEREBY AND THE QUALIFICATIONS,
LIMITATIONS OR RESTRICTIONS OF SUCH PREFERENCES AND/OR RIGHTS.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR APPLICABLE STATE
SECURITIES LAWS AND MAY NOT BE OFFERED, SOLD OR TRANSFERRED IN THE ABSENCE OF
REGISTRATION OR THE AVAILABILITY OF ANY EXEMPTION FROM REGISTRATION UNDER THE
ACT AND REGULATIONS PROMULGATED THEREUNDER AND APPLICABLE STATE SECURITIES LAWS.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
TRANSFER RESTRICTIONS CONTAINED IN A TRANSFER RESTRICTION AGREEMENT BETWEEN THE
COMPANY AND THE ORIGINAL HOLDER OF PREFERRED STOCK REPRESENTED BY THIS
CERTIFICATE. SUCH TRANSFER RESTRICTIONS MAY REQUIRE ANY SUBSEQUENT HOLDER OF
PREFERRED STOCK REPRESENTED BY THIS CERTIFICATE TO EXECUTE AND DELIVER TO THE
COMPANY A SIMILAR TRANSFER RESTRICTION AGREEMENT. A COPY OF SUCH TRANSFER
RESTRICTION AGREEMENT WILL BE FURNISHED WITHOUT CHARGE TO THE HOLDER HEREOF UPON
WRITTEN REQUEST.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM as tenants in common UNIF GIFT MIN ACT -...Custodian...
TEN ENT as tenants by entireties (Cust) (Minor)
JT TEN as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants Act......................
in common (State)
Additional abbreviations may also be used though no in the above list.
For the value received, _____________________ hereby sell, assign and
transfer unto ________________________________________________________________
________________________________________________________________________ Shares
represented by the within Certificate, and do hereby irrevocable constitute and
appoint ________________________________________________________ Attorney to
transfer the said Shares on the books of the within named Corporation with full
power and substitution in the premises.
Dated ___________________________ 19__
In the presence of __________________________________________________
____________________________________________
COMMON STOCK
NUMBER SHARES
[Logo] ORION
NETWORK SYSTEMS,INC.
INCORPORATED UNDER THE LAWS OF DELAWARE CUSIP 68628K 10 4
SEE REVERSE FOR
CERTAIN RESTRICTIONS
THIS CERTIFIES THAT:
or the record holder
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK, PAR VALUE $.01 PER SHARE,
OF
ORION NETWORK SYSTEMS INC.
CERTIFICATE OF STOCK
transferable on the books of the Corporation by the holder hereof in person or
by duly authorized upon surrender of this certificate properly endorsed.
This certificate is not valid unless conutersigned and registered by the
Transfer Agent and Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
Dated:
Orion Network Systems, Inc.
Corporate Seal, 1982
Delaware
/s/ /s/
TREASURER CHAIRMAN
<PAGE>
THE OWNERSHIP OF THE SECURITIES BY THIS CERTIFICATE IS RESTRICTED BY AND SUBJECT
TO THE PROVISIONS OF THE RESTATED CERTIFICATE OF INCORPORATION OF ORION NETWORK
SYSTEMS, INC. (THE "CORPORATION"), WHICH (i) PROVIDES THAT THE CORPORATION SHALL
HAVE THE RIGHT TO REDEEM ANY STOCK OF THE CORPORATION IF IN THE JUDGMENT OF THE
BOARD OF DIRECTORS SUCH ACTION SHOULD BE TAKEN TO PREVENT THE LOSS OR SECURE THE
REINSTATEMENT OF ANY LICENSE OR FRANCHISE HELD BY THE CORPORATION, AND (ii) SETS
FORTH THE TERMS AND CONDITIONS OF SUCH REDEMPTION. A COPY OF THE RESTATED
CERTIFICATE OF INCORPORATION IS AVAILABLE FOR INSPECTION AT THE PRINCIPAL
OFFICES OF THE CORPORATION.
Orion Network systems, Inc. will furnish without charge to each stockholder
who so requests the powers, designations, preferences and relative
participating, optional or other special rights of each class of stock or
sereies thereof of Orion Network Systems, Inc., and the qualifications,
limitations and restrictions of such preferences and/or rights. Such request may
be made to Orion Network Systems, Inc. or the transfer agent.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM as tenants in common UNIF GIFT MIN ACT -...Custodian...
TEN ENT as tenants by entireties (Cust) (Minor)
JT TEN as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants Act......................
in common (State)
Additional abbreviations may also be used though no in the above list.
For value received, ______________________________________ hereby sell,
assign and transfer unto _______________________________________________________
[please insert the Social Security or other identifying number of assignee]
________________________________________________________________________________
pleas print or typewrite name and address including postal zip of assignee
________________________________________________________________________________
________________________________________________________________________________
_________________________________________________________________________ Shares
of the Capital Stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint _____________________________________________
Attorney to transfer the said stock on the books of the within-named Corporation
with full power of substitution in the premises.
Dated, __________________________________
________________________________________
[NOTICE: The signature to this assignment must correspond with the name as
wrritten upon the face of the Certificate, in every particular, without
alteration or enlargement, or any change whatever.]
RESTRICTION ON TRANSFER
THE SECURITIES REPRESENTED BY THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "ACT") OR APPLICABLE STATE SECURITIES LAWS, AND
CANNOT BE RESOLD UNLESS SUBSEQUENTLY REGISTERED UNDER THE ACT AND SUCH LAWS OR
UNLESS AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE.
WARRANT
To purchase 50,000 shares of Common Stock of
Orion Network Systems, Inc.
1. Grant of Warrant. This is to certify that, for value received,
DACOM Corp. (the "Holder") is entitled to purchase, subject to the provisions of
this Warrant, from Orion Network Systems, Inc. ("Orion"), an aggregate of
50,000 shares of common stock, par value $.0l per share, of Orion (the "Orion
Common Stock") at a purchase price per share equal to $14.00 (the "Exercise
Price"). The number of shares of Orion Common Stock that may be received upon
exercise of this Warrant and the Exercise Price are subject to adjustment from
time to time as hereinafter set forth.
2. Term. This Warrant may be exercised in whole or in part at
any time or from time to time during the period commencing on the date that is
180 days and ending on the date that is 360 days after the "Commencement Date"
as defined in Article 1 of the Joint Investment Agreement (the "Agreement")
dated November 11, 1996 between Orion Asia Pacific Corp. and the Holder,
provided, however, that this Warrant shall terminate immediately upon
termination of the Agreement.
3. Exercise Procedures. In order to exercise this Warrant, the
Holder shall send a written notice of exercise to Orion on any business day at
Orion's principal office, addressed to the attention of the Treasurer of Orion,
which notice shall specify the number of shares for which this Warrant is being
exercised, and shall be accompanied by payment in full of the Exercise Price of
the shares for which this Warrant is being exercised. Payment of the Exercise
Price for the shares of Orion Common Stock purchased pursuant to the exercise of
this Warrant shall be made either in cash, by certified check or by wire
transfer. If the person or entity exercising this Warrant is not the Holder,
such person or entity shall also deliver, with the notice of exercise,
appropriate proof of the right of such person or entity to exercise this
Warrant. An attempt to exercise this Warrant granted hereunder other than as set
forth above shall be invalid and of no force and effect. Promptly
<PAGE>
after exercise of this Warrant as provided for above, Orion shall deliver to the
person exercising this Warrant a certificate or certificates for the shares of
Orion Common Stock being purchased. In the event this Warrant is exercised in
part only, Orion shall, upon surrender of this Warrant for cancellation, execute
and deliver to the Holder a new Warrant of like tenor evidencing the right of
the Holder to purchase the balance of the shares of Orion Common Stock subject
to purchase hereunder. Such stock certificate or certificates shall be
appropriately legended to the extent required by federal or state securities
laws. All shares of Orion Common Stock issued upon exercise of this Warrant
shall be duly authorized and validly issued, fully paid and nonassessable.
4. Transferability. This Warrant may not be transferred by the
Holder in whole or in part, other than to an affiliate of the Holder, without
the prior written consent of Orion.
5. Reservation of Stock; Compliance. Orion hereby agrees that at
all times there shall be reserved for issuance and/or delivery upon exercise of
this Warrant, free from preemptive rights, such number of shares of authorized
but unissued or treasury shares of Orion Common Stock as shall be required for
issuance or delivery upon exercise of this Warrant. Orion further agrees (i)
that it will not, by amendment to its certificate of incorporation or bylaws or
through any other action, avoid or seek to avoid the observance or performance
of any of the covenants or conditions to be observed or performed hereunder by
Orion, and (ii) promptly to take all action as may from time to time be required
in order to permit the Holder to exercise this Warrant and Orion duly and
effectively to issue shares of Orion Common Stock hereunder.
6. Effect of Changes in Capitalization.
A. Changes in Stock. If the outstanding shares of Orion
Common Stock are increased or decreased or changed into or exchanged for a
different number or kind of shares or other securities of Orion by reason of any
recapitalization, reclassification, stock split-up, reverse stock split,
combination of shares, exchange of shares, stock dividend or other distribution
payable in capital stock, or other increase or decrease in such shares effected
without receipt of consideration by Orion occurring after the date hereof, a
proportionate and appropriate adjustment shall be made by Orion in the number
and kind of shares subject to this Warrant, so that the proportionate interest
of the Holder immediately following such event shall, to the extent practicable,
be the same as immediately prior to such event. Any such adjustment in this
Warrant shall not change the total Exercise Price with respect to shares subject
to the unexercised portion of this Warrant but shall include a corresponding
proportionate adjustment in the Exercise Price per share.
- 2 -
<PAGE>
B. Merger, Consolidation or Sale. Subject to Subsection
C of this Section 6, in the event of any Sale Transaction (as defined below),
this Warrant shall pertain to and apply to the cash, securities or other
consideration to which a holder of the number of shares of Orion Common Stock
subject to this Warrant would have been entitled immediately following such Sale
Transaction, with a corresponding proportionate adjustment of the Exercise Price
per share so that the aggregate Exercise Price thereafter shall be the same as
the aggregate Exercise Price of the shares remaining subject to this Warrant
immediately prior to such reorganization, merger or consolidation.
For purposes of this Warrant, a "Sale Transaction" shall
mean (i) the dissolution or liquidation of Orion, (ii) a merger, consolidation
or reorganization of Orion with one or more other corporations in which
stockholders of Orion receive cash or securities of another corporation for
their stock in Orion, (iii) a sale of substantially all of the assets of Orion
to another corporation, or another transaction (including, without limitation, a
merger or reorganization in which Orion is the surviving corporation) approved
by the Board of Directors of Orion which results in any person or entity owning
80 percent or more of the combined voting power of all classes of stock of
Orion.
C. Proposed Reorganization with Orion Newco. The parties
acknowledge that Orion is presently contemplating a transaction (the "Proposed
Holding Company Formation") in which, among other things, Orion would merge with
a subsidiary of a newly formed company, Orion Newco Services, Inc. ("Orion
Newco"), which has no significant assets or liabilities, in which merger (i)
stockholders of Orion would receive substantially identical stock in Orion
Newco, (ii) the common stock of Orion Newco would become publicly traded and
Orion would be a wholly-owned subsidiary of Orion Newco, which would become the
parent holding company of Orion. For the avoidance of doubt, the parties agree
that the Proposed Holding Company Formation would be a Sale Transaction, and
upon consummation of the Proposed Holding Company Formation, this Warrant would
cease to be exercisable for Common Stock of Orion and instead would pertain to
and apply to the common stock of Orion Newco (and other securities or other
consideration, if any) to which a holder of the number of shares of Orion Common
Stock subject to this Warrant would have been entitled immediately following
such Proposed Holding Company Formation, with a corresponding proportionate
adjustment of the Exercise Price per share so that the aggregate Exercise Price
thereafter shall be the same as the aggregate Exercise Price of the shares
remaining subject to this Warrant immediately prior to the Proposed Holding
Company Formation.
E. Adjustments. Adjustments specified in this Section
6 shall be made by the Board of Directors of Orion, whose determination in that
respect shall be final, binding and conclusive. No fractional shares of Orion
Common Stock or units of other securities shall be issued pursuant to any such
adjustment, and
- 3 -
<PAGE>
any fractions resulting from any such adjustment shall be eliminated in each
case, with cash being paid (at fair market value as reasonably determined by the
Board of Directors of Orion) in lieu of such fractions
7. General Restrictions. Orion shall not be required to issue
any shares of Orion Common Stock under this Warrant Agreement if the issuance of
such shares would constitute a violation by Orion of any provision of any law or
regulation of any governmental authority, including without limitation, the
registration or qualification requirement of applicable federal and state
securities laws or regulations. If at any time Orion shall determine, based upon
a written opinion of securities counsel, that the registration or qualification
of any shares subject to this Warrant under any applicable state or federal law
is necessary as a condition of, or in connection with, the issuance of shares,
this Warrant may not be exercised in whole or in part unless such registration
or qualification shall have been effected or obtained free of any conditions not
reasonably acceptable to Orion, and any delay caused thereby shall in no way
affect the date of termination of this Warrant. Specifically in connection with
the Securities Act of 1933 (as now in effect or as hereafter amended) (the
"Securities Act"), unless a registration statement under the Securities Act is
in effect with respect to the shares of Orion Common Stock covered by this
Warrant, Orion shall not be required to issue such shares unless the Board of
Directors of Orion has received evidence reasonably satisfactory to it that the
holder of this Warrant may acquire such shares pursuant to an exemption from
registration under the Securities Act. Orion may, but shall in no event, unless
otherwise agreed in writing by Orion, be obligated to, register any securities
covered hereby pursuant to the Securities Act. Orion shall use its reasonable
efforts to cause the exercise of this Warrant and the issuance of shares
pursuant thereto to comply with any applicable law or regulation of any
governmental authority; provided, however, that Orion may, but shall in no event
be obligated to, register any securities covered hereby under federal or state
securities laws. As to any jurisdiction that expressly imposes the requirement
that this Warrant shall not be exercisable unless and until the shares of Orion
Common Stock covered by this Warrant are registered or are subject to an
available exemption from registration, the exercise of this Warrant (under
circumstances in which the laws of such jurisdiction apply) shall be deemed
conditioned upon the effectiveness of such registration or the availability of
such an exemption.
8. Divisibility: Combination. This Warrant may, at the option
of the Holder, without expense, be divided into or combined with other Warrant
for Orion Common Stock which carry the same rights. Upon surrender of this
Warrant and any such other Warrant to Orion together with a written notice
signed by the Holder and specifying the names and denominations for not less
than 1,000 shares of Orion Common Stock in which new Warrant are to be issued,
Orion shall execute and deliver new Warrant, as requested entitling the Holder
or Holders thereof to purchase in the aggregate the same number of shares of
Orion Common Stock purchasable hereunder and under any such other Warrant. The
term "Warrant" as
- 4 -
<PAGE>
used herein includes any Warrant into which this Warrant may be divided or
combined.
9. Applicable Law. This Warrant shall be governed by and
construed in accordance with the laws of the State of Delaware except to the
extent federal law may be applicable.
10. Reports. Orion shall deliver to the Holder, promptly upon
the mailing thereof to the stockholders of Orion generally, copies of all
financial statements, reports and proxy statements so mailed, and shall deliver
to the Holder such other information that Orion may produce in written form in
the ordinary course of its business which is available to stockholders of Orion
generally and which the Holder reasonably requests.
IN WITNESS WHEREOF, Orion has caused this Warrant to be duly
executed on the day and year set forth below.
DATED: December __, 1996
[SEAL] ORION NETWORK SYSTEMS, INC.
ATTEST:
By
-------------------------------------
- ---------------------------------- Its
------------------------------------
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- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ORION NEWCO SERVICES, INC.
$60,000,000
Convertible Junior Subordinated Debentures
Due February 1, 2012 (Interest Payable in Common Stock)
-----------------------------
DEBENTURE PURCHASE AGREEMENT
-----------------------------
Dated as of January 13, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
Table of Contents
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1. Issuance of Debentures and the Subsidiary Guarantee.................................................... 1
1.1. The Debentures.............................................................................. 1
1.2. Sale of Debentures.......................................................................... 1
1.3. The Subsidiary Guarantee.................................................................... 2
2. Closing................................................................................................ 2
3. Use of Proceeds........................................................................................ 2
4. Conditions to Closing.................................................................................. 2
4.1. Representations and Warranties.............................................................. 2
4.2. Exchange Agreement.......................................................................... 3
4.3. Merger Transaction.......................................................................... 3
4.4. Financing Transaction....................................................................... 3
4.5. Termination of Your Prior Obligations....................................................... 3
4.6. Subsidiary Guarantee........................................................................ 4
4.7. Registration Rights......................................................................... 4
4.8. Opinions of Counsel......................................................................... 4
4.9. Matra Incentive Payments.................................................................... 5
4.10. Senior Notes................................................................................ 5
4.11. Terms of the Merger; Capitalization......................................................... 5
4.12. HSR Clearance............................................................................... 5
4.13. Investment by Each Purchaser................................................................ 5
4.14. Termination................................................................................. 5
5. Representations, Warranties and Agreements of the Company and ONS...................................... 6
5.1. Incorporation, Standing, etc................................................................ 6
5.2. Capital Stock............................................................................... 7
5.3. Subsidiaries................................................................................ 7
5.4. Qualification............................................................................... 8
5.5. Business; Financial Statements.............................................................. 8
5.6. Solvency.................................................................................... 8
5.7. Authorization of Agreement.................................................................. 8
5.8. Authorization of Common Stock............................................................... 9
5.9. Absence of Defaults and Conflicts........................................................... 9
5.10. Absence of Labor Dispute.................................................................... 10
5.11. Absence of Proceedings...................................................................... 10
5.12. Possession of Licenses and Permits.......................................................... 10
5.13. Environmental Laws.......................................................................... 11
(i)
<PAGE>
Page
5.14. No Violations of Laws....................................................................... 12
5.15. Internal Accounting Controls................................................................ 12
5.16. Tax Returns and Payments.................................................................... 12
5.17. Indebtedness................................................................................ 12
5.18. Title to Properties; Liens.................................................................. 13
5.19. Patents, Trademarks, Authorizations, etc.................................................... 13
5.20. Governmental Consents; Exercise of Voting Rights, etc....................................... 13
5.21. Offer of Debentures......................................................................... 14
5.22. Federal Reserve Regulations................................................................. 14
5.23. Investment Company Act...................................................................... 14
5.24. Public Utility Holding Company Act.......................................................... 14
5.25. Compliance with ERISA....................................................................... 14
5.26. Disclosure.................................................................................. 15
5.27. HSR Act Filings............................................................................. 16
5.28. Certificate of Incorporation................................................................ 16
6. Representations, Warranties and Agreements of Purchasers............................................... 17
6.1. Investment Representations.................................................................. 17
6.2. ERISA....................................................................................... 17
6.3. HSR Act Filings............................................................................. 17
7. Accounting; Financial Statements; Other Information.................................................... 17
7.1. Accounting; Financial Statements and Other Information...................................... 17
7.2. Company Certificate......................................................................... 19
7.3. Accountant's Certificate.................................................................... 19
8. Inspection............................................................................................. 20
9. Confidential Treatment................................................................................. 21
10. ERISA.................................................................................................. 21
11. Redemption of Debentures; Repurchase Rights; Mandatory Sales........................................... 22
11.1. Right of Redemption......................................................................... 22
11.2. Company Right of Redemption................................................................. 22
11.3. Redemption and Repurchase Rights upon Change of Control Event............................... 22
11.4. Mandatory Sale.............................................................................. 23
11.5. Restriction on Conversion Rights; Withdrawal of Notice...................................... 24
12. Business Covenants..................................................................................... 26
12.1. Payment of Debentures and Maintenance of Office............................................. 26
12.2. Payment of Taxes and Claims................................................................. 26
(ii)
<PAGE>
Page
12.3. Maintenance of Properties and Corporate Existence........................................... 27
12.4. Compliance with Law......................................................................... 28
12.5. [Reserved.]................................................................................. 28
12.6. When Company May Merge, Etc................................................................. 28
12.7. Listing..................................................................................... 28
12.8. Issuances of Guarantees by New Restricted Subsidiaries...................................... 29
12.9. Subsidiaries................................................................................ 29
12.10. Notice...................................................................................... 29
12.11. Waiver of Stay, Extension or Usury Laws..................................................... 29
13. Financial Covenants.................................................................................... 29
13.1. Merger and Sale of Assets................................................................... 29
13.2. Transactions with Affiliates................................................................ 31
13.3. Tax Consolidation........................................................................... 31
13.4. Compliance with ERISA....................................................................... 31
13.5. Limitation on Indebtedness.................................................................. 32
13.6. Limitation on Restricted Payments........................................................... 34
13.7. Limitation on the Issuance and Sale of Capital Stock of Restricted
Subsidiaries................................................................................ 36
13.8. Issuances of Guarantees by New Restricted Subsidiaries...................................... 36
13.9. Limitation on Liens......................................................................... 36
13.10. Limitation on Sale-Leaseback Transactions................................................... 37
13.11. Limitation on Asset Sales................................................................... 37
13.12. Insurance................................................................................... 38
14. Subordination of Debentures............................................................................ 39
14.1. Debentures Subordinated to Senior Indebtedness.............................................. 39
14.2. Liquidation; Dissolution; Bankruptcy........................................................ 39
14.3. Default on Senior Indebtedness.............................................................. 40
14.4. Payment Permitted If No Default............................................................. 42
14.5. Subrogation to Rights of Holders of Senior Indebtedness..................................... 42
14.6. Provisions Solely to Define Relative Rights................................................. 42
14.7. Enforcement of Subordination By Holders of Senior Notes; No Waiver
of Subordination Provisions................................................................. 43
14.8. Reliance on Judicial Order or Certificate of Liquidating Agent.............................. 44
14.9. Certain Conversions Deemed Payment.......................................................... 44
14.10. Not to Prevent Events of Default............................................................ 44
15. Conversion Rights...................................................................................... 44
15.1. Conversion Privilege and Conversion Rate.................................................... 44
15.2. Exercise of Conversion Privilege; Time Conversion Deemed Effected;
Delivery of Stock Certificates; Partial Conversions; Accrued Interest....................... 45
(iii)
<PAGE>
Page
15.3. Fractions of Shares......................................................................... 45
15.4. Adjustments to Conversion Rate.............................................................. 46
15.5. Effect on Conversion Price of Certain Events................................................ 50
15.6. De Minimis Adjustments...................................................................... 53
15.7. Notice of Adjustments of Conversion Rate.................................................... 53
15.8. Notice of Certain Corporate Action.......................................................... 53
15.9. Company to Reserve Common Stock............................................................. 54
15.10. Taxes on Conversions........................................................................ 54
15.11. Agreements as to Common Stock; Listing...................................................... 54
15.12. Cancellation of Converted Debentures........................................................ 55
15.13. Provision in Case of Consolidation, Merger or Conveyance of Assets.......................... 55
15.14. Other Dilutive Events....................................................................... 56
15.15. Continuing Obligation of the Company........................................................ 57
16. Registration, Transfer and Substitution of Debentures.................................................. 57
16.1. Debenture Register; Ownership of Registered Debentures...................................... 57
16.2. Transfer and Exchange of Debentures......................................................... 57
16.3. Replacement of Debentures................................................................... 57
17. Payment................................................................................................ 58
17.1. Form of Payment............................................................................. 58
17.2. Place of Payment............................................................................ 58
17.3. Home Office Payment......................................................................... 58
18. Events of Default; Acceleration........................................................................ 59
18.1. Nature of Events and Acceleration of Debentures............................................. 59
18.2. Default Remedies............................................................................ 61
18.3. Notice of Default........................................................................... 62
18.4. Annulment of Acceleration of Debentures..................................................... 62
18.5. Accelerations and other Remedies Limited Prior to Senior Notes
Reduction Date.............................................................................. 62
19. Interpretation of Agreement and Debentures............................................................. 63
20. Expenses............................................................................................... 85
21. Survival............................................................................................... 86
22. Amendments and Waivers................................................................................. 86
23. Notices................................................................................................ 87
(iv)
<PAGE>
Page
24. Substitution of Purchaser.............................................................................. 87
25. Execution in Counterparts.............................................................................. 87
27. GOVERNING LAW.......................................................................................... 87
28. Consent to Jurisdiction; Appointment of Agent to Accept Service of Process............................. 88
29. WAIVER OF JURY TRIAL................................................................................... 89
</TABLE>
(v)
<PAGE>
Schedule I - Schedule of Purchaser(s)
Schedule II - Exceptions to Section 5.11
Exhibit A - Form of Debenture
Exhibit B - Form of Subsidiary Guarantee
Exhibit C - Registration Rights Agreement
Exhibit D - Information Relating to Subsidiaries
(vi)
<PAGE>
ORION NEWCO SERVICES, INC.
as of January 13 , 1997
British Aerospace Holdings, Inc.
15000 Conference Center Drive
Chantilly, Virginia 20151
Matra Marconi Space UK Limited
The Grove
Warren Land
Stanmore, Middlesex, HA7 4LY
England
Dear Sirs:
ORION NEWCO SERVICES, INC., a Delaware corporation (herein, together
with its successors and assigns, called the "Company"), and ORION NETWORK
SYSTEMS, INC., a Delaware corporation ("ONS"), agree with you as follows:
1. Issuance of Debentures and the Subsidiary Guarantee.
---------------------------------------------------
1.1. The Debentures. The Company has duly authorized the issue
and sale of $60,000,000 in aggregate principal amount of its Convertible Junior
Subordinated Debentures Due February 1, 2012 (Interest Payable in Common Stock)
(such Debentures, together with all Debentures issued in substitution or
exchange therefor pursuant to this Agreement, are herein called the
"Debentures"). Each Debenture will bear interest from the date thereof on the
unpaid principal amount thereof at the rate specified therein, payable in Common
Stock semi-annually on the first day of February and the first day of August of
each year commencing with August 1, 1997, will mature on February 1, 2012, and
will be in substantially the form of Exhibit A attached hereto, with such
changes thereto, if any, as may be approved by you. Capitalized terms used and
not otherwise defined herein shall have the respective meanings assigned thereto
in Section 19.
1.2. Sale of Debentures.
------------------
(a) The Company will issue and sell to BAe and, subject to the
terms and conditions hereof, BAe will purchase from the Company at the Closing
provided for in Section 2, Debentures in the aggregate principal amount of
$50,000,000 at the purchase price of one hundred percent (100%) of such
principal amount.
<PAGE>
(b) The Company will issue and sell to Matra and, subject to
the terms and conditions hereof, Matra will purchase from the Company at the
Closing provided for in Section 2, Debentures in the aggregate principal amount
of $10,000,000 at the purchase price of one hundred percent (100%) of such
principal amount.
1.3. The Subsidiary Guarantee. The Guarantors, no later than
the Closing Date (as hereinafter defined), shall have taken all necessary action
to authorize the issuance of their unconditional guarantee of payment of the
Debentures as set forth in the Subsidiary Guarantee and to make their guarantee
of the Debentures the enforceable obligation it purports to be in accordance
with the terms of the Subsidiary Guarantee. The Subsidiary Guarantee is not
effective or enforceable against the Guarantors until the Senior Notes Reduction
Date. The Subsidiary Guarantee will become effective and enforceable against
each of the Guarantors on the Senior Notes Reduction Date without any further
action by any party.
2. Closing. The closing of the sale of the Debentures to be purchased
by each Purchaser (the "Closing") shall take place at the offices of Coudert
Brothers, 1114 Avenue of the Americas, New York, New York 10036 at 10:00 a.m.,
New York City time, (or at such other time and place as the parties hereto may
agree) on the date on which the Financing Transaction is closed provided that
each of the conditions in Section 4 have been satisfied prior to such date or
are to be satisfied concurrently with the Closing (the "Closing Date"). At the
Closing the Company will deliver to each Purchaser the Debentures to be
purchased by such Purchaser, in the form of a single Debenture (or such greater
number of Debentures in denominations of at least $100,000 as such Purchaser may
request), dated the Closing Date and registered in such Purchaser's name (or the
name of such Purchaser's nominee), against delivery by such Purchaser to the
Company of the purchase price therefor by the same method of payment utilized in
the closing of the Financing Transaction. If at the Closing the Company shall
fail to tender such Debentures to a Purchaser as provided in this Section 2, or
any of the conditions specified in Section 4 shall not have been fulfilled to
such Purchaser's satisfaction, such Purchaser shall, at its election, be
relieved of all further obligations under this Agreement, without thereby
waiving any other rights such Purchaser may have by reason of such failure or
such non-fulfillment.
3. Use of Proceeds. The proceeds of the sale of the Debentures will be
used to pay amount under the contracts for the construction of Orion 2 and Orion
3 and to provide working capital to the Company.
4. Conditions to Closing. Each Purchaser's obligation to purchase and
pay for the Debentures to be purchased by such Purchaser is subject to the
fulfillment to such Purchaser's satisfaction, prior to or at the Closing, of
each of the following conditions:
4.1. Representations and Warranties. The representations and
warranties of the Company, ONS and their respective Subsidiaries contained in
this Agreement shall be correct as of the date hereof and at the time of the
Closing. Alternatively, the Company (and if applicable ONS) shall have made, in
writing, for the benefit of you and any other holder of
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<PAGE>
Debentures, the same representations, warranties and agreements as made to
Morgan Stanley & Co. Incorporated ("Morgan") in the underwriting agreement with
respect to the sale of the Senior Notes (the "Underwriting Agreement"), except
that such representations, warranties and agreements shall be made in connection
with (and with reference to) the offer, sale, delivery and performance of the
Debentures and this Agreement (including, without limitation, the issuance and
delivery of Conversion Shares and Interest Shares as required under the
Debentures), rather than with respect to the offer, sale, delivery and
performance of the Senior Notes, as the context requires, and such
representations and warranties shall have been correct as of the date first made
and at the time of Closing. If the Company or ONS shall make for the benefit of
you and other holders of Debentures such representations, warranties and
agreements in the Underwriting Agreement, the representations, warranties and
agreements set forth in Sections 5.1 through 5.28 hereof shall not be updated
through the Closing Date. In either case, each Purchaser shall have received a
certificate, dated the Closing Date and signed by the Secretary of the Company,
certifying as to the correctness of the applicable representations and
warranties.
4.2. Exchange Agreement. The transactions provided for in the
Exchange Agreement shall be completed prior to or concurrently with the Closing.
4.3. Merger Transaction. The Merger Transaction shall be completed
prior to or concurrently with the Closing.
4.4. Financing Transaction. The Financing Transaction shall be
completed prior to or concurrently with the Closing.
4.5. Termination of Your Prior Obligations.
-------------------------------------
(a) As a condition to BAe's obligation to purchase and pay for
the Debentures to be purchased by BAe, the obligations of (i) BAC under the
Communications Satellite Capacity Agreement dated as of December 20, 1991 by and
between Orion Atlantic and BAC, and the Contingent Communications Satellite
Capacity Agreement, dated as of December 20, 1991, by and between, Orion
Atlantic and BAC and (ii) British Aerospace Plc ("PLC") under the Guarantee
Agreement dated as of February 19, 1992 between and among PLC, Orion Atlantic
and The Chase Manhattan Bank (National Association), as agent, (including,
without limitation, all payment obligations, guarantees or other credit support
obligations under or related to each such agreement) shall have been terminated
and be of no further force or effect and a termination of guarantee agreement
and termination of capacity agreements contracts, substantially in the form of
the exhibits attached to the Exchange Agreement, in respect of the termination
of the obligations of PLC and BAC, respectively, shall be executed and delivered
prior to or concurrently with the Closing.
(b) As a condition to Matra's obligation to purchase and pay
for the Debentures to be purchased by Matra, the obligations of (i) MCN Sat
Service S.A. under the Communications Satellite Capacity Agreement dated as of
December 20, 1991 by and between Orion Atlantic and MCN Sat Service S.A., (ii)
MCN Sat
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<PAGE>
US, Inc. under the Contingent Communications Satellite Capacity Agreement dated
as of December 20, 1991 by and between Orion Atlantic and MCN Sat US, Inc.,
(iii) Lagardere Groupe SCA (formerly Matra S.A.) under the Guarantee Agreement
dated as of February 19, 1992 between and among Lagardere Groupe SCA (formerly
Matra S.A.), Orion Atlantic and The Chase Manhattan Bank (National Association),
as agent, and (iv) Lagardere Groupe SCA under the Guaranty Agreement, dated
April 2, 1992 between Lagardere Groupe SCA (formerly Matra S.A.) and Orion
Atlantic (including, without limitation, all payment obligations, guarantees or
other credit support obligations under or related to each such agreement) shall
have been terminated and be of no further force or effect and a termination of
guarantee agreements and termination of capacity agreements, substantially in
the form of the exhibits attached to the Exchange Agreement, in respect of the
termination of the obligations of MCN Sat US, Inc. and MCN Sat Service S.A.,
respectively, shall be executed and delivered prior to or concurrently with the
Closing.
4.6. Subsidiary Guarantee. A Subsidiary Guarantee
substantially in the form of Exhibit B attached hereto, shall be executed and
delivered to each Purchaser by each of the Guarantors. The parties hereto agree
that the Subsidiary Guarantee may, at your sole option, be amended to
incorporate from any subsidiary guarantee provisions for the benefit of the
holders of the Senior Notes, any additional or, in your opinion, more favorable
terms than those appearing in the Subsidiary Guarantee, provided that, in no
event, will the Subsidiary Guarantee become effective prior to the Senior Notes
Reduction Date.
4.7. Registration Rights. (i) A Registration Rights Agreement
with respect to the Conversion Shares, the Interest Shares, and certain other
shares specified therein substantially in the form of Exhibit C attached hereto,
shall have been executed by each Purchaser and the Company and (ii) the Company
or ONS shall have obtained all agreements, amendments, consents or waivers, in
form and substance satisfactory to each Purchaser, from the holders of any
registration rights granted pursuant to any prior registration rights agreements
(or any such agreement entered into in connection with the Merger Transaction or
the Financing Transaction) with the Company or ONS as necessary to allow you
(and each other holder of Debentures) their registration rights in accordance
with the terms of the Registration Rights Agreement.
4.8. Opinions of Counsel. The Purchasers shall have received a
favorable opinion, dated the Closing Date and satisfactory in form and substance
to the Purchasers, from Hogan & Hartson L.L.P., special counsel for the Company,
which shall opine as to offer and sale of the Debentures. Such opinion shall be
deemed to be in form and substance satisfactory to the Purchasers if the opinion
provided is the same as the opinion provided by Hogan & Hartson L.L.P. to Morgan
under the Underwriting Agreement in connection with the offer and sale of the
Senior Notes, except that the opinion delivered to the Purchasers shall opine as
to the Debentures (including, without limitation, as to the issuance of the
Conversion Shares and Interest Shares) and the Subsidiary Guarantee in addition
to or in place of the Senior Notes and the guarantee thereof and shall refer to
the Purchasers and the Debentures (including the Conversion Shares and Interest
Shares), rather than to Morgan and the Senior Notes, as the context requires.
BAe shall also have received a favorable opinion, dated the Closing Date and
satisfactory in form and substance to BAe, from Hogan & Hartson L.L.P. which
shall opine as to the applicability of Section 16 of the Exchange Act to the
receipt of Conversion Shares and
-4-
<PAGE>
Interest Shares by BAe and the receipt by BAC of stock dividends on, and shares
issued upon conversion of, the Series C Preferred Stock.
4.9. Matra Incentive Payments. As a condition to Matra's
obligation to purchase and pay for the Debentures to be purchased by Matra, ONS,
shall, concurrently with the Closing, pay to Matra by wire transfer into a bank
account established by Matra in the United States of America, $13 million of the
payments required to be made under Articles 15.6.1 and 15.6.2 of the Second
Amended and Restated Purchase Contract, dated 26 September 1991, as amended, by
and between Orion Satellite Corporation, as general partner of Orion Atlantic
and Matra Marconi Space UK Limited.
4.10. Senior Notes. The material terms of the Senior Notes, as
set out on the Senior Notes Term Sheet, a copy of which has been furnished to
you, shall not have been amended or waived without your written approval. For
purposes of this Section 4.10, an increase in the size of the Senior Notes
offering shall not constitute an amendment or waiver requiring your written
approval.
4.11. Terms of the Merger; Capitalization. The material terms
of the Merger Transaction, as described in the Registration Statement, a copy of
which has been delivered to you and your special U.S. counsel, shall not have
been amended or waived without your written approval. Except for a proposed sale
of ONS Common Stock or Common Stock previously disclosed to you, and except as
specifically contemplated by the Registration Statement and the Senior Notes
Term Sheet, there shall have been no material changes to the capital structure
of either the Company or ONS and no material increase or decrease in the number
of outstanding shares of any class of capital stock of either ONS or the
Company, or in the number of (or terms of) any options, warrants, or other
rights to acquire any shares of any class of capital stock of either ONS or the
Company since January 10, 1997.
4.12. HSR Clearance. As a condition to BAe's obligation to
purchase and pay for the Debentures to be purchased by BAe, any waiting period
(including any extensions thereof) applicable to BAC's acquisition of Series C
Preferred Stock pursuant to the Exchange Agreement shall have expired or been
terminated.
4.13. Investment by Each Purchaser. The purchase of Debentures
by each Purchaser shall be completed concurrently with the purchase of
Debentures by the other Purchaser.
4.14. Termination.
(a) No Closing. Notwithstanding anything to the contrary
contained in this Agreement, this Agreement may be terminated and the
transactions contemplated hereby may be abandoned at any time prior to the
Closing:
-5-
<PAGE>
(i) By the mutual consent of all of the parties;
(ii) By a Purchaser at any time in the event of a
material breach or material default by the Company in the
observance or in the timely performance of any of its
obligations hereunder which is not waived by such Purchaser;
(iii) By the Company at any time in the event of a
material breach or material default by a Purchaser in the
observance or in the timely performance of any of such
Purchaser's obligations hereunder which is not waived by the
Company; or
(iv) If the Closing shall not have occurred on or
before April 30, 1997, without any further action by you or
the Company.
Except as provided in paragraph (iv) above, no termination under this Section
4.14 shall be effective unless and until the terminating party gives written
notice of such termination to the other parties.
(b) Failure to Notify. If the Closing shall not actually occur
on any date on which the Closing is scheduled to occur (the "Scheduled Closing
Date") (other than by reason of your failure to purchase Debentures duly
tendered), and the Company shall have failed to notify Coudert Brothers prior to
12:00 p.m., New York City time, on such Scheduled Closing Date that such Closing
has been postponed, the Company shall pay to each Purchaser by wire transfer of
immediately available funds to the bank account designated by such Purchaser (if
such Purchaser incurs any loss of funds or administrative costs, as compensation
for such loss of funds and administrative costs) an amount equal to interest on
the aggregate purchase price for the Debentures to have been purchased by such
Purchaser on such Scheduled Closing Date, at the effective rate of interest
equal to eight and three-quarters percent (8 3/4%) per annum, less the overnight
Federal funds rate, for each day from and including such Scheduled Closing Date
to and including the earlier of the date on which such Closing actually occurs
or the date on which the amount to be paid by such Purchaser as the purchase
price of such Debentures is available to such Purchaser for reinvestment,
provided, that the Company shall pay to such Purchaser in any case not less than
one day's interest at such specified rate.
5. Representations, Warranties and Agreements of the Company and ONS.
Each of ONS and the Company represents, warrants and agrees as follows:
5.1. Incorporation, Standing, etc. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has all requisite corporate power and authority to
own and operate its properties, to carry on its business as now conducted and as
presently proposed to be conducted, to enter into this Agreement, to issue and
sell the Debentures, to issue the Conversion Shares and the Interest Shares and
to carry out the terms of this Agreement and the Debentures. The Company has, by
all necessary corporate action, duly authorized the execution and delivery of
this Agreement
-6-
<PAGE>
and of the Debentures and the performance of its obligations hereunder and under
the Debentures (including, without limitation, the issuance and sale of the
Debentures and the issuance of the Conversion Shares and the Interest Shares).
5.2. Capital Stock.
-------------
(a) As of January 10, 1997, the authorized capital stock of
ONS consists of 40,000,000 shares of common stock, par value $0.01 per share
("ONS Common Stock"), and 1,000,000 shares of preferred stock, par value $0.01
per share ("ONS Preferred Stock"), of which 10,985,150 shares of ONS Common
Stock, 13,871 shares of ONS Series A 8% Cumulative Redeemable Convertible
Preferred Stock ("ONS Series A Preferred Stock") and 4,298 shares of ONS Series
B 8% Cumulative Redeemable Convertible Preferred Stock ("ONS Series B Preferred
Stock") are duly authorized and validly issued and outstanding, fully paid and
nonassessable. ONS has no other class of stock authorized or outstanding.
Options and warrants to purchase 947,330 shares of ONS Common Stock are
outstanding as of January 10, 1997, and when such options and warrants are
exercised and the prescribed exercise price paid, the shares of ONS Common Stock
issued with respect to such options and warrants will be duly authorized,
validly issued, fully paid and nonassessable. Options to purchase 350,666 shares
of ONS Preferred Stock, the terms of which are to be substantially identical to
the ONS Series A Preferred Stock and the ONS Series B Preferred Stock other than
the conversion price, are outstanding as of January 10, 1997. Except as set
forth above, or in the certificates of designations of the ONS Series A
Preferred Stock and ONS Series B Preferred Stock and related investment
agreements, as of January 10, 1997 there are no existing options, warrants or
rights to purchase or otherwise acquire from ONS Capital Stock of ONS of any
class, no outstanding securities of ONS that are convertible into shares of
Capital Stock of ONS of any class, and no options, warrants or rights to
purchase from ONS any such convertible securities, and ONS has no outstanding
contractual or other obligation to repurchase, redeem or otherwise acquire any
outstanding shares of its Capital Stock.
(b) ONS and the Company agree that prior to the Closing Date
there will be no material increase or decrease in the number of outstanding
shares of any class of Capital Stock of either ONS or the Company, or in the
number of (or terms of) any options, warrants, or other rights to acquire any
shares of any class of Capital Stock of either ONS or the Company except in
connection with a proposed sale of ONS Common Stock or Common Stock previously
disclosed to you, or as specifically contemplated by the Registration Statement
and the Senior Notes Term Sheet.
5.3. Subsidiaries. Attached hereto as Exhibit D is a complete
and correct list of the Subsidiaries of the Company and ONS, which Exhibit D
correctly sets forth as to each Subsidiary (a) its name, (b) the jurisdiction of
its organization and the jurisdictions, if any, in which it is qualified as a
foreign corporation or foreign partnership and (c) the percentage of its issued
and outstanding shares of common stock, shares of beneficial interest or general
and limited partnership interests owned by the Company, ONS or another
Subsidiary (specifying such
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other Subsidiary). Each corporate Subsidiary is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation, and each limited partnership Subsidiary is duly formed, validly
existing and in good standing under the laws of its jurisdiction of
organization. Each Subsidiary has all requisite power and authority to own and
operate its properties and to carry on its business as now conducted and as
presently proposed to be conducted. All the outstanding equity interests or
partnership interests of, or shares of capital stock of, or shares of beneficial
interest in, each Subsidiary are duly authorized, validly issued, fully paid and
nonassessable, and all such equity interests, partnership interests or shares
indicated in Exhibit D as owned by the Company, ONS or by another Subsidiary are
so owned beneficially and of record by the Company or such other Subsidiary,
free and clear, except as described in the Registration Statement, of any Lien.
Upon the completion of the Merger Transaction, Exhibit D shall be amended to
include ONS as a Wholly Owned Subsidiary of the Company.
5.4. Qualification. The Company and ONS are, and each of the
Subsidiaries listed on Exhibit D is, duly qualified and in good standing as a
foreign corporation or partnership authorized to do business in the
jurisdictions indicated with respect to it in Exhibit D. Failure of the Company,
ONS or any of their respective Subsidiaries to so qualify in any other
jurisdiction would not, in any case or in the aggregate, have a Material Adverse
Effect.
5.5. Business; Financial Statements. The Company has delivered
to you complete and correct copies of (a) the annual report to stockholders of
ONS for the fiscal year ended December 31, 1995 (the "Annual Report"), (b) the
annual report to the Commission of ONS on Form 10-K for the fiscal year ended
December 31, 1995 (the "10-K") and (c) the report to the Commission on ONS for
the fiscal quarter ended September 30, 1996 (the "10-Q"). The Annual Report and
the 10-K correctly describe, as of their respective dates, the business then
conducted by ONS and its Subsidiaries and proposed to be conducted by the
Company, ONS and the Subsidiaries. The 10-K includes the consolidated financial
statements of ONS and the Subsidiaries for each of the fiscal years ended
December 31, 1994 and 1995 accompanied by the report thereon of Ernst & Young
LLP, certified public accountants. All of said financial statements (including
in each case the related schedules and notes) fairly present in all material
respects the consolidated financial position of ONS and the Subsidiaries as of
the respective dates specified in the 10-K and the consolidated results of their
operations and cash flows for the respective periods so specified and have been
prepared in accordance with GAAP consistently applied throughout the periods
involved except as set forth in the notes thereto and subject in the case of
unaudited financial statements to normal recurring audit adjustments.
5.6. Solvency. ONS and its Subsidiaries, considered as one enterprise,
are Solvent and immediately after the Closing Date, the Company and its
Subsidiaries, considered as one enterprise, will be Solvent.
5.7. Authorization of Agreement. This Agreement has been duly
authorized, executed and delivered by each of the Company and ONS.
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5.8. Authorization of Common Stock. Upon issuance and delivery of the
Debentures in accordance with this Agreement, the Debentures will be convertible
at the option of the holders thereof for shares of Common Stock in accordance
with the terms of the Debentures and this Agreement; the Conversion Shares and
the Interest Shares have been duly and validly authorized and reserved for
issuance upon payment of interest and upon conversion by all necessary corporate
action of the Company, and such shares, when issued upon such conversion or as a
payment of interest in accordance with the terms of the Debentures and this
Agreement, will be duly and validly issued and will be fully paid and
non-assessable; no holder of such shares will be subject to personal liability
solely by reason of being such a holder; and the issuance of such shares upon
conversion or as a payment of interest in accordance with the terms of the
Debentures and this Agreement will not be subject to the preemptive or other
similar rights of any security holder of the Company arising by operation of
law, or under the Certificate of Incorporation or bylaws of the Company or under
any agreement to which the Company is a party or by which the Company is bound.
5.9. Absence of Defaults and Conflicts. None of the Company,
ONS or any of their respective Subsidiaries are in violation of their respective
certificates of incorporation, bylaws or other charter documents or is in
default in the performance or observance of any material obligation, agreement,
covenant or condition contained in any contract, indenture, mortgage, loan
agreement, note, lease or other instrument to which any of them is a party or by
which any of them may be bound, or to which any of the property or assets of the
Company, ONS or any of their Subsidiaries is subject (collectively, "Agreements
and Instruments") except for such defaults that would not result in a Material
Adverse Effect; and the execution, delivery and performance of this Agreement
and any other Agreement or Instrument entered into or issued or to be entered
into or issued by the Company, ONS or any of their respective Subsidiaries in
connection with the transactions contemplated hereby or thereby, and the
consummation of the transactions contemplated herein or therein (including the
issuance and sale of the Debentures, the use of the proceeds from the sale of
the Debentures and the issuance of the Conversion Shares and Interest Shares)
and compliance by the Company with its obligations hereunder and thereunder,
have been duly authorized by all necessary corporate action and do not and will
not, whether with or without the giving of notice or passage of time or both,
conflict with or constitute a breach of, or default or Repayment Event (as
defined below) under, or result in the creation or imposition of any lien,
charge or encumbrance upon any property or assets of the Company, ONS or any of
their respective Subsidiaries pursuant to the Agreements and Instruments, except
for such conflicts, breaches, defaults, Repayment Events or liens, charges or
encumbrances that would not result in a Material Adverse Effect, nor will such
action result in any violation of the provisions of the Certificate of
Incorporation, bylaws or other charter documents of the Company, ONS or any of
their respective Subsidiaries or any applicable law, statute, rule, regulation,
judgment, order, writ or decree of any government, government instrumentality or
court, domestic or foreign, having jurisdiction over the Company, ONS or any of
their respective Subsidiaries or any of their assets or properties, except for
such violations of law, statutes, rules, regulations, judgments, orders, writs
or decrees that would not result in a Material Adverse Effect. As used herein, a
"Repayment Event" means any event or condition which gives the holder of any
note, debenture or other evidence of indebtedness (or
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any Person acting on such holder's behalf) the right to require the repurchase,
redemption or repayment of all or a portion of such indebtedness by the Company,
ONS or any of the Subsidiaries.
5.10. Absence of Labor Dispute. No labor dispute with the
employees of the Company, ONS or any of the Subsidiaries exists or, to the best
of the Company's knowledge, is threatened and the Company has not received
notice of any existing or threatened labor disturbance by the employees of any
of the principal suppliers, manufacturers, customers or contractors of the
Company, ONS or any of their respective Subsidiaries, which, in either case, may
reasonably be expected to result in a Material Adverse Effect.
5.11. Absence of Proceedings. There is no action, suit or
proceeding before or by any court or governmental agency or body, domestic or
foreign, now pending or, to the best of the Company's knowledge, threatened,
against or affecting the Company, ONS or any of their respective Subsidiaries or
any of their respective officers or directors in their capacity as such or any
of their respective property or assets, that is required to be disclosed in the
Registration Statement (other than as disclosed therein), or which might
reasonably be expected to result in any Material Adverse Effect, or which might
reasonably be expected to have a Material Adverse Effect on the properties or
assets thereof or the consummation of the Financing Transaction, the
transactions contemplated by this Agreement or the transactions contemplated in
the Registration Statement, or the performance by the Company, ONS or any of
their respective Subsidiaries of any obligation hereunder or thereunder; the
aggregate of all pending legal or governmental proceedings to which the Company,
ONS or any of their respective Subsidiaries is a party or of which any of their
respective property or assets is the subject which are not described in the
Registration Statement, including ordinary routine litigation incidental to the
business, could not reasonably be expected to result in a Material Adverse
Effect. Without limiting the foregoing, except as otherwise set forth in the
Registration Statement and in Schedule II hereto, there are no legal or
governmental proceedings, including rulemaking proceedings of general
applicability in the industry or industries in which the Company, ONS or any of
their Subsidiaries operate, by or before the Federal Communications Commission
(the "FCC"), any state public utility commission or similar state governmental
agency ("PUC") or any international body formed by treaty that is responsible
for coordinating and registering orbital slots to satellites, including but not
limited to, the International Telecommunication Union ("ITU"), now pending or,
to the Company's best knowledge, threatened or contemplated, which in each case
might reasonably be expected to result in any Material Adverse Effect. In
addition, all applications, reports and other filings required to be filed
through the Execution Date with the FCC, the PUC, the ITU or any other
governmental or international authority, have been duly and timely filed and all
such applications, reports and other filings required to be filed by the Closing
Date will have been filed prior to the Closing Date.
5.12. Possession of Licenses and Permits. The Company, ONS and
the Subsidiaries possess such permits, certificates, licenses, approvals,
consents, orders and other authorizations (collectively, "Governmental
Licenses") issued by the appropriate Federal, state, local or foreign regulatory
agencies or bodies necessary to conduct the business now operated
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by them, except for such permits, certificates, licenses, approvals, consents,
orders and other authorizations the absence of which would not have a Material
Adverse Effect; the Company, ONS and their respective Subsidiaries are in
compliance with the terms and conditions of all such Governmental Licenses,
except where the failure so to comply would not, individually or in the
aggregate, have a Material Adverse Effect; all of the Governmental Licenses are
valid and in full force and effect, except where the invalidity of such
Governmental Licenses or the failure of such Governmental Licenses to be in full
force and effect would not have a Material Adverse Effect; and none of the
Company, ONS or any of their respective Subsidiaries has received any notice of
proceedings relating to the revocation, withdrawal, cancellation, modification,
suspension or non-renewal of any such Governmental Licenses which, individually
or in the aggregate, if the subject of an unfavorable decision, ruling or
finding, would result in a Material Adverse Effect.
5.13. Environmental Laws. None of the Company, ONS or any of
their respective Subsidiaries is in violation of any Federal, state, local or
foreign statute, law, rule, regulation, ordinance, code, policy or rule of
common law and any judicial or administrative interpretation thereof, including
any judicial or administrative order, consent, decree or judgment, relating to
pollution or protection of human health, the environment (including, without
limitation, ambient air, surface water, groundwater, land surface or subsurface
strata) or wildlife, including, without limitation, laws and regulations
relating to the release or threatened release of chemicals, pollutants,
contaminants, wastes, toxic substances, hazardous substances, petroleum or
petroleum products (collectively, "Hazardous Materials") or to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of Hazardous Materials (collectively, "Environmental Laws"), except for
such violations as would not, individually or in the aggregate, result in a
Material Adverse Effect. None of the Company, ONS or any of their respective
Subsidiaries has received any notice from any governmental authority or third
party of an asserted claim under any Environmental Law. The Company, ONS and
their respective Subsidiaries have all permits, authorizations and approvals
required under any applicable Environmental Laws and are each in compliance with
their requirements, except for such permits, authorizations and approvals the
absence of which would not, individually or in the aggregate, result in a
Material Adverse Effect. There are no pending or, to the Company's knowledge,
threatened administrative, regulatory or judicial actions, suits, demands,
demand letters, claims, liens, notices of noncompliance or violation,
investigation or proceedings relating to any Environmental Law against the
Company, ONS or any of their respective Subsidiaries, except for such actions,
suits, demands, demand letters, claims, liens, notices of noncompliance or
violation, investigation or proceedings which if decided adversely to the
Company, ONS or any of their respective Subsidiaries would not, individually or
in the aggregate, result in a Material Adverse Effect. To the best of the
Company's knowledge, there are no events or circumstances that might reasonably
be expected to form the basis of any order for clean-up or remediation, or an
action, suit or proceeding by any private party or governmental body or agency,
against or affecting the Company, ONS or any of their respective Subsidiaries
relating to any Hazardous Materials or the violation of any Environmental Laws.
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5.14. No Violations of Laws. None of the Company, ONS or any of their
respective Subsidiaries has violated any foreign, Federal or state law relating
to the discrimination in the hiring, promotion or pay of employees nor any
applicable Federal or state wages and hours laws nor any other Federal or State
law concerning the conditions or the terms of employment of employees by an
employer, nor any provisions of ERISA or the rules and regulations promulgated
thereunder nor any provisions of the U.S. Communications Act of 1934, as
amended, nor the rules or regulations promulgated thereunder, nor any applicable
state law or regulation concerning intra-state telecommunications nor any
foreign law or regulation concerning international communications (such state
and foreign laws and regulations, along with the U.S. Communications Act of
1934, as amended, and the regulations thereunder being referred to herein as the
"Communications Laws"), except for such violations as, individually or in the
aggregate, will not have a Material Adverse Effect.
5.15. Internal Accounting Controls. The books, records and
accounts of the Company, ONS and their respective Subsidiaries accurately and
fairly reflect, in all material respects, in reasonable detail, the transactions
in and dispositions of the assets of the Company, ONS and their respective
Subsidiaries. The Company, ONS and each of their respective Subsidiaries
maintain a system of internal accounting controls sufficient to provide
reasonable assurance that (i) transactions are executed in accordance with
management's general or specific authorizations; (ii) transactions are recorded
as necessary to permit preparation of financial statements in conformity with
GAAP and to maintain asset accountability; (iii) access to assets is permitted
only in accordance with management's general or specific authorization; and (iv)
the recorded amount for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
5.16. Tax Returns and Payments. The Company, ONS and each of
their respective Subsidiaries have filed all income tax returns required by law
to be filed by them and have paid all taxes shown to be due and payable on such
returns and all other taxes, assessments, fees and other governmental charges
levied upon them and their respective properties, assets, income and franchises
which are due and payable, to the extent such taxes and assessments have become
due and payable and before they have become delinquent, except for any taxes and
assessments (i) the amount of which is not individually or in the aggregate
Material or (ii) the amount, applicability or validity of which is currently
being contested in good faith by appropriate proceedings and with respect to
which the Company, ONS or any of their respective Subsidiaries, as the case may
be, has established adequate reserves in accordance with GAAP. The charges,
accruals and reserves on the books of the Company, ONS and any of their
respective Subsidiaries in respect of Federal, state and foreign income taxes
for all fiscal periods are adequate in the reasonable opinion of the Company
and, to the best of the Company's knowledge, there are no additional assessments
for such periods or any basis therefor.
5.17. Indebtedness. None of the Company, ONS or any of their
respective Subsidiaries is in default and no waiver of default is currently in
effect, in the payment of any principal, interest or premium on any Indebtedness
of the Company, ONS or any such Subsidiary and no event or condition exists with
respect to any Indebtedness of the Company,
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ONS or any such Subsidiary the outstanding principal amount of which exceeds
$1,000,000 that would permit (or that with notice or the lapse of time, or both,
would permit) one or more Per- sons to cause such Indebtedness to become due and
payable before its stated maturity or before its regularly scheduled dates of
payment.
5.18. Title to Properties; Liens. The Company, ONS and their
respective Subsidiaries each have good and marketable title to all of their
respective properties and assets, including such properties and assets which are
reflected in the financial statements as at December 31, 1995 referred to in
Section 5.5 (except for such properties and assets disposed of since such date
in the ordinary course of business and except as set forth in the Registration
Statement), free and clear of all Liens except as set forth in the Registration
Statement, except for minor imperfections of title and encumbrances, if any,
which do not materially impair the use thereof in the operation of the business
of the Company, ONS or any of their respective Subsidiaries and except for
Permitted Liens.
5.19. Patents, Trademarks, Authorizations, etc. The Company,
ONS and their respective Subsidiaries own, possess or have the right to use
(without any known conflict with the rights of others) all patents, trademarks,
service marks, trade names, copyrights, licenses and authorizations which are
necessary to the conduct of their respective businesses as conducted on the date
hereof and which the failure to own, possess or have the right to use might
result in a Material Adverse Effect.
5.20. Governmental Consents; Exercise of Voting Rights, etc.
(a) None of the nature of the Company, ONS or of any of their respective
Subsidiaries, nor any of their respective businesses or properties, nor any
relationship between the Company, ONS or any such Subsidiary and any other
Person, nor any circumstance in connection with the offer, issue, sale or
delivery of the Debentures, is such as to require any consent, approval or
authorization of, or any notice to, of filing, registration or qualification
with, any court or administrative or governmental body by or on behalf of the
Company, ONS or any Subsidiary in connection with the execution and delivery of
this Agreement or the offer, issue, sale or delivery of the Debentures, the
Interest Shares and the Conversion Shares or fulfillment of, or compliance with,
the terms and provisions of this Agreement or of the Debentures, except for (1)
filings of reports pursuant to Section 13 or 15(d) of the Exchange Act, (2)
filings under state securities or Blue Sky laws, (3) filings under the HSR Act.
(b) No Applicable Law and no provision of the certificate of
incorporation, bylaws or other governing documents of the Company, ONS or any of
their respective Subsidiaries is such as to require or would give rise to any
limitation of any type on your right to vote (or consent with respect to) any
securities of ONS or the Company owned by you as of the Execution Date or that
will be owned by you as a result of (A) the Merger Transaction, (B) consummation
of the transactions contemplated by the Exchange Agreement or (C) the Closing
under this Agreement (including any Conversion Shares or Interest Shares
received hereunder).
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5.21. Offer of Debentures. Neither ONS nor the Company has either
directly or indirectly or through an agent directly or indirectly offered the
Debentures or any part thereof or any similar securities for sale to, or
solicited any offer to buy any of the same from, or otherwise approached or
negotiated in respect thereof with, anyone other than you. None of ONS, the
Company nor anyone authorized or employed to act on its behalf of either of them
has taken or will take any action which would subject the issuance and sale of
the Debentures to the provisions of Section 5 of the Securities Act or to the
registration or qualification requirements of any securities or Blue Sky law of
any applicable jurisdiction.
5.22. Federal Reserve Regulations. Neither the Company nor any
of its Subsidiaries will, directly or indirectly, use any of the proceeds of the
sale of the Debentures for the purpose of purchasing or carrying any "margin
security" within the meaning of Regulation G of the Board of Governors of the
Federal Reserve System (12, C.F.R. 207, as amended), or any "security that is
publicly-held" within the meaning of Regulation T of such Board (12 C.F.R. 220,
as amended), or otherwise take or permit to be taken any action which would
involve a violation of such Regulation G or Regulation T or Regulation X (12
C.F.R. 224, as amended) or any other regulation of such Board. No Indebtedness
being reduced or retired out of the proceeds of the sale of the Debentures, if
any, was incurred for the purpose of purchasing or carrying any "margin
security" within the meaning of such Regulation G or any "security that is
publicly-held" within the meaning of such Regulation T. None of the Company, ONS
or any of their Subsidiaries owns or has any present intention of acquiring
directly or indirectly any such margin security or any such security that is
publicly-held.
5.23. Investment Company Act. The Company is not, and upon the
issuance and sale of the Debentures as herein contemplated and the application
of the net proceeds therefrom will not be, an "investment company" or an entity
"controlled" by an "investment company" as such terms are defined in the
Investment Company Act of 1940, as amended (the "Investment Company Act"), nor
is the Company an "open-ended investment trust," "unit investment trust" or
"face-amount certificate company" that is or is required to be registered under
Section 8 of the Investment Company Act.
5.24. Public Utility Holding Company Act. The Company is not a
"holding company," or a "subsidiary company" of a "holding company," or an
"affiliate" of a "holding company" or of a "subsidiary company" of a "holding
company," as such terms are defined in the Public Utility Holding Company Act of
1935, as amended.
5.25. Compliance with ERISA. (a) The Company, ONS and each
ERISA Affiliate have operated and administered each Plan in compliance with all
applicable laws except for such instances of noncompliance as have not resulted
in and could not reasonably be expected have in a Material Adverse Effect. None
of the Company, ONS or any ERISA Affiliate has incurred any liability pursuant
to Title I or IV of ERISA or the penalty or excise tax provisions of the Code
relating to employee benefit plans (as defined in Section 3 of ERISA), and no
event, transaction or condition has occurred or exists that could reasonably be
expected to result in the incurrence of any such liability by the Company, ONS
or any ERISA Affiliate, or in the
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imposition of any Lien on any of the rights, properties or assets of the
Company, ONS or any ERISA Affiliate, in either case pursuant to Title I or IV of
ERISA or to such penalty or excise tax provisions or to Section 401(a)(29) or
412 of the Code, other than such liabilities or Liens as would not be
individually or in the aggregate Material.
(b) The present value of the aggregate benefit liabilities
under each of the Plans (other than Multiemployer Plans), determined as of the
end of such Plan's most recently ended plan year on the basis of the actuarial
assumptions specified for funding purposes in such Plan's most recent actuarial
valuation report, did not exceed the aggregate current value of the assets of
such Plan allocable to such benefit liabilities. The term "benefit liabilities"
has the meaning specified in Section 4001 of ERISA and the terms "current value"
and "present value" have the meaning specified in Section 3 of ERISA.
(c) The Company, ONS and the ERISA Affiliates have not
incurred withdrawal liabilities (and are not subject to contingent withdrawal
liabilities) under Section 4201 or 4204 of ERISA in respect of Multiemployer
Plans that individually or in the aggregate are Material.
(d) The execution and delivery of this Agreement and the
issuance and sale of the Debentures hereunder will not involve any transaction
that is subject to the prohibitions of Section 406 of ERISA or in connection
with which a tax could be imposed pursuant to Section 4975(c)(1)(A)-(D) of the
Code. The representation by the Company and ONS in the first sentence of this
Section 5.25(d) is made in reliance upon and subject to (i) the accuracy of the
representation in Section 6.2 by each Purchaser as to the sources of the funds
to be used to pay the purchase price of the Debentures to be purchased by such
Purchaser and (ii) the assumption, made solely for the purpose of making such
representation, that Department of Labor Interpretive Bulletin 75-2 with respect
to prohibited transactions remains valid in the circumstances of the
transactions contemplated herein.
5.26. Disclosure. The Registration Statement, including the
financial statements included therein and any document incorporated therein by
reference, complies or will comply as to form with all applicable provisions of
the Securities Act in all material respects. As of its effective date, the
Registration Statement does not or will not contain any untrue statements of a
material fact or omit to state a material fact necessary in order to make the
statements contained therein not misleading. This Agreement and the other
documents certificates, instruments or reports delivered to you under this
Agreement, taken as a whole, do not contain any untrue statements of material
facts or omit to state material facts necessary in order to make the statements
contained herein or therein, in the light of the circumstances under which they
were made, not misleading. There is no fact known to either ONS or the Company
which has had a Material Adverse Effect through the Execution Date or in the
future (so far as the Company and ONS can now reasonably foresee and excluding
the effect of general economic and industry conditions) may have a Material
Adverse Effect which has not been or will not be set forth or reflected in the
Registration Statement. The representations contained in this Section 5.26 shall
also apply to any amendments to the Registration Statement and to the
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registration statement declared effective by the Commission with respect to the
Financing Transaction and to any amendments to any such registration statement.
5.27. HSR Act Filings. The Company hereby agrees to promptly
make such filings or other submissions under the HSR Act as may be required with
respect to the conversion of any Debenture, the payment of any Interest Shares
or with respect to the redemption or repurchase of any Debenture or in
connection with any Mandatory Sale of Underlying Shares. The Company hereby
agrees to use its best efforts to respond to requests for additional information
relating to such filings or submissions. Exercise by the Company of its rights
under Section 11 of this Agreement or otherwise hereunder shall be subject to
compliance with the HSR Act as applicable.
5.28. Certificate of Incorporation (a) The Company hereby
agrees that, notwithstanding its rights under its Certificate of Incorporation,
it shall not exercise whatever rights it may have under Article Tenth of its
Certificate of Incorporation (as presently in effect and as the same may be
amended, supplemented or otherwise changed, "Article Tenth"), to redeem (i) any
Debentures, (ii) any Conversion Shares, (iii) any Interest Shares, (iv) any
share of Series C Preferred Stock, (v) any securities received as stock
dividends or redemption payments on any share of Series C Preferred Stock
pursuant to the Certificate of Designations, Rights and Preferences with respect
to the Series C Preferred Stock (the "Series C Designation") or (vi) any
securities received upon any conversion of any share of Series C Preferred Stock
(collectively, the "Subject Securities") held by you unless (x) you shall have
received a copy of an opinion addressed to the Company, reasonably acceptable to
you, of Verner, Liipfert, Bernard, McPherson and Hand Chartered or other U.S.
regulatory counsel reasonably acceptable to you, to the effect that such
redemption is necessary to prevent a loss or secure reinstatement of a franchise
of the type specified in Article Tenth and (y) you have received an Officers'
Certificate to the effect that such loss or failure to secure such reinstatement
would have a Material Adverse Effect. The Company agrees to exercise its right
of redemption only to the minimum extent necessary to avoid such loss or to
secure such reinstatement. The Company presently has no knowledge of any grounds
for requiring any redemption under Article Tenth with respect to you.
(b) If the Company exercises its right of redemption pursuant
to Article Tenth, in addition to paying you the redemption amount under Article
Tenth, it shall pay you the positive difference, if any of (i) the highest
dollar value (adding cash and the value of any securities received) you would
have received with respect to the Subject Securities had they been redeemed
under applicable provisions of this Agreement or the Series C Designation, as
the case may be, as at the date they were instead redeemed under Article Tenth
less (ii) the dollar value (adding cash and the value of any securities
received) actually received by you as a result of any redemption pursuant to
Article Tenth. For purposes of this Section 5.28, the "value of any securities
received" shall be equal to the "Closing Price" of such securities as "Closing
Price" is defined in Article Tenth. Notwithstanding Article Tenth, the payment
to be received by you with respect to any Subject Securities redeemed under
Article Tenth will be either (i) all in cash
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or (ii) otherwise in the form provided with respect to redemptions under this
Agreement or the Series C Designation, as applicable, for the Subject Securities
redeemed. Notwithstanding anything in this Agreement to the contrary, the
provisions of this Section 5.28 shall survive until the first date after the
Closing Date as of which you do not own any Subject Security.
6. Representations, Warranties and Agreements of Purchasers.
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6.1. Investment Representations. Each Purchaser represents and
warrants (for itself and not the other Purchaser) that it is purchasing the
Debentures for its own account for investment and not with a view to the resale
or distribution of the Debentures or any part thereof or any Conversion Shares
or Interest Shares, and that such Purchaser has no present intention of
distributing any of the same; provided, however, that the disposition of such
Purchaser's property shall at all times be within such Purchaser's control. Each
Purchaser understands that the Debentures have not been registered under the
Securities Act, and that upon issuance the Conversion Shares and the Interest
Shares will not be registered under the Securities Act, and that the Debentures,
the Conversion Shares and the Interest Shares may be resold only if registered
pursuant to the provisions of the Securities Act or if an exemption from
registration is available.
6.2. ERISA. Each Purchaser represents (for itself and not the
other Purchaser) that it is not acquiring the Debentures or any interest therein
with assets allocated to any separate account maintained by it in which any
employee benefit plan (or its related trust) has any interest. As used in this
Section 6.2, "separate account" and "employee benefit plan" shall have the
respective meanings assigned thereto in Section 3 of ERISA.
6.3. HSR Act Filings. You hereby agree to promptly make such
filings or other submissions under the HSR Act as may be required with respect
to the conversion of any Debenture, the receipt of any Interest Shares or with
respect to the redemption or repurchase of any Debenture or in connection with
any Mandatory Sale of Underlying Shares. You hereby agree to use your best
efforts to respond to requests for additional information relating to such
filings or submissions. Exercise by you of your rights under Section 11 of this
Agreement or otherwise hereunder shall be subject to compliance with the HSR Act
as applicable.
7. Accounting; Financial Statements; Other Information.
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7.1. Accounting; Financial Statements and Other Information. The
Company will maintain, and will cause each of its Subsidiaries to maintain, a
system of accounting established and administered in accordance with GAAP. The
Company will deliver (in duplicate) to you, so long as you shall hold any
Debentures:
(a) as soon as practicable, and, in any case, within
ninety (90) days after the close of each fiscal year, two (2) copies of
the consolidated balance sheet of the Company and its Subsidiaries
setting forth their consolidated financial condition as at the
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end of such fiscal year, together with consolidated statements of
income, stockholders' equity and cash flows of the Company and its
Subsidiaries for such fiscal year, all in reasonable detail, such
consolidated balance sheet and statements of income, stockholders'
equity and cash flows to be accompanied by an opinion with respect
thereto of independent public accountants of recognized national
standing, who may be the present regular auditors of the books of the
Company, which opinion (i) shall state that such financial statements
present fairly the consolidated financial position and the consolidated
results of operations and cash flows of the Company, in conformity with
GAAP applied on a consistent basis during the period (except for
changes in application in which such accountants concur), and that the
examination of such accountants in connection with such financial
statements has been made in accordance with generally accepted auditing
standards and, accordingly, included such tests of the accounting
records and such other auditing procedures as were considered necessary
in the circumstances, or (ii) shall, using appropriate language that at
the time shall have been adopted by the American Institute of Certified
Public Accountants and generally employed by the accounting profession,
certify in substance that such financial statements present fairly the
consolidated financial position and the consolidated results of
operations and cash flows of the Company, in conformity with GAAP
applied on a consistent basis during the period (except for changes in
application in which such accountants concur), and that the examination
of such accountants in connection with such financial statements has
been made in accordance with generally accepted auditing standards,
and, accordingly, included such tests of the accounting records and
such other auditing procedures as were considered necessary in the
circumstances; provided that, the delivery within the time period
specified above (or, if later, within five (5) days of timely filing
with the Commission) of the Company's Annual Report on Form 10-K
(together with the Company's annual report to shareholders, if any,
prepared pursuant to Rule 14a-3 under the Exchange Act) for any fiscal
year prepared in compliance with the requirements therefor and filed
with the Commission shall be deemed to satisfy the requirements of this
Section 7.1(a) for such fiscal year;
(b) as soon as practicable and, in any case, within
sixty (60) days after the end of the first, second and third quarterly
accounting periods in each fiscal year, an unaudited consolidated
balance sheet of the Company and its Subsidiaries as at the end of such
accounting period, and unaudited consolidated statements of income,
stockholders' equity and cash flows of the Company and its Subsidiaries
for such period and for the fiscal year to date, setting forth in each
case in comparative form the figures for the corresponding periods a
year earlier, all in reasonable detail, prepared and certified by the
Treasurer or the Controller or any Vice President of the Company as
presenting fairly such financial condition and results of operations,
subject to changes resulting from year-end audit adjustments; provided
that, delivery within the time period specified above (or, if later,
within five (5) days of timely filing with the Commission) of copies of
the Company's Quarterly Report on Form 10-Q for any quarterly
accounting period prepared in compliance with the requirements thereof
and filed with the
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Commission shall be deemed to satisfy the requirements of this Section 7.1(b)
for such quarterly accounting period;
(c) promptly after the submission thereof to the
Company, copies of all communications prepared by independent
accountants regarding matters of material weakness of internal
accounting controls submitted to the Company's senior management, its
Board of Directors or the audit committee of its Board of Directors, as
contemplated by American Institute of Certified Public Accountants
Statement of Auditing Standards No. 60;
(d) promptly upon distribution thereof, copies of
all such financial or other statements, including proxy statements and
reports, as the Company shall send to the holders of its Common Stock
or the holders of the Senior Notes;
(e) promptly after filing thereof, copies of all
regular and periodic reports and registration statements which the
Company may file with the Commission, other than registration
statements on Form S-8;
(f) promptly upon receipt thereof, copies of any
notices received from any administrative official or agency relating to
any order, ruling, statute or other law or information which might have
or cause a Material Adverse Effect; and
(g) promptly upon request therefor, such information
as to the business and properties of the Company as you may from time
to time reasonably request.
Notwithstanding any other provision of this Section 7.1, the Company will be
required to deliver to BAe and Matra only, and not to any other holder of
Debentures, the materials specified in paragraphs (a), (b), (c), (f) and (g).
The Company will deliver (in duplicate) to each holder of Debentures (other than
BAe and Matra) the materials specified in paragraphs (d) and (e).
7.2. Company Certificate. Each set of financial statements
delivered pursuant to Section 7.1(a) or Section 7.1(b) will be accompanied by a
certificate, signed by one of the Responsible Officers, stating that a review of
the affairs and activities of the Company during the applicable period has been
made by authorized employees of the Company and that, to the knowledge and
belief of such officer, there did not exist at any time during such period any
condition or event which constitutes an Event of Default under any of the
provisions of this Agreement or the Debentures; provided, however, that if to
the knowledge of such officer any such Event of Default shall have occurred,
such certificate shall so specify and shall state whether such Event of Default
has been cured or is continuing and, if continuing, what steps the Company
proposes to take to cure such Event of Default and the time necessary to cure
such Event of Default.
7.3. Accountant's Certificate. Each set of annual financial
statements delivered pursuant to Section 7.1(a) will be accompanied by a report
of the independent public
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accountants who have certified or reported on such financial statements, stating
that in making their examination necessary to express an opinion on such
financial statements, such accountants have obtained no knowledge of any
condition or event which constitutes an Event of Default or a Potential Event of
Default or, if such accountants have any such knowledge that any such condition
or event then exists, specifying the nature and period of existence thereof.
Each suchreport may in addition state that such examination was not directed
primarily toward obtaining knowledge of any such condition or event referred to
in the preceding sentence.
8. Inspection.
----------
(a) Pre-Closing Access. From the Execution Date
through the Closing Date, the Company and ONS shall each: (i) upon
reasonable prior notice, permit each Purchaser and its authorized
representatives, counsel, accountants and agents to have reasonable
access to its properties, records and documents, and (ii) furnish to
each Purchaser and its authorized representatives, counsel, accountants
and agents such financial records and other documents with respect to
the Company, ONS or any Subsidiary as such Purchaser may reasonably
request; provided, however, that in no event shall the Company be
obligated to comply with any of the foregoing if such compliance will
give any Person access to any information which the Company, ONS or any
Subsidiary is required by contract or otherwise to keep confidential;
and provided, further, that with respect to such confidential
information, the Company or ONS shall, at its expense, upon a
Purchaser's specific request, use its best efforts to seek the consent
of such Persons as may be necessary to permit the requesting party
access to such information without violating the confidential nature
thereof.
(b) Post-Closing Access. While you hold any
Debentures, your representative or representatives may visit and
inspect any of the properties of the Company or any of its Subsidiaries
as follows:
(i) No Default. If no Potential Event of
Default or Event of Default exists, then at your expense and
upon reasonable prior notice to the Company, you may visit the
principal executive offices of the Company to discuss the
affairs, finances and accounts of the Company and its
Subsidiaries with the Company's officers, and, with the
consent of the Company (which consent will not be unreasonably
withheld), visit the other offices and properties of the
Company and each Subsidiary, all at such reasonable times and
as often as may be reasonably requested in writing; and
(ii) Default. If a Potential Event of
Default or Event of Default exists, then at the expense of the
Company you may visit and inspect any of the offices or
properties of the Company or any Subsidiary to examine all
their respective books of account, records, reports and other
papers, to make copies and extracts therefrom, and to discuss
their respective affairs, finances and accounts with their
respective officers and independent public accountants (and
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by this provision the Company authorizes said accountants to discuss
the affairs, finances and accounts of the Company and its
Subsidiaries), all at such reasonable times and as often as may be
requested.
The rights set forth in this Section 8(b) are granted to BAe and Matra only and
not to any other holders of Debentures.
9. Confidential Treatment. You agree that any information concerning
the Company, ONS or any of their respective Subsidiaries obtained by you under
the provisions of Section 7 or 8 or which was furnished to you in connection
with the negotiation of the transactions contemplated hereby and which in any
case is not contained in a report or other document filed with the Commission
(and which is not afforded confidential treatment by the Commission or such
other agency), distributed by ONS and, after consummation of the Merger
Transaction, by the Company to its public stockholders or otherwise available to
the public generally and which is or was designated by the Company in writing as
confidential, will, to the extent permitted by law or legal process, be treated
confidentially by you and will not be distributed or otherwise made available by
you to any Person, other than your employees or your authorized agents or
representatives; provided, however, that you may provide any such information to
any governmental agency or other Person to which you are required by law or
legal process to provide such information.
10. ERISA. The Company will deliver (in duplicate) to you, so long as
you shall hold any Debenture, and to each other holder of the outstanding
Debentures, promptly, and in any event within five (5) days after a Responsible
Officer becoming aware of any of the following, a written notice setting forth
the nature thereof and the action, if any, that the Company or an ERISA
Affiliate proposes to take with respect thereto:
(i) with respect to any Plan, any reportable
event, as defined in Section 4043(b) of ERISA and the
regulations thereunder, for which notice thereof has not been
waived pursuant to such regulations as in effect on the date
hereof; or
(ii) the taking by the PBGC of steps to
institute, or the threatening by the PBGC of the institution
of, proceedings under Section 4042 of ERISA for the
termination of, or the appointment of a trustee to administer,
any Plan, or the receipt by the Company or any ERISA Affiliate
of a notice from a Multiemployer Plan that such action has
been taken by the PBGC with respect to such Multiemployer
Plan; or
(iii) any event, transaction or condition
that could result in the incurrence of any liability by the
Company or any ERISA Affiliate pursuant to Title I or IV of
ERISA or the penalty or excise tax provisions of the Code
relating to employee benefit plans, or in the imposition of
any Lien on any of the rights, properties or assets of the
Company or any ERISA Affiliate pursuant to
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Title I or IV of ERISA or such penalty or excise tax
provisions, if such liability or Lien, taken together with any
other such liabilities or Liens then existing, would
reasonably be expected to have a Material Adverse Effect.
11. Redemption of Debentures; Repurchase Rights; Mandatory Sales.
11.1. Right of Redemption. Any redemption or repurchase of the
Debentures at the election of the Company or otherwise, as permitted or required
by any provision of the Debentures or this Agreement, shall be made in
accordance with such provision and this Section 11.
11.2. Company Right of Redemption. Subject to Section 11.5,
the Company may, at any time other than during a Change of Control Period,
redeem all or part of the Debentures, subject to satisfaction of the following
conditions:
(a) The Company shall give a notice of redemption to
each holder in the manner provided in Section 23 not less than fifteen
(15) nor, subject to Section 11.5(a), more than sixty (60) days prior
to the applicable Redemption Date. Such notice shall disclose the
proposed source of funds for the redemption (e.g. private placement,
working capital, public offering).
(b) The amount to be redeemed must be (i) at least
$5,000,000, in principal amount of Debentures and (ii) at least
twenty-five percent (25%) of the then Outstanding Debentures (unless
the principal amount of then Outstanding Debentures is less than
$5,000,000, in which case the amount to be redeemed shall be such
principal amount). In the event that less than all of the then
Outstanding Debentures are to be redeemed, the Company shall redeem
Debentures pro rata from each holder of Debentures based upon the
respective principal amounts of the Debentures outstanding on the date
of redemption.
(c) The Company shall pay the applicable Redemption
Price to each holder of Debentures on the Redemption Date, in cash, in
immediately available funds. With respect to each holder of Debentures,
the Redemption Price shall be determined by multiplying (A) the sum of
(i) the number of Conversion Shares such holder would receive on the
Redemption Date with respect to the Debentures to be redeemed if such
Debentures were to be converted in accordance with the provisions of
Section 15 hereof and (ii) the number of Interest Shares representing
the accrued but unpaid interest on the Debentures to be redeemed, as of
the Redemption Date, by (B) the greater of (x) the average of the daily
Closing Prices per share of Common Stock for the twenty (20) Trading
Days immediately preceding the Redemption Date or (y) $17.50.
11.3. Redemption and Repurchase Rights upon Change of Control
Event.
(a) During any Change of Control Period either the
Company (subject to Section 11.5) or any holder of Debentures may give
notice to the other pursuant to
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which the Company shall be required to purchase all (but not less than
all) of the Debentures (if the notice is given by the Company) or all
of the Debentures held by a holder (if the notice is given by such ho
lder) in accordance with the provisions of this Section 11.3. The
Company shall give notice in accordance with Section 23 to each holder
of Debentures, within five (5) Business Days of the commencement of a
Change of Control Period.
(b) Notice of a redemption by the Company or the
exercise of a repurchase right by any holder of Debentures pursuant to
this Section 11.3 may be given (in the manner provided in Section 23)
at any time during the Change of Control Period. The repurchase date
(the "Repurchase Date") for any redemption or repurchase under this
Section 11.3 shall be a Business Day specified in the notice that is
not less than fifteen (15) nor, subject to Section 11.5(a), more than
sixty (60) days from the date notice is given. Any notice given by the
Company under this Section 11.3 shall disclose the proposed source of
funds for the Company's redemption (e.g. private placement, working
capital, public offering).
(c) The Company shall pay the applicable Repurchase
Price to each holder of Debentures from whom Debentures are to be
redeemed or repurchased on the Repurchase Date, in cash, in immediately
available funds. With respect to each holder of Debentures from whom
Debentures are to be redeemed or repurchased pursuant to this Section
11.3, the repurchase price (the "Repurchase Price") shall be determined
by multiplying (A) the sum of (i) the number of Conversion Shares such
holder would receive on the Repurchase Date with respect to the
Debentures to be repurchased if such Debentures were to be converted in
accordance with the provisions of Section 15 hereof and (ii) the number
of Interest Shares representing the accrued but unpaid interest on the
Debentures to be repurchased as of the Repurchase Date by (B) the
greatest of: (x) the average of the daily Closing Prices per share of
Common Stock for the twenty (20) Trading Days immediately preceding the
Repurchase Date, (y) $17.50, or (z) the price per share paid for the
Common Stock (whether in assets, cash, securities or any combination
thereof) in the Change of Control transaction to public holders of the
Common Stock generally.
11.4. Mandatory Sale. Subject to Section 11.5, the Company may
require each holder of Debentures to sell (a "Mandatory Sale") all or subject to
paragraph (b) below, a part of the Conversion Shares and Interest Shares such
holder would be entitled to receive if such holder converted, as of the
Mandatory Sale Date, all of the Debentures owned by such holder on the date such
holder receives the notice specified in paragraph (a) below (the "Underlying
Shares") provided all of the following terms and conditions are met:
(a) The Company shall give a notice of the Mandatory
Sale in the manner provided in Section 23 not less than fifteen (15)
nor, subject to Section 11.5(a), more than sixty (60) days prior to the
date specified in such notice (the "Mandatory Sale
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Date"). Such notice shall disclose the proposed source of funds for the
Mandatory Sale (e.g. private placement, public offering).
(b) The Company may only exercise its right to
require a Mandatory Sale on one occasion. If less than all of the
Underlying Shares are to be subject to the Mandatory Sale, the
aggregate sale price (the "Mandatory Sale Price") with respect to such
Underlying Shares must be at least $10,000,000. In the event that the
Mandatory Sale shall apply to less than all of the Underlying Shares,
the Underlying Shares subject to the Mandatory Sale shall be allocated
pro rata among the holders of the Debentures based upon the respective
principal amounts of the Debentures of such holders outstanding on the
date of the Mandatory Sale.
(c) The Mandatory Sale may be accomplished by an
underwritten public offering of the Underlying Shares or by a private
placement of the Underlying Shares, in either case arranged by a
nationally recognized investment banking firm reasonably acceptable to
the holders of a majority of the Underlying Shares subject to the
Mandatory Sale.
(d) The Company will indemnify and hold each holder
of Debentures harmless with respect to any liability arising out of any
misstatement or omission in the registration statement or private
placement memorandum and other documents prepared by or on behalf of
the Company in connection with the Mandatory Sale transaction (other
than information provided by such holder expressly for inclusion
therein) and will pay all of the expenses of the Mandatory Sale,
including, any registration fees, any underwriting discount or
placement agent fees, and the reasonable fees of one legal counsel
selected by the holders of a majority of the Underlying Shares subject
to the Mandatory Sale in connection with the review of such
registration statement or private placement memorandum.
(e) The underwriters or the private placement
purchasers shall pay each holder of Debentures in connection with the
Mandatory Sale, the Mandatory Sale Price, in cash, in immediately
available funds. The Mandatory Sale Price for each holder of Debentures
shall be determined by multiplying the number of Underlying Shares of
such holder subject to the Mandatory Sale by the greater of (x) an
amount that is at least ninety-five percent (95%) of the average of the
daily Closing Prices per share of Common Stock for the twenty (20)
Trading Days immediately preceding the Mandatory Sale Date (plus such
percentage in excess of ninety-five percent (95%) of such average if
paid by the purchasers of the Underlying Shares) or (y) $17.50. In the
event that the underwriters or private placement purchasers do not for
any reason pay each holder of Debentures the full Mandatory Sale Price
to which such holder is entitled, the Company shall pay such holder
within one (1) Business Day of the Mandatory Sale Date the positive
difference (up to the full amount of the Mandatory Sale Price) between
the Mandatory Sales Price to which such holder was entitled and the
aggregate amount such holder actually received from the underwriters or
the private placement purchasers in connection with the Mandatory Sale.
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11.5. Restriction on Conversion Rights; Withdrawal of Notice.
------------------------------------------------------
(a) Following receipt from the Company of any notice of
redemption pursuant to Section 11.2 or Section 11.3 or any notice of Mandatory
Sale pursuant to Section 11.4 (each, a "Company Notice"), each holder of
Debentures shall have ten (10) Business Days after receipt of the Company Notice
(the "Decision Period") in which to notify the Company in accordance with the
provisions of Section 23 that such holder wishes to convert all or a part of
such holder's Debentures (the "Converted Debenture Portion") into shares of
Common Stock in accordance with the provisions of Section 15.2. If such notice
is given in a timely manner by such holder (a "Holder Notice"), the proposed
redemption of Debentures by the Company or proposed Mandatory Sale of Underlying
Shares arranged by the Company pursuant to Section 11.2, 11.3 or 11.4 shall not
impair the right of such holder to convert the Converted Debenture Portion into
shares of Common Stock pursuant to Section 15.2. Except as provided in the
preceding sentence, no amount of Debentures of any holder specified in the
Company Notice as subject to redemption pursuant to Section 11.2 or Section 11.3
or Mandatory Sale pursuant to Section 11.4 may be converted into shares of
Common Stock pursuant to Section 15.2 during the period commencing on the date
of the Company Notice and ending on the earliest of (x) the date of any
withdrawal of the Company Notice pursuant to Section 11.5(b), (y) subject to
Section 11.5(c), the sixty-first (61st) day following the earlier of (i) the
expiration of the Decision Period or (ii) the date of the Company's receipt of
the Holder Notice of such holder (the "Company Notice Expiration Date") or (2)
the applicable Redemption, Repurchase or Mandatory Sale Date. Each holder giving
a Holder Notice shall convert the Converted Debenture Portion specified in the
Holder Notice within fifteen (15) Business Days after the applicable Redemption,
Repurchase, or Mandatory Sale Date. Notwithstanding any other provision of this
Agreement, the Company shall have given notice of redemption in compliance with
Section 11.2(a) and Section 11.3(b) and notice of a Mandatory Sale in compliance
with Section 11.4(a) if the Redemption Date, the Repurchase Date or the
Mandatory Sale Date, as the case may be, occurs not later than the day
immediately preceding the Company Notice Expiration Date.
(b) The Company shall have the right to withdraw any Company
Notice by notifying the holders of the Debentures of such withdrawal in
accordance with the provisions of Section 23, but only if the notice of
withdrawal is accompanied by a copy of a written notice, to the effect set forth
in the following sentence from the underwriter, placement agent or proposed
private placement purchaser from whom the Company intended to raise the capital
necessary to complete the proposed redemption or with whom the Company intended
to place the Underlying Shares in a proposed Mandatory Sale. Such notice shall
state that the amount of Company securities included in the proposed offering
(which, in the case of a Mandatory Sale, shall be the Underlying Shares included
in such offering) would not be able to be sold at a price sufficient to yield
proceeds at least equal to the redemption price specified in Section 11.2 or
Section 11.3, as applicable, or the Mandatory Sale Price. If any Company Notice
is properly withdrawn pursuant to this Section 11.5(b), failure by the Company
to make any redemption payment pursuant to Section 11.2 or Section 11.3 or to
arrange for or make any payment in connection with a Mandatory Sale pursuant to
Section 11.4,
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in any case as proposed in such withdrawn Company Notice, (i) shall not
constitute an Event of Default under this Agreement and (ii) shall not
constitute the one-time exercise by the Company of its rights under Section
11.4(b).
(c) Notwithstanding any other provision of this Agreement,
following receipt of a Company Notice, if the HSR Act would require any filings
to be made with respect to the conversion of any Debenture subject to a Company
Notice, each holder of Debentures subject to the filing requirements of the HSR
Act upon any conversion of a Debenture subject to a Company Notice shall have
ten (10) Business Days after the expiration or early termination of any
applicable HSR Act waiting period to exercise the conversion privilege in
accordance with Section 15.2 with respect to such Debentures before any proposed
redemption of such Debentures by the Company or proposed Mandatory Sale of
Underlying Shares arranged by the Company pursuant to Section 11.2, 11.3 or 11.4
shall impair the right of such holder to convert such Debentures, and the
Company's right to redeem the Debentures of any such holder or to require the
Mandatory Sale of any Underlying Shares of any such holder shall be suspended
until ten (10) Business Days after the expiration or early termination of the
applicable HSR Act waiting period (an "HSR Suspension Period"). If any HSR Act
filing shall be required hereunder, the Company Notice Expiration Date shall be
the sixty-first (61st) day after the latest HSR Suspension Period applicable to
any Holder.
12. Business Covenants. From the Closing Date, and thereafter so long
as any of the Debentures are outstanding, the Company will perform or comply
with, as required, each of the following covenants:
12.1. Payment of Debentures and Maintenance of Office. The
Company will punctually pay or cause to be paid the principal, premium, if any,
and interest to become due in respect of the Debentures according to the terms
thereof and hereof and will maintain an office within the continental boundaries
of the United States of America where notices, presentations and demands in
respect of this Agreement and the Debentures may be made upon it and will notify
each holder of a Debenture of any change of location of such office. Such office
shall first be maintained at 2440 Research Boulevard, Suite 400, Rockville,
Maryland 20850.
12.2. Payment of Taxes and Claims. The Company will, and will
cause each of its Subsidiaries to, pay and discharge promptly (a) all taxes,
assessments and other governmental charges imposed upon it or any of its
properties or assets or in respect of any of its franchises, business, income or
profits before the same shall become delinquent and (b) all lawful claims of
materialmen, mechanics, carriers, warehousemen, landlords and other similar
Persons for labor, materials, supplies and rentals which, if unpaid, might by
law become a lien or charge upon its property, except to the extent that the
failure so to pay any amount pursuant to (a) or (b) would not have a Material
Adverse Effect; provided, however, that none of the foregoing need be paid while
being contested in good faith by appropriate proceedings initiated within the
period allowed by applicable law, rule or regulation and diligently conducted so
long as (i) adequate book reserves have been established in accordance with GAAP
with respect
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thereto and (ii) neither the Company's nor any such Subsidiary's title to or
right to the use of its properties is materially adversely affected thereby.
12.3. Maintenance of Properties and Corporate Existence. The Company
and its Subsidiaries will each:
(a) maintain its property in good condition and make
all needful and proper renewals, replacements, additions, betterments
and improvements thereto, all as in the judgment of the Company may be
necessary so that the business carried on in connection therewith may
be conducted properly and advantageously at all times; provided that
nothing in this Section 12.3 shall prevent the Company or any
Subsidiary from discontinuing the use, operation or maintenance of any
properties or disposing of any of them if such discontinuance or
disposal is, in the judgment of the Company, desirable in the conduct
of the business of the Company or such Subsidiary;
(b) subject to Section 13.12 (if and to the extent
in effect), keep adequately insured, by financially sound and reputable
insurers, all of its property of a character usually insured by
entities engaged in the same or a similar business similarly situated
against loss or damage of the kinds and in amounts customarily insured
against by such entities and with deductibles or co-insurance no
greater than is customary, and carry, with such insurers in customary
amounts and with deductibles or co-insurance no greater than is
customary, such other insurance, including public liability insurance
and liability insurance against claims for any violation of applicable
law, as is usually carried by entities engaged in the same or a similar
business similarly situated, provided that compliance with the
insurance covenants in the Senior Indentures will be satisfactory
compliance with this paragraph;
(c) keep proper books of record and account in which
full, true and correct entries will be made of all its business
transactions in accordance with GAAP;
(d) set aside on its books from its earnings for
each fiscal year, beginning with the first such year ending subsequent
to the date hereof and for each fiscal year thereafter, in amounts
deemed adequate in the opinion of the Company, all proper accruals and
reserves which, in accordance with GAAP, should be set aside from such
earnings in connection with its business, including, without
limitation, reserves for depreciation, obsolescence and/or amortization
and accruals for taxes for such period, including all taxes based on or
measured by income or profits; and
(e) except as otherwise permitted or contemplated
hereby, do or cause to be done all things necessary to preserve and
keep in full force and effect its corporate existence and such rights,
patents, trademarks, copyrights, licenses, permits, franchises and
governmental authorizations as the Company determines to be necessary
for the present and presently planned future conduct of its business.
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12.4. Compliance with Law. Neither the Company nor any of its
Subsidiaries will:
(a) violate any laws, ordinances, governmental rules
or regulations to which it is, or might become, subject, unless the
same are being contested by the Company or such Subsidiary in good
faith and by appropriate proceedings which shall effectively prevent
the imposition of any penalty on the Company or such Subsidiary for
such noncompliance, or
(b) fail to use its best efforts to obtain any
patents, trademarks, service marks, trade names, copyrights, design
patents, licenses, permits, franchises or other governmental
authorizations necessary to the ownership of its property or to the
conduct of its business, which violation or failure would or might have
a Material Adverse Effect.
12.5. [Reserved.]
12.6. When Company May Merge, Etc. The Company shall not
consolidate with or merge into, or transfer all or substantially all of its
assets to, another Person unless: (i) such Person is a corporation, partnership
or limited liability company organized under the laws of the United States, one
of the States thereof or the District of Columbia; (ii) the resulting, surviving
or transferee corporation, partnership or limited liability company assumes by
written agreement all the obligations of the Company under the Debentures and
this Agreement; (iii) immediately after giving effect to such transaction no
Event of Default or Potential Event of Default shall have occurred and be
continuing; and (iv) the Company shall have delivered to you an Officers'
Certificate and an opinion of counsel of the Company acceptable to you, each
stating that such consolidation, merger or transfer and such supplemental
agreement comply with this Agreement, and thereafter all obligations of the
predecessor shall terminate.
Upon any consolidation or merger or any transfer of all or
substantially all of the assets of the Company in accordance with this Section
12.6, the successor corporation, partnership or limited liability company formed
by such consolidation or into which the Company is merged or to which such
transfer is made shall succeed to, and be substituted for, and may exercise
every right and power of, the Company under this Agreement, with the same effect
as if such successor had been named as the Company herein, all without any
further act or deed on the part of such successor being required.
Section 12.6 shall cease to apply after the Senior Notes Reduction
Date.
12.7. Listing. The Company will list on each national
securities exchange on which any Common Stock may at any time be listed and on
the Nasdaq National Market, if the Common Stock is authorized for quotation
thereon, subject to official notice of issuance upon
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the conversion of the Debentures or upon payment of interest, and will maintain
such listing of, (i) all Conversion Shares and (ii) all Interest Shares.
12.8. Issuances of Guarantees by New Restricted Subsidiaries.
On the date that any Person becomes a Restricted Subsidiary, the Company will
cause such additional Restricted Subsidiary to execute a supplemental Subsidiary
Guarantee, providing for a full and unconditional guarantee by such additional
Restricted Subsidiary of the Company's obligations under the Debentures and this
Agreement to the same extent as that set forth in the Subsidiary Guarantee.
12.9. Subsidiaries. The Company will provide to you a complete
and accurate list of its Subsidiaries each time Exhibit D attached hereto
becomes inaccurate and cause each Subsidiary which guarantees any Indebtedness
to promptly execute and deliver a Subsidiary Guarantee to you.
12.10. Notice. The Company will give prompt written notice to
you of any Event of Default or Potential Event of Default hereunder.
12.11. Waiver of Stay, Extension or Usury Laws. The Company
covenants (to the extent that it may lawfully do so) that it will not at any
time insist upon, or plead, or in any manner whatsoever claim or take the
benefit or advantage of, any stay or extension law or any usury law or other law
that would prohibit or forgive the Company from paying all or any portion of the
principal of, premium, if any, or interest on the Debentures as contemplated
herein, whenever enacted, now or at any time hereafter in force, or that may
affect the covenants or the performance of this Purchase Agreement; and (to the
extent that it may lawfully do so) the Company hereby expressly waives all
benefit or advantage of any such law and covenants that it will not hinder,
delay or impede the execution of any power herein granted to the holders of the
Debentures, but will suffer and permit the execution of every such power as
though no such law had been enacted.
13. Financial Covenants. From the Senior Notes Reduction Date, and
thereafter so long as any of the Debentures are outstanding, the Company will
perform or comply with, as required, each of the following covenants:
13.1. Merger and Sale of Assets.
-------------------------
(a) The Company will not consolidate with or merge
into any other Person or permit any other Person (other than a
Subsidiary as provided by paragraph (b) below) to consolidate with or
merge into it, or sell, lease, transfer or otherwise dispose of all or
substantially all of its assets (as an entirety or substantially an
entirety in one transaction or a series of related transactions),
unless:
(i) the entity which survives such merger or
results from such consolidation or the corporation to which
such sale, lease, transfer or other
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disposition is made (the "surviving corporation") is a
corporation organized under the laws of the United States of
America or a jurisdiction thereof;
(ii) the due and punctual payment of the
principal of and premium, if any, and interest on all of the
Debentures, according to their tenor, and of the covenants
therein, and the due and punctual performance and observance
of all the covenants in this Agreement to be performed or
observed by the Company, are expressly assumed in writing by
the surviving corporation;
(iii) before and immediately after the
consummation of the transaction, and after giving effect
thereto, no Event of Default or Potential Event of Default
exists or would exist;
(iv) immediately after giving effect to such
transaction on a pro forma basis, the Company or any Person
becoming the successor obligor of the Debentures shall have a
Consolidated Net Worth equal to or greater than the
Consolidated Net Worth of the Company immediately prior to
such transaction;
(v) immediately after consummation of the
transaction, and after giving effect thereto, the surviving
corporation would be permitted to incur at least $1.00 of
additional Indebtedness under the first paragraph of Section
13.5; provided that this clause (v) shall not apply to a
consolidation or merger with or into a Wholly Owned Restricted
Subsidiary with a positive net worth; provided that, in
connection with any such merger or consolidation, no
consideration (other than Common Stock in the surviving Person
or the Company) shall be issued or distributed to the
stockholders of the Company;
(vi) the provisions of Sections 15.8 and
15.13 shall have been in all respects complied with in
connection with such transaction; and
(vii) the Company delivers to each holder of
Debentures an Officers' Certificate (attaching the arithmetic
computations to demonstrate compliance with clauses (iv) and
(v)), in each case stating that such consolidation, merger or
transfer complies with this provision and that all conditions
precedent provided for herein relating to such transaction
have been complied with; provided, however, that clauses (iv)
and (v) above do not apply if, in the good faith determination
of the Board of Directors of the Company, whose determination
shall be evidenced by a Board Resolution, the principal
purpose of such transaction is to change the state of
incorporation of the Company; and provided further that any
such transaction shall not have as one of its purposes the
evasion of the foregoing limitations.
(b) No Subsidiary of the Company will consolidate
with or merge into any other Person or permit any other Person to
consolidate with or merge into it, except
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that a Subsidiary may consolidate with or merge into (i) the Company if
each of the provisions of paragraph (a) are satisfied or (ii) another
Subsidiary.
13.2. Transactions with Affiliates. The Company will not, and
will not permit any Restricted Subsidiary to, directly or indirectly, enter
into, renew or extend any transaction (including, without limitation, the
purchase, sale, lease or exchange of property or assets, or the rendering of any
service) with any holder (or any Affiliate of such holder) of five percent (5%)
or more of any class of Capital Stock of the Company or with any Affiliate of
the Company or any Restricted Subsidiary, except upon fair and reasonable terms
no less favorable to the Company or such Restricted Subsidiary than could be
obtained, at the time of such transaction or, if such transaction is pursuant to
a written agreement, at the time of the execution of the agreement providing
therefor, in a comparable arm's-length transaction with a Person that is not
such a holder or an Affiliate.
The foregoing limitation does not limit and shall not apply to (i)
transactions (A) approved by a majority of the disinterested members of the
Board of Directors or (B) for which the Company or a Restricted Subsidiary
delivers to you a written opinion of a nationally recognized investment banking
firm stating that the transaction is fair to the Company or such Restricted
Subsidiary from a financial point of view, (ii) any transaction solely between
the Company and any of its Wholly Owned Restricted Subsidiaries or solely
between Wholly Owned Restricted Subsidiaries, (iii) the payment of reasonable
and customary regular fees to directors of the Company who are not employees of
the Company, (iv) any payments or other transactions pursuant to any tax-sharing
agreement between the Company and any other Person with which the Company files
a consolidated tax return or with which the Company is part of a consolidated
group for tax purposes, (v) any Restricted Payments not prohibited by Section
13.6 or (vii) [other matters]. Notwithstanding the foregoing, any transaction
covered by the first paragraph of this Section 13.2 and not covered by clauses
(ii) through (v) of this paragraph, the aggregate amount of which exceeds $[___]
million in value, must be approved or determined to be fair in the manner
provided for in clause (i)(A) or (B) above.
13.3. Tax Consolidation. The Company will not, except as may
be required by any mandatory provision of applicable law, file or consent to the
filing of any consolidated income tax return with any Person other than a
Subsidiary.
13.4. Compliance with ERISA. The Company will not, and will
not permit any ERISA Affiliate to:
(a) engage in any transaction in connection with
which the Company or any Subsidiary could be subject to either a
material civil penalty assessed pursuant to Section 502(i) of ERISA or
a material tax imposed by Section 4975 of the Code;
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(b) terminate any Plan in a manner, or take any
other action, which could result in any material liability of the
Company or any ERISA Affiliate to the PBGC; or
(c) fail to make full payment when due of all
amounts (including any amounts because of an accumulated funding
deficiency) which, under the provisions of any Plan, the Code or ERISA,
the Company or any ERISA Affiliate is required to pay as contributions
to such Plan or otherwise.
As used in this Section 13.4, the term "accumulated funding deficiency" has the
meaning specified in Section 302 of ERISA and Section 412 of the Code.
13.5. Limitation on Indebtedness.
--------------------------
(a) The Company will not, and will not permit any of
its Restricted Subsidiaries to, Incur any Indebtedness (other than the Senior
Notes, the Debentures and Indebtedness existing on the Senior Notes Reduction
Date); provided that the Company may Incur Indebtedness if, after giving effect
to the Incurrence of such Indebtedness and the receipt and application of the
proceeds therefrom, the Consolidated Leverage Ratio would be greater than zero
and less than [_] to 1, for Indebtedness Incurred on or prior to [_________ __,
199_], or [_] to 1, for Indebtedness Incurred thereafter.
Notwithstanding the foregoing, the Company and any
Restricted Subsidiary (except as specified below) may Incur each and all of the
following: (i) Indebtedness outstanding at any time (A) Incurred to finance the
purchase, construction, launch, insurance for and other costs with respect to
Orion 2 and Orion 3 and (B) in an aggregate principal amount not to exceed (1)
until Orion 2 or Orion 3 has been successfully delivered in orbit, $50 million,
(2) after the first of Orion 2 or Orion 3 has been successfully delivered in
orbit, $100 million and (3) after the second of Orion 2 or Orion 3 has been
successfully delivered in orbit, $150 million, in each case under this clause
(i)(B), less any amount of Indebtedness permanently repaid as provided under
Section 13.11; (ii) Indebtedness (A) to the Company evidenced by an
unsubordinated promissory note or (B) to any of its Restricted Subsidiaries;
provided that any event which results in any such Restricted Subsidiary ceasing
to be a Restricted Subsidiary or any subsequent transfer of such Indebtedness
(other than to the Company or another Restricted Subsidiary) shall be deemed, in
each case, to constitute an Incurrence of such Indebtedness not permitted by
this clause (ii); (iii) Indebtedness issued in exchange for, or the net proceeds
of which are used to refinance or refund, then outstanding Indebtedness, other
than Indebtedness Incurred under clause (i)(B), (ii), (iv), (vi) or (viii) of
this paragraph, and any refinancings thereof in an amount not to exceed the
amount so refinanced or refunded (plus premiums, accrued interest, fees and
expenses); provided that Indebtedness the proceeds of which are used to redeem
or repurchase the Debentures or Indebtedness that is pari passu with, or
subordinated in right of payment to, the Debentures shall only be permitted
under this clause (iii) if (A) in case the Debentures are redeemed or
repurchased in part or the Indebtedness to be refinanced is pari passu with the
Debentures, such new Indebtedness, by its terms or by the terms of any
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agreement or instrument pursuant to which such new Indebtedness is outstanding,
is expressly made pari passu with, or subordinate in right of payment to, the
remaining Debentures, (B) in case the Indebtedness to be refinanced is
subordinated in right of payment to the Debentures, such new Indebtedness, by
its terms or by the terms of any agreement or instrument pursuant to which such
new Indebtedness is issued or remains outstanding, is expressly made subordinate
in right of payment to the Debentures at least to the extent that the
Indebtedness to be refinanced is subordinated to the Debentures and (C) such new
Indebtedness, determined as of the date of Incurrence of such new Indebtedness,
does not mature prior to the Stated Maturity of the Indebtedness to be
refinanced or refunded, and the Average Life of such new Indebtedness is at
least equal to the remaining Average Life of the Indebtedness to be refinanced
or refunded; and provided further that in no event may Indebtedness of the
Company be refinanced by means of any Indebtedness of any Restricted Subsidiary
pursuant to this clause (iii); (iv) Indebtedness (A) in respect of performance,
surety or appeal bonds provided in the ordinary course of business, (B) under
Currency Agreements and Interest Rate Agreements; provided that such agreements
(a) are designed solely to protect the Company or its Subsidiaries against
fluctuations in foreign currency exchange rates or interest rates and (b) do not
increase the Indebtedness of the obligor outstanding at any time other than as a
result of fluctuations in foreign currency exchange rates or interest rates or
by reason of fees, indemnities and compensation payable thereunder and (C)
arising from agreements providing for indemnification, adjustment of purchase
price or similar obligations, or from Guarantees or letters of credit, surety
bonds or performance bonds securing any obligations of the Company or any of its
Restricted Subsidiaries pursuant to such agreements, in any case Incurred in
connection with the disposition of any business, assets or Restricted Subsidiary
of the Company (other than Guarantees of Indebtedness Incurred by any Person
acquiring all or any portion of such business, assets or Restricted Subsidiary
of the Company for the purpose of financing such acquisition), in a principal
amount not to exceed the gross proceeds actually received by the Company or any
Restricted Subsidiary in connection with such disposition; (v) Indebtedness of
the Company, to the extent the net proceeds thereof are promptly (A) used to
purchase the Senior Notes in accordance with the redemption, repurchase and/or
change of control provisions of the Senior Note Indentures or (B) deposited to
defease the Senior Notes in accordance with the Senior Note Indentures; (vi)
Guarantees by any Restricted Subsidiary under the Subsidiary Guarantee or
permitted by and made in accordance with Section 13.8 or the Senior Indentures;
(vii) Indebtedness Incurred to finance the cost (including the cost of design,
development, construction, installation or integration) of equipment (other than
Orion 2 and Orion 3) or inventory acquired by the Company or a Wholly Owned
Restricted Subsidiary after the Closing Date; (viii) Indebtedness of the Company
not to exceed, at any one time outstanding, two (2) times the Net Cash Proceeds
received by the Company after the Closing Date from the issuance and sale of its
Capital Stock (other than Disqualified Stock) to a Person that is not a
Subsidiary of the Company (less the amount of such proceeds applied as provided
in clause (C)(2) of the first paragraph or clause (iii) or (iv) of the second
paragraph of Section 13.6), provided that such Indebtedness does not mature
prior to the Stated Maturity of the Debentures; and (ix) Redemption
Indebtedness.
(b) Notwithstanding any other provision of this
Section 13.5, the maximum amount of Indebtedness that the Company or a
Restricted Subsidiary may incur
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pursuant to this Section 13.5 shall not be deemed to be exceeded, with respect
to any outstanding Indebtedness, due solely to the result of fluctuations in the
exchange rates of currencies.
(c) For purposes of determining any particular
amount of Indebtedness under this Section 13.5, (1) Guarantees, Liens or
obligations with respect to letters of credit supporting Indebtedness otherwise
included in the determination of such particular amount shall not be included
and (2) any Liens granted pursuant to the equal and ratable provisions referred
to in Section 13.9 shall not be treated as Indebtedness. For purposes of
determining compliance with this Section 13.5, in the event that an item of
Indebtedness meets the criteria of more than one (1) of the types of
Indebtedness described in the above clauses, the Company, in its sole
discretion, shall classify such item of Indebtedness and only be required to
include the amount and type of such Indebtedness in one of such clauses.
13.6. Limitation on Restricted Payments. The Company will not,
and will not permit any Restricted Subsidiary, directly or indirectly, to (i)
declare or pay any dividend or make any distribution on or with respect to its
Capital Stock (other than (x) dividends or distributions payable solely in
shares of its Capital Stock (other than Disqualified Stock) or in options,
warrants or other rights to acquire shares of such Capital Stock and (y) pro
rata dividends or distributions on Common Stock of Restricted Subsidiaries held
by minority stockholders, provided that such dividends do not in the aggregate
exceed the minority stockholders' pro rata share of such Restricted
Subsidiaries' net income from the first day of the fiscal quarter beginning
immediately following the Closing Date) held by Persons other than the Company
or any of its Restricted Subsidiaries, (ii) purchase, redeem, retire or
otherwise acquire for value any shares of Capital Stock of the Company, any
Guarantor or an Unrestricted Subsidiary (including options, warrants or other
rights to acquire such shares of Capital Stock) held by Persons other than the
Company and its wholly-owned subsidiaries, (iii) make any voluntary or optional
principal payment, or voluntary or optional redemption, repurchase, defeasance,
or other acquisition or retirement for value, of Indebtedness of the Company
that is subordinated in right of payment to the Debentures or of any Guarantor
that is subordinated to the Subsidiary Guarantee (other than in each case the
purchase, repurchase or the acquisition of Indebtedness in anticipation of
satisfying a sinking fund obligation, principal installment or final maturity,
in any case due within one (1) year of the date of acquisition) or (iv) make any
Investment, other than a Permitted Investment, in any Person (such payments or
any other actions described in clauses (i) through (iv) being collectively
"Restricted Payments") if, at the time of, and after giving effect to, the
proposed Restricted Payment: (A) a Potential Event of Default or Event of
Default shall have occurred and be continuing, (B) except with respect to
Investments and dividends on the Common Stock of any Guarantor, the Company
could not Incur at least $1.00 of Indebtedness under paragraph (a) of Section
13.5 or (C) the aggregate amount of all Restricted Payments (the amount, if
other than in cash, to be determined in good faith by the Board of Directors,
whose determination shall be conclusive and evidenced by a Board Resolution)
made after the Closing Date shall exceed the sum of (1) fifty percent (50%) of
the aggregate positive amount, if any, of the Adjusted Consolidated Net Income
(determined by excluding income resulting from transfers of assets by the
Company or a Restricted Subsidiary to an Unrestricted Subsidiary) accrued on a
cumulative basis during the
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period (taken as one (1) accounting period) beginning on the first day of the
fiscal quarter immediately following the Closing Date and ending on the last day
of the last fiscal quarter preceding the Transaction Date for which reports have
been filed with the Commission plus (2) the aggregate Net Cash Proceeds received
by the Company or any Guarantor after the Closing Date from the issuance and
sale of its Capital Stock (other than Disqualified Stock) to a Person who is not
a Subsidiary of the Company or any Guarantor or from the issuance to a Person
who is not a Subsidiary of the Company or any Guarantor of any options, warrants
or other rights to acquire Capital Stock of the Company (in each case, exclusive
of any other than Disqualified Stock, options, warrants or other rights that are
redeemable at the option of the holder, or are required to be redeemed, prior to
the Stated Maturity of the Debentures), in each case except to the extent such
Net Cash Proceeds are used to Incur Indebtedness pursuant to clause (viii) of
the second paragraph of Section 13.5, plus (3) an amount equal to the net
reduction in Investments (other than reductions in Permitted Investments) in any
Person resulting from payments of interest on Indebtedness, dividends,
repayments of loans or advances, or other transfers of assets, in each case to
the Company or any Restricted Subsidiary or from the Net Cash Proceeds from the
sale of any such Investment (except, in each case, to the extent any such
payment or proceeds are included in the calculation of Adjusted Consolidated Net
Income), or from redesignations of Unrestricted Subsidiaries as Restricted
Subsidiaries (valued in each case as provided in the definition of
"Investments"), not to exceed, in each case, the amount of Investments
previously made by the Company or any Restricted Subsidiary in such Person or
Unrestricted Subsidiary.
The foregoing provision shall not be violated by
reason of: (i) the payment of any dividend within sixty (60) days after the date
of declaration thereof if, at said date of declaration, such payment would
comply with the foregoing paragraph; (ii) the redemption, repurchase, defeasance
or other acquisition or retirement for value of Indebtedness that is
subordinated in right of payment to the Debentures including premium, if any,
and accrued and unpaid interest, with the proceeds of, or in exchange for,
Indebtedness Incurred under clause (iii) of the second paragraph of part (a) of
Section 13.5; (iii) the repurchase, redemption or other acquisition of Capital
Stock of the Company (or options, warrants or other rights to acquire such
Capital Stock) in exchange for, or out of the proceeds of a substantially
concurrent offering of shares of Capital Stock (other than Disqualified Stock)
of the Company; (iv) the making of any principal payment or the repurchase,
redemption, retirement, defeasance or other acquisition for value of
Indebtedness of the Company which is subordinated in right of payment to the
Debentures in exchange for, or out of the proceeds of, a substantially
concurrent offering of, shares of the Capital Stock of the Company (other than
Disqualified Stock); (v) payments or distributions to dissenting stockholders
pursuant to applicable law, pursuant to or in connection with a consolidation,
merger or transfer of assets that complies with the provisions of this Agreement
applicable to mergers, consolidations and transfers of all or substantially all
of the property and assets of the Company; (vi) the repurchase, redemption or
other acquisition of outstanding shares of Series A Preferred Stock or Series B
Preferred Stock, which shares were outstanding on the Closing Date, in exchange
for, or out of the proceeds of, an issuance of Indebtedness Incurred under
clause (ix) of the second paragraph of part (a) of Section 13.5; or (vii)
investments, to the extent the amount invested consists solely of Net Cash
Proceeds
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received by the Company or any Guarantor substantially currently with the making
of such Investment from the issuance and sale permitted by this Agreement of its
Capital Stock (other than Disqualified Stock) to a Person who is not a
Subsidiary of the Company or any Guarantor; provided that, except in the case of
clauses (i) and (iii), no Potential Event of Default or Event of Default shall
have occurred and be continuing or occur as a consequence of the actions or
payments set forth therein.
Each Restricted Payment permitted pursuant to the
preceding paragraph (other than the Restricted Payment referred to in clause
(ii) thereof and an exchange of Capital Stock for Capital Stock or Indebtedness
referred to in clause (iii) or (iv) thereof) and the Net Cash Proceeds from any
issuance of Capital Stock referred to in clauses (iii) and (iv) shall be
included in calculating whether the conditions of clause (C) of the first
paragraph of this Section 13.6 have been met with respect to any subsequent
Restricted Payments. In the event the proceeds of an issuance of Capital Stock
of the Company are used for the redemption, repurchase or other acquisition of
the Debentures, or Indebtedness that is pari passu with the Debentures, then the
Net Cash Proceeds of such issuance shall be included in clause (C) of the first
paragraph of this Section 13.6 only to the extent such proceeds are not used for
such redemption, repurchase or other acquisition of Indebtedness.
Any Restricted Payments made other than in cash
shall be valued at fair market value. The amount of any Investment "outstanding"
at any time shall be deemed to be equal to the amount of such Investment on the
date made, less the return of capital to the Company and its Restricted
Subsidiaries with respect to such Investment (up to the amount of such
Investment on the date made).
13.7. Limitation on the Issuance and Sale of Capital Stock of
Restricted Subsidiaries. The Company will not sell, and will not permit any
Restricted Subsidiary, directly or indirectly, to issue or sell, any shares of
Capital Stock of a Restricted Subsidiary (including options, warrants or other
rights to purchase shares of such Capital Stock) except (i) to the Company or a
Wholly Owned Restricted Subsidiary; (ii) issuances of director's qualifying
shares or sales to foreign nationals of shares of Capital Stock of foreign
Restricted Subsidiaries, to the extent required by applicable law; and (iii) if,
immediately after giving effect to such issuance or sale, such Restricted
Subsidiary would no longer constitute a Restricted Subsidiary, provided any
Investment in such Person remaining after giving effect to such issuance or sale
would have been permitted to be made under Section 13.6, if made on the date of
such issuance or sale.
13.8. Issuances of Guarantees by New Restricted Subsidiaries.
On the date that any Person becomes a Restricted Subsidiary the Company will
cause such additional Restricted Subsidiary to execute a supplemental Subsidiary
Guarantee, providing for a full and unconditional guarantee by such additional
Restricted Subsidiary of the Company's obligations under the Debentures and this
Agreement to the same extent as that set forth in the Subsidiary Guarantee.
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13.9. Limitation on Liens. The Company will not, and will not
permit any Restricted Subsidiary to, create, incur, assume or suffer to exist
any Lien of any kind securing Indebtedness that is pari passu with, or
subordinated in right of payment to, the Debentures on any of its assets or
properties of any character, or any shares of Capital Stock or Indebtedness of
any Restricted Subsidiary, without making effective provision for all of the
Debentures and all other amounts due under this Agreement to be directly secured
equally and ratably with (or, if the obligation or liability to be secured by
such Lien is subordinated in right of payment to the Debentures, prior to) the
obligation or liability secured by such Lien.
The foregoing limitation does not apply to (i) Liens
existing on the Closing Date; (ii) Liens granted after the Closing Date on any
assets or Capital Stock of the Company or its Restricted Subsidiaries created in
favor of the holders of Debentures; (iii) Liens with respect to the assets of a
Restricted Subsidiary granted by such Restricted Subsidiary to the Company or a
Wholly Owned Restricted Subsidiary to secure Indebtedness owing to the Company
or such other Restricted Subsidiary; (iv) Liens securing Indebtedness which is
Incurred to refinance secured Indebtedness which is permitted to be Incurred
under clause (iii) of the second paragraph of Section 13.5(a); provided that
such Liens do not extend to or cover any property or assets of the Company or
any Restricted Subsidiary other than the property or assets securing the
Indebtedness being refinanced; or (v) Permitted Liens.
The Company will not, and will not permit any
Restricted Subsidiary to, create, incur, assume or suffer to exist any Lien
(securing Indebtedness) on Orion 2 or Orion 3.
13.10. Limitation on Sale-Leaseback Transactions. The Company
will not, and will not permit any Restricted Subsidiary to, directly or
indirectly, enter into any sale-leaseback transaction involving any of its
assets or properties, whether now owned or hereafter acquired, whereby the
Company or a Restricted Subsidiary sells or transfers such assets or properties
and then or thereafter leases such assets or properties or any part thereof or
any other assets or properties which the Company or such Restricted Subsidiary,
as the case may be, intends to use for substantially the same purpose or
purposes as the assets or properties sold or transferred.
The foregoing restriction does not apply to any
sale-leaseback transaction if (i) the lease is for a period, including renewal
rights, of not in excess of three (3) years; (ii) the lease secures or relates
to industrial revenue or pollution control bonds; (iii) the transaction is
solely between the Company and any Wholly Owned Restricted Subsidiary or solely
between Wholly Owned Restricted Subsidiaries; or (iv) the Company or such
Restricted Subsidiary, within twelve (12) months after the sale or transfer of
any assets or properties is completed, applies an amount not less than the net
proceeds received from such sale in accordance with clause (A) or (B) of Section
13.11.
13.11. Limitation on Asset Sales. The Company will not, and
will not permit any Restricted Subsidiary to, consummate any Asset Sale unless
(i) the consideration received by the Company or such Restricted Subsidiary is
at least equal to the fair market value of the assets sold or disposed of and
(ii) at least eighty-five percent (85%) of the consideration
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received consists of cash or Temporary Cash Investments. In the event and to the
extent that the Net Cash Proceeds received by the Company or any of its
Restricted Subsidiaries from one or more Asset Sales occurring on or after the
Senior Notes Reduction Date in any period of twelve (12) consecutive months
exceed ten percent (10%) of Adjusted Consolidated Net Tangible Assets
(determined as of the date closest to the commencement of such twelve (12) month
period for which a consolidated balance sheet of the Company and its
Subsidiaries has been filed with the Commission), then the Company shall or
shall cause the relevant Restricted Subsidiary to within twelve months after the
date Net Cash Proceeds so received exceed ten percent (10%) of Adjusted
Consolidated Net Tangible Assets (A) apply an amount equal to such excess Net
Cash Proceeds to permanently repay Senior Indebtedness of the Company or
Indebtedness of any Restricted Subsidiary, in each case owing to a Person other
than the Company or any of its Restricted Subsidiaries or (B) invest an equal
amount, or the amount not so applied pursuant to clause (A) (or enter into a
definitive agreement committing to so invest within twelve (12) months after the
date of such agreement), in property or assets (other than current assets) of a
nature or type or that are used in a business (or in a company having property
and assets of a nature or type, or engaged in a business) similar or related to
the nature or type of the property and assets of, or the business of, the
Company and its Restricted Subsidiaries existing on the date of such investment.
13.12. Insurance. The Company will maintain (a) in-orbit
insurance with respect to Orion 1 in an amount equal to or greater than $___
million, and (b) with respect to Orion 2, Orion 3, each other satellite to be
launched by the Company or any Restricted Subsidiary and each replacement
satellite therefor, (i) launch insurance with respect to each such satellite
covering the period from the launch of such satellite to one hundred eighty
(180) days following such launch in an amount equal to or greater than the sum
of (A) the cost to replace such satellite pursuant to the contract pursuant to
which a replacement satellite will be constructed, (B) the cost to launch a
replacement satellite pursuant to the contract pursuant to which a replacement
satellite will be launched and (C) the cost of launch insurance for such
satellite or, in the event that the Company has reason to believe that the cost
of obtaining comparable insurance for a replacement satellite would be
materially higher, the Company's best estimate of the cost of such comparable
insurance and (ii) at all times subsequent to one hundred eighty [(180) days
after] the launch (if it is a Successful Launch) of each such satellite,
in-orbit insurance in an amount at least equal to the cost to replace such
satellite with a satellite of comparable or superior technological capability
(as estimated by the Board of Directors) and having at least as much
transmission capacity as such satellite. The in-orbit insurance required by this
paragraph shall provide that if fifty percent (50%) or more of a satellite's
initial capacity is lost, the full amount of insurance will become due and
payable, and that if a satellite is able to maintain more than fifty percent
(50%) but less than ninety percent (90%) of its initial capacity, a pro rata
portion of such insurance will become due and payable. The insurance required by
this paragraph shall name the Company and/or any Guarantor as the sole loss
payee or payees, as the case may be, thereof.
In the event that the Company (or a Guarantor) receives proceeds from
insurance relating to any satellite, the Company (or a Guarantor) may use a
portion of such proceeds to repay any
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vendor or third-party purchase money financing pertaining to such satellite
(other than Orion 1) that is required to be repaid by reason of the loss giving
rise to such insurance proceeds. The Company (or a Guarantor) may use the
remainder of such proceeds to develop, construct, launch and insure a
replacement satellite (including components for a related ground station) if (i)
such replacement satellite is of comparable or superior technological capability
as compared with the satellite being replaced and has at least as much
transmission capacity as the satellite being replaced and (ii) the Company will
have sufficient funds to service the Company's projected debt service
requirements until the scheduled launch of such replacement satellite and for
one (1) year thereafter and to develop, construct, launch and insure (in the
amounts required by the preceding paragraph) such replacement satellite,
provided that such replacement satellite is scheduled to be launched within
fifteen (15) months of the receipt of such proceeds. Any such proceeds not used
as permitted by this paragraph shall be applied, within ninety (90) days, to
reduce Indebtedness of the Company.
Section 12.3(b) shall cease to apply after the Senior Notes Reduction
Date.
14. Subordination of Debentures.
---------------------------
14.1. Debentures Subordinated to Senior Indebtedness. The
Company covenants and agrees, and each holder of a Debenture, whether upon
original issue or upon transfer, assignment or exchange thereof by his
acceptance thereof, likewise covenants and agrees, that, to the extent and in
the manner hereinafter set forth in this Section 14, the payment of the
principal of and interest (except interest paid in the form of Junior
Securities) on each and all of the Debentures are hereby expressly made
subordinate and subject in right of payment to the prior payment in full in cash
or cash equivalents of all Senior Indebtedness.
14.2. Liquidation; Dissolution; Bankruptcy. In the event of
(a) any insolvency or bankruptcy case or proceeding, or any receivership,
liquidation, reorganization or other similar case or proceeding in connection
therewith, relative to the Company or to its creditors, as such, or to its
assets, (b) any liquidation, dissolution or other winding up of the Company,
whether voluntary or involuntary and whether or not involving insolvency or
bankruptcy, or (c) any assignment for the benefit of creditors or any other
marshalling of assets and liabilities of the Company, then and in any such event
specified in (a), (b) or (c) above (each such event, if any, herein sometimes
referred to as a "Proceeding") the holders of Senior Indebtedness shall be
entitled to receive payment in full in cash or cash equivalents of all amounts
due or to become due on or in respect of all Senior Indebtedness, or provision
shall be made for such payment in cash or cash equivalents or otherwise in a
manner satisfactory to the holders of Senior Indebtedness, before the holders of
the Debentures are entitled to receive any payment or distribution of any kind
or character, whether in cash, property or securities (other than Junior
Securities paid as interest on the Debentures), on account of principal of or
interest on the Debentures or on account of any purchase or other acquisition of
Debentures by the Company or any Subsidiary of the Company (all such payments,
distributions, purchases and acquisitions herein referred to, individually and
collectively, as a "Debenture Payment"), and to that end the holders of all
Senior Indebtedness shall be entitled to receive, for application to
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the payment thereof, any Debenture Payment which may be payable or deliverable
in respect of the Debentures in any such Proceeding.
To the extent any payment of Senior Indebtedness
(whether by or on behalf of the Company, as proceeds of security or enforcement
of any right of setoff orotherwise) is declared to be fraudulent or
preferential, set aside or required to be paid to any receiver, trustee in
bankruptcy, liquidating trustee, agent or other similar Person under any
bankruptcy, insolvency, receivership, fraudulent conveyance or similar law, then
if such payment is recovered by, or paid over to, such receiver, trustee in
bankruptcy, liquidating trustee, agent or other similar Person, the Senior
Indebtedness or part thereof originally intended to be satisfied shall be deemed
to be reinstated and outstanding as if such payment had not occurred.
In the event that, notwithstanding the foregoing
provisions of this Section, the holder of any Debenture shall have received any
Debenture Payment before all Senior Indebtedness is paid in full or payment
thereof provided for in cash or cash equivalents or otherwise in a manner
satisfactory to the holders of Senior Indebtedness, then and in such event such
Debenture Payment shall be received and held in trust for the benefit of, and
shall be paid over or delivered forthwith to the trustee in bankruptcy,
receiver, liquidating trustee, custodian, assignee, agent or other Person making
payment or distribution of assets of the Company for application to the payment
of all Senior Indebtedness remaining unpaid, to the extent necessary to pay all
Senior Indebtedness in full, after giving effect to any concurrent payment or
distribution to or for the holders of Senior Indebtedness.
For purposes of this Section 14 only, the words "any
payment or distribution of any kind or character, whether in cash, property or
securities" shall not be deemed to include (a) any payment of interest on the
Debentures made solely in Junior Securities or (b) a payment or distribution of
stock or securities of the Company provided for by a plan of reorganization or
readjustment authorized by an order or decree of a court of competent
jurisdiction in a reorganization proceeding under any applicable bankruptcy law
or of any other corporation provided for by such plan of reorganization or
readjustment which stock or securities are subordinated in right of payment to
all then outstanding Senior Indebtedness at least to the same extent as the
Debentures are so subordinated as provided in this Section 14; provided that (1)
if a new corporation results from such reorganization or readjustment, such
corporation assumes the Senior Indebtedness and (2) the rights of the holders of
the Senior Indebtedness are not, without the consent of such holders, altered by
such reorganization or readjustment. The consolidation of the Company with, or
the merger of the Company into, another Person or the liquidation or dissolution
or the Company following the conveyance, transfer, sale or lease of all or
substantially all of its properties and assets to another Person upon the terms
and conditions set forth in either Section 12.6 or Section 13.1, as then
applicable, shall not be deemed a Proceeding for the purposes of this Section if
the Person formed by such consolidation or into which the Company is merged or
the Person which acquires by conveyance, transfer, sale or lease such properties
and assets, as the case may be, shall, as a part of such consolidation, merger,
conveyance, transfer, sale or lease comply with the conditions set forth in
either Section 12.6 or Section 13.1, as then applicable.
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14.3. Default on Senior Indebtedness. In the event that any
Senior Payment Default (as defined below) shall have occurred and be continuing,
then no Debenture Payment shall be made directly or indirectly unless and until
such Senior Payment Default shall have been cured or waived, such default or the
benefits of this sentence shall have been waived or shall have ceased to exist,
or all amounts then due and payable in respect of Senior Indebtedness to which
such Senior Payment Default relates shall have been paid in full, or provision
shall have been made for such payment in cash or cash equivalents or otherwise
in a manner satisfactory to the holders of Senior Indebtedness. "Senior Payment
Default" means any default in the payment of principal of or premium, if any, or
interest on all or any portion of the Senior Indebtedness.
In addition, in the event that any Senior
Nonmonetary Default (as defined below) shall have occurred and be continuing,
then, upon the receipt by the Company of written notice of such Senior
Nonmonetary Default from any holder, or a trustee on behalf of a holder of such
Senior Indebtedness, of the Senior Indebtedness to which such Senior Nonmonetary
Default relates, then the Company may not directly or indirectly, make any
payments in respect of the Debentures (other than payment of interest in shares
of Junior Securities or payment of other subordinated securities issued in a
reorganization proceeding, each as provided in the fourth paragraph of Section
14.2 or payments from funds previously segregated or deposited in trust to
redeem or repurchase the Debentures under this Purchase Agreement) during the
period (the "Payment Blockage Period") commencing on the date of such receipt by
the Company of such written notice and ending on the earlier of (i) the date, if
any, on which the Senior Indebtedness to which such Senior Nonmonetary Default
relates is discharged or such Senior Nonmonetary Default shall have been cured
or waived in writing or shall have ceased to exist and any acceleration of
Senior Indebtedness to which such Senior Nonmonetary Default relates shall have
been rescinded or annulled and (ii) the one hundred seventy-ninth (179th) day
after the date of such receipt of such written notice. Notwithstanding anything
in this Agreement to the contrary, no more than one Payment Blockage Period may
be commenced with respect to the Debentures during any period of three hundred
sixty (360) consecutive days and there shall be a period of at least one hundred
eighty (180) consecutive days in each period of three hundred sixty (360)
consecutive days when no Payment Blockage Period is in effect. Following the
commencement of any Payment Blockage Period, the holders of Senior Indebtedness
shall be precluded from commencing a subsequent Payment Blockage Period until
the conditions set forth in the preceding sentence shall have been satisfied.
For all purposes of this paragraph, no Senior Nonmonetary Default that existed
or was continuing (it being acknowledged that any subsequent action that would
give rise to an event of default pursuant to any provision under which an event
of default previously existed or was continuing shall constitute a new event of
default for this purpose) on the date of commencement of any Payment Blockage
Period with respect to the Senior Indebtedness initiating such Payment Blockage
Period shall be, or may be made, the basis for the commencement of a subsequent
Payment Blockage Period with respect to the Senior Indebtedness initiating such
blockage period unless such Senior Nonmonetary Default shall have been cured or
waived for a period of not less than ninety (90) consecutive days. "Senior
Nonmonetary Default" means any default (other than a Senior Payment Default) or
any event (other than a Senior Payment Default) which, after notice or lapse or
time (or
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both), would become an event of default, under the terms of any Senior
Indebtedness permitting one or more holders of such Senior Indebtedness or a
trustee or agent on behalf of a holder of Senior Indebtedness to declare such
Senior Indebtedness due and payable prior to the date on which it would
otherwise become due and payable.
In the event that, notwithstanding the foregoing,
the Company shall make any Debenture Payment to any holder prohibited by the
foregoing provisions of this Section 14.3, then and in such event the Company
shall promptly notify the holders of Senior Indebtedness of such prohibited
payment and such payment shall be held in trust for the benefit of, and such
Debenture Payment shall be paid over and delivered forthwith to the Company for
the benefit of the holders of Senior Indebtedness.
The provisions of this Section shall not apply to
any Debenture Payment with respect to which Section 14.2 would be applicable.
14.4. Payment Permitted If No Default. Nothing contained in
this Section 14 or in any of the Debentures insofar as they incorporate the
provisions of this Section 14 shall prevent the Company, at any time except
during the pendency of any Proceeding referred to in Section 14.2 or under the
conditions described in Section 14.3, from making Debenture Payments.
14.5. Subrogation to Rights of Holders of Senior Indebtedness.
Subject to the payment in full of all amounts due or to become due on or in
respect of Senior Indebtedness, or the provision for such payment in cash or
cash equivalents or otherwise in a manner satisfactory to the holders of Senior
Indebtedness, the holders of the Debentures shall be subrogated to the rights of
the holders of such Senior Indebtedness to receive payments and distributions of
cash, property and securities applicable to the Senior Indebtedness until the
principal of and interest on the Debentures shall be paid in full. For purposes
of such subrogation, no payments or distributions to the holders of the Senior
Indebtedness of any cash, property or securities to which the holders of the
Debentures would be entitled except for the provisions of this Section 14, and
no payments over pursuant to the provisions of this Section 14 to the holders of
Senior Indebtedness by holders of the Debentures shall, as among the Company,
its creditors other than holders of Senior Indebtedness and the holders of the
Debentures, be deemed to be a payment or distribution by the Company to or on
account of the Senior Indebtedness.
14.6. Provisions Solely to Define Relative Rights. The
provisions of this Section 14 are and are intended solely for the purpose of
defining the relative rights of the holders of the Debentures on the one hand
and the holders of Senior Indebtedness on the other hand. Nothing contained in
this Section 14 or elsewhere in this Agreement or in the Debentures is intended
to or shall (a) impair, as among the Company, its creditors other than holders
of Senior Indebtedness and the holders of the Debentures, the obligation of the
Company, which is absolute and unconditional, to pay to the holders of the
Debentures the principal of and interest on the Debentures as and when the same
shall become due and payable in accordance
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with their terms; (b) affect the relative rights against the Company of the
holders of the Debentures and creditors of the Company other than the holders of
Senior Indebtedness; or (c) prevent the holder of any Debenture from exercising
all remedies otherwise permitted by applicable law upon default under this
Agreement subject to the rights, if any, under this Section 14 of the holders of
Senior Indebtedness to receive cash, property and securities otherwise payable
or deliverable to such holder.
14.7. Enforcement of Subordination By Holders of Senior Notes;
No Waiver of Subordination Provisions. Each holder of a Debenture by his
acceptance thereof, if and so long as a Debenture Payment is prohibited under
this Section 14, irrevocably authorizes and empowers (but without imposing any
obligation on, or any duty to such holder from) each holder of Senior Notes at
any time outstanding, and such holder's representatives, to demand, sue for,
collect and receive such holder's ratable share of Debenture Payments which are
required to be paid or delivered to the holders of Senior Indebtedness as
provided in this Section 14 in any liquidation or reorganization of the Company
under the U.S. Federal Bankruptcy Code (an "Insolvency Proceeding"), (A) to file
a proof of claim or debt in the form required in an Insolvency Proceeding
respecting such holder of Senior Notes' ratable share of such Debenture Payments
in any Insolvency Proceeding in the name of such holders of Debentures, and to
prove the validity, amount and priority of such claim, and agrees that such
holder is an authorized agent for purposes of Federal Rule of Bankruptcy
Procedure 3001(b) (provided, however, if, and to the extent that, the holders of
the Senior Notes (or their representatives) have not filed a proof of claim or
interest with respect to the Debentures in any action or case under the Federal
Bankruptcy Code at least five (5) Business Days prior to the last date by which
all such proofs of claim or interest must be filed or forever barred, the
holders of the Debentures or their representatives may (but shall not be
obligated to) file proofs of claim or interest with respect to the Debentures);
(B) to vote the claim respecting such holder of Senior Notes' ratable share of
such Debenture Payments in any Insolvency Proceeding, including, without
limitation, in a proceeding under Chapter 11, Title 11, United States Code; and
(C) to take any such actions as such holder of Senior Notes, or such holder's
representatives, may determine to be reasonably necessary or appropriate for the
enforcement of the provisions set forth in (A) or (B) above.
No right of any present or future holder of any
Senior Indebtedness to enforce subordination as herein provided shall at any
time in any way be prejudiced or impaired by any act or failure to act on the
part of the Company or by any act or failure to act, in good faith, by any such
holder, or by any noncompliance by the Company with the terms, provisions and
covenants of this Agreement, regardless of any knowledge thereof any such holder
may have or be otherwise charged with.
Without in any way limiting the generality of the
foregoing paragraph, the holders of Senior Indebtedness may, at any time and
from time to time, without the consent of or notice to the holders of the
Debentures, without incurring responsibility to the holders of the Debentures
and without impairing or releasing the subordination provided in this Section 14
or the obligations hereunder of the holders of the Debentures to the holders of
Senior Indebtedness, do any one or more of the following: (i) amend or
supplement in any manner
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Senior Indebtedness or any instrument evidencing the same or any agreement under
which Senior Indebtedness is outstanding; (ii) sell, exchange, release or
otherwise deal with any property pledged, mortgaged or otherwise securing Senior
Indebtedness; (iii) release any Person liable in any manner for the collection
of Senior Indebtedness; and (iv) exercise or refrain from exercising any rights
against the Company and any other Person.
14.8. Reliance on Judicial Order or Certificate of Liquidating
Agent. Upon any payment or distribution of assets of the Company referred to in
this Section 14, the holders of the Debentures shall be entitled to rely upon
any order or decree entered by any court of competent jurisdiction in which such
Proceeding is pending, or a certificate of the trustee in bankruptcy, receiver,
liquidating trustee, custodian, assignee for the benefit of creditors, agent or
other Person making such payment or distribution, delivered to the holders of
Debentures, for the purpose of ascertaining the Persons entitled to participate
in such payment or distribution, the holders of the Senior Indebtedness and
other indebtedness of the Company, the amount thereof or payable thereon, the
amount or amounts paid or distributed thereon and all other facts pertinent
thereto or to this Section 14.
14.9. Certain Conversions Deemed Payment. For the purposes of
this Section 14 only, (i) the issuance and delivery of Junior Securities upon
conversion of Debentures in accordance with Section 15 hereof shall not be
deemed to constitute a Debenture Payment and (ii) the payment, issuance or
delivery of cash, property or securities (other than Junior Securities) upon
conversion of a Debenture shall be deemed to constitute a Debenture Payment. For
the purposes of this Section 14, the term "Junior Securities" means shares of
any Capital Stock. Nothing contained in this Section 14 or elsewhere in this
Agreement or in the Debentures is intended to or shall impair, as among the
Company, its creditors other than holders of Senior Indebtedness and the holders
of the Debentures, the right, which is absolute and unconditional, of the holder
of any Debenture to convert such Debenture in accordance with the provisions of
Section 15 hereof.
14.10. Not to Prevent Events of Default. The failure to make a
payment on account of principal of premium, if any, or interest on the
Debentures by reason of any provision of this Section 14 will not be construed
as preventing the occurrence of an Event of Default.
15. Conversion Rights.
-----------------
15.1. Conversion Privilege and Conversion Rate. Subject to and
upon compliance with the provisions of this Section 15, at the option of the
holder thereof, any Debenture may be converted into fully paid and nonassessable
shares (calculated as to each conversion to the nearest one one-hundredth
(1/100th) of a share) of Common Stock at the Conversion Rate, determined as
hereinafter provided, in effect at the time of conversion. Such conversion right
shall commence on the date of such Debenture and expire the later of (i) at the
close of business on February 1, 2012 or (ii) the date the full principal amount
of all of the Debentures and all accrued interest thereon have been paid in
full. In case any Debentures
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are called for redemption under Section 11.2 or 11.3 or the Company requires
holders of Notes to make a Mandatory Sale under Section 11.4, such conversion
right in respect of any such Debenture shall be subject to the provisions of
Section 11.5.
The rate at which shares of Common Stock shall be
delivered upon conversion (herein called the "Conversion Rate") shall be
initially 71.42857 shares of Common Stock for each $1,000 principal amount of
Debentures. The Conversion Rate shall be adjusted in certain instances as
provided in this Section 15.
15.2. Exercise of Conversion Privilege; Time Conversion Deemed
Effected; Delivery of Stock Certificates; Partial Conversions; Accrued Interest.
In order to exercise the conversion privilege, the holder of any Debenture to be
converted shall surrender such Debenture, duly endorsed or assigned to the
Company or in blank, at the Company's principal executive offices, 2440 Research
Boulevard, Suite 400, Rockville, Maryland 20850 (or such other office or agency
of the Company as the Company may designate by notice in writing to each holder
of Debentures), accompanied by written notice to the Company at such office that
the holder elects to convert such Debenture or, if less than the entire
principal amount thereof is to be converted, the portion thereof to be
converted.
A Debenture shall be deemed to have been converted
immediately prior to the close of business on the day of surrender of such
Debenture for conversion in accordance with the foregoing provisions, and at
such time the rights of the holder of such Debenture, as a holder thereof, shall
cease to the extent of the portion of such Debenture converted, and the Person
or Persons entitled to receive the Conversion Shares shall be treated for all
purposes as the record holder or holders thereof at such time. As promptly as
practicable on or after the date of any conversion in full or in part of any
Debenture, but in no event later than five (5) Business Days thereafter, the
Company shall, at its expense (including the payment by it of any applicable
issue taxes), issue and deliver to the holder of such Debenture, or as such
holder may direct, a certificate or certificates for the number of full
Conversion Shares, together with (a) payment in lieu of any fraction of a share,
as provided in Section 15.3, and (b) interest (payable in the form of Interest
Shares as provided in the form of the Debenture) on the principal amount of such
Debenture, or the portion thereof converted, accrued and unpaid to and including
the date of such conversion, without any adjustment in respect of any dividend
or other distribution payable on the Conversion Shares.
Upon any partial conversion of a Debenture, the
Company will forthwith issue and deliver to or upon the order of the holder
thereof, at the expense of the Company, a new Debenture or Debentures in
aggregate principal amount equal to the unpaid and unconverted portion of the
principal amount of such partially converted Debenture. Such new Debenture or
Debentures shall be registered in the name of such holder and dated as of the
date of the converted Debenture.
15.3. Fractions of Shares. No fractional shares of Common
Stock shall be issued upon conversion of any Debenture or Debentures. If more
than one (1) Debenture shall
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be surrendered for conversion at one time (or substantially at the same time) by
the same holder, the number of full shares which shall be issuable upon
conversion thereof shall be computed on the basis of the aggregate principal
amount of the Debentures so surrendered. In place of any fractional share of
Common Stock which would otherwise be issuable upon conversion of any Debenture
or Debentures, the Company shall calculate and pay a cash adjustment in respect
of such fraction (calculated to the nearest one one-hundredth (1/100th) of a
share) in an amount equal to the same fraction of the current market price per
share of Common Stock (calculated in accordance with Section 15.4(8) below) at
the close of business on the day of conversion.
15.4. Adjustments to Conversion Rate. The Conversion Rate
shall be subject to adjustments from time to time as follows:
(1) In case at any time after the Closing Date the
Company shall pay or make a dividend or other distribution on any class
of Capital Stock of the Company (other than the Series C Preferred
Stock) in shares of its Common Stock, the Conversion Rate in effect at
the opening of business on the day following the date fixed for the
determination of stockholders entitled to receive such dividend or
other distribution shall be increased by dividing such Conversion Rate
by a fraction of which the numerator shall be the number of shares of
Common Stock outstanding at the close of business on the date fixed for
such determination and the denominator shall be the sum of such number
of shares and the total number of shares constituting such dividend or
other distribution, such increase to become effective immediately after
the opening of business on the day following the date fixed for such
determination. For the purposes of this paragraph (1), the number of
shares of Common Stock at any time outstanding shall not include shares
held in the treasury of the Company but shall include shares issuable
in respect of scrip certificates issued in lieu of fractions of shares
of Common Stock. The Company will not pay any dividend or make any
distribution on shares of Common Stock held in the treasury of the
Company.
(2) In case at any time after the Closing Date, the
Company shall issue rights or warrants to all holders of its Common
Stock (not being available on an equivalent basis to holders of the
Debentures upon conversion) entitling them to subscribe for or purchase
shares of Common Stock at a price per share less than the current
market price per share (determined as provided in paragraph (8) of this
Section 15.4) of the Common Stock on the date fixed for the
determination of stockholders entitled to receive such rights or
warrants, the Conversion Rate in effect at the opening of business on
the day following the date fixed for such determination shall be
increased by dividing such Conversion Rate by a fraction of which the
numerator shall be the number of shares of Common Stock outstanding at
the close of business on the date
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fixed for such determination plus the number of shares of Common Stock
which the aggregate of the offering price of the total number of shares
of Common Stock so offered for subscription or purchase would purchase
at such current market price and the denominator shall be the number of
shares of Common Stock outstanding at the close of business on the date
fixed for such determination plus the number of shares of Common Stock
so offered for subscription or purchase, such increase to become
effective immediately after the opening of business on the day
following the date fixed for such determination. However, upon the
expiration of any right or warrant to purchase Common Stock the
issuance of which resulted in an adjustment in the Conversion Rate
pursuant to this subsection (2), if any such right or warrant shall
expire and shall not have been exercised, the Conversion Rate shall
immediately upon such expiration be recomputed and effective
immediately upon such expiration be increased to the price which it
would have been (but reflecting any other adjustments in the Conversion
Rate made pursuant to the provisions of this Section 15.4 after the
issuance of such rights or warrants) had the adjustment of the
Conversion Rate made upon the issuance of such rights or warrants been
made on the basis of offering for subscription or purchase only that
number of shares of Common Stock actually purchased upon the exercise
of such rights or warrants actually exercised. For the purposes of this
paragraph (2), the number of shares of Common Stock at any time
outstanding shall not include shares held in the treasury of the
Company but will include shares issuable in respect of scrip
certificates issued in lieu of fractions of shares of Common Stock. The
Company will not issue any rights or warrants in respect of shares of
Common Stock held in the treasury of the Company.
(3) In case at any time after the Closing Date,
outstanding shares of Common Stock shall be subdivided into a greater
number of shares of Common Stock, the Conversion Rate in effect at the
opening of business on the day following the day upon which such
subdivision becomes effective shall be proportionately increased and,
conversely, in case at any time after the date hereof, outstanding
shares of Common Stock shall each be combined into a smaller number of
shares of Common Stock, the Conversion Rate in effect at the opening of
business on the day following the day upon which such combination
becomes effective shall be proportionately reduced, such increase or
reduction, as the case may be, to become effective immediately after
the opening of business on the day following the day upon which such
subdivision or combination becomes effective.
(4) In case at any time after the Closing Date, the
Company shall, by dividend or otherwise, distribute to all holders of
its Common Stock evidences of its indebtedness or assets (including
stock or other securities of the Company or any other issuer, but
excluding any rights or warrants referred to in paragraph (2) of this
Section 15.4, any dividend or distribution paid exclusively in cash and
any dividend or distribution referred to in paragraph (1) of this
Section 15.4), the Conversion Rate shall be adjusted so that the same
shall equal the rate determined by dividing the Conversion Rate in
effect immediately prior to the close of business on the date fixed for
the determination of stockholders entitled to receive such distribution
by a fraction of which the numerator shall be the current market price
per share (determined as provided in paragraph (8) of this Section
15.4) of the Common Stock on the date fixed for such determination less
the then fair market value (each reference to "fair market value" in
this Section 15.4 shall mean the fair market value as determined by the
Board of
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Directors of the Company in good faith, whose determination shall be
described in a Board Resolution, a copy of which shall be delivered to
each holder of Debentures within ten (10) days of the adoption of the
resolution) of the portion of the assets or evidences of indebtedness
so distributed applicable to one (1) share of Common Stock and the
denominator shall be such current market price per share of the Common
Stock, such adjustment to become effective immediately prior to the
opening of business on the day following the date fixed for the
determination of stockholders entitled to receive such distribution.
(5) In case at any time after the Closing Date (A)
the Company shall, by dividend or otherwise, distribute to all holders
of its Common Stock cash (excluding any cash that is distributed upon a
merger or consolidation to which Section 15.13 applies or as part of a
distribution referred to in paragraph (4) of this Section 15.4) and
(B)(I) the total of (x) the aggregate amount of such cash distribution,
(y) the aggregate amount of any other distributions to all holders of
its Common Stock made exclusively in cash within the twelve (12) months
preceding the date of payment of such distribution and in respect of
which no adjustment pursuant to this paragraph (5) or paragraph (6) of
this Section 15.4 has been made and (z) the aggregate of any cash plus
the fair market value of other consideration payable in respect of any
tender offers by the Company or any of its Subsidiaries for all or any
portion of the Common Stock concluded within the twelve (12) months
preceding the date of payment of such distribution and in respect of
which no adjustment pursuant to this paragraph (5) or paragraph (6) of
this Section 15.4 has been made, exceeds (II) ten percent (10%) of the
product of the current market price per share (determined as provided
in paragraph (8) of this Section 15.4) of the Common Stock on the date
for the determination of holders of shares of Common Stock entitled to
receive such distribution times the number of shares of Common Stock
outstanding on such date, then, and in each such case, immediately
after the close of business on such date for determination, the
Conversion Rate shall be increased so that the same shall equal the
rate determined by dividing the Conversion Rate in effect immediately
prior to the close of business on the date fixed for determination of
the stockholders entitled to receive such distribution by a fraction
(i) the numerator of which shall be equal to such current market price
per share on the date fixed for such determination less an amount equal
to the quotient of (X) the sum of (I) the total of the amounts referred
to in subclauses (B)(I)(x) and (y) of this paragraph (5) and (II) the
aggregate of the excess of the amount referred to in subclause
(B)(I)(z) of this paragraph (5) for each tender offer so referred to
over the aggregate current market price of the shares of Common Stock
purchased in such tender offer as of the Expiration Time (as
hereinafter defined) for such tender offer divided by (Y) the number of
shares of Common Stock outstanding on such date for determination and
(ii) the denominator of which shall be equal to such current market
price per share on such date for determination.
(6) In case at any time after the Closing Date (A) a
tender offer made by the Company or any Subsidiary for all or any
portion of the Common Stock shall
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expire and (B)(I) the total of (x) the fair market value of the
aggregate consideration required to be paid pursuant to such tender
offer (as amended upon the expiration thereof) to stockholders (based
on the acceptance (up to any maximum specified in the terms of the
tender offer) of Purchased Shares (as defined below)), (y) the
aggregate of the cash plus the fair market value, as of the expiration
of such tender offer, of consideration payable in respect of any other
tender offer, by the Company or any Subsidiary for all or any portion
of the Common Stock expiring within the twelve (12) months preceding
the expiration of such tender offer and in respect of which no
adjustment pursuant to this paragraph (6) or paragraph (5) of this
Section 15.4 has been made and (z) the aggregate amount of any
distributions to all holders of the Company's Common Stock made
exclusively in cash within twelve (12) months preceding the expiration
of such tender offer and in respect of which no adjustment pursuant to
this paragraph (6) or paragraph (5) of this Section 15.4 has been made,
exceeds (II) ten percent (10%) of the product of the current market
price per share of the Common Stock (determined as provided in
paragraph (8) of this Section 15.4) on the date of the last time (the
"Expiration Time") tenders could have been made pursuant to such tender
offer (as it may be amended) times the number of shares of Common Stock
outstanding (including any tendered shares) on the Expiration Time,
then, and in each such case, immediately prior to the opening of
business on the day after the date of the Expiration Time, the
Conversion Rate shall be adjusted so that the same shall equal the
price determined by dividing the Conversion Rate immediately prior to
the close of business on the date of the Expiration Time by a fraction
(i) the numerator of which shall be equal to (a) the product of (I)
such current market price per share on the date of the Expiration Time
and (II) the number of shares of Common Stock outstanding (including
any tendered shares) as of the Expiration Time less (b) the total of
the amounts referred to in Clause (B)(I) of this paragraph (6), and
(ii) the denominator of which shall be equal to the product of (a) such
current market price per share on the date of the Expiration Time and
(b) the number of shares of Common Stock outstanding (including any
tendered shares) as of the Expiration Time less the number of all
shares validly tendered and not withdrawn as of the Expiration Time
(the shares deemed so accepted up to any such maximum, being referred
to as the "Purchased Shares").
(7) The reclassification of Common Stock into
securities other than Common Stock (other than any reclassification
upon a consolidation or merger to which Section 15.13 applies) shall be
deemed to involve (a) a distribution of such securities other than
Common Stock to all holders of Common Stock (and the effective date of
such reclassification shall be deemed to be "the date fixed for the
determination of stockholders entitled to receive such distribution"
and "the date fixed for such determination" within the meaning of
paragraph (4) of this Section 15.4), and (b) a subdivision or
combination, as the case may be, of the number of shares of Common
Stock outstanding immediately prior to such reclassification into the
number of shares of Common Stock outstanding immediately thereafter
(and the effective date of such reclassification shall be deemed to be
"the day upon which such subdivision becomes effective" or "the day
upon which such combination becomes effective", as the case may
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be, and "the day upon which such subdivision or combination becomes
effective" within the meaning of paragraph (3) of this Section 15.4).
(8) For the purpose of any computation under
paragraph (2), (4), (5) or (6) of this Section 15.4, the current market
price per share of Common Stock on any date shall be calculated by the
Company and be deemed to be the average of the daily Closing Price per
share of Common Stock for the five (5) consecutive Trading Days before,
and ending not later than, the earlier of (i) the day in question and
(ii) the day before the "ex" date with respect to the issuance or
distribution requiring such computation. For purposes of this
paragraph, the term "'ex' date", when used with respect to any issuance
or distribution, means the first date on which the Common Stock trades
regular way on the applicable securities exchange or in the applicable
securities market without the right to receive such issuance or
distribution.
(9) The Company may make such increases in the
Conversion Rate, for the remaining term of the Debentures or any
shorter term, in addition to those required by paragraphs (1), (2),
(3), (4), (5) and (6) of this Section 15.4, as it considers to be
advisable in order to avoid or diminish any income tax to any holders
of shares of Common Stock resulting from any dividend or distribution
of stock or issuance of rights or warrants to purchase or subscribe for
stock or from any event treated as such for income tax purposes or for
any other reasons.
15.5. Effect on Conversion Price of Certain Events. In order
to prevent dilution of the conversion rights granted under this Section 15, in
addition to the adjustments provided for in Section 15.4, the Conversion Rate
shall be subject to adjustment from time to time pursuant to this Section 15.5
as follows; provided, however, that no adjustments shall be made under this
Section 15.5 with respect to any issuance of securities or other event that
requires an adjustment of the Conversion Rate under Section 15.4.
(1) If and whenever on or after the Closing Date the
Company issues or sells, or in accordance with this Section 15.5 is
deemed to have issued or sold, other than in an Excluded Issuance, any
share of Common Stock for a consideration per share less than the
Trigger Price in effect immediately prior to such time (a "Dilutive
Event"), then forthwith upon such issue or sale in the Dilutive Event
the Conversion Rate shall be increased by dividing the Conversion Rate
in effect immediately before the Dilutive Event by a fraction, the
numerator of which is the number of shares of Common Stock that are
Outstanding on an As-Converted Basis (as defined below) immediately
before the Dilutive Event plus the number of shares of Common Stock
that could be purchased at the Trigger Price at the time of the
Dilutive Event for the aggregate consideration paid or payable upon the
sale or issuance of Common Stock in the Dilutive Event, and the
denominator of which is the number of shares of Common Stock that are
Outstanding on an As-Converted
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Basis immediately before the Dilutive Event plus the number of shares
that are acquired or to be acquired upon the sale or issuance of the
Common Stock in the Dilutive Event. For purposes of this paragraph (1),
"Outstanding on an As-Converted Basis immediately before the Dilutive
Event" means the sum of (i) all Common Stock issued and outstanding
immediately before the Dilutive Event plus (ii) all Common Stock
issuable upon the exercise of Options or conversion of Convertible
Securities outstanding immediately before the Dilutive Event (other
than the Debentures).
(2) If after the Closing Date the Company in any
manner grants any Options and the price per share for which shares of
Common Stock are issuable upon the exercise of any such Option is less
than the Trigger Price in effect immediately prior to the time of the
granting of such Option, then such shares of Common Stock shall be
deemed to have been issued and sold by the Company at the time of the
granting of such Options for such price per share and the Conversion
Rate shall be adjusted in accordance with paragraph (1) of this Section
15.5. For purposes of this paragraph, the "price per share" for which
shares of Common Stock are issuable upon the exercise of any Option
shall be equal to the sum of the amounts of consideration (if any)
received or receivable by the Company with respect to such shares of
Common Stock upon the granting of the Option and upon exercise of the
Option. No further adjustment of the Conversion Rate shall be made upon
the actual issue of such Common Stock upon the exercise of such
Options.
(3) If after the Closing Date the Company in any
manner issues or sells any Convertible Security (or Options to purchase
any Convertible Security) and the price per share for shares of Common
Stock that are issuable upon conversion or exchange thereof is less
than the Trigger Price in effect immediately prior to the time of such
issue or sale (or the granting of such Option), then such shares of
Common Stock shall be deemed to have been issued and sold by the
Company at the time of the issuance or sale of such Convertible
Securities (or the granting of such Option) for such price per share
and the Conversion Price shall be adjusted in accordance with paragraph
(1) of this Section 15.5. For the purposes of this paragraph (3), the
"price per share" for which shares of Common Stock are issuable upon
conversion or exchange of any Convertible Security (or exercise of any
Option therefor) shall be equal to the sum of the amounts of
consideration (if any) received or receivable by the Company upon the
issuance of the Convertible Security (or such Option) and upon the
conversion or exchange of such Convertible Security (or exercise of
such Option). No further adjustment of the Conversion Price shall be
made upon the actual issue of such Common Stock upon conversion or
exchange of any Convertible Security, and if any such issue or sale of
such Convertible Security is made upon exercise of any Options for
which adjustments of the Conversion Rate had been or are to be made
pursuant to other provisions of this Section 15, no further adjustment
of the Conversion Rate shall be made by reason of such issue or sale.
(4) If after the Closing Date the purchase price
provided for in any Option, the additional consideration (if any)
payable upon the issue, conversion or exchange of any Convertible
Security (other than the Debentures), or the rate at which any
Convertible Security (other than the Debentures) is convertible into or
exchangeable
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for Common Stock changes at any time, any Conversion Rate previously
adjusted with respect to such Option or Convertible Security (other
than the Debentures) and in effect at the time of such change shall be
readjusted to the Conversion Rate which would have been in effect at
such time had such Option or Convertible Security (other than the
Debentures) originally provided for such changed purchase price,
additional consideration or changed conversion rate, as the case may
be, at the time initially granted, issued or sold.
(5) Upon the expiration of any Option or the
termination of any right to convert or exchange any Convertible
Security (other than the Debentures), after the Closing Date, without
the exercise of any such Option or right, any Conversion Rate then in
effect hereunder shall be adjusted to the Conversion Rate which would
have been in effect at the time of such expiration or termination had
such Option or Convertible Security, to the extent outstanding
immediately prior to such expiration or termination, never been issued.
(6) For the purpose of this Section 15.5, if any
Common Stock, Option or Convertible Security is issued or sold or
deemed to have been issued or sold for cash, the consideration received
therefor shall be deemed to be the amount received by the Company
therefor. In case any Common Stock, Options or Convertible Securities
are issued or sold for a consideration other than cash, the amount of
the consideration other than cash received by the Company shall be the
fair value of such consideration, except where such consideration
consists of securities, in which case the amount of consideration
received by the Company shall be the Market Price thereof as of the
date of receipt. If any Common Stock, Option or Convertible Security is
issued to the owners of the non- surviving entity in connection with
any merger in which the Company is the surviving corporation, the
amount of consideration therefor shall be deemed to be the fair value
of such portion of the assets and business of the non-surviving entity
as is attributable to such Common Stock, Options or Convertible
Securities, as the case may be. The fair value of any consideration
other than cash and securities shall be as determined in good faith by
the Board of Directors of the Company. For purposes of this paragraph
(6), the term "Market Price" of a security means, with respect to a
specified date, the Closing Price of such security, averaged over a
period of the twenty (20) consecutive Business Days prior to such date;
provided that if during this period such security is not listed on any
securities exchange, quoted on the Nasdaq National Market, or quoted in
the over-the-counter market, the Market Price will be the fair value of
such security determined by agreement between the Company and the
holders of a majority of the Outstanding Debentures. If such parties
are unable to reach agreement within a reasonable period of time, the
fair value of such security shall be determined by an independent
appraiser experienced in valuing such type of consideration jointly
selected by the Company and the holders of a majority of the
Outstanding Debentures. The determination of such appraiser shall be
final and binding upon the parties, and the fees and expenses of such
appraiser shall be borne by the Company.
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(7) In case any Option is issued in connection with
the issue or sale of other securities of the Company, together
comprising one (1) integrated transaction in which no specific
consideration is allocated to such Option by the parties thereto, the
Option shall be deemed to have been issued for a consideration of $.0l.
15.6. De Minimis Adjustments. Notwithstanding any other
provisions of this Section 15, the Company shall not be required to make any
adjustment of the Conversion Rate unless such adjustment would require an
increase or decrease of at least one percent (1%) in the Conversion Rate as then
in effect. Any lesser adjustment shall be carried forward and shall be made no
later than the time of, and together with, the next subsequent adjustment which,
together with any adjustment or adjustments so carried forward, shall amount to
an increase or decrease of at least one percent (1%) of the Conversion Rate as
then in effect.
15.7. Notice of Adjustments of Conversion Rate. Whenever the
Conversion Rate is adjusted as provided in Section 15.4 or Section 15.5, the
Company shall promptly (and, in any event, not later than the fifteenth (15th)
day following the occurrence of the event requiring such adjustment) compute the
adjusted Conversion Rate in accordance with this Section 15 and shall prepare a
report setting forth such adjustment and showing in detail the method of
calculation and the facts upon which such adjustment is based, including a
statement of (a) the consideration received or to be received by the Company for
any additional shares of Common Stock issued or sold or deemed to have been
issued, (b) the number of shares of Common Stock outstanding or deemed to be
outstanding, and (c) the Conversion Rate in effect immediately prior to such
issue or sale and as adjusted on account therefor and, upon the request of any
holder of the Debentures, shall cause certified public accountants of recognized
national standing (which may be the regular auditors of the Company) selected by
the Company to verify such computation and report, if not previously verified at
the request of any holder. The Company will promptly (and, in any event, not
later than such fifteenth (15th) day) furnish a copy of each such report and
such verification to the holder of any Debenture, and will, upon the written
request at any reasonable time of the holder of any Debenture, furnish to such
holder a like report setting forth the Conversion Rate at the time in effect and
showing how it was calculated. The Company will also keep copies of all such
reports and such verifications at its principal office, and will cause the same
to be available for inspection at such office during normal business hours by
the holder of any Debenture or any prospective purchaser of any Debenture
designated by the holder of such Debenture.
15.8. Notice of Certain Corporate Action. In case:
(1) the Company shall declare a dividend (or any
other distribution) on its Common Stock payable otherwise than in cash
out of its earned surplus; or
(2) the Company shall authorize the granting to all
holders of its Common Stock of rights or warrants to subscribe for or
purchase any shares of Capital Stock or of any other rights; or
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(3) (a) of any reclassification of the Common Stock
of the Company, or (b) of any consolidation, merger or share exchange
to which the Company is a party and for which approval of any
stockholders of the Company is required, or (c) of any tender offer by
the Company or any Subsidiary for all or any portion of the Common
Stock, or (d) of the conveyance, transfer, sale or lease of all or
substantially all of the assets of the Company; or
(4) of the voluntary or involuntary dissolution,
liquidation or winding up of the Company;
then the Company, ten (10) Business Days prior to the applicable record,
expiration or effective date hereinafter specified, shall give to each holder of
Debentures a notice stating (x) the date on which a record is to be taken for
the purpose of such dividend, distribution, rights or warrants, or, if a record
is not to be taken, the effective date as of which the holders of Common Stock
of record to be entitled to such dividend, distribution, rights or warrants are
to be determined, (y) the date on which the right to make tenders under such
tender offer expires or (z) the date on which such reclassification,
consolidation, merger, share exchange, conveyance, transfer, sale, lease,
dissolution, liquidation or winding up is expected to become effective, and the
date as of which it is expected that holders of Common Stock of record shall be
entitled to exchange their shares of Common Stock for securities, cash or other
property deliverable upon such reclassification, consolidation, merger, share
exchange, conveyance, transfer, sale, lease, dissolution, liquidation or winding
up.
15.9. Company to Reserve Common Stock. The Company shall at
all times reserve and keep available, free from preemptive rights, out of its
authorized but unissued Common Stock, for the purpose of effecting the
conversion of Debentures, the full number of Conversion Shares then issuable
upon the conversion of all outstanding Debentures.
15.10. Taxes on Conversions. The Company will pay any and all
taxes (other than taxes on income), liens and other charges that may be payable
in respect of the issue or delivery of Conversion Shares pursuant hereto.
15.11. Agreements as to Common Stock; Listing. The Company
agrees that all Conversion Shares, upon delivery thereof, will have been duly
authorized and validly issued and will be fully paid and nonassessable with no
liability on the part of holders thereof. The Company will take all such action
as may be necessary to insure that such Conversion Shares may be issued without
violation of any applicable law or regulation, or of any agreement, contract or
understanding applicable to the Company or its assets, or of any requirements of
any securities exchange or automated quotation system upon which any shares of
Common Stock may be listed or quoted.
No class of Capital Stock (other than any class that
has a preference in respect of dividends or of amounts payable in the event of
any voluntary or involuntary liquidation, dissolution or winding up of the
Company or that is subject to redemption by the
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Company) shall have voting rights that are proportionately greater per share
than those of any class of Capital Stock issuable on any conversion of the
Debentures pursuant hereto, and all classes of which shares are so issuable on
any such conversion shall have voting rights.
15.12. Cancellation of Converted Debentures. All
Debentures delivered for conversion shall be cancelled and no such Debenture
shall thereafter be reissued.
15.13. Provision in Case of Consolidation, Merger or
Conveyance of Assets.
(a) In case at any time after the Closing Date the
Company shall be a party to any transaction (including, without limitation, a
merger, consolidation, sale of all or substantially all of the Company's assets
or recapitalization of the Common Stock) in which the previously outstanding
Common Stock shall be changed into or exchanged for different securities of the
Company, common stock or other securities of another corporation or interests in
a noncorporate entity or other property (including cash) or any combination of
any of the foregoing (each such transaction being hereinafter referred to as a
"Reorganization Transaction," the date of the consummation of the Reorganization
Transaction being hereinafter referred to as the "Consummation Date," the
Company (in the case of a recapitalization of the Common Stock) or such other
corporation or entity (in each other case) being hereinafter referred to as the
"Acquiring Company," and the common stock (or equivalent equity interests) of
the Acquiring Company being hereinafter referred to as the "Acquirer's Common
Stock"), then, subject to the alternate rights of each holder of Debentures set
forth in Section 15.13(b), if then applicable as a condition to the consummation
of the Reorganization Transaction, lawful and adequate provisions shall be made
so that, upon the basis and the terms and in the manner provided in this Section
15, each holder of a Debenture, upon the conversion thereof at any time after
the consummation of the Reorganization Transaction, shall be entitled to
receive, in lieu of the Stock or Other Securities issuable upon such conversion
prior to such consummation, the stock and other securities, cash and property to
which such holder would have been entitled upon the consummation of the
Reorganization Transaction if such holder had converted such Debenture
immediately prior thereto (subject to adjustments from and after the
Consummation Date as nearly equivalent as possible to the adjustments provided
for in this Section 15 including, without limitation, this Section 15.13).
(b) In addition to the rights granted in Section
15.13(a), at the election of any holder of any Debenture pursuant to notice
given to the Company on or before the later of (x) the day on which the holders
of the Common Stock of the Company approve the Reorganization Transaction, and
(y) the sixtieth day (60th) following the date of delivery or mailing to such
holder of the last proxy statement relating to the vote on the Reorganization
Transaction by the holders of the Common Stock of the Company, such holder shall
have the right to elect to receive on the Consummation Date and, as a condition
precedent to the Reorganization Transaction, in full payment and in
consideration for the surrender of such Debenture, a cash amount equal to the
current market value (as determined in accordance with Section 15.4(8)) of the
number of shares of Stock (or Other Securities) to which the holder of such
Debenture would have been entitled had such holder converted such Debenture
immediately
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prior to the consummation of the Reorganization Transaction; provided, however,
that the provisions of this Section 15.13(b) shall not apply prior to the Senior
Notes Reduction Date.
(c) The Company will not enter into or be a party to
any Reorganization Transaction following the consummation of which any holder of
Debentures would be entitled in accordance with the foregoing provisions of this
Section 15.13 to receive Acquirer's Common Stock or other securities of the
Acquiring Company upon conversion of such Debentures unless, immediately
following the consummation thereof on the Consummation Date, all of the
following requirements are fulfilled as to the Acquiring Company:
(A) its common stock is listed on the New York Stock
Exchange or the American Stock Exchange or is authorized for
quotation on the Nasdaq National Market as a national market
security and such common stock continues to meet the
requirements for such listing or quotation, as the case may
be, and
(B) it is required to file reports with the
Commission pursuant to Section 13 or 15(d) of the Exchange
Act.
(d) Notwithstanding anything contained in this
Agreement to the contrary, the Company will not effect any Reorganization
Transaction unless, prior to the consummation thereof, each corporation or
entity (other than the Company) which may be required to deliver any stock,
securities, cash or property upon the conversion of any Debenture as provided
herein shall assume, by written instrument delivered to the holder of such
Debenture, the obligation to deliver to such holder such shares of stock,
securities, cash or property as, in accordance with the foregoing provisions,
such holder may be entitled to receive, and such corporation or entity shall
have similarly delivered to such holder an opinion of counsel for such
corporation or entity, which counsel shall be reasonably satisfactory to such
holder, stating that such Debenture shall thereafter continue in full force and
effect and the terms hereof (including, without limitation, all of the
provisions of this Section 15) shall be applicable to the stock, securities,
cash or property which such corporation or entity may be required to deliver
upon the exercise hereof. Nothing in this Section 15.13 shall be deemed to
authorize the Company to enter into any transaction not otherwise permitted by
either Section 12.6 or Section 13.1, as then applicable.
15.14. Other Dilutive Events. In case any event shall occur
which is substantially similar to the events described in the other provisions
of this Section 15, but as to which substantially similar event such provisions
of this Section 15 are not applicable and in respect of which substantially
similar event the failure to make any adjustment would not in the reasonable
opinion of any holder of a Debenture or the Company fairly protect the
conversion rights granted by this Section 15 in accordance with the essential
intent and principles hereof, then, in each such case, upon the written request
of such holder or on its own motion, the Company shall appoint a firm of
independent certified public accountants of recognized national standing (which
may be the regular auditors of the Company) which shall give their opinion as to
the adjustment, if any, on a basis consistent with the essential intent and
principles established
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in this Section 15, necessary to preserve, without dilution, such conversion
rights. Upon receipt of such opinion, the Company will promptly mail a copy
thereof to the holder of each Debenture and shall make the adjustments or
increases described therein.
15.15. Continuing Obligation of the Company. The Company will,
at the time of conversion of any Debenture in full or in part, upon the request
of any holder thereof, acknowledge in writing its continuing obligation to
afford such holder any rights (including, without limitation, any right of
registration of the Conversion Shares) to which such holder shall continue to be
entitled after such conversion in accordance with the provisions of this
Agreement; provided, however, that if any such holder shall fail to make any
such request, such failure shall not affect the continuing obligation of the
Company to afford to such holder all such rights.
16. Registration, Transfer and Substitution of Debentures.
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16.1. Debenture Register; Ownership of Registered Debentures.
The Company will keep at its principal office a register in which the Company
will provide for the registration of Debentures and the registration of
transfers of Debentures. The Company may treat the Person in whose name any
Debenture is registered on such register as the owner and holder thereof for the
purpose of receiving payment of the principal of and the premium, if any, and
interest on such Debenture and for all other purposes, whether or not such
Debenture shall be overdue, and the Company shall not be affected by any notice
to the contrary. The Company may treat the Person in whose name any Stock is
registered in the stock transfer records of the Company as the owner and holder
thereof for the purpose of receiving dividends and other distributions thereon
and for all other purposes, and the Company shall not be affected by any notice
to the contrary.
16.2. Transfer and Exchange of Debentures. Upon surrender of
any Debenture for registration of transfer or for exchange to the Company at its
principal office with evidence that all applicable transfer taxes have been
paid, the Company at its expense will execute and deliver in exchange therefor a
new Debenture or Debentures in denominations of at least $100,000 (except one
(1) Debenture may be issued in a lesser principal amount if the unpaid principal
amount of the surrendered Debenture is not evenly divisible by, or is less than,
$100,000), as requested by the holder or transferee, which aggregate the unpaid
principal amount of such surrendered Debenture. Each such new Debenture shall be
registered in the name of such Person, or its nominee, as such holder or
transferee may request, dated so that there will be no loss of interest on such
surrendered Debenture and otherwise of like tenor.
16.3. Replacement of Debentures. Upon receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of any Debenture and, in the case of any such loss, theft or
destruction, upon delivery of an indemnity bond in such reasonable amount and
form as the Company may determine (or, in the case of any Debenture held by you
or another holder of Debentures, of an indemnity agreement from you or such
other holder reasonably satisfactory to the Company), or, in the case of any
such mutilation, upon the
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surrender of such Debenture for cancellation to the Company at its principal
office, the Company at its expense will execute and deliver, in lieu thereof, a
new Debenture of like tenor, dated so that there will be no loss of interest on
such lost, stolen, destroyed or mutilated Debenture. Any Debenture in lieu of
which any such new Debenture has been so executed and delivered by the Company
shall not be deemed to be an outstanding Debenture for any purpose of this
Agreement.
17. Payment.
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17.1. Form of Payment. Payments of interest becoming due and
payable on any Debenture shall be made by issuing to the holder thereof fully
paid and nonassessable shares of Common Stock in an amount determined by
multiplying the principal amount of the Debenture by eight and three-fourths
percent (8.75%) per annum (computed on the basis of a 360-day year of twelve
(12) 30-day months) and dividing the resulting product by the Applicable
Divisor. All amounts of principal due on any Debenture and any premium (whether
at Stated Maturity, upon acceleration or otherwise) shall be paid in cash in
U.S. dollars in immediately available funds to the account or accounts specified
by the holder of the Debenture.
17.2. Place of Payment.
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(a) Payments of interest becoming due and payable on
the Debentures shall be made by delivering a certificate or certificates for
shares of Common Stock in such denomination as the holder may request at the
address specified by such holder to the Company from time to time, by notice
pursuant to Section 23 hereof.
(b) Except as otherwise provided in Section 17.3,
payments of principal or premium, if any, becoming due and payable on the
Debentures shall be made at the principal office of the Company, provided,
however, that if at any time the Company does not maintain its principal office
in Rockville, Maryland, the Company, by written notice to each holder of any
Debentures, shall designate the principal office of any bank or trust company in
New York County, State of New York, as the office or agency where such payments
shall be made.
17.3. Home Office Payment. So long as you or your nominee
shall be the holder of any Debenture, and notwithstanding anything contained in
Section 17.2 or in such Debenture to the contrary, the Company will pay all sums
becoming due on such Debenture for principal, or premium, if any, in the manner
and at the address specified for such purpose in Schedule I attached hereto, or
in such other manner and at such other address as you shall have from time to
time specified to the Company in writing for such purpose, without the
presentation or surrender of such Debenture or the making of any notation
thereon, except that any Debenture so paid or redeemed or repurchased in full
shall, following such payment, redemption or repurchase, be surrendered to the
Company at its principal office or at the place of payment maintained by the
Company pursuant to Section 17.2 for cancellation. The Company agrees to afford
the benefits of this Section 17.3 to any holder which is the direct or indirect
transferee of any Debenture purchased by you under this Agreement.
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18. Events of Default; Acceleration.
18.1. Nature of Events and Acceleration of Debentures. Subject
to Section 18.5, if any of the following events ("Events of Default") shall
occur and be continuing for any reason whatsoever (and whether such occurrence
shall be voluntary or involuntary or come about or be effected by operation of
law or otherwise):
(a) any payment of principal or premium, if any, on
any Debenture is not made when and as such payment becomes due at
maturity, upon acceleration, redemption or repurchase, or otherwise;
(b) any payment of interest on any Debenture is not
made when and as such payment becomes due and payable, and such default
continues for a period of fifteen (15) days;
(c) the Company fails to comply with the
requirements for consolidation, merger or conveyance, transfer or lease
of all or substantially all of the Company's assets, as set forth in
either Section 12.6 or Section 13.1, as then applicable;
(d) the Company fails to comply with or perform any
of the then-applicable covenants or other agreements set forth in this
Agreement or the Debentures (other than a default specified in clause
(a), (b) or (c) above) or any other provision of this Agreement, and
such failure continues for a period of thirty (30) days after the
earlier of (1) the day on which a Responsible Officer of the Company
first obtains knowledge of such failure, or of the events or conditions
that constitute such failure or (2) the day on which written notice
thereof is given to the Company by the holder of any Debenture;
(e) any warranty or representation by or on behalf
of the Company contained in this Agreement or in any instrument
furnished in compliance with this Agreement is false or incorrect in
any material respect on the date as of which made;
(f) any "Event of Default" under (and as defined in)
either of the Senior Indentures shall have occurred and be continuing;
(g) there occurs with respect to any issue or issues
of Indebtedness of the Company or any Significant Subsidiary having an
outstanding principal amount of $2 million or more in the aggregate for
all such issues of all such Persons, whether such Indebtedness now
exists or shall hereafter be created, (I) an event of default that has
caused the holder thereof to declare such Indebtedness to be due and
payable prior to its Stated Maturity and such Indebtedness has not been
discharged in full or such
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acceleration has not been rescinded or annulled within thirty (30) days
of such acceleration and/or (II) the failure to make a principal
payment at the final (but not any interim) fixed maturity and such
defaulted payment shall not have been made, waived or extended within
thirty (30) days of such payment default;
(h) any final judgment or order (not covered by
insurance) for the payment of money in excess of $2 million in the
aggregate for all such final judgments or orders against all such
Persons (treating any deductibles, self-insurance or retention as not
so covered) shall be rendered against the Company or any Significant
Subsidiary and shall not be paid or discharged, and there shall be any
period of sixty (60) consecutive days following entry of the final
judgment or order that causes the aggregate amount for all such final
judgments or orders outstanding and not paid or discharged against all
such Persons to exceed $2 million during which a stay of enforcement of
such final judgment or order, by reason of a pending appeal or
otherwise, shall not be in effect;
(i) the Company or any of its Significant
Subsidiaries shall commence a voluntary case under any chapter of the
Federal Bankruptcy Code, or shall consent to (or fail to contest within
ten (10) days) the commencement of an involuntary case against the
Company or any of its Subsidiaries under the Federal Bankruptcy Code;
(j) the Company or any Significant Subsidiary shall
institute proceedings for liquidation, rehabilitation, readjustment or
composition (or for any related or similar purpose) under any law
(other than the Federal Bankruptcy Code) relating to financially
distressed debtors, their creditors or property, or shall consent to
(or fail to contest within ten (10) days) the institution of any such
proceedings against the Company or any of its Subsidiaries;
(k) the Company or any of its Significant
Subsidiaries shall be insolvent (within the meaning of any applicable
law), or shall be unable, or shall admit in writing its inability, to
pay its debts generally as they come due, or shall make an assignment
for the benefit of creditors or enter into any arrangement for the
adjustment or composition of debts or claims;
(l) a court or other governmental authority or
agency having jurisdiction in the premises shall enter a decree or
order (i) for the appointment of a receiver, liquidator, assignee,
trustee or sequestrator (or other similar official) of the Company or
any of its Significant Subsidiaries or of any part of the property of
such Person, or for the winding-up or liquidation of the affairs of
such Person, and such decree or order shall remain in force and
undischarged and unstayed for a period of more than thirty (30) days,
or (ii) for the sequestration or attachment of any property of the
Company or any of its Significant Subsidiaries without its
unconditional return to the possession of such Person, or its
unconditional release from such sequestration or attachment, within
thirty (30) days thereafter;
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(m) a court having jurisdiction in the premises
shall enter an order for relief in an involuntary case commenced
against the Company or any of its Significant Subsidiaries under the
Federal Bankruptcy Code, and such order shall remain in force
undischarged and unstayed for a period of more than thirty (30) days;
(n) a court or other governmental authority or
agency having jurisdiction in the premises shall enter a decree or
order approving or acknowledging as properly filed or commenced against
the Company or any of its Significant Subsidiaries a petition or
proceedings for liquidation, rehabilitation, readjustment or
composition (or for any related or similar purpose) under any law
(other than the Federal Bankruptcy Code) relating to financially
distressed debtors, their creditors or property, and any such decree or
order shall remain in force and undischarged and unstayed for a period
of more than thirty (30) days; or
(o) the Company or any of its Significant
Subsidiaries shall take corporate action for the purpose or with the
effect of authorizing, acknowledging or confirming the taking or
existence of any action or condition specified in paragraph (i), (j) or
(k) above;
then, in the case of any such Event of Default referred to in clause (i), (j),
(k), (1), (m) or (n) of this Section 18.1, automatically, or, in the case of any
other such Event of Default, at the option of the holder or holders of not less
than twenty-five percent (25%) in aggregate principal amount of the Debentures
at the time Outstanding, exercised by written notice to the Company, the
Debentures, together with the interest accrued thereon, shall forthwith become
and be due and payable, without any other presentment, demand, protest or notice
of any kind, all of which are hereby expressly waived; provided, however, that
in the case of any Event of Default specified in clause (a) or (b) of this
Section 18.1, such option may be exercised by the holder of any Debenture by
written notice to the Company and such Debenture, together with interest accrued
thereon, shall in such case forthwith become and be due and payable, without any
other presentment, demand, protest or notice of any kind, all of which are
hereby expressly waived.
18.2. Default Remedies. If an Event of Default exists, the
holder of any Debenture then outstanding may exercise any right, power or remedy
permitted to it by law, either by suit in equity or by action at law or both,
whether for specific performance of any covenant or agreement contained in this
Agreement or in aid of the exercise of any power granted in this Agreement, or
the holder of any Debenture may proceed to enforce payment of such Debenture or
to enforce any other legal or equitable right of the holder of such Debenture.
No course of dealing on the part of any holder of any Debenture or any delay or
failure on the part of any holder of any Debenture to exercise any right shall
operate as a waiver of such right or otherwise prejudice such holder's, or any
other holder's rights, powers and remedies. If an Event of Default exists, the
Company will pay to the holders of the Debentures, to the extent not prohibited
by law, such further amount as shall be sufficient to cover the cost and
expenses of collection or other proceedings, including, but not limited to,
reasonable attorneys' fees.
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18.3. Notice of Default. If any one (1) or more of the Events
of Default specified in Section 18.1 above shall occur, or if the holder of any
Debenture or of any other evidence of Indebtedness of the Company gives any
notice or takes any other action with respect to a claimed default, the Company
will forthwith give written notice thereof to all holders of Debentures then
Outstanding describing the notice or action and the nature of the claimed
default, including any Event of Default.
18.4. Annulment of Acceleration of Debentures. If notice is
delivered pursuant to Section 18.1 by any holder or holders of the requisite
principal amount of the Debentures, then and in every such case, the holders of
at least fifty-one percent (51%) in aggregate principal amount of the Debentures
then Outstanding may, by written instrument filed with the Company, rescind and
annul such declaration and the consequences thereof; provided, however, that at
the time such declaration is annulled and rescinded:
(a) no judgment or decree has been entered for the
payment of any monies due pursuant to the Debentures or this Agreement;
(b) all arrears of principal and interest upon all
of the Debentures and all other sums payable under the Debentures and
under this Agreement (including costs and expenses of the holders
incurred in connection with such notice under Section 18.1 and the
exercise of remedies under Section 18.2, but excluding any principal,
interest or premium on the Debentures which has become due and payable
by reason of such notice under Section 18.1) shall have been duly paid;
and
(c) each and every other default and Event of
Default shall have been waived pursuant to Section 22 or otherwise made
good or cured;
and provided, further, that no such rescission and annulment shall extend to or
affect any subsequent default or Event of Default or impair any right consequent
thereon.
18.5. Accelerations and other Remedies Limited Prior to Senior Notes
Reduction Date. Notwithstanding anything in Sections 18.1 through Section 18.4
to the contrary, prior to the Senior Notes Reduction Date no holder of any
Debenture shall have the right to accelerate any payments on such Debenture or
exercise any other remedies or rights against the Company, any Guarantor or any
other Subsidiary of the Company arising from any Event of Default as defined
herein except for (i) the Events of Default specified in paragraph (i), (j),
(k), (l), (m) or (n) of Section 18.1, (ii) the Event of Default specified in
paragraph (h) of Section 18.1, provided that the applicable amount of any final
judgments or orders for the payment of money thereunder is at least $50 million,
or (iii) any Event of Default under paragraph (f) or (g) of this Agreement that
results in the acceleration of payment with respect to Indebtedness (other than
the Debentures) in the aggregate principal amount of at least $50 million.
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19. Interpretation of Agreement and Debentures.
Acquired Indebtedness: means Indebtedness of a Person existing
at the time such Person becomes a Restricted Subsidiary or assumed in connection
with an Asset Acquisition by a Restricted Subsidiary and not Incurred in
connection with, or in anticipation of, such Person becoming a Restricted
Subsidiary or such Asset Acquisition; provided that Indebtedness of such Person
which is redeemed, defeased, retired or otherwise repaid at the time of or
immediately upon consummation of the transactions by which such Person becomes a
Restricted Subsidiary or such Asset Acquisition shall not be Acquired
Indebtedness.
Acquirer's Common Stock: the meaning specified in Section
15.13(a).
Acquiring Company: the meaning specified in Section 15.13(a).
Adjusted Consolidated Net Income: means, for any period, the
aggregate net income (or loss) of the Company and its Restricted Subsidiaries
for such period determined in conformity with GAAP; provided that the following
items shall be excluded in computing Adjusted Consolidated Net Income (without
duplication): (i) the net income of any Person (other than net income
attributable to a Restricted Subsidiary) in which any Person (other than the
Company or any of its Restricted Subsidiaries) has a joint interest and the net
income of any Unrestricted Subsidiary, except to the extent of the amount of
dividends or other distributions actually paid to the Company or any of its
Restricted Subsidiaries by such other Person or such Unrestricted Subsidiary
during such period; (ii) solely for the purposes of calculating the amount of
Restricted Payments that may be made pursuant to clause (C) of the first
paragraph of Section 13.6 (and in such case, except to the extent includable
pursuant to clause (i) above), the net income (or loss) of any Person accrued
prior to the date it becomes a Restricted Subsidiary or is merged into or
consolidated with the Company or any of its Restricted Subsidiaries or all or
substantially all of the property and assets of such Person are acquired by the
Company or any of its Restricted Subsidiaries; (iii) any gains or losses (on an
after-tax basis) attributable to Asset Sales; (iv) except for purposes of
calculating the amount of Restricted Payments that may be made pursuant to
clause (C) of the first paragraph of Section 13.6, any amount paid or accrued as
dividends on Preferred Stock of the Company or any Restricted Subsidiary owned
by Persons other than the Company and any of its Restricted Subsidiaries; (v)
all extraordinary gains and extraordinary losses; and (vi) any net income of any
Guarantor that is designated an Unrestricted Subsidiary.
Adjusted Consolidated Net Tangible Assets: means the total
amount of assets of the Company and its Restricted Subsidiaries (less applicable
depreciation, amortization and other valuation reserves), except to the extent
resulting from write-ups of capital assets (excluding write-ups in connection
with accounting for acquisitions in conformity with GAAP), after deducting
therefrom (i) all current liabilities of the Company and its Restricted
Subsidiaries
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(excluding intercompany items) and (ii) all goodwill, trade names, trademarks,
patents, unamortized debt discount and expense and other like intangibles, all
as set forth on the most recent quarterly or annual consolidated balance sheet
of the Company and its Restricted Subsidiaries, prepared in conformity with GAAP
and filed with the Commission.
Affiliate: means, as applied to any Person, any other Person
directly or indirectly controlling, controlled by, or under direct or indirect
common control with, such Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as applied to any Person, means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through the
ownership of voting securities, by contract or otherwise. The term "Affiliate"
when used as a reference to an Affiliate of the Company or any of its
Subsidiaries shall not mean or refer to (i) BAe, BAC, PLC or any of their
Affiliates (exclusive of the Company or its Subsidiaries) or (ii) Matra, the
Lagardere Groupe SCA, MCN Sat US Inc., MCN Sat Service S.A., or any of their
Affiliates (exclusive of the Company or its Subsidiaries).
Agreements and Instruments: the meaning specified in Section
5.9.
Annual Report: the meaning specified in Section 5.5.
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Applicable Divisor: means (i) $14 provided that the average of
the Closing Price per share of the Common Stock for the 20 Trading Days (the
"Twenty Day Average") immediately prior to the date as of which the Applicable
Divisor is determined (the "Divisor Date") is greater than $12.80, (ii) the
Twenty Day Average, if $12.80 or less but greater than $10.21 at the Divisor
Date, or (iii) $10.21 if the Twenty Day Average is $10.21 or less, at the
Divisor Date. The initial Applicable Divisor thresholds amounts ($14, $12.80,
$10.21) and any amount to which such thresholds are adjusted, shall be
proportionately decreased in the event that the Company at any time subdivides
(by any stock split, stock dividend, recapitalization or otherwise) the
outstanding shares of Common Stock into a greater number of shares or
proportionately increased in the event that the Company at any time combines (by
reverse stock split, recapitalization or otherwise) the outstanding shares of
Common Stock into a smaller number of shares.
Applicable Law: means any Federal, state, local or foreign
statute, law, ordinance, governmental rule or regulation or any judgment,
decree, rule or order of any court or governmental agency or authority
applicable to the Company or any of its Subsidiaries or any of their respective
properties, assets or operations.
Article Tenth: the meaning specified in Section 5.28.
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Asset Acquisition: means (i) an investment by the Company or
any of its Restricted Subsidiaries in any other Person pursuant to which such
Person shall become a Restricted Subsidiary or shall be merged into or
consolidated with the Company or any of its Restricted Subsidiaries; provided
that such Person's primary business is related, ancillary or
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complementary to the businesses of the Company and its Restricted Subsidiaries
on the date of such investment or (ii) an acquisition by the Company or any of
its Restricted Subsidiaries of the property and assets of any Person other than
the Company or any of its Restricted Subsidiaries that constitute substantially
all of a division or line of business of such Person; provided that the property
and assets acquired are related, ancillary or complementary to the businesses of
the Company and its Restricted Subsidiaries on the date of such acquisition.
Asset Disposition: means the sale or other disposition by the
Company or any of its Restricted Subsidiaries (other than to the Company or
another Restricted Subsidiary) of (i) all or substantially all of the Capital
Stock of any Restricted Subsidiary of the Company or (ii) all or substantially
all of the assets that constitute a division or line of business of the Company
or any of its Restricted Subsidiaries.
Asset Sale: means any sale, transfer or other disposition
(including by way of merger, consolidation or sale-leaseback transaction) in one
transaction or a series of related transactions by the Company or any of its
Restricted Subsidiaries to any Person other than the Company or any of its
Restricted Subsidiaries of (i) all or any of the Capital Stock of any Restricted
Subsidiary, (ii) all or substantially all of the property and assets of an
operating unit or business of the Company or any of its Restricted Subsidiaries
or (iii) any other property and assets of the Company or any of its Restricted
Subsidiaries outside the ordinary course of business of the Company or such
Restricted Subsidiary and, in each case, that is not governed by the provisions
of this Agreement applicable to mergers, consolidations and sales of assets of
the Company; provided that "Asset Sale" shall not include (a) sales or other
dispositions of inventory, receivables and other current assets or (b) sales or
other dispositions of assets for consideration at least equal to the fair market
value of the assets sold or disposed of, provided that the consideration
received would be invested in assets that satisfy clause (B) of Section 13.11.
Average Life: means, at any date of determination with respect
to any debt security, the quotient obtained by dividing (i) the sum of the
products of (a) the number of years from such date of determination to the dates
of each successive scheduled principal payment of such debt security and (b) the
amount of such principal payment by (ii) the sum of all such principal payments.
BAC: British Aerospace Communications, Inc., a Delaware
corporation.
BAe: British Aerospace Holdings, Inc., a Delaware corporation.
Board of Directors: means the Board of Directors of the
Company or a committee consisting of one or more directors lawfully exercising
the relevant powers of the Board.
Board Resolution: means a resolution duly adopted by the Board
of Directors, a copy of which, certified by the Secretary or an Assistant
Secretary of the Company to have been
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duly adopted by the Board of Directors and to be in full force and effect on the
date of such certification, shall have been delivered to each holder of
Debentures.
Business Day: means any day other than a Saturday, Sunday or
any other day on which commercial banks are authorized by law to be closed in
New York City or the District of Columbia.
Capital Stock: means, with respect to any Person, any and all
shares, interests, participations or other equivalents (however designated,
whether voting or non-voting) in equity of such Person, whether now outstanding
or issued after the Closing Date, including, without limitation, all series and
classes of common stock and Preferred Stock.
Capitalized Lease: means, as applied to any Person, any lease
of any property (whether real, personal or mixed) of which the discounted
present value of the rental obligations of such Person as lessee, in conformity
with GAAP, is required to be capitalized on the balance sheet of such Person;
and "Capitalized Lease Obligations" means the discounted present value of the
rental obligations under such lease.
Change of Control: occurs when any "Person" (as such term is
used in Sections 13(d) and 14(d) of the Exchange Act), is or becomes the
"beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act,
except that a Person shall be deemed to have beneficial ownership of all shares
that any such Person has the right to acquire, whether such right is exercisable
immediately or only after the passage of time) directly or indirectly, of a
majority in the aggregate of the total voting power of the Voting Stock of the
Company, whether as a result of issuance of securities of the Company, market or
private purchases, any merger, consolidation, liquidation or dissolution of the
Company, or otherwise.
Change of Control Period: means the ninety (90) day period
commencing on the date a Change of Control occurs; provided, however, that no
Change of Control Period may commence prior to the Senior Notes Reduction Date.
A Change of Control effected by a Purchaser or any of such Purchaser's
Affiliates shall not commence a Change of Control Period with respect to that
Purchaser and any of such Purchaser's Affiliates for purposes of Section 11.3 of
the Agreement.
Closing: the meaning specified in Section 2.
Closing Date: the meaning specified in Section 2.
Closing Price: means, with respect to each share of Common
Stock or other security, for any day, the reported last sales price regular way
per share or, in case no such reported sale takes place on such day, the average
of the reported closing bid and asked prices regular way, in either case (i) on
the New York Stock Exchange as reported in The Wall
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Street Journal (or other similar newspaper) for New York Stock Exchange
Composite Transactions or, if the Common Stock or other security is not listed
or admitted to trading on such Exchange, on the principal (as determined by the
Company's Board of Directors) national securities exchange on which the Common
Stock or other security is listed or admitted to trading or (ii) if not listed
or admitted to trading on any national securities exchange, on the Nasdaq
National Market, or, if the Common Stock or other security is not listed or
admitted to trading on any national securities exchange or quoted on the Nasdaq
National Market, the average of the closing bid and asked prices in the
over-the-counter market as furnished by any New York Stock Exchange member firm
selected from time to time by the Company for that purpose. If no such prices
are available, the Closing Price per share of Common Stock shall be the fair
value of a share as determined in good faith by the Board of Directors of the
Company.
Code: means the Internal Revenue Code of 1986, as amended from
time to time and the rules and regulations promulgated thereunder from time to
time.
Commission: means the Securities and Exchange Commission or
any other Federal agency at the time administering the Securities Act.
Common Stock: means the Common Stock, $.01 par value per
share, of the Company, any stock into which such Common Stock shall have been
changed or any stock resulting from any capital reorganization or
reclassification of such Common Stock, and all other stock of any class or
classes (however designated) of the Company the holders of which have the right,
without limitation as to amount, either to all or to a share of the balance of
current dividends and liquidating dividends after the payment of dividends and
distributions of any shares entitled to preference.
Communications Laws: the meaning specified in Section 5.14.
Company: the meaning specified in the first paragraph of the
Agreement.
Company Notice: the meaning specified in Section 11.5(a).
Company Notice Expiration Date: the meaning specified in
Section 11.5(a).
Consolidated EBITDA: means, for any period, the sum of the
amounts for such period of (i) Adjusted Consolidated Net Income, (ii)
Consolidated Interest Expense, to the extent such amount was deducted in
calculating Adjusted Consolidated Net Income, (iii) income taxes, to the extent
such amount was deducted in calculating Adjusted Consolidated Net Income (other
than income taxes (either positive or negative) attributable to extraordinary
and non-recurring gains or losses or sales of assets), (iv) depreciation
expense, to the extent such amount was deducted in calculating Adjusted
Consolidated Net Income, (v) amortization expense, to the extent such amount was
deducted in calculating Adjusted Consolidated Net Income, and (vi) all other
non-cash items reducing Adjusted Consolidated Net Income (other than items that
will require cash payments and for which an accrual or reserve is, or is
required by GAAP to be,
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made), less all non-cash items increasing Adjusted Consolidated Net Income, all
as determined on a consolidated basis for the Company and its Restricted
Subsidiaries in conformity with GAAP.
Consolidated Interest Expense: means, for any period, the
aggregate amount of interest in respect of Indebtedness (including, without
limitation, amortization of original issue discount on any Indebtedness and the
interest portion of any deferred payment obligation, calculated in accordance
with the effective interest method of accounting; all commissions, discounts and
other fees and charges owed with respect to letters of credit and bankers'
acceptance financing; the net costs associated with Interest Rate Agreements;
and Indebtedness that is Guaranteed or secured by the Company or any of its
Restricted Subsidiaries) and all but the principal component of rentals in
respect of Capitalized Lease Obligations paid, accrued or scheduled to be paid
or to be accrued by the Company and its Restricted Subsidiaries during such
period; excluding, however, any premiums, fees and expenses (and any
amortization thereof) payable in connection with the offering of the Debentures,
all as determined on a consolidated basis (without taking into account
Unrestricted Subsidiaries) in conformity with GAAP.
Consolidated Leverage Ratio: means, on any Transaction Date,
the ratio of (i) the aggregate amount of Indebtedness of the Company and its
Restricted Subsidiaries on a consolidated basis outstanding on such Transaction
Date to (ii) the aggregate amount of Consolidated EBITDA for the then most
recent four fiscal quarters for which financial statements of the Company have
been filed with the Commission (such four fiscal quarter period being the "Four
Quarter Period"); provided that (A) pro forma effect shall be given to (x) any
Indebtedness Incurred from the beginning of the Four Quarter Period through the
Transaction Date (the "Reference Period"), to the extent such Indebtedness is
outstanding on the Transaction Date and (y) any Indebtedness that was
outstanding during such Reference Period but that is not outstanding or is to be
repaid on the Transaction Date; (B) pro forma effect shall be given to Asset
Dispositions and Asset Acquisitions (including giving pro forma effect to the
application of proceeds of any Asset Disposition) that occur during such
Reference Period, as if they had occurred and such proceeds had been applied on
the first day of such Reference Period; and (C) pro forma effect shall be given
to asset dispositions and asset acquisitions (including giving pro forma effect
to the application of proceeds of any asset disposition) that have been made by
any Person that has become a Restricted Subsidiary or has been merged with or
into the Company or any Restricted Subsidiary during such Reference Period and
that would have constituted Asset Dispositions or Asset Acquisitions had such
transactions occurred when such Person was a Restricted Subsidiary as if such
asset dispositions or asset acquisitions were Asset Dispositions or Asset
Acquisitions that occurred on the first day of such Reference Period; provided
that to the extent that clause (B) or (C) of this sentence requires that pro
forma effect be given to an Asset Acquisition or Asset Disposition, such pro
forma calculation shall be based upon the four full fiscal quarters immediately
preceding the Transaction Date of the Person, or division or line of business of
the Person, that is acquired or disposed for which financial information is
available.
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Consolidated Net Worth: means, at any date of determination,
stockholders' equity as set forth on the most recently available quarterly or
annual consolidated balance sheet of the Company and its Restricted Subsidiaries
(which shall be as of a date not more than 90 days prior to the date of such
computation, and which shall not take into account Unrestricted Subsidiaries),
less any amounts attributable to Disqualified Stock or any equity security
convertible into or exchangeable for Indebtedness, the cost of treasury stock
and the principal amount of any promissory notes receivable from the sale of the
Capital Stock of the Company or any of its Restricted Subsidiaries, each item to
be determined in conformity with GAAP (excluding the effects of foreign currency
exchange adjustments under Financial Accounting Standards Board Statement of
Financial Accounting Standards No. 52).
Consummation Date: the meaning specified in Section 15.13(a).
-----------------
Conversion Rate: the meaning specified in Section 15.1.
---------------
Conversion Shares: the shares of Common Stock to be received
upon conversion of any Debenture as provided in Section 15.
Converted Debenture Portion: the meaning specified in Section
11.5(a).
Convertible Securities means any stock or other securities of
the Company convertible into or exchangeable for Common Stock.
Currency Agreement: means any foreign exchange contract,
currency swap agreement or other similar agreement or arrangement designed to
protect the Company or any of its Restricted Subsidiaries against fluctuations
in currency values to or under which the Company or any of its Restricted
Subsidiaries is a party or a beneficiary on the Closing Date or becomes a party
or a beneficiary thereafter.
Debentures: the meaning specified in Section 1.1.
----------
Debenture Payment: the meaning specified in Section 14.2.
-----------------
Decision Period: the meaning specified in Section 11.5(a).
---------------
Dilutive Event: the meaning specified in Section 15.5(1).
-------------
Disqualified Stock: means any class or series of Capital Stock
of any Person that by its terms or otherwise is (i) required to be redeemed
prior to the Stated Maturity of the Debentures, (ii) redeemable at the option of
the holder of such class or series of Capital Stock at any time prior to the
Stated Maturity of the Debentures or (iii) convertible into or exchangeable for
Capital Stock referred to in clause (i) or (ii) above or Indebtedness having a
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scheduled maturity prior to the Stated Maturity of the Debentures; provided,
that any Capital Stock that would not constitute Disqualified Stock but for
provisions hereof giving holders thereof the right to require such Person to
repurchase or redeem such Capital Stock upon the occurrence of a "change of
control" occurring prior to the Stated Maturity of the Debentures shall not
constitute Disqualified Stock if the "change of control" provisions applicable
to such Capital Stock are no more favorable to the holders of such Capital Stock
than the provisions contained in Section 11.3 and such Capital Stock
specifically provides that such Person will not repurchase or redeem any such
stock pursuant to such provision prior to the Company's repurchase of such
Debentures as are required to be repurchased pursuant to Section 11.3.
Documents: means all documents delivered in connection with
the transactions contemplated by this Agreement, including without limitation,
the Debentures, the Subsidiary Guarantee and the Registration Rights Agreement,
collectively, or each of such documents singularly, and any documents or
instruments contemplated by or executed in connection with any of them or any of
the transactions contemplated hereby or thereby.
ERISA: means the Employee Retirement Income Security Act of
1974, as amended from time to time, and the rules and regulations promulgated
thereunder from time to time in effect.
ERISA Affiliate: any trade or business (whether or not
incorporated) that is treated as a single employer together with either ONS or
the Company under Section 414 of the Code.
Environmental Laws: the meaning specified in Section 5.13
------------------
Event of Default: the meaning specified in Section 18.1.
Exchange Act: the Securities Exchange Act of 1934, as amended,
or any similar Federal statute and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
Exchange Agreement: the Section 351 Exchange Agreement and
Plan Conversion dated as of June 1996, as amended, between and among Orion
Atlantic, ONS, Orion Satellite Corporation, BAC, COM DEV Satellite
Communications Limited, Kingston Communications Limited, Lockheed Martin
Commercial Launch Services, Inc., MCN SAT U.S., Inc. and Trans- Atlantic
Satellite, Inc., pursuant to which each of the Exchanging Partners (as defined
therein) will transfer their limited partnership interests in Orion Atlantic to
the Company in exchange for shares of Series C Preferred Stock.
Excluded Issuance: means the issue or sale of (i) shares of
Common Stock by the Company pursuant to the exercise of Options and Convertible
Securities outstanding immediately prior to the Closing Date at exercise prices
that are greater than or equal to the respective exercise prices in effect as of
the Closing Date (as adjusted pursuant to the terms of such
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securities to give effect to stock dividends or stock splits or a combination of
shares in connection with a recapitalization, merger, consolidation or other
reorganization occurring after the Closing Date), (ii) up to an aggregate of one
hundred and fifty thousand (150,000) shares of Common Stock by the Company for
any purpose, (iii) Options to acquire Common Stock by the Company pursuant to a
resolution of, or a stock option plan approved by a resolution of, the Board of
Directors of the Company (or the compensation committee thereof) to the
Company's employees or directors, and (iv) shares of Common Stock, Options or
Convertible Securities (or shares of Common Stock pursuant to the exercise of
Options and Convertible Securities) as part of or in connection with the
Financing Transaction.
Execution Date: means the date on which the Agreement is
executed by the parties.
Expiration Time: the meaning specified in Section 15.4(6).
---------------
fair market value: means the price that would be paid in an
arm's-length transaction between an informed and willing seller under no
compulsion to sell and an informed and willing buyer under no compulsion to buy,
as determined in good faith by the Board of Directors, whose determination shall
be conclusive if evidenced by a Board Resolution.
Federal Bankruptcy Code: Title 11, United States Code.
-----------------------
Financing Transaction: means offer and sale by the Company of
the Senior Notes in an underwritten public offering registered with the
Commission or in a private placement transaction that results in the Company
receiving cash proceeds in the minimum amount of $225,000,000, after deduction
of all escrowed amounts, underwriting commissions, fees and expenses.
FCC: the Federal Communications Commission.
---------------
Four Quarter Period: the meaning specified in Section 19.1.
-------------------
GAAP: means generally accepted accounting principles in the
United States of America as in effect as of the Closing Date, including, without
limitation, those set forth in the opinions and pronouncements of the Accounting
Principles Board of the American Institute of Certified Public Accountants and
statements and pronouncements of the Financial Accounting Standards Board or in
such other statements by such other entity as approved by a significant segment
of the accounting profession. All ratios and computations contained or referred
to in this Agreement or the Debentures shall be computed in conformity with GAAP
applied on a consistent basis, except that calculations made for purposes of
determining compliance with the terms of the covenants and with other provisions
of this Agreement or the Debentures shall be made without giving effect to (i)
the amortization of any expenses incurred in connection with the offering of the
Debentures and (ii) except as otherwise provided, the amortization of any
amounts required or permitted by Accounting Principles Board Opinion Nos. 16 and
17.
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Government Securities: means direct obligations of,
obligations fully guaranteed by, or participations in pools consisting solely of
obligations of or obligations guaranteed by, the United States of America for
the payment of which guarantee or obligations the full faith and credit of the
United States of America is pledged and which are not callable or redeemable at
the option of the issuer thereof.
Governmental Authority:
-----------------------
(a) the government of
(i) the United States of America or any State or
other political subdivi- sion thereof, or
(ii) any jurisdiction in which the Company or any
Subsidiary conducts all or any part of its business, or which
asserts jurisdiction over any properties of the Company or any
Subsidiary, or
(b) any entity exercising executive, legislative, judicial,
regulatory or administrative functions of, or pertaining to, any such
government.
Governmental Licenses: the meaning specified in Section 5.12.
---------------------
Guarantee: means any obligation, contingent or otherwise, of
any Person directly or indirectly guaranteeing any Indebtedness or other
obligation of any other Person and, without limiting the generality of the
foregoing, any obligation, direct or indirect, contingent or otherwise, of such
Person (i) to purchase or pay (or advance or supply funds for the purchase or
payment of) such Indebtedness or other obligation of such other Person (whether
arising by virtue of partnership arrangements, or by agreements to keep-well, to
purchase assets, goods, securities or services, to take-or-pay, or to maintain
financial statement conditions or otherwise) or (ii) entered into for purposes
of assuring in any other manner the obligee of such Indebtedness or other
obligation of the payment thereof or to protect such obligee against loss in
respect thereof (in whole or in part); provided that the term "Guarantee" shall
not include endorsements for collection or deposit in the ordinary course of
business. The term "Guarantee" used as a verb has a corresponding meaning.
Guarantors: collectively, means (i) the Subsidiaries of the
Company that execute the Subsidiary Guarantee attached hereto as Exhibit B; and
(ii) any other Person that subsequently Guarantees the Company's obligations
under the Debentures pursuant to Section 12.8 or 13.8; provided that any Person
that becomes an Unrestricted Subsidiary in compliance with Section 13.5 shall
not be included in "Guarantors" after becoming an Unrestricted Subsidiary.
Hazardous Materials: the meaning specified in Section 5.13.
-------------------
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holder: means with respect to any Debenture, the Person in
whose name such Debenture is registered in the register maintained by the
Company pursuant to Section 16.1.
"Holder Notice": the meaning specified in Section 11.5(a).
HSR Act: means the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended to date.
HSR Suspension Period: the meaning specified in Section
11.5(c).
Incur: means, with respect to any Indebtedness, to incur,
create, issue, assume, Guarantee or otherwise become liable for or with respect
to, or become responsible for, the payment of, contingently or otherwise, such
Indebtedness, including an "Incurrence" of Indebtedness by reason of a Person
becoming a Restricted Subsidiary of the Company; provided that neither the
accrual of interest nor the accretion of original issue discount shall be
considered an Incurrence of Indebtedness.
Indebtedness: means, with respect to any Person at any date of
determination (without duplication), (i) all indebtedness of such Person for
borrowed money, (ii) all obligations of such Person evidenced by bonds,
debentures, notes or other similar instruments, (iii) all obligations of such
Person in respect of letters of credit or other similar instruments (including
reimbursement obligations with respect thereto, but excluding obligations with
respect to letters of credit (including trade letters of credit) securing
obligations (other than obligations described in (i) or (ii) above or (v), (vi)
or (vii) below) entered into in the ordinary course of business of such Person
to the extent such letters of credit are not drawn upon or, if drawn upon, to
the extent such drawing is reimbursed no later than the third Business Day
following receipt by such Person of a demand for reimbursement), (iv) all
obligations of such Person to pay the deferred and unpaid purchase price of
property or services, which purchase price is due more than six months after the
date of placing such property in service or taking delivery and title thereto or
the completion of such services, except Trade Payables, (v) all obligations of
such Person as lessee under Capitalized Leases, (vi) all Indebtedness of other
Persons secured by a Lien on any asset of such Person, whether or not such
Indebtedness is assumed by such Person; provided that the amount of such
Indebtedness shall be the lesser of (A) the fair market value of such asset at
such date of determination and (B) the amount of such Indebtedness, (vii) all
Indebtedness of other Persons Guaranteed by such Person to the extent such
Indebtedness is Guaranteed by such Person and (viii) to the extent not otherwise
included in this definition, obligations under Currency Agreements and Interest
Rate Agreements. The amount of Indebtedness of any Person at any date shall be
the outstanding balance at such date of all unconditional obligations as
described above and, with respect to contingent obligations, the maximum
liability upon the occurrence of the contingency giving rise to the obligation,
provided (A) that the amount outstanding at any time with respect to any
Indebtedness issued with original issue discount is the original issue price of
such Indebtedness, (B) Permitted Customer Advances and any money borrowed, at
the time of the Incurrence of any Indebtedness, in order to pre-fund the payment
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of interest on such Indebtedness, shall be deemed not to be "Indebtedness" and
(C) that Indebtedness shall not include any liability for federal, state, local
or other taxes.
Insolvency Proceeding: the meaning specified in Section 14.7.
- --------------------- Interest Rate Agreement: means any interest rate swap
agreement, interest rate cap agreement or other financial agreement or
arrangement designed to protect the Company or any Restricted Subsidiary against
fluctuations in interest rates.
Interest Shares: means the shares of Common Stock to be
received by the holders of the Debentures as interest in accordance with the
terms of the Debentures and this Agreement.
Investment: in any Person means any direct or indirect
advance, loan or other extension of credit (including, without limitation, by
way of Guarantee or similar arrangement; but excluding advances to customers in
the ordinary course of business that are, in conformity with GAAP, recorded as
accounts receivable on the balance sheet of the Company or its Restricted
Subsidiaries) or capital contribution to (by means of any transfer of cash or
other property to others or any payment for property or services for the account
or use of others), or any purchase or acquisition of Capital Stock, bonds,
notes, debentures or other similar instruments issued by, such Person and shall
include (i) the designation of a Restricted Subsidiary as an Unrestricted
Subsidiary and (ii) the fair market value of the Capital Stock (or any other
Investment), held by the Company or any of its Restricted Subsidiaries, of (or
in) any Person that has ceased to be a Restricted Subsidiary, including without
limitation, by reason of any transaction permitted by clause (iii) of Section
13.7. For purposes of the definition of "Unrestricted Subsidiary" and Section
13.6, (i) "Investment" shall include the fair market value of the assets (net of
liabilities (other than liabilities to the Company or any of its Subsidiaries))
of any Restricted Subsidiary at the time that such Restricted Subsidiary is
designated an Unrestricted Subsidiary, (ii) the fair market value of the assets
(net of liabilities (other than liabilities to the Company or any of its
Subsidiaries)) of any Unrestricted Subsidiary at the time that such Unrestricted
Subsidiary is designated a Restricted Subsidiary shall be considered a reduction
in outstanding Investments and (iii) any property transferred to or from an
Unrestricted Subsidiary shall be valued at its fair market value at the time of
such transfer.
Investment Company Act: the meaning specified in Section 5.23.
----------------------
ITU: the International Telecommunication Union.
---
Junior Securities: the meaning specified in Section 14.9.
-----------------
Lien: means any mortgage, pledge, security interest,
encumbrance, lien or charge of any kind (including, without limitation, any
conditional sale or other title retention agreement or lease in the nature
thereof or any agreement to give any security interest).
Mandatory Sale: the meaning specified in Section 11.4.
--------------
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Mandatory Sale Date: the meaning specified in Section 11.4(a).
-------------------
Mandatory Sale Price: the meaning specified in Section 11.4.
--------------------
Market Price: the meaning specified in Section 15.5(6).
------------
Material: means material in relation to the business,
operations, affairs, financial condition, assets, or properties of the Company,
ONS and the Subsidiaries taken as a whole.
Material Adverse Effect: means a material adverse effect on
the properties, business, operations, earnings, assets, liabilities or financial
condition of the Company, ONS and the Subsidiaries, taken as a whole, or on the
ability of the Company, ONS or the Subsidiaries to perform their respective
obligations under this Agreement, the Debentures or any of the other Documents.
Matra: Matra Marconi Space UK Limited, a company organized and
existing under the laws of England and Wales.
Merger Documents: means (a) the Agreement and Plan of Merger
of Orion Merger Company, Inc. ("SUB") with and into ONS, by and among SUB, ONS
and the Company, and (b) the Certificate of Merger of SUB with and into ONS.
Merger Transaction: means the transaction described in the
Registration Statement and the Merger Documents pursuant to which outstanding
shares of the common stock and Preferred Stock of ONS are exchanged for shares
of the Common Stock and Preferred Stock of the Company on a one-for-one basis
and pursuant to which ONS shall become a wholly-owned subsidiary of the Company.
Moody's: means Moody's Investors Service, Inc. and its
successors.
Morgan: the meaning specified in Section 4.1.
------
Multiemployer Plan: means any Plan which constitutes a
"multiemployer plan" (as such term is defined in Section 4001(a)(3) of ERISA).
Net Cash Proceeds: means, (a) with respect to any Asset Sale,
the proceeds of such Asset Sale in the form of cash or cash equivalents,
including payments in respect of deferred payment obligations (to the extent
corresponding to the principal, but not interest, component thereof) when
received in the form of cash or cash equivalents (except to the extent such
obligations are financed or sold with recourse to the Company or any Restricted
Subsidiary) and proceeds from the conversion of other property received when
converted to cash or cash equivalents, net of (i) brokerage commissions and
other fees and expenses (including fees and expenses of counsel and investment
bankers) related to such Asset Sale, (ii) provisions for all
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taxes (whether or not such taxes will actually be paid or are payable) as a
result of such Asset Sale without regard to the consolidated results of
operations of the Company and its Restricted Subsidiaries, taken as a whole,
(iii) payments made to repay Indebtedness or any other obligation outstanding at
the time of such Asset Sale that either (A) is secured by a Lien on the property
or assets sold or (B) is required to be paid as a result of such sale and (iv)
appropriate amounts to be provided by the Company or any Restricted Subsidiary
of the Company as a reserve against any liabilities associated with such Asset
Sale, including, without limitation, pension and other post-employment benefit
liabilities, liabilities related to compliance with Environmental Laws and other
environmental matters and liabilities under any indemnification obligations
associated with such Asset Sale, all as determined in conformity with GAAP and
(b) with respect to any issuance or sale of Capital Stock, the proceeds of such
issuance or sale in the form of cash or cash equivalents, including payments in
respect of deferred payment obligations (to the extent corresponding to the
principal, but not interest, component thereof) when received in the form of
cash or cash equivalents (except to the extent such obligations are financed or
sold with recourse to the Company or any Restricted Subsidiary of the Company)
and proceeds from the conversion of other property received when converted to
cash or cash equivalents, net of attorney's fees, accountants' fees,
underwriters' or placement agents' fees, discounts or commissions and brokerage,
consultant and other fees incurred in connection with such issuance or sale and
net of taxes paid or payable as a result thereof.
Officers' Certificate: means a certificate signed by the
Chairman of the Board, a Vice Chairman of the Board, the Chief Executive
Officer, the President or a Vice President and by the Chief Financial Officer,
the Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary
of the Company. One of the officers signing an Officers' Certificate shall be
the principal executive, financial or accounting officer of the Company.
ONS: Orion Network Systems, Inc., a Delaware corporation.
---
ONS Common Stock: the meaning specified in Section 5.2(a).
----------------
ONS Preferred Stock: the meaning specified in Section 5.2(a).
-------------------
ONS Series A Preferred Stock: the meaning specified in Section
5.2(a).
ONS Series B Preferred Stock: the meaning specified in Section
5.2(a).
Options: means any options, warrants or rights to subscribe
for or to purchase Common Stock or any Convertible Securities.
Orion Atlantic: International Private Satellite Partners,
L.P., a Delaware limited partnership.
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Orion 2 and Orion 3: mean, respectively, each of the first two
(2) satellites with respect to which the company has a Successful Launch after
the Closing Date, and any replacement for either of such satellites.
Other Securities: means any stock (other than Common Stock)
and other securities of the Company or any other Person (corporate or otherwise)
which the holders of the Debentures at any time shall be entitled to receive, or
shall have received, upon the conversion of the Debentures, in lieu of or in
addition to Common Stock, or which at any time shall be issuable or shall have
been issued in exchange for or in replacement of Common Stock or Other
Securities pursuant to Section 15.13 or otherwise.
Outstanding: means when used with respect to Debentures or
Senior Notes means, as the case may be, as of the date of determination, all
Debentures theretofore delivered under this Agreement, or Senior Notes delivered
under the Senior Indentures, except:
(i) Debentures, or Senior Notes, theretofore canceled by the
Company or delivered to the Company for cancellation;
(ii) Debentures, or Senior Notes, for the payment or
redemption of which money in the necessary amount has been set aside
and segregated in trust by the Company for the holders of such
Debentures, or Senior Notes, provided that if such Debentures, or
Senior Notes, are to be redeemed, notice of such redemption has been
duly given pursuant to this Agreement, or Senior Indentures, as the
case may be;
(iii) Senior Notes owned by the Company or any Affiliate of
the Company, or BAe, BAC, PLC or any of their Affiliates, or Matra or
any of its Affiliates; and
(iv) Debentures that have been converted in accordance with
Section 15;
provided, however, that in determining whether the holders of the requisite
principal amount of Debentures have given any request, demand, authorization,
direction, notice, consent or waiver hereunder, Debentures owned by the Company
or any other obligor upon the Debentures or any Subsidiary or Affiliate of the
Company or such other obligor shall be disregarded and deemed not to be
Outstanding.
Outstanding on an As-Converted Basis immediately before the
Dilutive Event: the meaning specified in Section 15.5(1).
Payment Blockage Period: the meaning specified in Section
14.3.
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PBGC: means the Pension Benefit Guaranty Corporation referred
to and defined in ERISA or any successor thereto.
Permitted Customer Advances: means obligations of the Company
or any Restricted Subsidiary to repay money received by the Company or such
Restricted Subsidiary from customers as bona fide prepayment for services to be
provided by, or purchases to be made from, the Company or such Restricted
Subsidiary.
Permitted Investment: means (i) an Investment in the Company
or a Restricted Subsidiary or a Person which will, upon the making of such
Investment, become a Restricted Subsidiary or be merged or consolidated with or
into or transfer or convey all or substantially all its assets to, the Company
or a Restricted Subsidiary; provided that such person's primary business is
related, ancillary or complementary to the businesses of the Company and its
Restricted Subsidiaries on the date of such Investment; (ii) Temporary Cash
Investments; (iii) payroll, travel and similar advances to cover matters that
are expected at the time of such advances ultimately to be treated as expenses
in accordance with GAAP; and (iv) stock, obligations or securities received in
satisfaction of judgments.
Permitted Liens: means (i) Liens for taxes, assessments,
governmental charges or claims that are being contested in good faith by
appropriate legal proceedings promptly instituted and diligently conducted and
for which a reserve or other appropriate provision, if any, as shall be required
in conformity with GAAP shall have been made; (ii) statutory and common law
Liens of landlords and carriers, warehousemen, mechanics, suppliers,
materialmen, repairmen or other similar Liens arising in the ordinary course of
business and with respect to amounts not yet delinquent or being contested in
good faith by appropriate legal proceedings promptly instituted and diligently
conducted and for which a reserve or other appropriate provision, if any, as
shall be required in conformity with GAAP shall have been made; (iii) Liens
incurred or deposits made in the ordinary course of business in connection with
workers' compensation, unemployment insurance and other types of social
security; (iv) Liens incurred or deposits made to secure the performance of
tenders, bids, leases, statutory or regulatory obligations, bankers'
acceptances, surety and appeal bonds, government contracts, performance and
return-of-money bonds and other obligations of a similar nature incurred in the
ordinary course of business (exclusive of obligations for the payment of
borrowed money); (v) easements, rights-of-way, municipal and zoning ordinances
and similar charges, encumbrances, title defects or other irregularities that do
not materially interfere with the ordinary course of business of the Company or
any of its Restricted Subsidiaries; (vi) Liens (including extensions and
renewals thereof) upon real or personal property acquired after the Closing
Date; provided that (a) such Lien is created solely for the purpose of securing
Indebtedness Incurred, in accordance with Section 13.5, (1) to finance the cost
(including the cost of improvement, launch (in the case of property that is a
satellite), insurance (in the case of property that is a satellite), development
and design, installation or construction) of the item of property or assets
subject thereto and such Lien is created prior to, at the time of or within six
(6) months after the later of the acquisition, the completion of construction or
the commencement of full operation of such property or (2)
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to refinance any Indebtedness previously so secured, (b) the principal amount of
the Indebtedness secured by such Lien does not exceed one hundred percent (100%)
of such cost, (c) any Lien permitted by this clause shall not extend to or cover
any property or assets other than such item of property or assets and any
improvements on such item and (d) such Liens may not relate to Orion 2 or Orion
3; (vii) leases or subleases granted to others that do not materially interfere
with the ordinary course of business of the Company and its Restricted
Subsidiaries, taken as a whole; (viii) Liens encumbering property or assets
under construction arising from progress or partial payments by a customer of
the Company or its Restricted Subsidiaries relating to such property or assets;
(ix) any interest or title of a lessor in the property subject to any
Capitalized Lease or operating lease; (x) Liens arising from filing Uniform
Commercial Code financing statements regarding leases; (xi) Liens on property
of, or on shares of Capital Stock or Indebtedness of, any Person existing at the
time such Person becomes, or becomes a part of, any Restricted Subsidiary;
provided that such Liens do not extend to or cover any property or assets of the
Company or any Restricted Subsidiary other than the property or assets acquired;
(xii) Liens in favor of the Company or any Restricted Subsidiary; (xiii) Liens
arising from the rendering of a final judgment or order against the Company or
any Restricted Subsidiary of the Company that does not give rise to an Event of
Default; (xiv) Liens securing reimbursement obligations with respect to letters
of credit that encumber documents and other property relating to such letters of
credit and the products and proceeds thereof; (xv) Liens in favor of customs and
revenue authorities arising as a matter of law to secure payment of customs
duties in connection with the importation of goods; (xvi) Liens encumbering
customary initial deposits and margin deposits, and other Liens that are within
the general parameters customary in the industry and incurred in the ordinary
course of business, in each case, securing Indebtedness under Interest Rate
Agreements and Currency Agreements and forward contracts, options, future
contracts, futures options or similar agreements or arrangements designed solely
to protect the Company or any of its Restricted Subsidiaries from fluctuations
in interest rates, currencies or the price of commodities; (xvii) Liens arising
out of conditional sale, title retention, consignment or similar arrangements
for the sale of goods entered into by the Company or any of its Restricted
Subsidiaries in the ordinary course of business in accordance with the past
practices of the Company and its Restricted Subsidiaries prior to the Closing
Date; (xviii) Liens on or sales of receivables; (xix) Liens on amounts of money
or Temporary Cash Investments that each represent bona fide prepayments of at
least $5 million on agreements for the long-term sale or lease of capacity on
any satellite owned by the Company or a Restricted Subsidiary, but only to the
extent that the amount of money or Temporary Cash Investments subject to any
such Lien does not exceed the amount of such prepayment and reasonable interest
thereon; and (xx) Liens encumbering contracts between the Company or any
Restricted Subsidiary and any third party customer relating to the use of a VSAT
owned by the Company or any Restricted Subsidiary but only if, and so long as,
the Indebtedness secured by any such Lien is also secured by a Lien permitted
under clause (vi) of this definition encumbering such VSAT.
Person: means an individual, partnership, corporation, limited
liability company, association, trust, unincorporated organization, or a
government or agency or political subdivision thereof.
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Plan: means an "employee benefit plan" (as defined in Section
3(3) of ERISA) which is or has been established or maintained, or to which
contributions are or have been made or are required to be made, by the Company,
ONS or any ERISA Affiliate.
PLC: British Aerospace Plc, a company organized and existing
under the laws of England and Wales.
Potential Event of Default: means an event or condition which,
with notice or lapse of time or both, would become an Event of Default.
Preferred Stock: as applied to the Capital Stock of any
corporation, means Capital Stock of any class or classes (however designated)
which is preferred as to the payment of dividends, or as to the distribution of
assets upon any voluntary or involuntary liquidation or dissolution of such
corporation, over shares of Capital Stock of any other class of such
corporation.
Proceeding: the meaning specified in Section 14.2.
----------
Purchased Shares: the meaning specified in Section 15.4(6).
----------------
Purchaser: means either BAe or Matra (or any Affiliate of BAe
or Matra substituted as a purchaser of Debentures pursuant to Section 24) and
Purchasers means BAe and Matra or any such Affiliate.
PUC: the meaning specified in Section 5.11.
---
Redemption Date: means when used with respect to any Debenture
to be redeemed, means the date fixed for such redemption by or pursuant to this
Agreement.
Redemption Indebtedness: means Indebtedness of the Company
which is by its terms expressly subordinated in right of payment of the
Debentures and is incurred for the sole purpose of financing the redemption,
repurchase or acquisition of shares of Series A Preferred Stock or Series B
Preferred Stock.
Redemption Price: when used with respect to any Debenture to
be redeemed, means the price at which it is to be redeemed pursuant to this
Agreement.
Reference Period: the meaning specified in Section 19.1
----------------
Registration Statement: means the registration statement of
the Company on Form S-4 filed with the Commission in connection with the Merger
Transaction, including the proxy statement and the prospectus contained therein,
all exhibits thereto and all material incorporated by reference therein.
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Reorganization Transaction: the meaning specified in Section
15.13(a).
Repayment Event: the meaning specified in Section 5.9.
---------------
Repurchase Date: the meaning specified in Section 11.3 (b).
Repurchase Price: the meaning specified in Section 11.3 (b).
Responsible Officer: shall mean the President, Chief Executive
Officer or Chief Financial Officer of the Company.
Restricted Payments: the meaning specified in Section 13.6.
Restricted Subsidiary: means any Subsidiary of the Company
other than an Unrestricted Subsidiary.
S&P: means Standard & Poor's Ratings Group and its successors.
---
Scheduled Closing Date: the meaning specified in Section
4.14(b).
Securities Act: means the Securities Act of 1933, as amended,
or any similar Federal statute and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
Senior Indebtedness: means Indebtedness (including, without
limitation the Senior Notes) unless, in the instrument creating or evidencing
the same or pursuant to which the same is outstanding, it is provided that such
obligations are pari passu or junior or subordinate in right of payment to the
Debentures; provided, however, that Senior Indebtedness shall not be deemed to
include (1) any obligation of the Company to any Subsidiary, (2) any liability
for federal, state, local or other taxes owed or owing by the Company, (3) any
accounts payable or other liability to trade creditors arising in the ordinary
course of business (including guarantees thereof or instruments evidencing such
liabilities), (4) any indebtedness, guarantee or obligation of the Company which
is subordinate or junior in any respect to any other indebtedness, guarantee or
obligation of Company (including, without limitation, the Debentures), or (5)
the portion of any Indebtedness issued in violation of this Agreement.
Senior Indentures: means the indentures governing the Senior
Notes as originally executed or as amended or supplemented from time to time.
Senior Nonmonetary Default: the meaning specified in Section
14.3.
Senior Notes: means the Senior Unsecured Overfunded Cash Pay
Notes and the Senior Unsecured Discount Notes.
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Senior Notes Reduction Date: means the first date after the
Closing on which the aggregate principal amount of Senior Notes Outstanding is
less than $50,000,000.
Senior Payment Default: the meaning specified in Section 14.3.
----------------------
Senior Unsecured Discount Notes: means the Senior Discount
Notes due 2007 to be issued under an indenture, to be dated as of the Closing
Date, between the Company, as issuer, each of the Company's Restricted
Subsidiaries, as guarantors, and a trustee.
Senior Unsecured Overfunded Cash Pay Notes: means the Senior
Notes due 2007 to be issued under an indenture, to be dated as of the Closing
Date, between the Company, as issuer, each of the Company's Restricted
Subsidiaries, as guarantors, and a trustee.
Series A Preferred Stock: means the Company's Series A 8%
Cumulative Redeemable Convertible Preferred Stock, par value $0.01 per share.
Series B Preferred Stock: means the Company's Series B 8%
Cumulative Redeemable Convertible Preferred Stock, par value $0.01 per share.
Series C Designation: the meaning specified in Section
5.28(a).
Series C Preferred Stock: means the Series C 6% Cumulative
Convertible Redeemable Preferred Stock of the Company to be issued pursuant to
the Exchange Agreement.
Significant Subsidiary: means, at any date of determination,
any Restricted Subsidiary that, together with its Subsidiaries, (i) for the most
recent fiscal year of the Company, accounted for more than ten percent (10%) of
the consolidated revenues of the Company and its Restricted Subsidiaries or (ii)
as of the end of such fiscal year, was the owner of more than ten percent (10%)
of the consolidated assets of the Company and its Restricted Subsidiaries, all
as set forth on the most recently available consolidated financial statements of
the Company for such fiscal year.
Solvent: with respect to any Person on a particular date and,
to the extent applicable, after giving effect to the borrowing hereunder on such
date and to any other Indebtedness being incurred on such date (i) the amount of
the "present fair saleable value" of the assets of such Person and each of its
Subsidiaries will, as of such date, exceed the amount of all "liabilities of
such Person and each of its Subsidiaries, contingent or otherwise," as of such
date, as such quoted terms are determined in accordance with applicable federal
and state laws governing determinations of insolvency of debtors, (ii) the
present fair saleable value of the assets of such Person and each of its
Subsidiaries will, as of such date, be greater than the amount that will be
required to pay the liabilities of such Person and each of its Subsidiaries on
its debts as such debts become absolute and matured, (iii) such Person and each
of its Subsidiaries will not have as of such date, an unreasonably small amount
of capital with which
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to conduct their business, and (iv) such Person and each of its Subsidiaries
will be able to pay their debts as they mature. For purposes hereof, "debt"
means "liability on a claim," and "claim" means any (x) right to payment,
whether or nor such a right is reduced to judgment, liquidated, unliquidated,
fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable,
secured, or unsecured, or (y) right to an equitable remedy for breach of
performance if such breach gives rise to a right to payment, whether or not such
right to an equitable remedy is reduced to judgment, fixed, contingent, matured,
unmatured, disputed, secured, or unsecured.
Stated Maturity: means, (i) with respect to any debt security,
the date specified in such debt security as the fixed date on which the final
installment of principal of such debt security is due and payable and (ii) with
respect to any scheduled installment of principal of or interest on any debt
security, the date specified in such debt security as the fixed date on which
such installment is due and payable.
Stock: means any Conversion Shares and any shares of Common
Stock issued subsequent to the conversion of any of the Debentures as a dividend
or other distribution with respect to, or in exchange for or in replacement of,
the Common Stock issued upon such conversion, or resulting from a subdivision of
the outstanding shares of Common Stock issued upon such conversion into a
greater number of shares by reclassification, stock splits or otherwise.
Subject Securities: the meaning specified in Section 5.28(a).
------------------
Subsidiary: means, with respect to any Person, any
corporation, association or other business entity of which more than fifty
percent (50%) of the voting power of the outstanding Voting Stock is owned,
directly or indirectly, by such Person or one (1) or more other Subsidiaries of
such Person. In addition, for purposes of this Agreement, prior to the Closing
Date the term "Subsidiary" when used in reference to Subsidiaries of ONS, shall
also mean and include Orion Atlantic.
Subsidiary Guarantee: means the Guarantee substantially in the
form of Exhibit B to be executed by each of the Guarantors.
Successful Launch: means with respect to any satellite, the
placing into orbit of such satellite in its assigned orbital position with at
least forty percent (40%) of its transponder capacity fully operational.
Temporary Cash Investment: means any of the following: (i)
direct obligations of the United States of America or any agency thereof or
obligations fully and unconditionally guaranteed by the United States of America
or any agency thereof, (ii) time deposit accounts, certificates of deposit and
money market deposits maturing within one hundred and eighty (180) days of the
date of acquisition thereof issued by a bank or trust company which is organized
under the laws of the United States of America, any state thereof or any foreign
country recognized by the United States, and which bank or trust company has
capital, surplus and
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undivided profits aggregating in excess of $50 million (or the foreign currency
equivalent thereof) and has outstanding debt which is rated "A" (or such similar
equivalent rating) or higher by at least one nationally recognized statistical
rating organization (as defined in Rule 436 under the Securities Act) or any
money-market fund sponsored by a registered broker dealer or mutual fund
distributor, (iii) repurchase obligations with a term of not more than thirty
(30) days for underlying securities of the types described in clause (i) above
entered into with a bank meeting the qualifications described in clause (ii)
above, (iv) commercial paper, maturing not more than ninety (90) days after the
date of acquisition, issued by a corporation (other than an Affiliate of the
Company) organized and in existence under the laws of the United States of
America, any state thereof or any foreign country recognized by the United
States of America with a rating at the time as of which any investment therein
is made of "P-1" (or higher) according to Moody's or "A-1" (or higher) according
to S&P, and (v) securities with maturities of six (6) months or less from the
date of acquisition issued or fully and unconditionally guaranteed by any state,
commonwealth or territory of the United States of America, or by any political
subdivision or taxing authority thereof, and rated at least "A" by S&P or
Moody's.
10-K: the meaning specified in Section 5.5.
----
10-Q: the meaning specified in Section 5.5.
----
this Agreement: means this Debenture Purchase Agreement
(including the annexed Schedule I and Exhibits), as it may from time to time be
amended, supplemented or modified in accordance with its terms.
Trade Payables: means, with respect to any Person, any
accounts payable or any other indebtedness or monetary obligation to trade
creditors created, assumed or Guaranteed by such Person or any of its
Subsidiaries arising in the ordinary course of business in connection with the
acquisition of goods or services.
Trading Days: means (i) if the Common Stock is listed or
admitted for trading on any national securities exchange, days on which such
national securities exchange is open for business or (ii) if the Common Stock is
quoted on the Nasdaq National Market or any similar system of automated
dissemination of quotations of securities prices, days on which trades may be
made on such system or (iii) if the Common Stock is not listed or admitted to
trading on any national securities exchange or quoted on the Nasdaq National
Market or similar system, days on which the Common Stock is traded in the
over-the-counter market and for which a closing bid and a closing asked price
for the Common Stock are available.
Transaction Date: means, with respect to the Incurrence of any
Indebtedness by the Company or any of its Restricted Subsidiaries, the date such
Indebtedness is to be Incurred and, with respect to any Restricted Payment, the
date such Restricted Payment is to be made.
Trigger Price: shall initially mean $14.00. The Trigger Price
and any adjustment to the Trigger Price shall be proportionately decreased in
the event the Company at any time
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subdivides (by any stock split, stock dividend, recapitalization or otherwise)
the outstanding shares of Common Stock into a greater number of shares or
proportionately increased in the event that the Company at any time combines (by
reverse stock split, recapitalization or otherwise) the outstanding shares of
Common Stock into a smaller number of shares.
Underlying Shares: the meaning specified in Section 11.4.
-----------------
Underwriting Agreement: the meaning specified in Section 4.1.
----------------------
Unrestricted Subsidiary: means (i) any Subsidiary of the
Company that at the time of determination shall be designated an Unrestricted
Subsidiary by the Board of Directors in the manner provided below and (ii) any
Subsidiary of an Unrestricted Subsidiary. The Board of Directors may designate
any Restricted Subsidiary (including any newly acquired or newly formed
Subsidiary of the Company) to be an Unrestricted Subsidiary unless such
Subsidiary owns any Capital Stock of, or owns or holds any Lien on any property
of, the Company or any Restricted Subsidiary; provided that (A) any Guarantee by
the Company or any Restricted Subsidiary of any Indebtedness of the Subsidiary
being so designated shall be deemed an "Incurrence" of such Indebtedness and an
"Investment" by the Company or such Restricted Subsidiary (or both, if
applicable) at the time of such designation; (B) either (I) the Subsidiary to be
so designated has total assets of $1,000 or less or (II) if such Subsidiary has
assets greater than $1,000, such designation would be permitted under Section
13.6 and (C) if applicable, the Incurrence of Indebtedness and the Investment
referred to in clause (A) of this proviso would be permitted under Section 13.5
and Section 13.6. The Board of Directors may designate any Unrestricted
Subsidiary to be a Restricted Subsidiary; provided that immediately after giving
effect to such designation (x) the Company could Incur $1.00 of additional
Indebtedness under the first paragraph of Section 13.5 and (y) no Potential
Event of Default or Event of Default shall have occurred and be continuing. Any
such designation by the Board of Directors shall be evidenced by a Board
Resolution giving effect to such designation and an Officers' Certificate
certifying that such designation complied with the foregoing provisions, copies
of which shall be sent to each holder of Debentures.
Vice President: when used with respect to the Company, means
any vice president, whether or not designated by a number or a word or words
added before or after the title "vice president".
Voting Stock: means with respect to any Person, Capital Stock
of any class or kind ordinarily having the power to vote for the election of
directors, managers or other voting members of the governing body of such
Person.
VSAT: means very small aperture terminal.
----
Wholly Owned: means, with respect to any Subsidiary of any
Person, the ownership of all of the outstanding Capital Stock of such Subsidiary
(other than any director's
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qualifying shares or Investments by foreign nationals mandated by applicable
law) by such Person or one or more Wholly Owned Subsidiaries of such Person.
20. Expenses. Whether or not the transactions contemplated by this
Agreement shall be consummated, the Company will pay all expenses in connection
with such transactions and in connection with any amendments or waivers (whether
or not the same become effective) under or in respect of this Agreement or the
Debentures, including, without limitation: (a) the cost and expenses of
preparing and reproducing this Agreement and the Debentures, of furnishing all
opinions by counsel for the Company (including any opinions requested by your
special counsel as to any legal matter arising hereunder) and all certificates
on behalf of the Company, and of the Company's performance of and compliance
with all agreements and conditions contained herein on its part to be performed
or complied with; (b) the cost of delivering to your principal office, insured
to your satisfaction, the Debentures sold to you hereunder and any Debentures
delivered to you upon any substitution of Debentures or any Conversion Shares or
Interest Shares delivered pursuant hereto or thereto and of your delivering any
Debentures, insured to your satisfaction, upon any substitution or conversion;
(c) the fees, expenses and disbursements of your U.S. special counsel (Coudert
Brothers for BAe and Powell, Goldstein, Frazer & Murphy for Matra) and U.K.
special counsel (Allen & Overy) to BAe in connection with all due diligence and
the documentation and negotiation of the Debentures, this Agreement and the
exhibits hereto and all ancillary documents and in connection with the
completion of this transaction; and (d) the reasonable out-of-pocket expenses
incurred by you in connection with this transaction. The Company also will pay,
and will save you and each holder of any Debentures harmless from, all claims in
respect of the fees, if any, of brokers and finders, other than any broker or
finder retained by you or any such other holder, and any and all liabilities
with respect to any taxes (including interest and penalties) which may be
payable in respect of the execution and delivery of this Agreement and the issue
of the Debentures hereunder and any amendment or waiver under or in respect of
this Agreement or the Debentures.
21. Survival. All express representations and warranties contained in
this Agreement or made in writing by or on behalf of the Company in connection
with the transactions contemplated by this Agreement shall survive the execution
and delivery of this Agreement, any investigation at any time made by you or on
your behalf, the purchase of the Debentures hereunder, any disposition or
payment of the Debentures or any conversion of the Debentures. All statements
contained in any certificate or other instrument delivered by or on behalf of
the Company pursuant to this Agreement or in connection with the transactions
contemplated hereby shall be deemed representations and warranties of the
Company under this Agreement.
22. Amendments and Waivers.
----------------------
Prior to the Closing Date, any term of this Agreement may be
amended, and the observance of any term of this Agreement may be waived, only
with the written consent of the Company, ONS, BAe and Matra. From and after the
Closing Date, any term of this Agreement or of the Debentures may be amended,
and the observance of any term of this Agreement or of the Debentures may be
waived (either generally or in a particular instance and either
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retroactively or prospectively), only with the written consent of the Company
and with the written consent of the holders of at least sixty-six and two-thirds
percent (66-2/3%) in principal amount of the then Outstanding Debentures;
provided, however, that without the prior written consent of the holders of all
the then Outstanding Debentures, no such amendment or waiver shall (a) extend
the fixed maturity or reduce the principal amount of, or reduce the rate or
extend the time of payment of interest on, or reduce the amount or extend the
time of payment of any principal or premium (if any) payable (whether as a
redemption, a repurchase or otherwise) on any Debenture, (b) reduce the
aforesaid percentage of the principal amount of the Debentures the holders of
which are required to consent to any such amendment or waiver, or (c) modify any
term of Section 14 or Section 15. Any amendment or waiver effected in accordance
with this Section 22 shall be binding upon each holder of any Debenture at the
time outstanding, each future holder of any Debenture and the Company.
23. Notices. Except as otherwise provided in this Agreement, notices
and other communications under this Agreement shall be in writing and shall be
deemed properly served if (i) mailed by registered or certified mail, return
receipt requested, (ii) delivered by a recognized overnight courier service,
(iii) delivered personally, or (iv) sent by facsimile transmission addressed (a)
if to you, at your address set forth at the beginning of this Agreement, or at
such other address as you shall have furnished to the Company in writing, except
as otherwise provided in Section 17.2 with respect to payments on Debentures
held by you, or (b) if to any other holder of any Debenture, at such address as
such other holder shall have furnished to the Company in writing, or, until any
such other holder so furnishes an address to the Company, then to and at the
address of the last holder of such Debenture who has so furnished an address to
the Company, or (c) if to the Company, at its address set forth at the beginning
of this Agreement, to the attention of the Chief Financial Officer, or at such
other address, or to the attention of such other officer, as the Company shall
have furnished to you and each such other holder in writing. Such notice shall
be deemed to have been received (w) three (3) days after the date of mailing if
sent by certified or registered mail, (x) one (1) day after the date of delivery
if sent by overnight courier, (y) the date of delivery if personally delivered,
or (z) the next succeeding business day after transmission by facsimile.
24. Substitution of Purchasers; References. (a) Each of BAe and Matra
shall have the right to substitute (in whole or in part) one (1) or more of its
Affiliates as a purchaser of Debentures hereunder, by written notice to the
Company, which notice shall be signed by BAe or Matra, as the case may be, and
each such Affiliate, shall contain each such Affiliate's agreement to be bound
by this Agreement and shall contain a confirmation by each such Affiliate of the
accuracy with respect to it of the representations set forth in Section 6.
(b) Wherever the word "you" is used in this Agreement, such word shall
be deemed to refer to BAe and Matra and/or any of the Affiliates of BAe or Matra
which is or at any time becomes the holder of any Debenture.
25. Execution in Counterparts. This Agreement may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which when so
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executed shall be deemed to be an original and all of which taken together shall
constitute one and the same agreement.
26. Binding Effect. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective successors and assigns,
except that the Company shall not have the right to assign its rights or
obligations hereunder or any interest herein without your prior written consent
which may be withheld for any reason.
27. GOVERNING LAW. THIS AGREEMENT AND THE DEBENTURES SHALL BE GOVERNED
BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK WITHOUT
GIVING EFFECT TO ANY CONFLICT OF LAW PROVISIONS THEREOF.
28. Consent to Jurisdiction; Appointment of Agent to Accept Service of
Process. (a) The Company irrevocably consents and agrees, for your benefit, that
any legal action, suit or proceeding against it with respect to its obligations,
liabilities or any other matter arising out of or in connection with this
Agreement or any Document or the transaction contemplated hereby or thereby may
be brought in the courts of the State of New York or the courts of the United
States of America located in The City of New York and, until all amounts due and
to become due in respect of this Agreement have been paid, or until any such
legal action, suit or proceeding commenced prior to such payment has been
concluded, hereby irrevocably consents and submits to the non-exclusive
jurisdiction of each such court in personam, generally and unconditionally with
respect to any action, suit or proceeding for itself and in respect of its
properties, assets and revenues.
(b) The Company appoints and empowers CT Corporation System,
with offices currently at 1633 Broadway, New York, New York 10019, as its
designee, appointee and agent to receive, accept and acknowledge for and on its
behalf, and its properties, assets and revenues, service of any and all legal
process, summons, notices and documents that may be served in any action, suit
or proceeding brought against it in any such United States or State court with
respect to its obligations, liabilities or any other matter arising out of or in
connection with this Agreement or any of the Documents or the transaction
contemplated hereby or thereby and that may be made on such designee, appointee
and agent in accordance with legal procedures prescribed for such courts. If for
any reason such designee, appointee and agent hereunder shall cease to be
available to act as such, the Company agrees to designate a new designee,
appointee and agent in The City of New York on the terms and for the purposes of
this Section 28 satisfactory to you. The Company further hereby irrevocably
consents and agrees to the service of any and all legal process, summons,
notices and documents in any such action, suit or proceeding against it by
serving a copy thereof upon the relevant agent for service of process referred
to in this Section 28 (whether or not the appointment of such agent shall for
any reason prove to be ineffective or such agent shall accept or acknowledge
such service) or by mailing copies thereof by registered or certified air mail,
postage prepaid, to the applicable party at its address specified in or
designated pursuant to this Agreement. The Company agrees that the failure of
any such designee, appointee and agent to give any notice of such service to it
shall
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not impair or affect in any way the validity of such service or any judgment
rendered in any action or proceeding based thereon. Nothing herein shall in any
way be deemed to limit your ability to serve any such legal process, summons,
notices and documents in any other manner permitted by applicable law or to
obtain jurisdiction over such party or bring actions, suits or proceedings
against such party in such other jurisdictions, and in such manner, as may be
permitted by law, any objection that they may now or hereafter have to the
laying of venue of any of the aforesaid actions, suits or proceedings arising
out of or in connection with this Agreement brought in the United States Federal
courts located in The City of New York or the courts of the State of New York
and hereby further irrevocably and unconditionally waives and agrees not to
plead or claim in any such court that any such action, suit or proceeding
brought in any such court has been brought in an inconvenient forum.
(c) The provisions of this Section 28 shall survive any
termination of this Agreement, in whole or in part.
29. WAIVER OF JURY TRIAL. THE COMPANY HEREBY IRREVOCABLY WAIVES ALL
RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT
OF OR RELATING TO THIS AGREEMENT OR ANY OTHER DOCUMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY OR THEREBY.
If you are in agreement with the foregoing, please sign the form of
acceptance on the accompanying counterparts of this Agreement and return one (1)
of the same to the Company and ONS, whereupon this Agreement shall become a
binding agreement between you and the Company and ONS.
Very truly yours,
ORION NEWCO SERVICES, INC.
By:
------------------------------
Name:
Title:
ORION NETWORK SYSTEMS, INC.
By:
------------------------------
Name:
Title:
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<PAGE>
The foregoing agreement is
hereby accepted as of
the date thereof.
BRITISH AEROSPACE HOLDINGS, INC.
By:
--------------------------
Name:
Title:
MATRA MARCONI SPACE
UK LIMITED
By:
---------------------------
Name:
Title:
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SCHEDULE I
Principal Amount of
Name and Address of Purchaser Debentures to be Purchased
- ----------------------------- --------------------------
BRITISH AEROSPACE HOLDINGS, INC.............................$ 50,000,000
(1) All payments on account of the Debentures shall be made by wire
transfer of immediately available funds not later than 11 a.m., New
York City time, to:
---------------------------------
---------------------------------
---------------------------------
(2) All notices of such payments and written
confirmation of such wire transfer shall be made
to:
---------------------------------
---------------------------------
---------------------------------
(3) All other communications shall be mailed to:
---------------------------------
---------------------------------
---------------------------------
MATRA MARCONI SPACE UK LIMITED..............................$ 10,000,000
(1) All payments on account of the Debentures shall be made by wire
transfer of immediately available funds not later than 11 a.m., New
York City time, to:
---------------------------------
---------------------------------
---------------------------------
<PAGE>
(2) All notices of such payments and written
confirmation of such wire transfer shall be made
to:
---------------------------------
---------------------------------
---------------------------------
(3) All other communications shall be mailed to:
---------------------------------
---------------------------------
---------------------------------
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HOGAN & HARTSON
L.L.P
COLUMBIA SQUARE
555 THIRTEENTH STREET, NW
WASHINGTON, DC 20004-1109
TEL (202) 637-5600
FAX (202) 637-5910
January 14, 1997
Board of Directors
Orion Newco Services, Inc.
2440 Research Boulevard, Suite 400
Rockville, Maryland 20850
Gentlemen:
This firm has acted as counsel to Orion Newco Services, Inc. (the
"Company"), a Delaware corporation, in connection with its registration,
pursuant to a registration statement on Form S-4 filed on or about the date
hereof (the "Registration Statement"), of 11,097,758 shares of common stock, par
value $.01 per share, of the Company, 13,871 shares of a series to be designated
Series A Preferred Stock, par value $.01 per share, of the Company, and 4,298
shares of a series to be designated Series B Preferred Stock, par value $.01 per
share, of the Company (collectively, the "Shares"), issuable to shareholders of
Orion Network Systems, Inc. ("Orion"). The Shares are being offered in
connection with that certain merger (the "Merger") of Orion Merger Company, Inc.
("Merger Sub"), a newly formed Delaware corporation that is a wholly owned
subsidiary of the Company, with and into Orion, as contemplated by the terms of
that certain Agreement and Plan of Merger among the Company, Orion and Merger
Sub dated as of January 8, 1997 (the "Merger Agreement").
This letter is furnished to you pursuant to the requirements of Item
601(b)(5) of Regulation S-K, 17 C.F.R. ss. 229.601(b)(5), in connection with
such registration. For purposes of this opinion letter, we have examined copies
of the following documents:
1. An executed copy of the Registration Statement, which includes the
joint proxy statement/prospectus of Orion and the Company.
2. The Certificate of Incorporation of the Company, as amended, as
certified by the Secretary of State of the State of Delaware on June
26, 1996 and by the Secretary of the Company on the date hereof as
then being complete, accurate and in effect.
<PAGE>
HOGAN & HARTSON L.L.P.
Board of Directors
Orion Newco Services, Inc.
January 14, 1997
Page 2
3. The By-laws of the Company, as amended, as certified by the Secretary
of the Company on the date hereof as then being complete, accurate and
in effect.
4. An executed copy of the Merger Agreement.
5. Resolutions of the Board of Directors of the Company adopted on
January 13, 1997 as certified by the Secretary of the Company on the
date hereof as then being complete, accurate and in effect relating
to, among other things, approval of the Merger.
We have not, except as specifically identified above, made any
independent review or investigation of factual or other matters, including the
organization, existence, good standing, assets, business or affairs of the
Company or its subsidiaries. In our examination of the aforesaid certificates,
records, and documents, we have assumed the genuineness of all signatures, the
legal capacity of natural persons, the authenticity, accuracy and completeness
of all documents submitted to us as originals, and the authenticity, accuracy
and completeness and conformity with the original documents of all documents
submitted to us as certified, telecopied, photostatic, or reproduced copies. We
have assumed the authenticity and accuracy of the foregoing certifications of
corporate officers, on which we are relying, and have made no independent
investigations thereof. This opinion is given in the context of the foregoing.
This opinion letter is based as to matters of law solely on the General
Corporation Law of the State of Delaware. We express no opinion herein as to any
other laws, statutes, regulations, or ordinances.
Based upon, subject to, and limited by the foregoing, we are of the
opinion that following (i) approval by the stockholders of Orion of the Merger,
and (ii) consummation of the Merger and the issuance and delivery of the Shares
pursuant to the terms of the Merger Agreement and the Registration Statement,
the Shares will be validly issued, fully paid and non-assessable.
We assume no obligation to advise you of any changes in the foregoing
subsequent to the delivery of this opinion letter. This opinion letter has been
prepared solely for your use in connection with the filing of the Registration
Statement on the date of this letter, and should not be quoted in whole or in
part or
<PAGE>
HOGAN & HARTSON L.L.P.
Board of Directors
Orion Newco Services, Inc.
January 14, 1997
Page 3
otherwise be referred to, nor be filed with or furnished to any governmental
agency or other person or entity, without the prior written consent of this
firm.
We hereby consent to the filing of this opinion letter as Exhibit 5.0
to the Registration Statement. In giving this consent, we do not thereby admit
that we are an "expert" within the meaning of the Securities Act of 1933, as
amended.
Very truly yours,
HOGAN & HARTSON L.L.P.
January 6, 1997
Board of Directors
Orion Network Systems, Inc.
2440 Research Boulevard, Suite 400
Rockville, Maryland 20850
Dear Directors:
This letter is in response to your request that we provide you with our opinion
as to certain of the Federal income tax consequences of the proposed
reorganization of Orion Network Systems, Inc. ("Orion"), Orion Newco Services,
Inc. ("Orion Newco"), a newly formed Delaware corporation and wholly owned
subsidiary of Orion, and Orion Merger Company, Inc. ("Orion Merger Subsidiary"),
a newly formed Delaware corporation and wholly owned subsidiary of Orion Newco,
pursuant to the Agreement and Plan of Merger, dated as of December, 1996 (the
"Merger Agreement"), by and among Orion, Orion Newco and Orion Merger Subsidiary
(the "Merger").
In rendering our opinion, we have also considered the proposed transfer of (i)
limited partnership interests in International Private Satellite Partners, L.P.,
a Delaware limited partnership ("Orion Atlantic") and (ii) a portion of certain
refund rights, contractual rights and debt instruments under which Orion
Atlantic is the obligor, to Orion Newco in exchange for shares of Series C 6%
Cumulative Redeemable Convertible Preferred Stock of Orion Newco ("Orion Newco
Series C Preferred Stock") pursuant to the Section (1) 351 Exchange Agreement
and Plan of Conversion (the "Exchange Agreement"), dated as of June , 1996,
among Orion, Orion Satellite Corporation, a Delaware corporation that is a
wholly owned subsidiary of Orion and the sole general partner of Orion Atlantic,
and each of the existing limited partners of Orion Atlantic other than Orion (2)
(the "Exchange").
In rendering our opinions, we have relied upon the facts and representations,
summarized below, as they have been represented to us or described in the
following documents (the "Documents"):
1. Agreement and Plan of Merger, as approved by the Board of Directors on
January 3, 1997;
- ----------
1
All "Section" references in this letter are to the Internal Revenue Code of
1986, as amended.
2
The limited partners in Orion Atlantic other than Orion are British Aerospace
Communications, Inc. ("BAe"), COM DEV Satellite Communications Limited (COM
DEV"), Kingston Communications International Limited ("Kingston"), Lockheed
Martin Commercial Launch Services, Inc. ("Lockheed Martin CLS"), MCN Sat US,
Inc. ("Matra"), and Trans Atlantic Satellite, Inc. ("Nisho"). All limited
partnerss except for Orion will be taking part in the Exchange and those
partners taking part in the Exchange will hereinafter be referred to as the
"Exchanging Partners".
<PAGE>
Board of Directors January 6, 1997
Orion Network Systems, Inc. Page 2
2. The Section 351 Exchange Agreement and Plan of Conversion, dated as of June,
1996;
3. The First Amendment to the Section 351 Exchange Agreement and Plan of
Conversion, dated as of December, 1996;
4. The Proposed Amendment to Preliminary Schedule 14A as filed with the
Securities and Exchange Commission on December 30, 1996 (the "Proxy
Statement"); and
6. The letter dated December 27, 1996 from management of Orion containing
certain representations regarding the Merger (the "Representation Letter").
The management of Orion has represented to us that the Documents provide an
accurate, true, and complete description of the entire understanding of the
parties with respect to the subject matter thereof and are true and complete in
all material respects. Also, the management of Orion has represented (without
our independent investigation) that the Merger and Exchange and any transactions
incident thereto will occur in strict accordance with the terms of the
Documents. We have made no independent determination regarding such facts and
circumstances and, therefore, have relied upon the statements and
representations of management and the information presented in the Documents for
purposes of this letter. Any changes to the Documents or to such facts or to the
assumptions set forth in this letter may affect the opinions stated herein.
I. STATEMENT OF FACTS
The management of Orion has represented the following to us:
A. In General
Orion, together with its subsidiaries, is a provider of private network services
to multinational corporations. More specifically, Orion has developed and
operates a privately owned international satellite communications business,
which delivers two distinct types of services: (i) private communications
networks for multinational businesses and (ii) transmission capacity for video
and other program distribution services.
As of December 15, 1996, Orion's capital structure consisted of (i) 40,000,000
authorized shares of voting common stock, 10,974,121 shares of which were issued
and outstanding, (ii) 15,000 authorized shares of convertible redeemable Series
A Preferred Stock, 13,871 shares of which were outstanding and currently
entitled to vote on the election of directors and all other matters proper for
shareholder consideration on an "as converted" basis,(3) and (iii) 5,000
authorized shares of convertible redeemable Series B Preferred Stock, 4,298 of
which were outstanding and
- ---------
3
Each share of the Series A Preferred stock entitles its holder to 117 votes
because each share of the Series A Preferred can be converted to 117 shares
of common stock. Thus, the outstanding shares of Series A preferred
constitute an aggregate of 1,622,907 votes.
<PAGE>
Board of Directors January 6, 1997
Orion Network Systems, Inc. Page 3
currently entitled to vote on the election of directors and all other matters
proper for shareholder consideration on an "as converted" basis.(4) As of
September 30, 1996, there are only 6 shareholders who beneficially own more than
five percent of the outstanding common stock of Orion. The Orion common stock is
traded over-the-counter and quoted on the NASDAQ System.
Orion is the common parent of an affiliated group of corporations filing a
consolidated Federal income tax return on the basis of a December 31 year end
("Orion Group"). Other members of the Orion Group include: Orion Newco; Orion
Merger Subsidiary; Asia Pacific Space & Communications, Ltd.; Orion Asia Pacific
Corp. ("Orion Asia Pacific")(5); Orion Satellite Corporation ("OrionSat");
OrionNet, Inc. ("OrionNet"); and OrionNet Finance Corporation.
Orion Newco is currently a wholly-owned subsidiary of Orion. Orion Newco was
formed solely for the purpose of effecting the Merger and Exchange and has not
conducted any business since incorporation other than matters incident to its
organization and matters incident to the Merger Agreement and Exchange
Agreement. While Orion Newco currently conducts no business, upon completion of
the Merger as described below, its business activities will initially include
the operations currently conducted by Orion. The authorized capital stock of
Orion Newco consists of 40,000,000 shares of common stock, par value $.01 per
share, and 1,000,000 shares of preferred stock, par value $.01 per share. Each
holder of Orion Newco common stock is entitled to one vote per share of Orion
Newco common stock held by such holder on all matters to be voted upon by the
stockholders of Orion Newco. The holders of Orion Newco preferred stock will be
entitled to one vote for each whole share of Orion Newco common stock that would
be issuable upon conversion of such share of Orion Newco preferred stock on all
matters submitted to the stockholders of Orion Newco. Immediately after the
Merger and Exchange, Orion Newco will have outstanding 10,973,018 shares of
Orion Newco common stock, 13,871 shares of Orion Newco Series A Preferred Stock,
4,298 shares of Orion Newco Series B Preferred Stock, and 121,988 shares of
Orion Newco Series C Preferred Stock (subject to possible adjustment, as
discussed below). The terms, rights and preferences of the Orion Newco Series A
Preferred and Orion Newco Series B Preferred will be identical in all respects
to the terms, rights and preferences of the Series A Preferred Stock and the
Orion Series B Preferred Stock, respectively.
- ----------
4
Each share of the Series B Preferred stock entitles it holder to 98 votes
because each share of the Series B Preferred can be converted to 98 shares of
common stock. Thus, the outstanding shares of Series A preferred constitute
an aggregate of 421,204 votes.
5
Presently, Orion owns approximately 83% of the total outstanding stock of
Orion Asia Pacific. As noted below, as a condition to the Exchange, Orion
Newco will issue approximately 86,000 shares of common stock to acquire the
remaining outstanding shares of stock of Asia Pacific which are currently
owned by an affiliate of BAe.
<PAGE>
Board of Directors January 6, 1997
Orion Network Systems, Inc. Page 4
Orion Merger Subsidiary was organized solely for the purpose of merging with
Orion in accordance with the Merger Agreement. Orion Merger Subsidiary has
engaged in no business activities other than matters incident to its
organization and matters incident to the Merger Agreement and Exchange
Agreement. The authorized capital stock of Orion Merger Subsidiary consists of
1,000 shares of common stock. Immediately before the Merger of Orion Merger
Subsidiary with and into Orion, Orion Merger Subsidiary's assets will consist
solely of cash contributed by Orion Newco in exchange for Orion Merger
Subsidiary's stock. Immediately after the Merger, Orion Newco will be the sole
shareholder of Orion, owning 100% of the issued and outstanding shares of
Orion's common and preferred stock.
OrionSat is the sole general partner of Orion Atlantic with a 25% equity
interest. The limited partners in Orion Atlantic include Orion and the
Exchanging Partners.
B. Business Purpose
Management has represented that the proposed Merger will permit the acquisition
of the LPIs and Partnership Debt (hereinafter defined) in that, absent the
formation of Orion Newco, Exchanging Partners owning significant LPIs and
Partnership Debt have indicated they are not willing to exchange their LPIs and
Partnership Debt for Orion stock. Accordingly, the Merger has been structured to
accommodate the wishes of the Exchanging Partners and permit Orion to acquire
all the capital and profits interests in Orion Atlantic not presently owned by
the Orion Group.
In addition, the Proxy states that the Merger and the Exchange (collectively,
the "Transactions") will provide the following additional benefits: (i) simplify
Orion's organizational structure and improve Orion's access to the capital
markets; (ii) consolidate outside investor ownership at the holding company
(Orion Newco) level; (iii) improve the speed and efficiency of Orion's decision
making; (iv) provide Orion Newco with 100% ownership of all of its material
subsidiaries; (v) allow Orion Newco to pursue independently its business plans
and financing for all of its satellites; (vi) eliminate (in exchange for Orion
Newco Stock) approximately $37.5 million (as of September 30, 1996) of
obligations Orion Atlantic owes to the Exchanging Partners under various
agreements; and (vii) increase Orion's overall market capitalization.
Access to the capital markets is necessary for Orion to achieve its business
plan to construct and launch two additional satellites. With this plan in mind,
Orion Newco has been pursuing and will continue to pursue various financing
transactions including: (i) an offering of investment units consisting of senior
notes and common stock warrants in the amount of approximately $322 million;
(ii) the issuance and sale of approximately $60 million of Orion Newco's
convertible subordinated debentures to BAe and Matra; (iii) a satellite
procurement contract for the Orion 2 Satellite; and (iv) a satellite procurement
contract for the Orion 3 Satellite. Orion believes that the construction and
launch of Orion 2 and Orion 3 will offer stockholders an opportunity to
<PAGE>
Board of Directors January 6, 1997
Orion Network Systems, Inc. Page 5
realize long-term value through the potential appreciation in the value of
Orion's stock. The Proxy states that Orion believes that it would not be able to
complete these financings in the absence of the Transactions.
C. Merger
Pursuant to the Merger, (i) Orion Merger Subsidiary will merge with and into
Orion as provided in the relevant provisions of the Delaware merger statute,
with Orion being the surviving corporation and Orion Merger Subsidiary
disappearing in connection with the Merger, and (ii) each share of common stock
of Orion outstanding immediately prior to the effective date of the Merger will
be automatically canceled and converted by operation of law into one share of
Orion Newco Common Stock. In addition, each share of Orion Series A Preferred
Stock and Series B Preferred Stock will be canceled and converted by operation
of law into one share of Orion Newco Series A Preferred Stock and Series B
Preferred Stock, respectively, having the same terms as the canceled Orion
preferred stock. The shares of Orion Newco stock originally issued to Orion will
be canceled. Each share of Orion Merger Subsidiary common stock will be canceled
and converted into one share of Orion common stock, which shall not be converted
into Orion Newco common stock. Following consummation of the Merger, Orion will
be a wholly-owned subsidiary of Orion Newco and the Orion shareholders will
automatically become holders of all of the outstanding stock of Orion Newco in
the same proportion of ownership that they had in Orion. Any outstanding stock
options which Orion may have granted pursuant to its stock option plans shall be
assumed by Orion Newco and will become stock options of Orion Newco upon the
same terms as applied prior to the Merger.
According to the Proxy Statement, the Merger, if approved, will become effective
upon the filing with the Delaware Secretary of State of the Delaware Merger
Certificate, which is expected to occur following approval of the Transactions
by the requisite vote of the Orion stockholders, and satisfaction or waiver of
the other conditions set forth in the Merger Agreement and the Exchange
Agreement (the "Effective Time of the Merger").
According to the Proxy Statement, it is expected that approximately 10,974,121
shares of Orion Newco Common Stock, 13,871 shares of Orion Newco Series A
Preferred Stock, and 4,298 shares of Orion Newco Series B Preferred Stock will
be issued to the stockholders of Orion in the Merger in exchange for their
shares of Orion Common Stock, Orion Series A Preferred Stock and Orion Series B
Preferred Stock, respectively. Orion Newco will have a certificate of
incorporation, bylaws, capital structure (before the issuance of Orion Newco
Series C Preferred Stock, as discussed in D. below) and management substantially
identical in all material respects to those of Orion. As a result of the Merger,
the stockholders of Orion Newco will have substantially the same securities and
rights in Orion Newco that they had in Orion, except that their percentage
ownership of Orion Newco will be diluted as a result of the Exchange (discussed
immediately below). The Proxy states that Orion stockholders will not be
entitled to appraisal
<PAGE>
Board of Directors January 6, 1997
Orion Network Systems, Inc. Page 6
rights in connection with the approval of the Merger.
D. Exchange
Pursuant to the terms of the Exchange Agreement, and subject to and effective
upon the consummation of the Merger, Orion Newco will issue 121,988 shares of
Series C 6% Cumulative Redeemable Convertible Preferred Stock (the "Orion Newco
Series C Preferred Stock") to the Exchanging Partners. In exchange for the Orion
Newco Series C Preferred Stock, the Exchanging Partners will transfer to Orion
Atlantic the following rights currently held by the Exchanging Partners: (i)
their respective limited partnership interests in Orion Atlantic and other
rights and obligations relating thereto under the Second Amended and Restated
Partnership Agreement of International Private Satellite Partners, L.P. (the
"LPIs"); (ii) all of the rights and obligations held by certain of the
Exchanging Partners under the Refund Agreement, dated December 31, 1994,
consisting primarily of rights to receive an aggregate of $26.7 million of
refunds thereunder; (iii) all the rights of BAe, COM DEV, Kingston, Lockheed
Martin CLS and Matra under the Preferred Participating Unit Agreements ("PPUA")
among OrionSat and such Exchanging Partners, consisting primarily of rights to
receive repayment of $6.6 million advanced thereunder and approximately $4.3
million of interest accrued on such advances; (iv) all of the Exchanging
Partners' rights under the Preferred Bidders Agreement consisting of preferred
bidder status with respect to procurement contracts entered into by Orion
Atlantic; and (v) certain of the Exchanging Partners' rights under a variety of
other agreements between or among Orion Atlantic and the Limited Partners. The
contractual and refund rights referred to in clauses (ii), (iii), (iv) and (v)
of the preceding sentence are collectively referred to as the "Partnership
Debt."
Pursuant to the Exchange, Orion Newco will transfer to the Exchanging Partners
the following number of shares of Orion Newco Series C Preferred Stock:
Exchanging Partner Number of Shares
BAe 50,129
COM DEV 9,462
Kingston 11,198
Lockheed Martin CLS 19,534
Matra 17,727
Nissho 13,938
------------------
121,988
==================
The above number of shares will be increased by an amount pursuant to a formula
based upon payments by the Exchanging Partners under various agreements, and
adjusted proportionately to reflect any subdivision, stock split, stock
dividend, recapitalization, combination or reverse stock
<PAGE>
Board of Directors January 6, 1997
Orion Network Systems, Inc. Page 7
split of Orion capital stock or similar transaction by Orion between the date of
the Exchange Agreement (June, 1996) and the consummation of the Exchange.
As a result of the Exchange, the Orion Group will become the owner of all the
LPIs in Orion Atlantic (through Orion Newco and Orion as limited partners and
OrionSat as the sole general partner of Orion Atlantic) and all of the
Partnership Debt.
The Series C Preferred Stock will be entitled to receive dividends at the rate
of 6% per annum, payable exclusively in Orion Newco Common Stock. Each share of
Series C Preferred Stock will have a liquidation preference of $1,000 per share
(plus all accrued and unpaid dividends) over the Orion Newco Common Stock. The
holders of the Orion Newco Series C Preferred Stock will be entitled to vote on
the basis of one vote for each whole share of Orion Newco Common Stock that
would be issuable upon conversion of such share of Orion Newco Series C
Preferred Stock at the time the vote is taken. Orion Newco will redeem all of
the Orion Newco Series C Preferred Stock on the 25th anniversary of issuance,
2022. Additionally, at any time after the second anniversary of the date of the
issuance of the Orion Newco Series C Preferred Stock (or, if earlier,
immediately prior to the consummation of any consolidation, merger or sale in
which the successor entity or purchasing entity is other than Orion Newco),
Orion Newco has the option to redeem the Orion Newco Series C Preferred Stock
(in whole or in part) at a price of $1,000 per share plus all accrued and unpaid
dividends. Holders of the Orion Newco Series C Preferred Stock have the right to
convert their shares into a number of shares of Orion Newco Common Stock
generally equal to a number computed by multiplying the number of shares of
Orion Newco Series C Preferred Stock to be converted by $1,000, and dividing the
result by the applicable Conversion Price (as such term is used in the
Certificate of Designations), initially $17.50, subject to adjustment. The
121,988 shares of Orion Newco Series C Preferred Stock expected to be issued in
the Exchange will be convertible into approximately 7,933,319 million shares of
Orion Newco Common Stock. Finally, if the closing price of the Orion Newco
Common Stock over 20 of the 30 prior trading days is greater than or equal to
the conversion price of $17.50 (subject to adjustment), Orion Newco may require
the conversion of all of the outstanding Orion Newco Series C Preferred Stock
into Orion Newco Stock.
Section 3.2(c) of the Exchange Agreement provides that the number of shares of
Orion Newco Series C Preferred Stock will be increased by the Adjustment Amount.
The Adjustment Amount for an Exchanging Partner will equal (i) the sum of (A)
the amounts paid by such Exchanging Partner for obligations pursuant to the
Capacity Agreement which are subject to being refunded under the Refund
Agreement, and the amounts paid by such Exchanging Partner pursuant to the
Contingent Capacity Agreement, during the period from July 1, 1996 through the
Closing Date (as defined in the Exchange Agreement), plus (B) the amount of
interest accrued with respect to funds advanced by such Exchanging Partner
pursuant to the PPU Agreement, minus (ii) the product of the number of days in
the Adjustment Period through and including (but not beyond) January 29, 1997,
multiplied by the Tax Adjustment Factor for such Exchanging Partner,
<PAGE>
Board of Directors January 6, 1997
Orion Network Systems, Inc. Page 8
divided by (iii) $1,000. The Tax Adjustment means, with respect to (i) BAe,
$11,634; (ii) COM DEV, $1,940; (iii) Kingston, $1,940; (iv) Lockheed Martin,
$3,878; (v) MCN Sat, $3,878; and (vi) TA Sat, $3,878.
The First Amendment to Section 351 Exchange Agreement and Plan of Conversion
("First Amendment") amended Section 3.2(c) of the Exchange Agreement to provide
that if the Closing Date for the Exchange occurs after January 29, 1997, then
any payments made by the Exchanging Partners which are subject to refund under
the Refund Agreement and any payments made under the Contingent Capacity
Agreements will be refunded to the Exchanging Partners to the extent proceeds
from the Bond Offering contemplated by the Exchange Agreement plus the gross
proceeds from the sale of convertible subordinated debentures to BAe and Matra,
exceed the sum of: (i) the amount necessary to refinance the credit facility;
(ii) $49.4 million payments to be made by Orion or Orion Newco under the Orion 2
Satellite Contract; (iii) $13 million incentive payments payable to Matra
immediately following the refinancing of the credit facility; (iv) $3.5 million
payable to STET immediately following the refinancing of the credit facility;
(v) reasonably amount necessary for working capital; and (vi) the costs and
expenses of the Bond Offering, the convertible subordinated debenture financings
and related transactions. If such excess is not sufficient to refund all such
post-closing payments in full, the excess will be used first to refund
Contingent Capacity Payments, and second to refund Firm Capacity Payments. Any
funds then remaining will be used to make partial refunds, pro rata among the
Exchanging Partners in proportion to their respective post-closing payments. Any
amounts so refunded will not be taken into account in determining any required
adjustment described in the preceding paragraph.
E. Mutual Interdependence of Exchange and Merger
The Proxy requests the shareholders of Orion to consider and vote separately
upon the Merger and the Exchange. However, the Proxy states that the Exchange is
a condition to the completion of the Merger, and the Merger is a condition to
the completion of the Exchange, as provided in the Merger Agreement and Exchange
Agreement. In addition, as is set forth in the Proxy Statement, the Merger and
Exchange are pursuant to the same plan, and the Merger is undertaken for the
principal purpose of enabling Orion to acquire the LPIs and Partnership Debt
pursuant to the Exchange.
II. REPRESENTATIONS
Set forth below are representations made by the management of Orion
("Management") on which we have relied in concluding that the Merger satisfies
the requirements of Section 368(a)(2)(E) of the Internal Revenue of 1986, as
amended (the "Code"):
1. The Merger of Orion Merger Subsidiary with and into Orion will satisfy all
of the
<PAGE>
Board of Directors January 6, 1997
Orion Network Systems, Inc. Page 9
requirements for treatment as a statutory merger under applicable state law
and regulations thereunder, and as a consequence of the Merger, Orion Merger
Subsidiary will disappear and Orion will be the surviving corporation with
its charter intact.
2. The fair market value of the Orion Newco stock to be received by each Orion
shareholder will be equal to the fair market value of the Orion stock
surrendered in the Merger.
3. Upon consummation of the Merger, certificates evidencing Orion stock will
represent, by operation of law, the same number and class of shares of Orion
Newco stock and will no longer represent a direct ownership interest in
Orion.
4. There is no plan or intention by the shareholders of Orion who own (directly
or indirectly, such as by reason of the ownership of stock options or
convertible preferred stock) five percent or more of the Orion common stock,
and, to the best of Orion management's knowledge and belief, there is no
plan or intention on the part of the remaining shareholders of Orion, to
sell, exchange, or otherwise dispose of (or enter into any other arrangement
designed to limit the appreciation in value of, or risk of loss with respect
to) a number of shares of Orion Newco stock received in the transaction that
would reduce the shareholders' ownership of Orion Newco stock to a number of
shares having a fair market value, as of the Effective Time of the Merger,
of less than 50 percent of the total fair market value of all of the
formerly outstanding common and preferred stock of Orion as of the same
date. Moreover, shares of Orion stock and shares of Orion Newco stock held
by Orion shareholders and otherwise sold, redeemed, or disposed of prior to
or subsequent to the Merger which are part of the plan of Merger will be
considered in making this representation.
5. Following the Merger, Orion will hold at least 90 percent of the fair market
value of its net 2. assets and at least 70 percent of the fair market value
of its gross assets and at least 90 percent of the fair market value of
Orion Merger Subsidiary's net assets and 70 percent of the fair market value
of Orion Merger Subsidiary's gross assets held immediately prior to the
Merger. For purposes of this representation, amounts (if any) paid by Orion
or Orion Merger Subsidiary to dissenters, amounts paid by Orion or Orion
Merger Subsidiary to shareholders who receive cash or other property,
amounts used by Orion or Orion Merger Subsidiary to pay reorganization
expenses, and all redemptions and distributions (except for regular, normal
dividends) made by Orion will be included as assets of Orion or Orion Merger
Subsidiary, respectively, immediately prior to the Merger.
6. Prior to the Merger, Orion Newco will be in control of Orion Merger
Subsidiary within the meaning of Section 368(c) of the Code.
7. Orion Newco was formed solely for the purpose of effecting the Merger and
has not
<PAGE>
Board of Directors January 6, 1997
Orion Network Systems, Inc. Page 10
conducted any business since incorporation other than matters incident to
its organization and matters incident to the Merger Agreement and Exchange
Agreement.
8. Following the Merger, Orion Newco will own all the issued and outstanding
stock of Orion. Orion has no plan or intention to issue additional shares of
its stock that would result in Orion Newco losing control of Orion within
the meaning of Section 368(c) of the Code.
9. Orion Newco has no plan or intention to redeem or otherwise reacquire any of
its stock issued in the Merger.
10. Orion Newco will remain in existence. There is no plan or intention to
liquidate Orion Newco; to merge Orion Newco with or into another
corporation; or to cause Orion Newco to sell or otherwise dispose of any of
its assets or of any of the assets acquired from Orion Merger Subsidiary,
except for dispositions made in the ordinary course of business or transfers
of assets to a corporation controlled by Orion.
11. There is no plan or intention on the part of Orion, Orion Newco, or any
other person to liquidate Orion; to merge Orion with or into another
corporation; to sell or otherwise dispose of the stock of Orion; or to cause
Orion to sell or otherwise dispose of any of its assets or of any of the
assets acquired from Orion Merger Subsidiary, except for dispositions made
in the ordinary course of business or transfers of assets to a corporation
controlled by Orion.
12. No holder of any issued or outstanding Orion stock will be entitled to
exercise dissenters' or appraisal rights in connection with the Merger;
rather, the only consideration any Orion stockholder will be entitled to
receive in connection with the Merger will be shares of Orion Newco stock.
13. Orion Merger Subsidiary was organized solely for the purpose of merging with
Orion in accordance with the Merger Agreement and Exchange Agreement, and
has engaged in no 2. business activities other than matters incident to its
organization and matters incident to the Merger Agreement and Exchange
Agreement.
14. Orion Merger Subsidiary will have no liabilities assumed by Orion, and will
not transfer to Orion any assets subject to liabilities, in the Merger.
15. Following the Merger, Orion will continue its historic business or use a
significant portion of its historic business assets in a business.
16. Orion Newco, Orion Merger Subsidiary, Orion, and the shareholders of Orion
will pay their respective expenses, if any, incurred in connection with the
Merger.
<PAGE>
Board of Directors January 6, 1997
Orion Network Systems, Inc. Page 11
17. There is no intercorporate indebtedness existing between Orion Newco and
Orion or between Orion Merger Subsidiary and Orion that was issued,
acquired, or will be settled at a discount.
18. Each class of issued and outstanding stock of Orion currently entitles its
holders to vote in the election of directors of Orion and on all other
matters that are subject to shareholder approval under the applicable
provisions of Delaware corporate law, and there is no class of nonvoting
stock of Orion that is or will be issued and outstanding on or before the
date of the Merger. Taking into account any shares of Orion stock acquired
by Orion or Orion Newco for consideration other than voting stock of Orion
Newco, Orion Newco will acquire at least 80% of the total shares of each
class of Orion stock solely in exchange for shares of Orion Newco stock that
currently entitles its holders to vote in the election of directors of Orion
Newco and on all other matters that are subject to shareholder approval
under the applicable provisions of Delaware corporate law. Orion Newco has
no plan or intention to modify any of the voting rights or other terms and
provisions of any class of Orion Newco stock issued pursuant to the Merger.
19. At the time of the Merger, Orion will not have outstanding any warrants,
options, convertible securities, or any other type of right pursuant to
which any person could acquire stock in Orion and that, if exercised or
converted, would affect Orion Newco's acquisition or retention of control of
Orion, as defined in Section 368(c) of the Code.
20. Orion Newco does not own, nor has it owned during the past five years, any
shares of the stock of Orion.
21. No two parties to the transaction are investment companies as defined in
Section 368(a)(2)(F)(iii) and (iv) of the Code.
22. Orion is not under the jurisdiction of a court in a Title 11 or similar case
within the meaning of Section 368(a)(3)(A) of the Code.
23. The facts and representations relating to the Transactions described in this
opinion letter and the Documents are true, correct, and complete in all
material respects.
<PAGE>
Board of Directors January 6, 1997
Orion Network Systems, Inc. Page 12
III. ANALYSIS
A. Statutory Requirements
Section 368(a)(1)(A) of the Code provides that the term "reorganization" means a
statutory merger or consolidation. Management has represented that the proposed
merger of Orion Merger Subsidiary with and into Orion will qualify as a
statutory merger under the applicable state law. Based on this representation,
this requirement will be met.
Section 368(a)(2)(E) of the Code provides that a transaction which otherwise
qualifies under Section 368(a)(1)(A) will not be disqualified by reason of the
fact that stock of a corporation (the "controlling corporation") which before
the merger was in control of the merged corporation is used in the transaction,
if:
(i) After the transaction, the corporation surviving the merger
holds substantially all of the surviving corporation's
properties and substantially all of the properties of the
merged corporation (other than stock of the controlling
corporation distributed in the transaction); and
(ii) In the transaction, former shareholders of the surviving
corporation exchange, for an amount of voting stock of the
controlling corporation, an amount of stock in the surviving
corporation which constitutes control of such corporation.
Section 1.368-2(j)(3)(iii) of the Income Tax Regulations ("Regulations" or
"Treas. Reg.") provides that for purposes of Section 368(a)(2)(E)(i) of the
Code, the term "substantially all" has the same meaning as under Section
368(a)(1)(C). Rev. Proc. 77-37, 1977-2 C.B. 568, provides that, for advance
ruling purposes, the "substantially all" requirement of Section 368(a)(2)(E)(i)
is satisfied if there is a retention of assets representing at least 90 percent
of the fair market value of the net assets and at least 70 percent of the fair
market value of the gross assets held by the surviving corporation immediately
prior to the transfer. (This amount of assets of the merged corporation must
also be transferred to and retained by the surviving corporation.) Management
has represented that after the Merger, Orion will hold assets representing at
least 90 percent of the fair market value of the net assets and 70 percent of
the gross assets of Orion and Orion Merger Subsidiary. Based on this
representation, the "substantially all" requirement will be met.
For purposes of Section 368(a)(2)(E) of the Code, the term "control" is defined
in Section 368(c) as ownership of stock possessing at least 80 percent of the
total combined voting power of all classes of stock entitled to vote and at
least 80 percent of the total number of shares of all other
<PAGE>
Board of Directors January 6, 1997
Orion Network Systems, Inc. Page 13
classes of stock of the corporation. Pursuant to the terms of the Merger
Agreement, prior to the merger of Orion Merger Subsidiary with and into Orion,
Orion Newco will own all of the issued and outstanding stock of Orion Merger
Subsidiary. Consequently, Orion Newco will be in control of Orion and,
therefore, will be the "controlling corporation" within the meaning of Section
368(a)(2)(E).
Finally, as discussed above, "control" for purposes of Section 368(a)(2)(E) is
defined in Section 368(c) as ownership of stock possessing at least 80 percent
of the total combined voting power of all classes of stock entitled to vote and
at least 80 percent of the total number of shares of all other classes of stock
of the corporation. Pursuant to the Merger Agreement, the existing shareholders
of Orion will exchange Orion stock possessing more than 80% of the voting power
of all classes of Orion voting stock (which constitutes all of Orion's
outstanding stock) solely for voting stock of Orion Newco. Therefore, the Orion
stock that is converted into Orion Newco stock upon the merger of Orion Merger
Subsidiary with and into Orion will constitute control of Orion immediately
before the Merger within the meaning of Section 368(a)(2)(E)(ii).
The IRS has published a ruling which analyzes the applicability of Section
368(a)(2)(E) of the Code to a situation similar to the proposed Merger. In Rev.
Rul. 77-428, 1977-2 C.B. 117, corporation P formed a subsidiary corporation, S1,
which in turn formed subsidiary corporation S2. Pursuant to a plan of merger, S2
merged with and into P, with P being the surviving corporation. On the date of
the merger all outstanding shares of P stock not held by S1 were exchanged for
shares of S1 stock. Thus, P became a wholly owned subsidiary of S1 and the
former P shareholders became the shareholders of S1. The IRS held that the above
described merger qualified as a tax-free reorganization under Section
368(a)(2)(E), even though the two subsidiaries were newly organized corporations
and a related corporation was acquired in the transaction. As noted, this is
similar to the plan contemplated by the parties to the proposed Merger, with
Orion acting as P, Orion Newco acting as S1, and Orion Merger Subsidiary acting
as S2.
Based on the above, so long as the continuity of interest, continuity of
business enterprise, and business purpose requirements are satisfied, as
discussed under "Nonstatutory Requirements" immediately below, the Merger will
qualify as a reorganization under Section 368(a)(1)(A) of the Code by reason of
368(a)(2)(E).(6)
B. Nonstatutory Requirements
- ----------
6
In addition to satisfying the requirements of Section 368(a)(2)(E), (i) there
appear to be good arguments that the Merger will constitute a reorganization
described in Section 368(a)(1)(B), and (ii) when considered in conjunction
with the Exchange, in the Merger of Orion stock for Orion Newco stock should
qualify for nonrecognition treatment under Section 351(a).
<PAGE>
Board of Directors January 6, 1997
Orion Network Systems, Inc. Page 14
Sections 1.368-1(b) and 1.368-2(g) of the Regulations provide that the following
additional requirements must be met for a transaction to qualify as a
reorganization within the meaning of Section 368:
(i) "Continuity of interest" must be present;
(ii) "Continuity of business enterprise" must exist; and
(iii) The transaction must be undertaken for reasons pertaining to
the continuance of the business of a corporation which is a
party to the transaction.
Continuity of Interest. Qualification of a transaction as a reorganization
requires that the former shareholders of the acquired corporation have a
continuing proprietary interest in the acquiring corporation. Rev. Proc. 77-37,
1977-2 C.B. 568, provides that the "continuity of interest" requirement of
Section 1.368-1(b) of the Regulations is satisfied in a transaction described in
Section 368(a)(1)(A) of the Code by reason of Section 368(a)(2)(E) if there is
continuing interest through stock ownership in the controlling corporation on
the part of the former shareholders of the surviving corporation which is equal
in value, as of the effective date of the reorganization, to at least 50 percent
of the value of all of the formerly outstanding stock of the surviving
corporation as of that date. Sales, redemptions, and other dispositions of stock
occurring prior or subsequent to the exchange which are part of the plan of
reorganization, will be considered in determining whether there is a 50 percent
continuing interest through stock ownership as of the effective date of the
reorganization. Management has represented that the 50 percent continuity of
interest test of Rev. Proc. 77-37 will be met in the Merger. Based on this
representation, the Merger will satisfy the continuity of interest requirement.
Continuity of Business Enterprise. Section 1.368-1(b) of the Regulations
provides that a continuity of business enterprise [as described in Section
1.368-1(d) of the Regulations] is requisite to a reorganization. Section
1.368-1(d) of the Regulations provides that continuity of business enterprise
requires that the acquiring corporation either (i) continue the acquired
corporation's historic business, or (ii) use a significant portion of the
acquired corporation's historic assets in a business. Management has represented
that Orion will continue to be engaged in the same business following the
Merger. Based on this representation, the Merger will satisfy the continuity of
business enterprise requirement.
Business Purpose. Section 1.368-2(g) of the Regulations provides that a
reorganization must be undertaken for reasons germane to the continuance of the
business of a corporation, a party to the reorganization. Management has
represented that the Merger will substantially benefit the business of Orion
Atlantic and Orion in various ways (see I.B. above). Based upon such
representations, the Merger will satisfy the business purpose requirements of
Section 1.368-2(g) of the Regulations.
<PAGE>
Board of Directors January 6, 1997
Orion Network Systems, Inc. Page 15
C. Additional Statutory and Regulatory Provisions
Section 358(a)(1) of the Code generally provides that in the case of an exchange
to which Section 351 or 354 applies, the basis of the property permitted to be
received without the recognition of gain or loss shall be the same as that of
the property exchanged.
Section 1223(1) states that in determining the period for which a taxpayer has
held property received in an exchange, the period for which the taxpayer held
the property exchanged shall be included if the property has, for the purpose of
determining gain or loss from a sale or exchange, the same basis in whole or in
part in the taxpayer's hands as the property exchanged, and the property
exchanged constitutes a capital asset at the same time of the exchange.
Section 1032(a) of the Code generally provides that no gain or loss shall be
recognized to a corporation on the receipt of money or other property in
exchange for stock (including treasury stock) of such corporation. Also, Section
361(a) provides that no gain or loss will be recognized to a corporation if it
is a party to a reorganization and exchanges property, in pursuance of such plan
of reorganization, solely for stock or securities in another corporation a party
to the reorganization.(7)
IV. FEDERAL INCOME TAX CONSEQUENCES
Based solely upon the Documents and the information and representations of
Management contained herein, it is our opinion that the following Federal income
tax consequences will result:
1. Except as otherwise stated in the Proxy Statement under the heading,
"Certain Federal Income Tax Consequences," no gain or loss will be
recognized by Orion stockholders solely as a consequence of the exchange of
their Orion stock for substantially identical shares of Orion Newco stock
pursuant to the Merger.
2. The basis of the Orion Newco stock to be received by the Orion shareholders
will be the same as the basis of the Orion stock surrendered in exchange
therefor.
3. The holding period of the Orion Newco stock to be received by the Orion
shareholders will include the period during which the Orion common stock or
Orion preferred stock, as the case may be, surrendered in exchange therefore
was held, provided that the Orion common stock and the Orion preferred stock
was held as a capital asset on the date of the exchange.
- ----------
7
See also Section 1.1032-2(b) of the Regulations.
<PAGE>
Board of Directors January 6, 1997
Orion Network Systems, Inc. Page 16
V. SCOPE OF OPINION
The scope of this opinion is expressly limited to the three Federal income tax
consequences set forth in IV. above. The opinion is based upon the
representations made by Management contained herein and in the Documents.
These representations have not been independently verified by us.
Specifically, our opinion has not been requested and we have made no
determination or expressed any opinion with respect to any other issues,
including, but not limited to: (1) the fair market value of any stock being
exchanged pursuant to the Merger Agreement and Exchange Agreement; (2) any
limitations, including those which may be imposed under Section 382, on the
availability of net operating loss carryovers (or built-in losses), if any,
after the Transactions; (3) any state or local consequences to the parties to
the Merger; or (4) the potential application of Section 306 or Section 305(c)
and the regulations thereunder to Orion shareholders who receive preferred stock
in the Merger. Furthermore, we have not reviewed the Orion stock option plans
that, pursuant to the Merger Agreement, will become stock option plans of Orion
Newco, and express no opinion with respect to the consequences to Orion, Orion
Newco, or the holders of such options as a result of such conversion.
Our opinion, as stated above, is based upon the analysis of the current Code,
the Regulations thereunder, current case law, and published rulings. The
foregoing authorities are subject to change, and such changes may be
retroactively effective. If so, our views set forth above may be affected and
may not be relied upon. Further, any variation or differences in the facts or
representation recited herein, for any reason, might affect our conclusions,
perhaps in an adverse manner, and make them inapplicable. In addition, we have
not been engaged to and will not update our opinion for changes in facts or law
occurring subsequent to the date hereof.
This opinion is being rendered solely to the Orion Shareholders and is solely
for their benefit. This opinion may not be relied upon by any other person or
persons, or be used for any other purposes, including, but not necessarily
limited to, filings with Governmental agencies without our prior written
consent. However, we understand that this opinion will be included as an
appendix to the Proxy Statement to be filed with the Securities and Exchange
Commission. We consent to the inclusion of our opinion with such filing.
This letter represents our views as to the interpretation of existing law and,
accordingly, no assurance can be given that the IRS or the courts will agree
with the above analysis.
Very truly yours,
<PAGE>
Board of Directors January 6, 1997
Orion Network Systems, Inc. Page 17
Graphic Omitted
RESTATED AMENDMENT #10
TO THE SECOND AMENDED AND
RESTATED PURCHASE CONTRACT
THIS RESTATED AMENDMENT #10 TO THE SECOND AMENDED AND RESTATED
PURCHASE CONTRACT (the "Restated Amendment #10") is entered into on this 10th
day of December, 1996 by and between International Private Satellite Partners,
L.P., d/b/a Orion Atlantic, L.P., a Delaware limited partnership with its
principal offices located at 2440 Research Boulevard, Rockville, Maryland 20850,
United States of America ("Orion"), and Matra Marconi Space UK Limited, a
company organised and existing under the laws of England and Wales with its
Registered Office at The Grove, Warren Lane, Stanmore, Middlesex, HA7 4LY,
England (the "Contractor").
WHEREAS, Orion Satellite Corporation, as General Partner of
Orion, and British Aerospace Public Limited Company ("BAe"), entered into the
Second Amended and Restated Purchase Contract, dated 26 September 1991 (together
with all amendments thereto, the "F1 Contract");
WHEREAS, the F1 Contract was assigned by BAe to British
Aerospace Space Systems Limited, the name of which was subsequently changed to
MMS Space Systems Limited after its acquisition by Matra Marconi Space UK
Limited;
WHEREAS, the parties have reached a revised agreement on the
terms under which certain incentive payments will be made;
WHEREAS, the parties previously entered into Amendment #9 to
the F1 Contract under which the conditions precedent to Orion's obligations did
not occur;
WHEREAS, the parties previously entered into Amendment #10 to
the F1 Contract (the "Original Amendment #10") under which the conditions
precedent to the effectiveness of that Amendment did not occur;
NOW, THEREFORE, in consideration of the above premises and the
mutual covenants and agreements contained herein, and for other good and
valuable consideration, the receipt of which is hereby acknowledged, the parties
hereto (hereinafter, the "Parties") agree as follows:
1. DEFINED TERMS. Except as otherwise defined herein,
capitalized terms used herein and not otherwise defined shall have the meanings
ascribed to them in the F1 Contract.
Restated Amendment #10
Page 1
<PAGE>
2. AMENDMENT #9. Amendment #9 is terminated in its entirety
and shall be of no force and effect.
3. AMENDMENT #10. The conditions precedent to the
effectiveness of Original Amendment #10 did not occur and, accordingly, the
Original Amendment #10 shall be of no force and effect.
4. CONDITION TO EFFECTIVENESS OF THIS AMENDMENT. Orion's
obligations under this Restated Amendment #10 shall become effective when (i) an
Option Agreement to purchase the ORION 2 Spacecraft constructed and delivered in
accordance with the ORION 2 Purchase Contract, as to be amended, between Orion
and Contractor (the "Option Agreement") is in effect and (ii) at least
$25 million in Option payments have been made by Orion to Contractor. The date
upon which this Restated Amendment #10 becomes effective is herein referred to
as the "Effective Date".
5. ORION COVENANT AS TO PAYMENT. Orion hereby covenants and
agrees that, without the Contractor's consent, it shall not, after the date of
this Amendment, subordinate the payments required to be made hereunder or under
Articles 15.6.1 and 15.6.2 of the F1 Contract (the "Incentives") to the payment
of the principal of or the interest on any new debt incurred or guaranteed by
Orion or any affiliate of ORION or to the payment of any obligation incurred
with respect to the Spacecraft provided under the F1 Contract. On the Effective
Date, Orion shall provide to the Contractor Orion's representation verifying
that no such subordination occurred between the date of this Restated Amendment
#10 and the Effective Date.
6. PAYMENT OF INCENTIVE: PURCHASE OF DEBENTURES
(a) On the Effective Date, Orion shall pay to the Contractor
by wire transfer into a bank account established by the Contractor in the United
States of America, the details of which account shall be made known to Orion at
least two (2) weeks prior to the Effective Date, $13,000,000 of the Incentives
due and payable on such date.
(b) On the Effective Date, the Contractor shall purchase
$10,000,000 aggregate principal amount of those Debentures issued by ONS or any
ONS affiliate, provided that Orion makes the payment required to be made by
Section 6(a). The Debentures shall have terms identical to those issued to
British Aerospace Public Limited Company (or any affiliate thereof).
(c) Orion shall pay the difference between the Incentives due
and payable on the Effective Date and $13,000,000 on the last day of the Option
Period (as defined in the Option Agreement).
(d) Orion shall pay all of the remaining Incentives as they
become due in accordance with the payment schedule in Articles 15.6.1 and 15.6.2
of the F1 Contract.
Restated Amendment #10
Page 2
<PAGE>
7. ADDITIONAL PROVISIONS.
---------------------
(a) In the event of any inconsistency between this Restated
Amendment #10 and the remaining provisions of the F1 Contract, the terms of this
Restated Amendment #10 shall govern.
(b) This Restated Amendment #10 may be executed by the Parties
hereto in two or more counterparts, each of which shall be deemed to be an
original instrument but all of which shall be deemed to be one and the same
instrument.
(c) Contractor hereby waives and releases any materialman's,
mechanic's or other liens it may have with respect to any of the payments due
hereunder.
(d) This Restated Amendment #10 shall be governed by the law
of the State of Maryland, U.S.A.
IN WITNESS WHEREOF, the Parties have each duly executed this
Restated Amendment #10 as of the day and year first written above.
INTERNATIONAL PRIVATE MATRA MARCONI SPACE
SATELLITE PARTNERS, L.P. UK LIMITED
By: Orion Satellite Corporation,
Its General Partner
By: /s/W. Neil Bauer By: /s/Armand Carlier
---------------------------- -----------------------
W. Neil Bauer Armand Carlier
President
Restated Amendment #10
[The portions of this Exhibit for which confidential treatment has been
requested are marked by brackets ([ ]). In addition, an asterisk (*) appears in
the right hand margin of each paragraph in which confidential information is
included.]
COMMERCIAL-IN-CONFIDENCE
- --------------------------------------------------------------------------------
ORION 2 SPACECRAFT
PURCHASE CONTRACT
- --------------------------------------------------------------------------------
<PAGE>
COMMERCIAL-IN-CONFIDENCE
TABLE OF CONTENTS
WHEREAS...................................................................1
DEFINITIONS...............................................................1
1. ORION 2 CONTRACT......................................................11
2. ENTIRE AGREEMENT......................................................12
3. SCOPE OF THE WORK.....................................................13
4. NOTICE TO PROCEED; CONDITIONS PRECEDENT...............................14
5. CONTRACT PRICE........................................................14
6. PAYMENT...............................................................16
7. ACCESS TO WORK........................................................22
8. DELIVERABLE ITEMS AND DELIVERY DATES..................................25
9. FINAL ACCEPTANCE......................................................27
10. TRANSFER OF TITLE AND ASSUMPTION OF RISK.............................31
11. ORION 2 SPACECRAFT DELIVERY INCENTIVE AND LATE
DELIVERY LIQUIDATED DAMAGES..............................................32
12. EXTENSIONS FOR EXCUSABLE DELAYS......................................33
13. CORRECTION OF DEFECTS................................................35
14. DISCLAIMER OF WARRANTIES, LIMITATION OF LIABILITY AND
INTER-PARTY WAIVER OF LIABILITY..........................................38
15. ORION 2 SPACECRAFT IN-ORBIT PERFORMANCE WARRANTY.....................39
16. SUBCONTRACTS.........................................................43
i
<PAGE>
COMMERCIAL-IN-CONFIDENCE
17. INDEMNIFICATION......................................................45
18. INSURANCE............................................................46
19. REPLACEMENT SATELLITE................................................50
20. TERMINATION FOR CONVENIENCE..........................................53
21. REMEDIES FOR DEFAULT.................................................54
22. TERMINATION IN SPECIAL CASES.........................................59
23. PUBLICATION OF INFORMATION...........................................60
24. CONFIDENTIALITY AND NONDISCLOSURE OF PROPRIETARY INFORMATION.........60
25. LICENSE RIGHTS.......................................................63
26. PATENTS, TRADEMARKS AND COPYRIGHTS...................................64
27. ORION 2 CONTRACT AMENDMENTS..........................................65
28. GOVERNMENTAL APPROVALS...............................................66
29. RESPONSIBILITY FOR THE CONTRACT......................................66
30. DISPUTE RESOLUTION...................................................67
31. CONTRACT MANAGEMENT..................................................70
32. SECURITY INTEREST AND FINANCIAL INFORMATION..........................70
33. ASSIGNMENT...........................................................71
34. NOTICES AND DOCUMENTATION............................................72
35. SEVERABILITY AND WAIVER..............................................73
ii
<PAGE>
COMMERCIAL-IN-CONFIDENCE
36. COMPLIANCE WITH THE LAW, PERMITS AND LICENSES........................74
37. APPLICABLE LAW; SUBMISSION TO JURISDICTION; APPOINTMENT
OF AGENT FOR ACCEPTANCE OF SERVICE; INTERPRETATION AND LANGUAGE.........74
38. SURVIVAL.............................................................75
39. KEY PERSONNEL........................................................75
40. PROGRESS REPORTS.....................................................76
41. LAUNCH VEHICLE AGENCY................................................76
42. GUARANTEE OF CONTRACTOR OBLIGATIONS..................................78
43. INTEREST.............................................................78
iii
<PAGE>
COMMERCIAL-IN-CONFIDENCE
ORION 2 SPACECRAFT PURCHASE CONTRACT
PART 1(A) ORION 2 PRICING, TERMS and CONDITIONS
THIS ORION 2 SPACECRAFT PURCHASE CONTRACT (referred to herein as the "ORION 2
Contract") is made as of the 31st day of July 1996, between INTERNATIONAL
PRIVATE SATELLITE PARTNERS, L.P., d/b/a ORION ATLANTIC, L.P., a Delaware limited
partnership with its principal offices located at 2440 Research Boulevard,
Rockville, Maryland 20850, United States of America (hereinafter called
"ORION"), and MATRA MARCONI SPACE UK LIMITED, a company organized and existing
under the Laws of England and Wales with its registered office at The Grove,
Warren Lane, Stanmore, Middlesex, HA7 4LY, ENGLAND (hereinafter called the
"Contractor").
WHEREAS
A. The primary object of ORION is the carrying on of the business of providing
a telecommunications system by the use of space satellites.
B. ORION anticipates providing the business referred to in recital A through
the ORION satellite ("ORIONSAT") system.
C. The ORION 2 Spacecraft to be constructed pursuant to this ORION 2 Contract
is intended to form part of the space segment of the ORIONSAT system.
D. ORION and the Contractor have agreed that the Contractor will perform the
work as defined below and that ORION will pay for the Work on the terms and
conditions set out in this Agreement.
NOW, THEREFORE, in consideration of the above premises and the mutual covenants
and agreements contained herein, the parties hereto (hereinafter, the "Parties")
agree as follows:
DEFINITIONS
"Advance Payment" means Fifty-Three Million Dollars
($53,000,000).
<PAGE>
COMMERCIAL-IN-CONFIDENCE
"Affiliate" means, with respect to any
entity, any other entity
Controlling, Controlled by or
under common Control with such
entity.
"Aggregate Predicted Transponder Life" means the sum of the Predicted
Transponder Life of each and
every Serviceable Transponder
embodied in the Launched ORION 2
Spacecraft and represents a
projection of the revenue-earning
capacity of the Launched ORION 2
Spacecraft.
"Amendment to the ORION 2 Contract" means a written agreement
modifying the ORION 2 Contract,
which agreement is signed on
behalf of ORION by its President
(or another person designated by
the President in writing to sign
such agreement) and on behalf of
the Contractor by both its
respective Contracts Manager and
Project Manager, and which
agreement expressly states that
it is an "Amendment to the ORION
2 Contract."
"Business Day" means any day other than the
following: a Saturday, Sunday or
other day on which banks are
authorized to be closed in the
State of New York or London,
England.
"Calendar Day" means any day.
"Constructive Total Loss" means, with respect to the ORION
2 Spacecraft, that either of the
following conditions (A or B)
applies: (A) (i) the Aggregate
Predicted Transponder Life is
less than _____________________,
or (ii) fewer than______________
downlink Transponders are
Serviceable Transponders, or
(iii) fewer than _______________
downlink Transponders with
_______ at the 12.5-12.75 GHz
frequency and _______ at either
of the two frequency ranges of
10.95-11.2 or 11.45-11.7 GHz
frequency are Serviceable
Transponders; or (B) (i) the
ORION 2 Spacecraft fails to
arrive at its designated orbital
location or the Contractor fails
to deliver the In-Orbit
Acceptance Report within one
hundred and eighty (180) Calendar
Days after Launch, or (ii) the
ORION 2 Spacecraft is completely
destroyed or is otherwise
rendered incapable of operation.
<PAGE>
COMMERCIAL-IN-CONFIDENCE
"Consultant" means any third party (i)
authorized by ORION to provide
technical and program support and
assistance in connection with the
performance of the ORION 2
Contract, or (ii) which is a
representative of or consultant
to any Financing Entity.
"Contract Price" means the firm fixed price of One
Hundred Ninety-Six Million, Nine
Hundred Thousand Dollars
($196,900,000) as such may be
adjusted in accordance with the
terms of the ORION 2 Contract.
"Control," "Controlling," or "Controlled" means with regard to any entity
the legal, beneficial or
equitable ownership, directly or
indirectly, of fifty (50) percent
or more of the capital stock (or
other ownership interest, if not
a corporation) of such entity
ordinarily having voting rights.
"Correction Plan" means a plan submitted by the
Contractor which details how the
Contractor shall correct (i) a
failure to make adequate progress
towards completion of any Work or
(ii) a default or breach under
the ORION 2 Contract in
accordance with Article 21.
"Data and Documentation" means that data and documentation
to be supplied by the Contractor
to ORION pursuant to the
requirements of Part 2(A)
(Statement of Work) and as
specified in Part 2(B) (ORION 2
Contract Documentation
Requirements List).
"Defect" means (i) with regard to the
ORION 2 Spacecraft and all
components thereof, any defect in
design, material or workmanship,
or failure to perform in
accordance with the
specifications and requirements
set out or referred to in the
ORION 2 Contract and the Data and
Documentation delivered from time
to time under the ORION 2
Contract which ORION or its
Consultant reasonably believes
may adversely affect the ORION 2
Spacecraft performance; (ii) with
regard to services, a failure to
conform to a high standard
consistent with industry
practice; and (iii) with regard
to Data and Documentation, a
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failure to meet any
specifications or requirements
set forth in the ORION 2
Contract.
"Deliverable Item" means the ORION 2 Spacecraft and
Data and Documentation and other
items so identified in subsequent
amendments to the ORION 2
Contract. Where the context
permits, as used herein the term
"Deliverable Items" shall include
and refer not only to the whole
of the items listed in Article 8,
but also every component part
thereof.
"Delivery" shall have the meaning ascribed
to it in Article 8.1.
"Delivery Dates" means those dates set forth in
Article 8.1.
"Demand" means, in the context of Article
21 hereof, a demand by ORION made
of the Contractor for the
Contractor to provide a
Correction Plan in the event that
the Contractor is failing to make
adequate progress in the
performance of the ORION 2
Contract or is in default or
breach.
"Dollars" shall mean United States Dollars.
"Effective Date of Contract" means the first date set forth in
this ORION 2 Contract.
"Excusable Delay" shall have the meaning ascribed
to it in Article 12.
"F1 Contract" means the Second Amended and
Restated Purchase Contract for
the F1 Spacecraft between Orion
Atlantic, L.P. and MMS Space
Systems Limited (formerly known
as British Aerospace Space
Systems Limited), as assignee of
British Aerospace Public Limited
Company, dated 26 September 1991,
as amended.
"Final Acceptance" shall have the meaning ascribed
to it in Article 9.
"Financing Agreements" means any and all documents and
agreements evidencing and/or
securing monies provided on a
full or partial debt basis by any
Financing Entity to ORION to fund
the construction and delivery of
the
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COMMERCIAL-IN-CONFIDENCE
ORION 2 Spacecraft and the
purchase of Long-Lead Items.
"Financing Entity" means any entity (other than the
Contractor or parties related to
the Contractor), e.g., commercial
bank, merchant bank, investment
bank, commercial finance
organization, corporation, or
partnership, providing money on a
full or partial debt basis to
ORION to fund the construction
and delivery of the ORION 2
Spacecraft and purchase of
Long-Lead Items.
"Initial Incentive Amount" means____________________________
______________ percent of the
Total Amount at Risk, as may be
adjusted in accordance with the
terms of the ORION 2 Contract.
"In-Orbit Acceptance Requirements" means that document which is Part
3(D) of the ORION 2 Contract.
"In-Orbit Acceptance Test Plan" means that document which is a
Deliverable Item under Part 2(B)
(ORION 2 Contract Documentation
Requirements List) and as
described in Part 3(D) (In-Orbit
Commissioning and Acceptance Test
Requirements) of the ORION 2
Contract.
"In-Orbit Acceptance Test Report" or
"In-Orbit Acceptance Report" means that document which is a
Deliverable Item under Part 2(B)
(ORION 2 Contract Documentation
Requirements List) and as
described in Parts 2(A)
(Statement of Work) and 3(D)
(In-Orbit Commissioning and
Acceptance Test Requirements) of
the ORION 2 Contract.
"In-Orbit Performance Warranty" shall mean the Contractor's
warranty as to the performance of
the ORION 2 Spacecraft following
Final Acceptance.
"In-Orbit Performance Warranty Period" shall have the meaning ascribed
to it in Article 15.2.
"Insurers" means those entities providing
Launch Insurance.
"Intentional Ignition" means, with respect to the Launch
Vehicle, the point in time during
the launch countdown when
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COMMERCIAL-IN-CONFIDENCE
initiation of the gas generators
igniters firing command and
firing of any of the gas
generators igniters occurs.
"Key Personnel" shall have the meaning ascribed
to it in Article 39.
"Initial Progress Payment" means the initial Progress
Payment of Dollars required to be
paid under Part 1(B) (ORION 2
Payment Plans and Termination
Liability Amounts) of the ORION 2
Contract.
"Launch" means Intentional Ignition,
followed by (i) release of the
Launch Vehicle from the launcher
hold down restraints for purposes
of lift-off, or (ii) a
Constructive Total Loss.
"Launch Agreement" means the agreement between the
Contractor and the Launch Vehicle
Agency to perform the Launch of
the ORION 2 Spacecraft.
"Launch Damaged Transponders" shall have the meaning ascribed
to it in Article 15.2.2.
"Launch Date" means the calendar date within
the Launch Slot during which the
Launch is scheduled to occur.
"Launch Insurance" means insurance which covers the
ORION 2 Spacecraft from the
period beginning at Intentional
Ignition and ending no sooner
than one hundred eighty (180)
Calendar Days following Launch.
"Launch Services" shall mean the launch
campaign/transportation, launch
services, mission planning and
launch/early operations phase
services as more particularly
described in Section 7 of Part
2(A).
"Launch Slot" means the period 1 March 1999
through 31 March 1999, as such
period may be adjusted by
agreement of the Parties, during
which the Launch is scheduled to
occur.
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"Launch Vehicle" means an Atlas IIAS Standard
launch vehicle system (with such
customization as may be agreed
separately between the Launch
Vehicle Agency and ORION)
consisting of an Atlas lower
stage and Centaur upper stage
connected by an interstage
adapter, the payload fairing, and
the payload adapter with
separation system.
"Launch Vehicle Agency" means Lockheed Martin or such
other Subcontractor as is
selected to supply the Launch
Vehicle for the ORION 2
Spacecraft.
"Launched ORION 2 Spacecraft" means the ORION 2 Spacecraft
after its Launch.
"Long-Lead Items" means those satellite components
purchased by the Contractor
pursuant to Article 19.
"Major Subcontract" means a Subcontract which is of a
value exceeding Two Million, Five
Hundred Thousand Dollars
($2,500,000 ) or of importance or
critical in nature to the overall
program (e.g., a Subcontract for
major or critical units,
subsystems or other items or
services).
"Maneuver Lifetime" shall have the meaning ascribed
to it in Article 3.4.
"Milestone" means completion of a portion of
the Work with respect to which a
payment is to be made in
accordance with the Milestone
Payment Plan incorporated in Part
1(B) (ORION 2 Payment Plans and
Termination Liability Amounts) of
the ORION 2 Contract.
"Milestone Payments" means those payments listed as
Milestone Payments in Part 1(B)
(ORION 2 Payment Plans and
Termination Liability Amounts) of
the ORION 2 Contract.
"Mission Specific Hardware and Software means those items of hardware and
software described in Section 10
of Part 2(A) (Statement of Work)
of the ORION 2 Contract.
"Monthly Amount" means the difference between the
Total Amount at Risk and the
Initial Incentive Amount which
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COMMERCIAL-IN-CONFIDENCE
difference is divided into sixty
(60) equal monthly amounts each
having a value of
_________________________________
__________ as may be adjusted in
accordance with the terms of the
ORION 2 Contract.
"NPD" or "Notice to Proceed Date" means the date upon which all the
conditions set forth in Article 4
have been met.
"ORION 2 Spacecraft" means the satellite to be
constructed and delivered to
ORION as part of the Work and as
identified in Part 2(A)
(Statement of Work) of the ORION
2 Contract.
"Other Users" shall have the meaning set forth
in Article 14.4.1.
"Partial Loss" shall have the meaning ascribed
to it in Article 9.2.2.
"Predicted Transponder Life" means the period of time,
measured in years, over which a
Serviceable Transponder can be
operated, commencing from the
date of Delivery of the In-Orbit
Acceptance Report, this period of
time being equal to whichever is
the shortest of:
(i) thirteen (13) years, or
(ii) the ORION 2 Spacecraft
predicted propellant life
calculated in accordance with
Section 5 of Part 3(D) (In-Orbit
Commissioning and Acceptance Test
Requirements) of the ORION 2
Contract, or
(iii) the period of time over
which there is predicted to be
sufficient solar array power to
operate such Serviceable
Transponder co-extensively with
all other Serviceable
Transponders, calculated in
accordance with Section 5 of Part
3(D) (In-Orbit Commissioning and
Acceptance Test Requirements) of
the ORION 2 Contract.
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COMMERCIAL-IN-CONFIDENCE
"Primary Transponder" means a Transponder where the
communication signals are
received from and transmitted to
the ground.
"Progress Payments" means those payments listed as
Progress Payments in Part 1(B)
(ORION 2 Payment Plans and
Termination Liability Amounts).
"Replacement Satellite" shall have the meaning ascribed
to it in Article 19.
"Request for Payment" means a request for payment in
the form of Annex A hereto.
"Revenue" means all amounts received by
ORION with respect to an
individual Primary Transponder,
whether as a result of its sale,
lease, license or other
disposition, it being understood
that, if said amounts are not
received in equal monthly
installments, the total amount
received or to be received by
ORION shall be deemed received in
equal monthly installments over
the remainder of the Predicted
Transponder Life of such
Transponder.
"Satisfactorily Operating Primary
Transponder" means a Primary Transponder which
is capable of meeting (i) the
requirements of Part 3(A) (ORION
2 Spacecraft Specifications)
regarding Primary Transponder
performance and (ii) the Primary
Transponder Test Requirements
defined in Part 3(D) (In-Orbit
Commissioning and Acceptance Test
Requirements).
"Senior Executive" means each of the senior
executives designated from time
to time in writing, by ORION and
by the Contractor, respectively,
to be their representatives for
the purposes of dispute
resolution under the ORION 2
Contract.
"Serviceable Transponder" means a Primary Transponder which
meets the requirements therefor
as set forth in Section 5 of Part
3(D) (In-Orbit Commissioning and
Acceptance Test Requirements) of
the ORION 2 Contract and is
determined, pursuant to Section
5.2 thereof, to be capable of
operation in accordance with such
requirements during periods of
eclipse. In the event
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COMMERCIAL-IN-CONFIDENCE
that the Launched ORION 2
Spacecraft has insufficient
energy to operate thirty (30)
Serviceable Transponders in
eclipse, those specific
Transponders, if any, which
failed the testing requirements
of Section 5.2 of Part 3(D), will
not be counted twice in
determining the total number of
Transponders that are not
Serviceable Transponders.
"Subcontract" means a contract awarded by the
Contractor to a Subcontractor or
a contract awarded by a
subcontractor at any tier for the
performance of any of the Work
specified in the ORION 2
Contract.
"Subcontractor" means a person or company awarded
a Subcontract.
"Termination Liability Amounts" means the amounts listed as
Termination Liability Amounts in
Part 1(B) (ORION 2 Payment Plans
and Termination Liability
Amounts) of the ORION 2 Contract.
"Total Amount at Risk" means a firm fixed sum of Nine
Million, Nine Hundred Fifty
Thousand Dollars ($9,950,000).
"Transponder" means an individual transmission
channel of defined bandwidth
providing a path, inclusive of
amplification, frequency
translation and frequency
channelization, from a receive
antenna with defined coverage and
polarization to a transmit
antenna also with defined
coverage and polarization.
"Vendor Financing Takeout Payment" means the aggregate amount
required to be paid to the
Contractor and the Launch Vehicle
Agency in respect of the
Milestone Payment Schedule and
the Progress Payment Schedule,
respectively, under Part 1(B)
(ORION 2 Payment Plans and
Termination Liability Amounts) of
the ORION 2 Contract to the date
upon which the Vendor Financing
Takeout Payment is made less the
sum of the Advance Payment, the
Initial Progress Payment and any
other amount paid by ORION prior
to such date in respect of the
Milestone Payment Schedule
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COMMERCIAL-IN-CONFIDENCE
and the Progress Payment Schedule
of Part 1(B).
"Work" means the whole of the work
described in Part 2(A) (Statement
of Work) and elsewhere in the
ORION 2 Contract and, where the
context so permits or requires,
"Work" includes any part or parts
of the Work. The Work includes
all elements and phases of
delivering the operational ORION
2 Spacecraft in-orbit from design
and manufacture through to
Launch, Launch Services and
in-orbit testing, including, but
not limited to, provision of all
necessary equipment and
documentation related thereto,
including Deliverable Items.
Note: The satellites(s) (one or more) referred to herein are variously described
as the "spacecraft" or the "satellite(s)".
1. ORION 2 CONTRACT
1.1
The documents listed in this Article, as amended from time to time in accordance
with Article 27 herein, constitute the ORION 2 Contract:
<TABLE>
<CAPTION>
Issue No.
<S> <C> <C>
Part 1(A): ORION 2 Pricing, Terms and Conditions Issue 1
Part 1(B): ORION 2 Payment Plans and Termination Liability Amounts Issue 1
Part 2(A): ORION 2 Statement of Work Issue 3
Part 3(A): ORION 2 Spacecraft Specifications Issue 3
Part 3(D): ORION 2 In-Orbit Commissioning and Acceptance Test Requirements Issue 3
Part 3(C): ORION 2 Spacecraft On-Ground Test Requirements Issue 3
Part 2(B): ORION 2 Contract Documentation Requirements List Issue 2
Part 3(B): ORION 2 Spacecraft Product Assurance Requirements Issue 3
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COMMERCIAL-IN-CONFIDENCE
Part 4: Replacement Satellite Long-Lead Items Issue 3
Annex A: ORION 2 Request for Payment and Contractor's Certificates Issue 1
Appendix I: Form of Contractor Certificate Issue 1
Annex B: Launch Agreement Inter-Party Waiver of Liability Provision Issue 1
Annex C: Launch Agreement Termination Charges
</TABLE>
1.2
Notwithstanding anything herein to the contrary, the documents listed in Article
1.1 above shall be deemed to constitute one fully integrated agreement between
the Parties. Should there be any ambiguity, discrepancy or inconsistency among
any of the documents constituting the ORION 2 Contract, such ambiguity,
discrepancy or inconsistency shall be resolved according to the order of
precedence in which the documents are listed in Article 1.1. Unless specifically
indicated otherwise herein, all Article and Paragraph references in this Part
1(A) shall be deemed to be to Part 1(A).
1.3
In the event the Parties are unable to resolve any ambiguity, discrepancy or
inconsistency which affects the Work, ORION shall direct the Contractor and the
Contractor shall follow such direction as to the interpretation to be followed
in carrying out the Work. If the Contractor disputes ORION's interpretation and
such interpretation results in delay and/or increased cost and/or risks, such
dispute shall be handled by the procedures set forth in Article 30.
2. ENTIRE AGREEMENT
This ORION 2 Contract constitutes the sole agreement as to the Work to be
performed hereunder by the Contractor and supersedes any prior agreements
relating thereto. The Parties further agree that this ORION 2 Contract does not
supersede the F1 Contract (including all amendments thereto) and the F1 Contract
shall not be integrated herewith.
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COMMERCIAL-IN-CONFIDENCE
3. SCOPE OF THE WORK
3.1
The Contractor shall furnish the Work in accordance with the provisions of the
documents which constitute the ORION 2 Contract. In the performance of the Work,
the Contractor shall supply all personnel, materials and facilities necessary
therefor.
3.2
ORION shall specify the final beam coverage for one (1) of the transmit
(Tx)/receive(Rx) coverages no later than NPD and for a second Tx/Rx coverage no
later than three (3) months after NPD. ORION shall also, no later than two (2)
months after NPD, specify the final transponder beam connectivities. If all
finalized beam coverages are consistent with what is achievable with the
proposed antenna aperture sizes meeting the requirements of Part 3(A), price and
delivery schedule shall remain unchanged. If all finalized transponder
connectivities are consistent with the proposed switching and filtering hardware
meeting the requirements of Part 3(A), price and delivery schedule shall remain
unchanged.
3.3
Prior to NPD, the Contractor shall present a thermal design approach with
supporting data and analysis (at the communications panel level), which shall
demonstrate to the reasonable satisfaction of ORION that the ORION 2 Spacecraft
will be designed in full compliance with the requirements of Section 8 of Part
3(A) regarding the thermal control subsystem.
3.4
Prior to NPD, the Contractor shall demonstrate that the ORION 2 Spacecraft has a
realistically calculated forty (40) kg dry mass margin adequate to meet the
specified contract performance requirements, including maneuver lifetime
("Maneuver Lifetime") as set forth in Section 2.1 of Part 3(A).
3.5
The Launch Vehicle Agency is obligated under the Launch Agreement to deliver the
Launch Vehicle with a contract level of performance of seven thousand, six
hundred (7,600) pounds of payload systems mass to a reference geosynchronous
transfer orbit. The Parties have discussed with the Launch Vehicle Agency
methods of enhancing the performance of the Launch Vehicle by
using______________________ which will increase the delivery capability of the
Launch Vehicle by approximately one hundred seventy (170) pounds of payload
systems mass to a reference geosynchronous transfer orbit (the "Launch
Enhancements"). The ORION 2 Spacecraft Maneuver Lifetime is based upon the
availability of the Launch Enhancements. Notwithstanding any other provision of
this ORION 2 Contract, if the Launch Vehicle Agency does not make the Launch
Enhancements available, the Maneuver Lifetime shall be reduced to twelve and
seven tenths (12.7) years. In such case, ORION and the Contractor shall use all
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COMMERCIAL-IN-CONFIDENCE
commercially reasonable efforts to cause the Maneuver Lifetime to be increased
to thirteen (13) years and the Parties agree to amend such number in the ORION 2
Contract to the extent of such increase. If the Launch Vehicle Agency provides
to the Contractor other Launch Vehicle improvements in addition to the Launch
Enhancements, then seventy percent (70%) of any increased payload systems mass
achieved due to such Launch Vehicle improvements shall be allocated to ORION to
increase the Maneuver Lifetime and thirty percent (30%) of the same shall be
allocated to the Contractor to increase the Contractor's mass margin.
4. NOTICE TO PROCEED; CONDITIONS PRECEDENT
The Contractor shall have no obligation to proceed with the Work until (a) the
Contractor receives from ORION a written notice to proceed, the Advance Payment,
and the payment that ORION is required to make to the Contractor under Section
5(a) of Amendment #10 to the F1 Contract and (b) the Launch Vehicle Agency
receives from ORION the Initial Progress Payment.
If NPD does not occur by 15 November 1996, adjustments, if any, in the Contract
Price will be determined in accordance with the provisions of Article 5.2.
If NPD does not occur by 31 March 1997, the Parties agree to negotiate in good
faith concerning a later NPD as well as the price and schedule impact, if any.
5. CONTRACT PRICE
5.1
For the full, satisfactory and timely performance of the Work by the Contractor
in accordance with the provisions of the ORION 2 Contract, ORION shall pay the
Contractor the Contract Price, which includes all taxes applicable at NPD
including personal property taxes, imposts and duties wherever the Work is being
carried out but excludes interest due under Article 6.1.2. The Contract Price
shall be paid in accordance with Article 6 below. Except as otherwise expressly
provided in the ORION 2 Contract, the Contract Price is not subject to any
escalation, or to any adjustment or revision by reason of the actual cost
incurred by the Contractor in the performance of the ORION 2 Contract.
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COMMERCIAL-IN-CONFIDENCE
The Contract Price shall comprise the following elements, including any related
training and documentation:
Item Description Amounts $
- --------------------------------------------------------------------------------
1. ORION 2 Spacecraft
2. Launch Vehicle
3.
Launch Services
- --------------------------------------------------------------------------------
CONTRACT PRICE TOTAL $196,900,000
- --------------------------------------------------------------------------------
5.2 Variations in Contract Price When NPD Does Not Occur by 15 November
1996
(a) In the event that NPD does not occur by 15 November 1996, then for the
period from 15 November 1996 to 31 March 1997, the price of the ORION 2
Spacecraft and Launch Services provided by the Contractor shall be
escalated on a daily basis at the annual rate (computed on a 365 days
basis) of four percent (4%), unless such failure results from the
Contractor's failure to perform its obligations under Articles 3.3 or
3.4, in which case the price of the ORION 2 Spacecraft and Launch
Services will not be so escalated during such period.
(b) The price of the Launch Vehicle shall remain fixed until and through 30
September 1996.
(c) In the event NPD does not occur on or before 30 September 1996, the
Launch Vehicle price of_______________________ shall be fixed until and
through 31 December 1996 provided ORION pays the Launch Vehicle Agency
an Eight Hundred Thousand Dollar ($800,000) launch reservation fee on
or before 1 October 1996, which reservation fee shall, at NPD, be
applied against the _____________________ Initial Progress Payment.
(d) If ORION does not pay Eight Hundred Thousand Dollars ($800,000) to the
Launch Vehicle Agency on or before 1 October 1996 or NPD does not occur
on or before 31 December 1996, the Contractor shall terminate the
Launch Agreement effective 31 December 1996, unless ORION directs the
Contractor in writing to extend such Launch Agreement and enters into
an Amendment of the Orion 2 Contract, satisfactory in form
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and substance to the Contractor, reflecting any change in schedule and
Contract Price that results from the failure of NPD to occur on or
before 31 December 1996.
6. PAYMENT
6.1.1 Payments
The ORION 2 Contract shall be paid as follows:
(a) Progress Payments. ORION shall make Progress Payments to the Launch
Vehicle Agency in accordance with the Progress Payment Plan specified
in Part 1(B) as adjusted by Articles 5 and/or 27 hereof. Each Progress
Payment shall be payable by the Contractor submitting to ORION a
Request for Payment accompanied by a certificate in the form of
Appendix I to Annex A hereto.
(b) Milestone Payments.
(i) ORION shall make Milestone Payments to the Contractor in
accordance with the Milestone Payment Plan specified in Part
1(B) as adjusted by Articles 5 and/or 27 hereof. With the
exception of the first Milestone Payment for the ORION 2
Spacecraft, which shall be made simultaneously with NPD each
Milestone Payment shall be payable by the Contractor
submitting to ORION a Request for Payment accompanied by a
certificate in the form of Appendix I to Annex A hereto
together with such supporting data as the Contractor deems
necessary or appropriate. A Milestone shall not be regarded as
completed until all of the Work relevant to that Milestone has
been completed and documented in accordance with applicable
specifications and procedures and relevant documentation and
training required under the ORION 2 Contract for such
Milestone have been provided to ORION. The Contractor's
failure to achieve any Milestone in the sequence set forth in
Part 1(B) shall not limit the Contractor's rights to claim and
be paid other Milestone Payments when the relevant Milestone
is achieved.
(ii) Subject to the provisions of Article 6.1.1(e), in no event
shall the cumulative Milestone Payments made to the Contractor
for the ORION 2 Spacecraft or Launch Services at any point in
time exceed the cumulative amounts specified up to that point
in time for Milestone Payments for the ORION 2 Spacecraft or
Launch Services as set forth in Part 1(B) as it may be
modified from time to time.
(c) Launch Reservation Fees.
(i) On the date of execution of the Orion 2 Contract, ORION shall
pay to the Launch Vehicle Agency the sum of Two Hundred
Thousand Dollars ($200,000) to reserve the Launch Slot until
and through 30 September 1996. If NPD does not occur by such
date, ORION shall pay to the Launch Vehicle Agency, on or
before 1 October 1996, the sum of Eight Hundred Thousand
Dollars ($800,000) to
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COMMERCIAL-IN-CONFIDENCE
reserve the Launch Slot until and through 31 December 1996. At
NPD, the Contractor shall credit such Two Hundred Thousand
Dollars ($200,000) (and any other amount paid by ORION to
reserve a Launch Slot, including the Eight Hundred Thousand
Dollars ($800,000), if paid) against the __________________
___________________________ Initial Progress Payment.
(d) Delivery to ORION. Each Request for Payment and accompanying
certificate shall be telefaxed to ORION followed by airmailed signed
copies.
(e) Advance Payment and Vendor Financing Takeout Payment.
(i) On or before NPD, ORION shall transfer by wire transfer into bank
accounts established by the Contractor and the Launch Vehicle Agency,
respectively in the United States of America, the details of which accounts
shall be made known to ORION at least two (2) weeks prior to NPD, (A) the
Advance Payment to the Contractor; and (B) the Initial Progress Payment (less
any launch reservation fees paid by ORION to the Launch Vehicle Agency) to the
Launch Vehicle Agency.
(ii) The Advance Payment shall be used and credited against future
installments of the Milestone Payments required under Part 1(B), as and when
such payments become due, and the Contractor agrees to hold in trust the Advance
Payment, or any portion thereof, for the express use and purpose of paying in
full each Milestone Payment required under Part 1(B) as and when such payment
becomes due under the terms of the ORION 2 Contract and of offsetting or
recouping any Termination Liability Amount that ORION is obligated to pay to the
Contractor under the ORION 2 Contract. Within ten (10) days of any date upon
which ORION is obligated to pay any Termination Liability Amount to the
Contractor, the Contractor shall pay to ORION the difference, if any, between
the Advance Payment and such Termination Liability Amount. Notwithstanding any
Milestone Payments or Progress Payments required under Part 1(B), ORION shall
not be obligated to make any Milestone Payments or Progress Payments in excess
of the Advance Payment and the Initial Progress Payment until the last day of
the twenty-first (21st) month after NPD.
(iii) (A) At least one week prior to the last day of the eighteenth
(18th) month following NPD, ORION shall notify the Contractor in writing whether
ORION will be able to pay the Progress Payment portion of the Vendor Financing
Takeout Payment on or before the last day of the twenty-first (21st) month
following NPD in accordance with Article 6.1.1(e)(iii)(C). If ORION notifies the
Contractor that it will be able to do so, ORION shall supply to the Contractor
evidence reasonably satisfactory to the Contractor of its ability to do so.
(B) In the event ORION does not pay the Progress Payment
portion of the Vendor Financing Takeout Payment to the Launch Vehicle Agency on
or before the last day of the eighteenth (18th) month after NPD, but does commit
to make such payment on or before the last day of the twenty-first (21st) month
after NPD, then
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COMMERCIAL-IN-CONFIDENCE
(x) in the event ORION does not pay the Vendor
Financing Takeout Payment in accordance with Article 6.1.1(e)(iii)(C) on or
before the last day of the twenty-first (21st) month after NPD, ORION shall pay
the Contractor the amount of Two Million Dollars ($2,000,000) and the Launch
Vehicle Agency any termination liability amount the Contractor is obligated to
pay the Launch Vehicle Agency which amount is not to exceed thirty percent (30%)
of the price of the Launch Vehicle less any payments made by either Party to the
Launch Vehicle Agency; and
(y) beginning with the first day of the nineteenth
(19th) month after NPD, interest shall accrue only on the difference between the
amounts required to be paid to the Launch Vehicle Agency under the Progress
Payment schedule set forth in Part 1(B) as of the last day of the eighteenth
(18th) month after NPD and any payments made by either Party to the Launch
Vehicle Agency. Such interest shall accrue on a daily basis at the prime rate
announced by The Chase Manhattan Bank (National Association) from time to time
plus one-half percent (0.5%) until ORION makes the Progress Payment portion of
Vendor Financing Takeout Payment, said interest accruing period not to exceed
(3) months; and
(z) at least one week prior to the last day of the
eighteenth (18th) month after NPD, ORION shall deliver to the Contractor an
unconditional, irrevocable letter of credit in form and substance satisfactory
to the Contractor from a bank satisfactory to the Contractor or equivalent
protection satisfactory in form and substance to the Contractor, the face amount
of which shall be sufficient to secure those payments that ORION is required to
make under Article 6.1.1(e)(iii)(B)(x) and (y) (the "Guarantee").
(C) ORION agrees to pay, no later than the last day of the
twenty-first (21st) month after NPD, the Milestone Payment portion of the Vendor
Financing Takeout Payment to the Contractor and the Progress Payment portion
(plus interest, if any, required under Article 6.1.1(e)(iii)(B)(y) above) of the
Vendor Financing Takeout Payment to the Launch Vehicle Agency, provided,
however, that ORION shall be required to make any Milestone Payment portion of
the Vendor Financing Takeout Payment only to the extent the Contractor is
entitled to Milestone Payments in excess of the Advance Payment in accordance
with the ORION 2 Contract. The Vendor Financing Takeout Payment shall be payable
by the Contractor submitting to ORION a Request for Payment accompanied by a
certificate in the form of Appendix I to Annex A hereto.
(iv) If ORION fails to pay, or notify the Contractor at least one week
prior to the last day of the eighteenth (18th) month following NPD that it will
be able to pay, the Progress Payment portion of the Vendor Financing Takeout
Payment on or before the last day of the twenty-first (21st) month following NPD
or if ORION fails to deliver to the Contractor the Guarantee specified in
Article 6.1.1(e)(iii)(B)(z) with respect to amounts due to the Launch Vehicle
Agency, then the Contractor may
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terminate the Launch Agreement. If ORION fails to deliver to the Contractor the
Guarantee specified in Article 6.1.1(e)(iii)(B)(z) with respect to the Two
Million Dollars ($2,000,000), then either Party may terminate the ORION 2
Contract upon ten (10) days prior written notice to the other Party, provided
ORION fails to deliver such portion of the Guarantee within such ten (10) day
period. Contractor's exclusive remedy for ORION's failure to deliver the
Guarantee specified in Article 6.1.1(e)(iii)(B)(z) with respect to the Two
Million Dollars ($2,000,000) (subject to the applicable notice and cure
procedure set forth above in this Article 6.1.1(e)(iv)) shall be to sell or
dispose of the ORION 2 Spacecraft, or any part thereof, at a public or private
sale for cash, upon credit or for future delivery as the Contractor deems
appropriate. If ORION fails to make the Vendor Financing Takeout Payment in
accordance with Article 6.1.1(e)(iii)(C) on or prior to the last day of the
twenty-first (21st) month after NPD, either Party may terminate the ORION 2
Contract upon written notice to the other Party and, if terminated, ORION shall
pay any termination liability amount the Contractor is obligated to pay the
Launch Vehicle Agency, which amount is not to exceed thirty percent (30%) of the
price of the Launch Vehicle less any payments made to the Launch Vehicle Agency.
Contractor's exclusive remedy for ORION's failure to make the Vendor Financing
Takeout Payment shall be to receive payment of Two Million Dollars ($2,000,000)
and to sell or dispose of the ORION 2 Spacecraft, or any part thereof, at a
public or private sale for cash, upon credit, or for future delivery as the
Contractor deems appropriate, and to draw under the Guarantee. No less than
thirty (30) Calendar Days prior to the Contractor's first attempts to sell or to
dispose of the ORION 2 Spacecraft, and no less than fifteen (15) Calendar Days
prior to any subsequent attempts by the Contractor to sell or to dispose of the
ORION 2 Spacecraft, the Contractor shall deliver, by overnight courier (which
delivery shall be acknowledged by written receipt), written notice of any such
intent to sell or dispose of the ORION 2 Spacecraft. If ORION fails within such
notice period, as applicable, to make the Vendor Financing Takeout Payment plus
accrued and unpaid interest due and payable to the Contractor under the ORION 2
Contract as well as reasonable costs, expenses, attorneys' fees, and costs
incurred by the Contractor for the storage, protection, removal, modification,
completion, sale and delivery of the ORION 2 Spacecraft incurred by the
Contractor in excess of those contemplated by the Contact Price, the Contractor
may proceed with such sale or disposal. Any purchaser at any such sale shall
hold the property sold absolutely free from any claim or right on the part of
ORION, and ORION hereby waives (to the extent permitted by law) all rights of
redemption or stay that ORION now has or may have at any time in the future
under any rule of law or statute now existing or hereafter enacted. The proceeds
realized from any such sale shall be applied first to the reasonable costs,
expenses, attorneys' fees, and costs incurred by the Contractor for the storage,
protection, removal, modification, completion, sale, and delivery of the ORION 2
Spacecraft or any portion thereof, second to accrued and unpaid interest due and
payable to the Contractor under the ORION 2 Contract, and third to the Contract
Price (collectively, the "Disposal Costs"). The Contractor shall have no
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obligation to reimburse any portion of the Advance Payment to ORION or pay to
ORION any proceeds of the sale or disposal of the ORION 2 Spacecraft unless the
Contractor sells the ORION 2 Spacecraft (other than to ORION) within thirty (30)
months after NPD, in which case the Contractor shall pay to ORION one-half the
difference, if any, between the sale price and the Disposal Costs.
6.1.2 Payments by ORION
Subject to Article 6.1.1(e), which provides for no interest payment by either
Party relating to the Advance Payment, Progress Payments (except as provided in
Article 6.1.1(e)(iii)(B)(y)), or Milestone Payments prior to the last day of the
twenty-first (21st) month after NPD, ORION shall pay each Milestone Payment
(other than the first ORION 2 Spacecraft Milestone Payment), Progress Payment
(other than the Initial Progress Payment and the payments to the Launch Vehicle
Agency pursuant to Article 6.1.1(c)) and the Vendor Financing Takeout Payment in
full within thirty (30) Calendar Days after the delivery of a Request for
Payment (in accordance with the procedures set forth in Article 6.1.1) into the
appropriate bank accounts set forth in Article 6.1.3.
Where the thirty (30) Calendar Days allowed for payment after delivery of a
Request for Payment for a Milestone or Progress Payment causes a payment to
become due on a non-Business Day, such payment shall be due on the next Business
Day.
Subject to Article 6.1.1(e), (a) Contractor shall be entitled to the interest
earned on any properly due but unpaid amount for each Calendar Day after the
date any Progress or Milestone Payment is due; and (b) Contractor shall be paid
any interest to which it is entitled within ten (10) Calendar Days of the
determination that such interest is due; and (c) interest shall be calculated in
accordance with Article 43.
Any amounts payable to the Launch Vehicle Agency shall be paid directly by
ORION.
6.1.3 Procedures
Payment shall be made in accordance with Articles 6.1.1 and 6.1.2 into the
following bank accounts:
In the case of the Contractor:
Account name: MATRA MARCONI SPACE UK LIMITED
Account number: _________
Bank name: Barclays Bank PLC
Sort code: __________
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Bank address: Southern International Banking Centre
P.O. Box 44
Napier Court
Napier Road
Kings Meadow
Reading RG1 8BW
England
In the case of ORION:
Account name: IPSP Receipt Account
Account number: ____________
Bank name: The Chase Manhattan Bank, N.A.
Sort code: ____________
Bank address: 4 Chase MetroTech Center
Brooklyn, New York 11245
United States of America
In the case of the Launch Vehicle Agency:
Account name: Lockheed Martin Commercial Launch Services, Inc.
Account number: __________
Bank name: Citibank N.A.
ABA number: ___________
Bank address: One Penn's Way New Castle, Delaware
19720
Any payment shall be deemed to have been made when credit for the amount is
established in the above bank accounts. Each Party shall notify the other Party
in writing within ten (10) Calendar Days of a change to the above bank accounts.
6.2 Dispute
In a written notice (which may be a telefax followed by an originally signed
copy) received by the Contractor no later than twenty (20) Business Days after
receipt by ORION of a Request for Payment in connection with a Milestone Payment
or other payment under Article 6.4, ORION may dispute timely completion of the
Milestone associated with such Milestone Payment or other payments. In the event
there is such a dispute, ORION shall nonetheless pay the Milestone
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Payment in accordance with Article 6.1.2 without waiving any of its rights. In
the event it is determined, either by agreement of the Parties or by dispute
resolution pursuant to Article 30 hereof, that the Milestone with respect to
which such notice shall have been timely received was not completed as of the
date of the Request for Payment, ORION shall be entitled to the interest at the
rate specified in Article 43 earned on the disputed amount for each Calendar Day
after the date such Milestone Payment was paid until the day the Milestone
associated therewith is completed. ORION shall be paid any interest to which it
is entitled within ten (10) Calendar Days of the determination that such
interest is due. Interest shall be calculated in accordance with Article 43.
6.3 Other Payments
Except as otherwise expressly stated herein, all other payments by ORION to the
Contractor shall be made in accordance with the procedures set forth in Article
6.1.3 within thirty (30) Calendar Days after receipt by ORION of a telefaxed
invoice. This invoice will be followed by an airmailed original and one copy.
6.4 Setoff
In the event that one Party has not paid the second Party any amount which is
due and payable to the second Party under the ORION 2 Contract, such second
Party shall have the right to set off such amount against payments due to the
first Party, provided any amount in dispute pursuant to Article 6.2 shall not be
considered due and payable while the dispute is being resolved.
6.5
If (a) the Contractor fails to make the Spacecraft available to the Launch
Vehicle Agency in sufficient time for the Launch to occur on or prior to 31
March 1999 and such failure is due to any reason other than the Contractor's
failure to perform the Work in accordance with Part 2(A) or other than Excusable
Delay (but not Excusable Delay caused by ORION's failure to meet its
responsibilities under the Orion 2 Contract (including Article 18.5), its
invalid exercise of its rights under Article 13, or its exercise of its rights
under Article 41), or (b) the Launch Agreement is terminated pursuant to
Articles 5.2(d) or 41, then the Contract Price shall be increased by any
additional amount required by the Launch Vehicle Agency to perform the Launch.
7. ACCESS TO WORK
7.1
ORION and the Consultants shall have reasonable access (upon reasonable notice
to the Contractor from ORION, but no less than forty-eight (48) hours) to any
premises of the Contractor or Major Subcontractors, or other selected
Subcontractors on an "as needed" basis for short durations, where Work is being
performed and may observe all of the Work, as well as any associated facilities
and documentation, during regular business hours, or such other times as
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Work is being performed under the ORION 2 Contract. ORION shall justify to the
Contractor why such access to other selected Subcontractors is needed but such
access shall not be unreasonably withheld. ORION and the Consultants shall also
be entitled to attend all meetings and reviews of the Contractor and of the
Contractor with Subcontractors related to project schedule and management,
engineering, design, manufacturing, integration and testing and Launch as
reasonably necessary and with the prior approval of the Contractor. The
Contractor shall provide ORION and the Consultants reasonable assistance in the
performance of such inspections. The Parties agree that non-escort permanent
badges to agreed work areas where ORION activities are being performed shall be
made available to all ORION representatives subject to adequate notice of
personnel details being provided to the Contractor and security clearance being
granted.
7.2
The Contractor shall provide office space and facilities for the accommodation
of up to six (6) representatives (plus a secretary) employed by ORION (or its
Consultants) at the Contractor's plants and at environmental test facilities (if
located off site) and shall ensure that such space and facilities are provided
at the repeater Subcontractors' plant for up to three (3) representatives and at
other selected Subcontractors' plants on a temporary basis to attend meetings or
witness tests. Provision for up to four (4) engineers (plus a secretary) shall
be made at the Launch site facility. At a minimum, the Contractor shall provide
desks, chairs, normal office supplies, local telephone service (long distance
telephone usage to be charged to ORION), car parking facilities and access to
meeting rooms, copying machines and facsimile equipment, and access to and use
of video conferencing facilities, if any, at the Contractor's plants (in this
connection, Contractor will take reasonable measures to facilitate video
conferencing between Contractor's plants and ORION's premises, provided the
video conferencing facilities of both Parties are fundamentally compatible).
ORION shall make ORION space segment capacity for video conferencing available
without charge.
7.3
The Contractor shall require that any Subcontract contains a provision
substantially similar to this Article 7 to ensure ORION's rights under the ORION
2 Contract, except that ORION's access to the Launch Vehicle Agency's facilities
shall be controlled by the Launch Vehicle Agency.
7.4
ORION and its Consultants will have reasonable access to any drawings,
specifications, standards or process descriptions which are available to the
Contractor and relevant to the ORION 2 Spacecraft and Data and Documentation to
be Delivered under the ORION 2 Contract. If an electronic mail system is used by
the Contractor to distribute documentation, access to ORION representatives is
to be approved by the Contractor. The Contractor will make available, to the
extent permitted under Article 24, copies of such documentation, at no charge to
ORION, on the reasonable request of ORION or ORION's Consultant where such
documentation is
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necessary for evaluation of designs, performance considerations, assessment of
test plans and test results or for any other purpose connected with the design,
qualification, testing, Launch, Final Acceptance or operation of the ORION 2
Spacecraft components. The Contractor will allow ORION or its Consultants
reasonable access to all drawings and document indices to facilitate their work
in this respect. The Contractor shall establish data links between its and
ORION's facilities such that ORION has remote electronic access to those project
related documents identified in Part 2(B). ORION shall make space segment
capacity required for such remote access available without charge. The
Contractor will also provide ORION and its Consultants with "real time" access
to all measured data taken at the Contractor's and Subcontractors' facilities on
a non-interference basis. In addition, ORION shall have access to those project
related documents which are of the type to which ORION had access during the
implementation of the F1 Contract.
7.5
In exercising its rights under the ORION 2 Contract, ORION and the Consultants
shall be subject to Governmental security requirements of the Contractor and its
Subcontractors and the Contractor shall use its best efforts to ensure that such
security requirements do not unduly restrict access or viewing by ORION subject
to adequate notice of ORION personnel details being provided to the Contractor.
Access by ORION or any Consultant to Subcontractor facilities shall be
coordinated through the Contractor.
7.6
In the event a meeting is convened at the Contractor's or a Subcontractor's
plant, the Contractor shall provide reasonable advance notice to ORION (e.g.,
one week for regularly scheduled meetings) and make the necessary arrangements
to facilitate the entry of ORION or its Consultants to the meeting place subject
to adequate notice of ORION personnel details being provided to the Contractor.
7.7
Subject to Article 27 hereof, the inspection, examination, agreement to, or
approval, waiver or deviation by ORION (other than in accordance with Article
27) with regard to any design, drawing, specification or other documentation
produced under the ORION 2 Contract shall not relieve the Contractor from
fulfilling its contractual obligations or result in any liability being imposed
on ORION.
7.8
ORION shall have the right to participate in and make recommendations, but not
to control, give directions or assign actions, in all review meetings at the
system, subsystem and critical component levels, as well as test review board,
manufacturing review board and failure review board meetings. The Parties agree
to work cooperatively in resolving issues that arise at the various review board
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meetings and, where ORION has an objection to a recommended
resolution/implementation, the Parties agree to discuss it at a senior
management level (ORION's Senior Vice President, Engineering and Satellite
Operations and Contractor's Director of Civil Communications Satellites) prior
to implementation, but the final decision concerning implementation shall remain
with the Contractor who shall provide ORION with a written explanation for its
decision.
8. DELIVERABLE ITEMS AND DELIVERY DATES
8.1
"Delivery" shall be deemed to have occurred for each Deliverable Item upon its
Final Acceptance by ORION. The Parties acknowledge that the Delivery of the
ORION 2 Spacecraft is to be in orbit. Subject to this Article and Articles 5, 12
and 27, the Parties agree that the Delivery Dates for Deliverable Items under
the ORION 2 Contract (depending on the final configuration selected) are as
follows:
<TABLE>
<CAPTION>
Item Description Delivery Date
<S> <C> <C>
1. Delivery of ORION 2 Spacecraft in Orbit 28.25 months after NPD (provided a Launch
Slot is available in such timeframe)
2. Data and Documentation As specified in Section 9.2.1 of Part
1(A), Part 2(A), Part 2(B) and Part 3(D)
3. Mission Specific Hardware and Software As specified in Section 10 of Part 2(A)
- ------------------------------------------------------------------------------------------------------
</TABLE>
The Parties will negotiate in good faith reasonable adjustments in the Delivery
Date for the ORION 2 Spacecraft upon the addition, elimination or technical
complication or simplification of other ORION 2 Spacecraft items prior to NPD,
to the extent such additions, eliminations and/or technical complications or
simplifications are, singly or in the aggregate, material (i.e., more than minor
in effect on cost, schedule and/or performance).
If at NPD there is less than twenty-eight and three quarters (28.75) months from
NPD to the last possible day of the Launch Slot, which day shall be confirmed at
NPD with the Launch Vehicle Agency, then the Parties agree to work together
cooperatively and in good faith to devise a revised delivery schedule with the
existing launch vehicle provider (or, if necessary, with a
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different launch vehicle provider) such that there is at least a two (2) month
margin in the schedule (which schedule is twenty-six and three quarters (26.75)
months to Launch) and the Parties shall enter into an Amendment of the ORION 2
Contract reflecting any resultant changes in schedule and Contract Price.
If (a) the Contractor fails to make the Spacecraft available to the Launch
Vehicle Agency in sufficient time for the Launch to occur on or prior to 31
March 1999 and such failure is due to Excusable Delay or (b) the Launch
Agreement is terminated pursuant to Articles 5.2(d) or 41, then the Delivery
schedule shall be amended to reflect an in-orbit Delivery Date occurring six (6)
weeks (forty-two (42) Calendar Days) after the actual launch date of the Orion 2
Spacecraft.
For the avoidance of doubt, the Parties recognize and agree that in the event of
a Constructive Total Loss of the ORION 2 Spacecraft, the Delivery Dates provided
in Article 8 hereof shall, in respect of the ORION 2 Spacecraft and its related
Data and Documentation not already delivered, be extinguished and have no
further effect.
8.2
The Contractor understands and agrees that, with respect to the Delivery Dates
for all Deliverable Items, whether those items are set out in the ORION 2
Contract or in subsequent Amendments to the ORION 2 Contract, time is of the
essence under the ORION 2 Contract. Nothing in the foregoing sentence shall in
any way modify either the specific remedies for default specified elsewhere in
the ORION 2 Contract, including but not limited to Articles 11.2 and 21, or the
specific dispute resolution requirements specified in the ORION 2 Contract.
8.3
The Contractor, if requested to do so by ORION, agrees to construct and launch
an additional satellite, the Replacement Satellite, in accordance with the terms
set forth in Article 19.
8.4
On time schedules to be mutually agreed to in writing, ORION will make available
to the Contractor fully operational in-orbit test equipment equivalent to that
used on the F1 Spacecraft as specified in Part 2(A) and facilities (Mt. Jackson
and Fucino) for use in meeting the requirements of Part 3(D). Contractor will
make available (but not deliver) additional test equipment, as reasonably
necessary, for in-orbit testing of the American coverage beam in order to
satisfy the requirements of Part 3(D).
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9. FINAL ACCEPTANCE
9.1 Data and Documentation
9.1.1
"Final Acceptance" (and therefore, Delivery) of Data and Documentation shall
occur only when:
(i) the Contractor has fulfilled the ORION 2 Contract requirements for the
Data and Documentation; and
(ii) the Data and Documentation has been delivered at the place specified in
the ORION 2 Contract in a condition fully conforming to the provisions
of the ORION 2 Contract.
Data and Documentation, other than Data and Documentation which requires
approval and acceptance by ORION in accordance with Article 9.1.2 hereof, shall
be deemed to have achieved Final Acceptance unless rejected by ORION in writing
within ten (10) Business Days after receipt of said Data and Documentation by
ORION.
If Data and Documentation not requiring approval and acceptance by ORION is
unacceptable, ORION shall, within the said ten (10) Business Days, notify the
Contractor in writing in which respects the Data and Documentation is
unacceptable. Any Data and Documentation that is considered by ORION to be
unacceptable with respect to which ORION has so notified the Contractor as being
unacceptable, shall be deemed under the ORION 2 Contract not to have been
Delivered unless and until the Defects that resulted in such rejection have been
remedied or demonstrated not to exist pursuant to verification procedures in
accordance with the ORION 2 Contract and the Data and Documentation is at the
specified delivery location in accordance with the ORION 2 Contract whereupon
ORION shall accept the Data and Documentation in writing and Final Acceptance
shall occur.
9.1.2
Final Acceptance of any Data and Documentation requiring approval by ORION in
accordance with Part 2(B) shall occur when such approval has been granted by
ORION in writing. ORION shall respond under this Article 9.1.2 within ten (10)
Business Days after receipt of such Data and Documentation by ORION; failing
such response, the Parties shall be deemed forthwith to be in dispute and their
rights shall be determined in accordance with the provisions of Article 30
hereof.
9.1.3
The provisions of this Article 9.1 shall not apply to the Final Acceptance of a
Launched ORION 2 Spacecraft or to the In-Orbit Acceptance Report. The Final
Acceptance of the Launched ORION 2 Spacecraft and of the In-Orbit Acceptance
Report essential thereto shall be governed by Article 9.2.
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9.2 Launched ORION 2 Spacecraft
9.2.1
Upon arrival at its designated orbital location, the Contractor will perform the
tests and analyses as set forth in Part 3(D) for the Launched ORION 2 Spacecraft
to determine the Aggregate Predicted Transponder Life of the Launched ORION 2
Spacecraft
The results of such tests and analyses will be furnished to ORION in an In-Orbit
Acceptance Report prepared by the Contractor for the Launched ORION 2 Spacecraft
in accordance with Part 2(A), Part 2(B) and Part 3(D). Unless the Launched ORION
2 Spacecraft is a Constructive Total Loss, Delivery and Final Acceptance will
take place upon receipt by ORION of the In-Orbit Acceptance Report in full
compliance with Part 2(A), Part 2(B) and Part 3(D).
(a) In respect of the Launched ORION 2 Spacecraft (if it arrives at its
designated orbital location):
(i) Within 180 days after Launch of the ORION 2 Spacecraft, the
Contractor shall furnish to ORION the In-Orbit Acceptance
Report in full compliance with Part 2(A), Part 2(B) and Part
3(D) in respect of the Launched ORION 2 Spacecraft.
(ii) Unless ORION shall respond to such In-Orbit Acceptance Report
within thirty (30) Calendar Days after receipt thereof, or
such other period of time acceptable to both Parties, the
Report shall be deemed acceptable.
(iii) If ORION's response under Article 9.2.2(a)(ii) contains an
objection to such In-Orbit Acceptance Report, the Parties
shall be deemed forthwith to be in dispute and their rights
shall be determined in accordance with the provisions of
Article 30 hereof.
(iv) The existence of a dispute shall not affect Final Acceptance
set forth above; unless, under the procedures in Article 30,
it is ultimately determined that the Launched Spacecraft is a
Constructive Total Loss. If the Launched ORION 2 Spacecraft
fails to arrive at its designated orbital location in time to
complete in-orbit testing and provision of the In-Orbit
Acceptance Report within 180 Calendar Days after Launch, the
ORION 2 Spacecraft shall be deemed a Constructive Total Loss.
(b) Without limiting any other Contractor obligations under this Article 9
and in order to comply with insurance requirements, within thirty (30)
Calendar Days following receipt of information that one or more of the
following circumstances exist, the Contractor shall provide written
notice of loss to ORION and to all insurers under applicable policies
(provided that the Contractor shall have no obligation to provide such
notice to the
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Launch Insurance insurer unless ORION identifies such insurer to the
Contractor) specifying in such notice:
(i) The basis for a Partial Loss or a Constructive Total Loss
under Articles 9.2.2 or 9.2.3, respectively; or
(ii) The Launched ORION 2 Spacecraft shall be determined to fall
within any of the provisions of Article 9.2.3; or
(iii) The Parties are deemed to be in dispute under any of the
provisions of Article 9.2.(a) or Article 9.2.3.
Such notice of loss shall comply with the provisions of Article 34
hereof, and the foregoing specified time for the provision of notice
may be shortened in compliance with the respective requirements of such
insurers.
9.2.2
A Partial Loss shall occur in respect of the Launched ORION 2
Spacecraft, if the In-Orbit Acceptance Report accurately confirms
(a) that the Aggregate Predicted Transponder Life is
__________________________ ______________ years or less but
(i) is ______________________ years or higher, and (ii) at
least ________________ downlink Transponders with ______ at
the ________ GHz frequency and _________ at either of the two
frequency ranges of ___________ or _______ GHz frequency are
Serviceable Transponders, and (iii) at least _____________
downlink Transponders are Serviceable Transponders, then the
ORION 2 Spacecraft will be deemed to have sufficient
revenue-earning capacity to form an economically viable part
of the space segment of the ORIONSAT system. In such case,
ORION must accept the ORION 2 Spacecraft; and/or;
(b) that the ORION 2 Spacecraft has fewer than _____________
downlink Transponders which are Serviceable Transponders.
9.2.3
Notwithstanding any other provisions of this Article 9, if the ORION 2
Spacecraft is a Constructive Total Loss pursuant to item B of the definition of
such term, the Contractor shall furnish ORION with written notice of loss in
respect of the Launched ORION 2 Spacecraft. Such notice shall be furnished to
ORION promptly upon the Contractor's concluding from information available to it
that such Constructive Total Loss has occurred. In no circumstance shall such
notice of loss be furnished to ORION later than 180 Calendar Days after Launch
of the ORION 2 Spacecraft.
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If the Contractor fails to provide ORION with the notice of loss in respect of
the Launched ORION 2 Spacecraft specified under this Article 9.2.3 within the
respective times specified herein, or if ORION rejects the Contractor's notice
of loss, the Parties shall be deemed forthwith to be in dispute and their rights
shall be determined in accordance with the provisions of Article 30 hereof.
In all circumstances Final Acceptance shall be deemed to have occurred upon
Constructive Total Loss. In the event of Constructive Total Loss the provisions
of Article 15 shall not apply.
9.2.4
In the event of a dispute as to the performance of the Launched ORION 2
Spacecraft, the Parties agree to have an independent determination of the ORION
2 Spacecraft technical status performed by a mutually acceptable technically
qualified third party. The costs incurred in retaining the third party shall be
shared equally between the Contractor and ORION. The Parties agree that before
reference to such mutually-acceptable technically-qualified third party, an
informal forum between Contractor's Senior Executive and ORION's Senior
Executive shall take place to attempt a resolution of said dispute. In the event
that such efforts to resolve the dispute have been unsuccessful, the Parties
shall proceed under Article 30 hereof. The foregoing independent determination
may be used by either Party in any arbitration under Article 30 hereof, but such
determination shall not be binding upon the arbitrators.
9.2.5
In addition, the following provisions shall be applicable to the implementation
of this Article 9.2:
(a) Warranty
The Parties hereto warrant and represent that they will not withhold
from each other any of the material information they have or will have
concerning anomalies, failures and deviations from the requirements of
the ORION 2 Contract, from NPD through Intentional Ignition in respect
of the ORION 2 Spacecraft.
(b) Access to Technical Information
Upon request of a Party, the other Party will respond or permit the
first Party to respond to any insurers in relation to all specific and
reasonable questions relating to design, test, quality control, launch
and orbital information. In addition, in the event a Party notifies or
is notified by the other Party of an occurrence which may be expected
to result in a Partial Loss or Constructive Total Loss under this
Article 9.2, such other Party will permit and assist the first Party
to:
(i) conduct review sessions with a competent representative
selected by the insurers to discuss any continued issue
relating to such occurrence, including information conveyed to
either Party; and
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(ii) use its best efforts to secure the insurers' access to all
information used in or resulting from any investigation or
review of the cause or effects of such occurrence; and
(iii) make available for inspection and copying all information
necessary to establish the scope of such occurrence and
verifying the accounting methods employed to compute any
refund payment obligated thereby.
9.2.6
If either Party at any time after Launch but prior to Final Acceptance has a
reasonable basis for concluding that Final Acceptance will not be achieved
within the time limits provided for in this Article 9 and the other Party fails
to agree with that conclusion within thirty (30) Calendar Days of notice, either
Party shall have the right to proceed under Article 30.
9.2.7
Notwithstanding that title to each Deliverable Item remains with the Contractor
until Final Acceptance, the Contractor shall have no liability under this ORION
2 Contract for a Partial Loss or a Constructive Total Loss; however, this
Article 9.2.7 shall have no effect on the rights of the Parties under Article
11.2 and 15.
10. TRANSFER OF TITLE AND ASSUMPTION OF RISK
10.1
Transfer of title, free and clear of all liens and encumbrances of any kind, and
risk of loss or damage to each Deliverable Item shall pass to ORION at Final
Acceptance, provided, however, risk of loss or damage to the ORION 2 Spacecraft
shall pass to ORION at Intentional Ignition.
<PAGE>
COMMERCIAL-IN-CONFIDENCE
10.2
In the event of a Constructive Total Loss, title free and clear of all liens and
encumbrances of any kind shall pass to ORION. In such event, at ORION's
direction, Contractor shall surrender the ORION 2 Spacecraft to insurers
obligated to cover such loss.
10.3
ORION acknowledges that prior to payment of the Milestone portion of the Vendor
Financing Takeout Payment it has no property interest in the work in progress of
the ORION 2 Spacecraft; ORION does have rights to repayment of the Advance
Payment to the extent provided in the ORION 2 Contract and to the proceeds of
any sale or disposal of the ORION 2 Spacecraft to the extent provided in Article
6.1.1(e)(iv).
11. ORION 2 SPACECRAFT DELIVERY INCENTIVE AND LATE DELIVERY LIQUIDATED DAMAGES
11.1 Delivery Incentive
ORION acknowledges and agrees that the Delivery of the ORION 2 Spacecraft
earlier than the Delivery Dates determined under Article 8 may be the sole or
partial cause of financial gain being sustained by ORION. In the event of the
Delivery of the ORION 2 Spacecraft earlier than the applicable Delivery Date as
it may be adjusted pursuant to Articles 5, 8, 12, 18.5 and/or 27 hereof, ORION
agrees to pay the Contractor within thirty (30) Calendar Days of Final
Acceptance as an incentive the sum of Twenty-Five Thousand Dollars ($25,000) per
Calendar Day for each day that Delivery of the ORION 2 Spacecraft occurs earlier
than the Delivery Date for the ORION 2 Spacecraft, provided, however, that such
payments may be delayed until such time as payment is permitted under any
Financing Agreement.
11.2 Late Delivery Liquidated Damages
The Contractor acknowledges and agrees that failure to meet the ORION 2
Spacecraft Delivery Date may be the sole or partial cause of substantial
financial loss or damage being sustained by ORION, due to the cost of carrying
any ORION external financing, cost of alternative means of providing service to
customers and loss of continuity of service. In the event that the Delivery of
the ORION 2 Spacecraft is later than the applicable Delivery Date as set forth
in Article 8.1 (and notwithstanding Article 9.2) and where such delay is not
subject to an extension of time pursuant to Articles 5, 8, 12, 18.5 and/or
Article 27 hereof, the Contractor agrees to pay to ORION, as liquidated damages
and not as a penalty for each Calendar Day during the period of such delay from
and including the_______________ Calendar Day of lateness up to and including
the ____ __________________ Calendar Day of lateness (the "Liquidated Damages
Period") as follows: (i) the sum of
_______________________________________________ for each Calendar Day in such
Liquidated Damages Period during which the Contractor has not achieved Milestone
13 (lateness to run from _____________________ after NPD) and (ii) the sum of
____________________ per day for each other Calendar Day in such Liquidated
Damages
<PAGE>
COMMERCIAL-IN-CONFIDENCE
Period. The total amount of liquidated damages payable by the Contractor shall
not exceed the sum of Eleven Million, Eight Hundred Twelve Thousand, Five
Hundred Dollars ($11,812,500).
Liquidated damages may not be levied on the ORION 2 Spacecraft after termination
in accordance with this ORION 2 Contract or after the ORION 2 Spacecraft has
been declared a Constructive Total Loss in accordance with Article 9 but ORION
shall have the right to collect those liquidated damages that have previously
accrued.
11.3
ORION shall have the right to offset any liquidated damages owed to it under
this Article against any amounts due the Contractor under the ORION 2 Contract.
11.4
Except as provided under the provisions of Article 21, the liquidated damages
provided in this Article shall be ORION's exclusive remedy for late Delivery of
the ORION 2 Spacecraft and shall be in lieu of all other damages under the ORION
2 Contract, or at law. This provision in no way limits ORION's remedies under
Article 22 for insolvency or bankruptcy of the Contractor.
12. EXTENSIONS FOR EXCUSABLE DELAYS
12.1
The Contractor shall be entitled to extensions of time beyond the Delivery Dates
determined under Article 8 only in accordance with the following provisions, and
the provisions of Articles 5, 8, 18.5 and 27 and any other specific provision of
the ORION 2 Contract providing for extensions of time beyond the Delivery Dates
set forth in Article 8.1.
12.2
12.2.1 RESERVED
12.2.2
Any delay in the performance of the Work caused by an event which is beyond the
reasonable control of the Contractor or its Subcontractors, such as, but not
limited to, any civil commotion, invasion, hostilities, sabotage, earthquake,
fire, flood, explosion, governmental regulations or controls, labor strikes,
work stoppages or slow downs (but excluding any such labor strikes, work
stoppages or slow downs occurring at the facilities of the Contractor and/or at
any or all of the facilities of the Launch Vehicle Agency, NEC, or COMDEV),
freight embargoes, or acts of God, and which delay could not have been avoided
by the Contractor or a Subcontractor through the exercise of reasonable
foresight or reasonable precautions, and which cannot be circumvented by the
Contractor or a Subcontractor through use of its reasonable efforts to establish
work-around plans or other means, or delay caused by failure by ORION to meet
its responsibilities (including
<PAGE>
COMMERCIAL-IN-CONFIDENCE
an invalid exercise of its rights under Article 13) under the ORION 2 Contract
or exercise by ORION of its rights under Articles 18.5 or 41 shall constitute
"Excusable Delay" if notice thereof is given to ORION, in writing, within ten
(10) Business Days after the Contractor shall have first learned of the
occurrence of such an event. Such notice shall include a detailed description of
the portion of the Work known to be affected by such a delay, as well as details
of any work-around plans, alternate sources or other means the Contractor
expects to utilize to minimize a delay in performance of the Work. Notice must
also be given to ORION in writing when the event constituting an Excusable Delay
appears to have ended. Without prejudice to the foregoing, any postponement of
the Launch of the ORION 2 Spacecraft which is announced by the Launch Vehicle
Agency more than one (1) calendar month prior to the Launch Date shall
constitute an event of "Excusable Delay" within the meaning of this Article 12,
provided that the maximum total amount of such Excusable Delay shall be twelve
(12) months. Notwithstanding the foregoing, any postponement of the ORION 2
Spacecraft scheduled Delivery Date due to a launch failure within sixty (60)
Calendar Days prior to the Launch Date or a Launch postponement due to bad
weather or a launch vehicle accident occurring proximate to the Launch Date
shall constitute an event of "Excusable Delay" within the meaning of this
Article 12 if notice thereof is given to ORION, in writing as soon as
practicable but in no event later than seven (7) Calendar Days after the
Contractor shall have first learned of the occurrence of such an event,
provided, however, that the maximum total amount of such Excusable Delay shall
be twelve (12) months.
The Contractor shall be entitled to such extensions of time as are reasonable
for the Excusable Delay. In the event ORION disputes the Excusable Delay, ORION
must inform the Contractor in writing within ten (10) Business Days from the
date of receipt of written notice of the event constituting an Excusable Delay
and, if the Parties have not resolved the dispute within the ten (10) Business
Days of the Contractor's receipt of written notice from ORION, the dispute shall
be resolved pursuant to Article 30. Without prejudice to the foregoing, if any
Excusable Delays other than Excusable Delays resulting from ORION's failure to
meet its responsibilities (including an invalid exercise of its rights under
Article 13) under the Orion 2 Contract, or its exercise of its rights under
Article 41 or resulting from Article 18.5, exist for a cumulative period of time
exceeding eighteen (18) calendar months, the Contractor agrees to pay to ORION,
as liquidated damages and not as a penalty, such reasonable interest costs as
ORION actually incurs in relation to any debt financing of the ORION 2
Spacecraft directly as a consequence of such Excusable Delay. The Contractor's
liability to pay such interest costs to ORION shall be calculated as, and shall
be limited to, the amount of such interest costs incurred by ORION between (i)
the first (1st) Calendar Day of the nineteenth (19th) calendar month of such
Excusable Delay and (ii) the last Calendar Day of such Excusable Delay or the
date of termination of the ORION 2 Contract, whichever is the earlier. ORION
shall be required to provide reasonable evidence to the Contractor of it having
reasonably incurred such interest costs.
<PAGE>
COMMERCIAL-IN-CONFIDENCE
12.3
Any extension of time granted under this Article shall be formalized by the
execution of an Amendment to the ORION 2 Contract wherein adjustments shall be
recorded with respect to the new Delivery Dates for the Deliverable Items set
forth in Article 8, the dates set forth in Article 6.1.1(e)(ii), (iii) and (iv),
Article 6.1.2, and Article 41 and the delivery dates set forth in Article 19.1
and modifications made as appropriate to the Advance Funding schedule of
payments set forth in Article 19.2 and the Part 1(B) Milestone Payment Schedule,
and Progress Payment Schedule, and Termination Liability Amounts Schedule. The
Contractor acknowledges and understands that the occurrence of an Excusable
Delay shall not entitle the Contractor to an increase in the Contract Price,
unless the Excusable Delay is caused directly by ORION's failure to meet its
responsibilities under the ORION 2 Contract or by exercise by ORION of its
rights under Article 41 or resulting from Article 18.5, in which event there
shall be an equitable adjustment to the Contract Price.
13. CORRECTION OF DEFECTS
13.1
ORION shall notify the Contractor in writing when it believes any Defect exists
in the ORION 2 Spacecraft, the services or the Data and Documentation. The
Contractor may from time to time advise ORION in writing that it disagrees with
ORION or ORION's Consultant as to the existence or nature of a Defect. In such
event, the Parties shall negotiate in good faith to determine what Defect
exists, if any, and any action required to remedy such Defect.
13.2
Without limiting the obligations of the Contractor or the rights of ORION under
the provisions of the ORION 2 Contract, prior to Launch of the ORION 2
Spacecraft the Contractor shall, at its expense, use its best efforts to
promptly correct any Defect related to the ORION 2 Spacecraft which it or ORION
discovers during the course of the Work, and notwithstanding that a payment may
have been made in respect thereof, and regardless of prior reviews, inspections,
approvals or acceptances. This provision is subject to the right of the
Contractor to have any items containing a Defect returned at the Contractor's
expense to the Contractor's facility for the Contractor to verify the
non-conformance and to correct the Defect. All transportation costs such as
packaging, shipping and insurance, shall be paid by the Contractor, except that
if it is reasonably determined after investigation that ORION or its Consultants
directly caused the Defects in question, or that the item is in conformance with
applicable specifications and requirements, ORION will reimburse the Contractor
for the above-described costs and will pay all costs associated with the
shipment to and from the Contractor's facility. If the Contractor fails to so
correct such Defects within a reasonable time after notification from ORION and
after the Parties have followed the provisions of Article 13.1 above (including
agreement on the existence of such Defect), ORION may, by separate contract or
otherwise, correct or replace such items or
<PAGE>
COMMERCIAL-IN-CONFIDENCE
services, and, unless it is reasonably determined after investigation that ORION
directly caused the Defect in question, or that the item or service is in
conformance with applicable specifications or requirements, the Contractor shall
pay to ORION the reasonable cost of such correction or replacement. The amount
payable by the Contractor shall be verified at the Contractor's request by an
internationally recognized firm of accountants appointed by the Contractor, such
appointment to be approved by ORION and such approval not to be unreasonably
withheld or delayed. The costs of such verification shall be paid by the
Contractor and shall be without prejudice to the right of either Party to seek
arbitration under Article 30. The report of such accountants may be used by
either Party in any arbitration proceeding but shall not be binding upon the
arbitrators. In such event, the Contractor, if required by ORION, but pursuant
to the arrangement set forth in this Article 13.2, shall promptly repay such
portion of the Contract Price as is equitable in the circumstances. The amount
paid to ORION to correct such Defect may be offset against any payments due to
the Contractor by ORION under this ORION 2 Contract.
13.3
Without limiting the obligations of the Contractor or the rights of ORION under
other provisions of the ORION 2 Contract, if the data available from the
Launched ORION 2 Spacecraft or from other spacecraft of a similar class which is
being built by the Contractor shows that the ORION 2 Spacecraft contains a
Defect, the Contractor shall inform ORION of such Defect and shall, promptly
upon the request of ORION, use its best efforts to take appropriate corrective
measures with respect to the Replacement Satellite, if any, which has not been
Launched so as to satisfactorily eliminate from such Replacement Satellite such
Defects. The Contractor shall fulfill the foregoing obligations at its own cost
and expense, including all costs arising from charges for shipping, insurance,
taxes and other matters associated with the corrective measures. If the
Contractor fails to take such corrective measures with respect to such
Replacement Satellite which has not been Launched, within a reasonable time,
ORION may have any or all such Defects corrected through other means, in which
event the Contractor shall make such Replacement Satellite which has not been
Launched and its component parts thereof available as required and shall pay,
subject to the verification procedures set forth in Article 13.2, all reasonable
costs of such corrective measures.
In the event ORION makes such corrections, ORION may offset the amount paid to
have the Defects corrected against any payments due the Contractor by ORION
under this ORION 2 Contract.
13.4
Without limiting the obligations of the Contractor or the rights of ORION under
other provisions of the ORION 2 Contract, if the data available from another
spacecraft of a similar class that is being built or has been launched by
Contractor shows that the ORION 2 Spacecraft contains a Defect, the Contractor
shall inform ORION of such Defect and shall, promptly upon the request of ORION,
use its best efforts prior to Launch to take appropriate corrective measures
with respect to the ORION 2 Spacecraft so as to satisfactorily eliminate such
Defect from the ORION
<PAGE>
COMMERCIAL-IN-CONFIDENCE
2 Spacecraft. The Contractor shall fulfill the foregoing obligations at its own
cost and expense, including all costs arising from charges for shipping,
insurance, taxes, and other matters associated with the corrective measures. If
the Contractor fails to take such corrective measures with respect to the ORION
2 Spacecraft within a reasonable time after request from ORION, ORION may by
separate contract or otherwise, have all such Defects corrected and the
Contractor shall pay, subject to the verification procedures set forth in
Article 13.2, all reasonable costs of such corrective measures.
In the event ORION makes such corrections, ORION may offset the amount paid to
have the Defects corrected against any payments due the Contractor from ORION
under this ORION 2 Contract.
13.5
Subject to Article 12, the Contractor acknowledges and agrees that it shall not
be entitled to payment for any additional costs incurred as a consequence of any
Defect. In addition to ORION's rights under Article 21, if correction of any
Defect causes a delay in the Delivery of the ORION 2 Spacecraft, despite the
best efforts of the Contractor to correct the Defect, the provisions of Article
11.2 and Article 12, relating to liquidated damages, shall apply, as appropriate
in addition to the remedies in this Article 13.
13.6
After notification of a Defect to the Contractor, the Parties may jointly elect
in writing, pursuant to Article 27, not to require correction or replacement of
such items or services or to waive the Defects noted for the Replacement
Satellite, if any, which has not been Launched. In such event the Contractor, if
required by ORION but pursuant to the arrangements set forth in Article 13.2,
shall repay such portion of the Contract Price as is equitable in the
circumstances.
13.7
Subject to the provisions of any applicable law, the Contractor agrees to
enforce any manufacturer's warranty given to it in connection with any Work to
be provided under the ORION 2 Contract and the Contractor shall assign to ORION
warranty protection or pledge to ORION any proceeds therefrom in respect of that
Work and other items as are given to the Contractor by the manufacturers or
service providers.
13.8
Notwithstanding any other provision of the ORION 2 Contract, the Contractor
shall advise ORION immediately by telephone and confirm in writing any event,
circumstance or development which materially threatens the quality of the ORION
2 Spacecraft or component part thereof as well as any services or Data and
Documentation to be provided hereunder or the Delivery Dates established.
<PAGE>
COMMERCIAL-IN-CONFIDENCE
13.9
For any Defect which does not adversely affect the form, fit, useful life,
reliability or function (i.e., operational performance) of a Transponder, the
Contractor and ORION agree to negotiate a reasonable resolution, subject to
approval by any Financing Entity, which may not require repair of the Defect,
but which may require reasonable compensation to ORION. If the Parties are
unable to reach an agreed resolution within five (5) Business Days of ORION
receiving notice of the Defect from the Contractor ("Notice Date"), the
Contractor shall have the right to elevate the negotiations to Contractor's
Senior Executive and to ORION's Senior Executive. Any resolution reached by
ORION's Senior Executive and Contractor's Senior Executive may be subject to
approval by the Financing Entities. In the event the Parties are unable to reach
an agreed resolution or achieve approval of any Financing Entity within fifteen
(15) Business Days of the Notice Date, ORION shall thereafter be able to
exercise all of its rights under this Article 13.
14. DISCLAIMER OF WARRANTIES, LIMITATIONS OF LIABILITY AND INTER-PARTY WAIVER
OF LIABILITY
14.1
EXCEPT AS SPECIFICALLY PROVIDED IN THE ORION 2 CONTRACT, THE CONTRACTOR MAKES NO
WARRANTIES, EXPRESS OR IMPLIED, WITH RESPECT TO THE ORION 2 CONTRACT OR THE
PERFORMANCE OF THE CONTRACTOR HEREUNDER OR THE EQUIPMENT OR WORK FURNISHED
HEREUNDER, WHETHER ARISING UNDER LAW OR AT EQUITY. ANY IMPLIED WARRANTY OF
MERCHANTABILITY OR FITNESS IS EXCLUDED, THE EXPRESS WARRANTIES OF THE CONTRACTOR
CONTAINED IN THE ORION 2 CONTRACT BEING EXCLUSIVE.
14.2
EXCEPT AS OTHERWISE PROVIDED IN THE ORION 2 CONTRACT, IN NO EVENT SHALL EITHER
PARTY OR A PARTY'S AFFILIATES AND ITS AND THEIR SUBCONTRACTORS AND ITS AND THEIR
OFFICERS, EMPLOYEES AND AGENTS, BE LIABLE, IN CONTRACT, IN TORT, OR OTHERWISE
FOR ANY INCIDENTAL OR CONSEQUENTIAL DAMAGES OF ANY NATURE ARISING AT ANY TIME OR
FROM ANY CAUSE WHATSOEVER, INCLUDING SPECIFICALLY BUT WITHOUT LIMITATION, LOSS
OF PROFITS OR REVENUE, LOSS OF FULL OR PARTIAL USE OF ANY EQUIPMENT, LOSSES BY
REASON OF OPERATION OF ANY DELIVERABLE ITEM AT LESS THAN CAPACITY, DELAYS, COST
OF REPLACEMENTS, COST OF CAPITAL, LOSS OF GOODWILL, CLAIMS OF CUSTOMERS, OR
OTHER SUCH DAMAGES.
14.3
THE TOTAL LIABILITY OF EITHER PARTY TO THE OTHER WITH RESPECT TO ALL CLAIMS OF
ANY KIND, INCLUDING WITHOUT LIMITATION LIQUIDATED DAMAGES, WHETHER AS A RESULT
OF BREACH OF CONTRACT, WARRANTY, STRICT LIABILITY OR OTHERWISE, AND WHETHER
ARISING BEFORE OR AFTER DELIVERY OF ANY DELIVERABLE ITEM, FOR ANY LOSS FROM THE
ORION 2 CONTRACT, OR FROM THE PERFORMANCE OR BREACH THEREOF, SHALL BE LIMITED TO
THE REMEDIES SET FORTH IN THE ORION 2 CONTRACT AND SHALL IN NO EVENT EXCEED THE
CONTRACT PRICE TOTAL.
<PAGE>
COMMERCIAL-IN-CONFIDENCE
14.4
14.4.1
All operations at the launch site pursuant to this Agreement will be subject to
a no-fault, no-subrogation inter-party waiver of liability under terms
substantially similar to those set forth in Article 15.2 of the Launch Agreement
attached hereto as Annex B. Prior to commencement of Launch Services, the
Contractor will provide ORION with evidence reasonably satisfactory to ORION
that each other entity ("Other Users") concurrently conducting operations at
such launch site, including the Launch Vehicle Agency, has agreed to such
inter-party waiver of liability.
14.4.2
If either Party contracts or subcontracts with a third party to provide services
that necessitate the Contractor's or Subcontractor's presence on the launch
site, then such Party will also ensure that such third party agrees to a
no-fault, no-subrogation inter-party waiver of liability and indemnity for
damages it sustains, identical to the Parties' respective undertakings under
this Article 14.4 and Annex B.
14.4.3
In the event that either ORION or the Contractor fails to obtain the aforesaid
inter-party waiver of liability and indemnity from their respective contractors
or subcontractors, then such Party shall indemnify and hold the other Party, the
Other Users of launch services and their respective contractors and
subcontractors harmless from claims brought by such Party's subcontractors with
respect to matters that otherwise would have been covered by the inter-party
waiver of liability.
14.4.4
Notwithstanding any other term or provision contained in the Contract, this
Article 14.4 shall survive the completion or termination of this ORION 2
Contract in any manner whatsoever.
14.4.5
The Parties will take such further actions as may be required to implement the
provisions of this Article 14.4, including the execution of such agreements and
waivers as are customarily used with respect to operations at the launch site
and are consistent with the provisions of this Article 14.4.
15. ORION 2 SPACECRAFT IN-ORBIT PERFORMANCE WARRANTY
15.1 Total Amount at Risk
The Total Amount at Risk shall be placed at risk by the Contractor against
failure by the ORION 2 Spacecraft's Transponders to meet the criteria for
Satisfactorily Operating Primary
<PAGE>
COMMERCIAL-IN-CONFIDENCE
Transponders as set forth in Article 15.3.1. The Total Amount at Risk shall be
adjusted pro rata should the Contract Price be modified pursuant to Article 5.2
or otherwise modified by an Amendment to the ORION 2 Contract.
15.2 In-Orbit Performance Warranty
15.2.1
The Contractor warrants that the ORION 2 Spacecraft will provide thirty (30)
Satisfactorily Operating Primary Transponders at and after its Final Acceptance
pursuant to Article 9 hereof for a period of five (5) years commencing upon the
date of its Final Acceptance (the "In-Orbit Performance Warranty Period"). To
the extent that the ORION 2 Spacecraft fails to provide said capability, the
Contractor shall pay ORION as damages liquidated in their amounts and not as a
penalty, an amount which shall be calculated as specified below up to the Total
Amount at Risk.
15.2.2
Upon Final Acceptance, as defined in Article 9 hereof, the Total Amount at Risk
shall be earned and retained by the Contractor in the manner and to the extent
provided hereunder:
(a) The Initial Incentive Amount and the Monthly Amounts shall be adjusted
pro rata should the Contract Price be modified pursuant to Article 5.2
or otherwise modified following the agreement between the Parties of an
Amendment to the ORION 2 Contract pursuant to Article 27 hereof.
(b) The Initial Incentive Amount shall be earned and retained by the
Contractor if, and only if, at Final Acceptance, the ORION 2 Spacecraft
has _________ Satisfactorily Operating Primary Transponders and a
propellant lifetime as calculated in accordance with Part 3(D) of at
least the Maneuver Lifetime less than one (1) year . Contractor shall
not be liable for damages under this Article 15.2.2(b) where its
failure to meet such propellant lifetime requirement is due to a
malfunction of the Launch Vehicle operation or where its failure to
meet the thirty (30) Satisfactorily Operating Transponder requirement
is due to the Launch environment exceeding the ORION 2 Spacecraft
on-ground test requirements as specified in Part 3(C).
(c) The Monthly Amount corresponding and assigned to each calendar month of
operation during the In-Orbit Performance Warranty Period shall be
earned and retained by the Contractor according to the number of
Satisfactorily Operating Primary Transponders which the ORION 2
Spacecraft has, as provided in Table 15.2 hereof. Contractor shall not
be liable for damages under this Article 15.2.2(c) to the extent of the
number of Transponders ("Launch-Damaged Transponders") that, at Final
Acceptance, are not Satisfactorily Operating Transponders due to the
Launch environment exceeding the ORION 2 Spacecraft on-ground test
requirements as specified in Part 3(C); in such case, Table 15.2 shall
be adjusted by decreasing the number of Satisfactorily Operating
<PAGE>
COMMERCIAL-IN-CONFIDENCE
Transponders required to earn each specified proportion of the Monthly
Amount by the number of Launch-Damaged Transponders.
TABLE 15.2
<TABLE>
<CAPTION>
Number of Satisfactorily Operating Proportion of Monthly Amount Earned (%)
Primary Transponders
- ---------------------------------------------------------------------------------------------------------
<S> <C>
100.00
93.33
86.67
80.00
73.33
66.67
60.02
53.33
46.67
40.00
33.33
26.67
20.00
13.33
6.67
0
- ---------------------------------------------------------------------------------------------------------
</TABLE>
(d) In the event that the Initial Incentive Amount shall not have been
earned by the Contractor, as specified in subparagraph (b) above, or
any of the Monthly Amounts are not earned by the Contractor during the
relevant time period, as specified in subparagraph (c) above, those
amounts (as appropriate) shall be repaid by the Contractor to ORION.
Payment shall be due thirty (30) Calendar Days after the date of
receipt by the Contractor of a telefaxed invoice (which shall be
followed by the airmailed original plus one copy) from ORION; interest
shall be paid (at the rate specified in Article 43) on any amounts not
paid when due. Invoices shall be accompanied by sufficient data to
support ORION's claim. ORION may offset any such payments not made by
the Contractor against any outstanding balance due under the ORION 2
Contract. The Contractor shall be deemed to have accepted the invoice
ten (10) Business Days after receipt of the invoice unless, within such
time period, it notifies ORION of a dispute. The Contractor shall pay
any undisputed part of an invoice.
15.3 Satisfactorily Operating Primary Transponder
15.3.1
If a Primary Transponder does not satisfy the requirements of a Satisfactorily
Operating Primary Transponder, but ORION nevertheless elects to use such Primary
Transponder for Revenue-earning purposes, then, where the Revenue (or equivalent
consideration) received by ORION for such Primary Transponder in any one
calendar monthly period is less than the Monthly Amount
<PAGE>
COMMERCIAL-IN-CONFIDENCE
at Risk for such Primary Transponder, the Contractor shall, in the succeeding
month, pay the difference between the said Monthly Amount at Risk for such
Primary Transponder and ORION's actual monthly Transponder Revenue for such
calendar monthly period. In no event shall any one monthly payment by the
Contractor under this Article 15.3.1 exceed the Monthly Amount at Risk for such
Primary Transponder. In the event that a Primary Transponder is determined not
to be a Satisfactorily Operating Primary Transponder but is later used for
Revenue-earning purposes, ORION agrees to advise the Contractor within seven (7)
Business Days after commencing such use.
15.3.2
For the purposes of this Article, in determining whether a Primary Transponder
is a Satisfactorily Operating Primary Transponder no account shall be taken of
any period of unavailability:
(a) attributable to ORION 2 Spacecraft maintenance activities, station
keeping maneuvers, payload reconfiguration for business purposes or
station change maneuvers; or
(b) less than one one-hundredth percent (0.01%) outage per month; or
(c) attributable to communications link fading due to external causes,
including but not limited to weather; or
(d) arising directly or indirectly as a consequence of any negligent act or
omission of ORION or any of its agents, assignees, Consultants,
employees, or customers; or
(e) attributable to earth station sun blinding.
15.4
15.4.1
All measurements, computations and analyses, for the purpose of determining
whether a Primary Transponder is a Satisfactorily Operating Primary Transponder
shall be performed by ORION or its Consultants, provided that the Contractor
may, at its expense, assist in determining the nature of anomalies and
corrective measures. The Contractor shall for this purpose be given access to
any data collected by ORION.
15.4.2
If ORION desires, following Final Acceptance, to make any changes to the ORION 2
Spacecraft's in-orbit procedures, ORION shall notify the Contractor in writing
of same and the Contractor shall have the right to approve such proposed
changes. The Contractor shall not unreasonably withhold such approval and shall
work with ORION in good faith to evaluate the proposed changes within a
reasonable time period. Notwithstanding Article 27.3 hereof, if the Contractor
reasonably concludes that in determining whether to approve the proposed changes
to the said in-orbit procedures it will incur a cost in excess of Five Thousand
Dollars ($5,000), the
<PAGE>
COMMERCIAL-IN-CONFIDENCE
Contractor shall promptly inform ORION within fifteen (15) Calendar Days as to
the estimated cost and a reasonable time for completion. If ORION requests the
Contractor to make such determination, the Contractor shall immediately commence
work and shall be entitled to claim and shall be paid by ORION all such
reasonable costs plus a profit of ten percent (10%). In addition, if ORION
proceeds with a change in the in-orbit procedures without Contractor's approval
or the Contractor reasonably considers that a proposed change after approval
would adversely affect the ORION 2 Spacecraft's operational ability,
characteristics, lifetime, propellant, power or station keeping abilities, the
Parties shall enter good faith negotiations to determine what equitable
consideration in lieu of potential or actual lost In-Orbit Performance Warranty
payments shall be provided to the Contractor.
15.5
Therights and remedies under this Article are exclusive for the failure of the
ORION 2 Spacecraft and/or its Primary Transponders after Final Acceptance to
meet the criteria for a Satisfactorily Operating Primary Transponder and in
substitution of any other rights and remedies ORION has under the ORION 2
Contract or otherwise at law as a result of such failure.
16. SUBCONTRACTS
16.1
The Contractor has represented that in the performance of the Work required by
the ORION 2 Contract, it will be necessary for the Contractor or its
Subcontractors to enter into the following Major Subcontracts. The Contractor
shall select the Major Subcontractors and ORION shall be provided with copies of
the technical content of all Major Subcontracts and with a copy of the full
Launch Agreement promptly upon execution thereof. Initially, the Major
Subcontractors are as provided below:
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COMMERCIAL-IN-CONFIDENCE
- --------------------------------------------------------------------------------
Name of Major Location Description of Work
Subcontractor
- --------------------------------------------------------------------------------
Lockheed Martin USA Launch Vehicle
NEC Japan KU Band Transponders
COMDEV Canada Multiplexers, Switching
__________* __________ Antennas
Fokker Netherlands Solar Array
__________* __________ Propellant Tank
__________* __________ Battery
__________* __________ Apogee Kick Motor
*Contractor shall comply
with Article 16.2 in selection
of these Major Subcontractors
- --------------------------------------------------------------------------------
16.2
In the event that the Contractor or a Subcontractor selects or has a necessity
to terminate any Major Subcontract or substitute Subcontractors on any Major
Subcontract, the Contractor shall consult with ORION and discuss any and all
such actions prior to implementation. Subject to Article 16.3, ORION shall have
no right of prior approval of Contractor's actions.
16.3
In the event that the Contractor has a necessity to terminate or substitute
Lockheed Martin, or NEC or COMDEV, Limited the Contractor shall first consult
with and obtain the approval of ORION. If ORION does not approve such actions
and the Contractor deems such actions to be necessary to meet its performance
obligations under the ORION 2 Contract, then the Contractor may take such action
without ORION's approval.
16.4
In the event that the Contractor or a Subcontractor which has been awarded a
Major Subcontract has reason to waive, or to agree to, a deviation in any of the
technical requirements of any Major Subcontract which will cause a material
impact on the technical parameters of the ORION 2 Spacecraft as set forth in
Part 3(A), such variations shall be handled in accordance with Part 3(B) and
shall require a formal Amendment to this ORION 2 Contract pursuant to Article
27.
<PAGE>
COMMERCIAL-IN-CONFIDENCE
16.5
Nothing in the ORION 2 Contract shall be construed as creating any contractual
relationship between ORION and any Subcontractor. The Contractor is fully
responsible to ORION for the acts and omissions of Subcontractors and of all
persons used by the Contractor or a Subcontractor in connection with the
performance of the Work under the ORION 2 Contract. Any failure by a
Subcontractor to meet its obligations to the Contractor shall not constitute a
basis for Excusable Delay, except as provided in Article 12 hereof, and shall
not relieve the Contractor from meeting any of its obligations under the ORION 2
Contract.
17. INDEMNIFICATION
17.1
The Contractor shall indemnify and hold ORION, its officers, employees,
Consultants, and assignees ("ORION Associates") harmless from and against any
and all losses, damages, liabilities or demands (including reasonable legal
fees) arising out of suits or claims brought by third parties, including the
employees and Consultants of ORION, the Contractor, and its Subcontractors, on
account of damage to property and injury to persons (including sickness and
death), resulting from any act or omission of the Contractor or its
Subcontractors in the performance of the Work, or an act or omission of ORION,
occurring at any installation of the Contractor or any Subcontractor, and at its
expense shall defend any suits or other proceedings brought against said
indemnitees, on account thereof, and shall pay all expenses (including
reasonable legal fees) and satisfy all judgments which may be incurred by or
rendered against them, or any of them, in connection therewith; provided that
ORION notifies the Contractor within ten (10) Business Days, in writing, after
ORION management has actual notice of any such suit or a written threat of such
suit within twenty (20) Business Days of such claim and permits the Contractor
to answer the claim or suit and defend the same and gives the Contractor
authority and such assistance and information as is available to ORION or the
defense of such claim or suit, and provided further that ORION does not by an
act (including any admission or acknowledgment or omission) prejudice such
defense. Any such assistance or information which is furnished by ORION at the
written request of the Contractor is to be at the Contractor's expense. With
regard to suits or claims brought by or on behalf of employees or Consultants of
ORION, Contractor's indemnification obligations shall be limited to the amount
of insurance required to be maintained by Contractor under Article 18.
Notwithstanding the foregoing, in no event shall the Contractor have any
indemnification liability regarding any claims or suits of any ORION customers.
17.2
ORION shall have a reciprocal obligation to indemnify the Contractor to the
extent described in Article 17.1, except that such obligation shall not apply
with respect to claims for acts or omissions of ORION or its Consultants
occurring at any installation of the Contractor or any Subcontractor.
<PAGE>
COMMERCIAL-IN-CONFIDENCE
17.3
If the Contractor insures against any loss or damage which the Contractor may
suffer in respect of which the Contractor is required to indemnify ORION or an
ORION Associate pursuant to Article 17.1, it shall be a condition that the
Contractor arrange for the insurer to waive its right of subrogation against
ORION and every ORION Associate. ORION shall be entitled to require proof from
time to time that the Contractor has complied with its obligations under this
Article. In the event that the Contractor does not comply with such obligations,
the indemnity referred to in Article 17.1 shall extend to any claim which may be
made by an insurer pursuant to an alleged right of subrogation.
17.4
In respect to every insurance referred to in Article 18, the Contractor shall
provide documentary evidence (which may be the insurance policies themselves)
that ORION's insurable interest has been noted by the Contractor's insurers.
17.5
Without prejudice to ORION's rights under Article 26, ORION shall hold the
Contractor harmless from and against any suit or claims which may arise in
connection with the use, operation, performance, nonperformance, failure or
degradation of the ORION 2 Spacecraft after Final Acceptance or for other
Deliverable Items after Delivery, provided that the Contractor notifies ORION
within ten (10) Business Days in writing after it receives notice of any such
suit or within twenty (20) Business Days of such claim and permits ORION to
answer the claim or suit and defend the same and gives ORION authority and such
assistance and information as is available to the Contractor for the defense of
such claim or suit, and provided further that the Contractor does not by an act
(including any admission or acknowledgment or omission) prejudice such defense.
Any such assistance or information which is furnished by the Contractor at the
written request of ORION is to be at ORION's expense. The foregoing shall not be
deemed to release the Contractor from any of its obligations under Articles 9,
15 and 26 hereof.
18. INSURANCE
18.1 Insurance of the Work
18.1.1
Before the Contractor commences the Work, the Contractor shall have an insurance
policy covering the ORION 2 Spacecraft and all component parts thereof and all
materials of whatever nature used or to be used in completing the Work
(collectively, the "Loss Items") against all risks, loss or damage prior to
Intentional
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COMMERCIAL-IN-CONFIDENCE
Ignition (including coverage against damage or loss caused by earth movement,
flood, boiler, turbine and machinery accidents) subject to normal "All Risks
Policy" exclusions. ORION and any Financing Entity shall be named as loss payee,
but only in relation to all risks, loss or damage to the Loss Items. ORION, and
each Financing Entity, if any, shall be named insured on any such policy in
relation to all risks, loss or damage to the Loss Items. The details of the
insurer and the relevant extracts of the policy shall be submitted to ORION.
18.1.2
All items shall be insured for a sum not less than their replacement value or
their price under the ORION 2 Contract, whichever is the greater. Such insurance
coverage shall be maintained by the Contractor up to the point ofIntentional
Ignition of the ORION 2 Spacecraft ordered by ORION pursuant to the ORION 2
Contract and shall provide (1) coverage for removal of debris, and insuring the
structures, machines, equipment, facilities, fixtures and other properties
constituting a part of the project, (2) transit coverage, including ocean marine
coverage (unless insured by the supplier), and (3) off-site coverage covering
any key equipment, and (4) off-site coverage covering any property or equipment
not stored on the construction sites. The deductible for all such insurance
shall not exceed Two Hundred Fifty Thousand Dollars ($250,000).
18.1.3
The insurance of the Work as required by this Article 18, whether effected by
the Contractor or ORION, shall not limit, bar or otherwise affect the liability
and obligation of the Contractor to complete the Work and Deliver the
Deliverable Items in accordance with the ORION 2 Contract. The Contractor's
insurers shall waive all rights of subrogation against ORION save those for
which ORION indemnifies the Contractor pursuant to Article 17.2 hereof.
18.1.4
The Contractor agrees to assign to any Financing Entity the proceeds of the
Contractor's "All Risks Policy" with regard to any damage incurred on the ORION
2 Spacecraft where such damage would result in an Excusable Delay which,
together with previous Excusable Delays resulting from damage covered by the
Contractor's "All Risks Policy," would be greater than one hundred eighty (180)
Calendar Days.
18.2 Public Liability Insurance
18.2.1
Before the Contractor commences the Work, the Contractor shall have a Public
Liability Policy of insurance. The policy shall cover the Contractor and all
Subcontractors employed from time to time in relation to the Work and
performance of the ORION 2 Contract for their respective rights and interests
and cover their liabilities to third parties.
<PAGE>
COMMERCIAL-IN-CONFIDENCE
18.2.2
The Contractor's insurers shall waive all rights of subrogation against ORION
save those for which ORION indemnifies the Contractor pursuant to Article 17.2
hereof.
18.2.3
The Public Liability Policy of insurance shall be for an amount not less than
One Hundred Million Dollars ($100,000,000) in respect of any one occurrence and
shall be effected with reputable insurers. The policy shall be maintained until
all Work pursuant to the ORION 2 Contract, including remedial work, is
Delivered. Such insurance shall not contain any exclusion which denies coverage
for third party injuries to persons or damage to property of others arising out
of preparation of maps, plans, designs, specifications or the performance of
inspection services or out of any other services to be performed by the
Contractor under the ORION 2 Contract.
18.2.4
ORION and the Financing Entity, if any, shall be named as named insured on such
Public Liability insurance policy.
18.3 Insurance of Employees
18.3.1
Before commencing the Work, the Contractor shall insure against liability for
death or injury to persons employed by the Contractor, including liability
imposed by statute and at common law. The insurance coverage shall be for an
amount in the greater of (i) Ten Million Dollars ($10,000,000) or (ii) as
required by law, and shall be maintained until all Work pursuant to the ORION 2
Contract, including remedial work, is Delivered. The Contractor shall ensure
that all Subcontracts contain a similar provision.
<PAGE>
COMMERCIAL-IN-CONFIDENCE
18.3.2
The Contractor's insurers shall waive all rights of subrogation against ORION
save those for which ORION indemnifies the Contractor pursuant to Article 17.2
hereof.
18.4 Comprehensive Automobile Liability
18.4.1
Before commencing the Work, the Contractor shall self-insure or Contractor shall
insure against liability for claims of personal injury (including bodily injury
and death) and property damage covering all owned, leased, non-owned and hired
vehicles used at any of the Contractor's facilities in the performance of the
Contractor's obligations under the ORION 2 Contract in an insurance amount not
less than Five Million Dollars ($5,000,000) per occurrence for combined bodily
injury and property damage.
18.4.2
The Contractor's insurers shall waive all rights of subrogation against ORION
save those for which ORION indemnifies the Contractor pursuant to Article 17.2
hereof.
18.5 Launch Insurance
ORION shall have the responsibility to procure Launch Insurance. Failure to
secure a binder for Launch Insurance by sixty (60) days before the Launch Date
shall be deemed an Excusable Delay, which Excusable Delay shall extend from the
sixtieth (60th) day before the Launch Date until the date such insurance is so
secured and written verification thereof is provided to the Contractor.
18.6 Inspection and Provisions of Insurance Policies
18.6.1
Before the Contractor commences the Work, and whenever requested in writing by
ORION, the Contractor shall produce evidence that the insurance required by
Articles 18.1, 18.2, 18.3 and 18.4 has been effected or is being maintained.
Contractor shall provide ORION with copies of all required insurance policies
and shall provide ORION with written notice no later than thirty (30) Calendar
Days before the expiration date of each such policy.
18.6.2
If, after being requested in writing by ORION to do so, the Contractor fails to
produce evidence of compliance with the insurance obligations within fourteen
(14) Calendar Days, ORION may
<PAGE>
COMMERCIAL-IN-CONFIDENCE
effect and maintain the insurance and pay the premiums. The amount paid shall be
a debt due from Contractor to ORION and may be offset against any payments due
the Contractor by ORION.
18.6.3
The Contractor shall, as soon as practicable, inform ORION in writing of any
occurrence that may give rise to a claim under a policy of insurance required by
Articles 18.1, 18.2, 18.3, 18.4 or 18.5 and shall keep ORION informed of
subsequent developments concerning the claim. The Contractor shall ensure that
Subcontractors similarly inform ORION of any such occurrences through the
Contractor. Each Party shall provide to the other Party any information which
may reasonably be required to prepare and present an insurance claim.
19. REPLACEMENT SATELLITE
19.1
The Contractor agrees to provide an additional satellite ("Replacement
Satellite") delivered in-orbit no later than twenty-one and one quarter (21.25)
months after receipt of an order from ORION (but in no case earlier than
thirty-four and one quarter (34.25) months after NPD). Orion may place such
order at any time during the performance of the ORION 2 Contract but in no event
earlier than seven (7) months after receipt by the Contractor of the applicable
Total Advance Funding in Article 19.2 or later than sixty (60) Calendar Days
after the ORION 2 Spacecraft is determined to be a Constructive Total Loss
(should that event occur). The in-orbit delivery dates shall be conditioned on
ORION having ordered and simultaneously paid for the Long-Lead Items (and
associated work) set forth in Article 19.2 by the dates set forth therein.
<PAGE>
COMMERCIAL-IN-CONFIDENCE
19.2
The Contractor agrees to deliver the Replacement Satellite on the schedule set
forth in Article 19.1 provided ORION makes the following Advance Funding
payments for Long-Lead Items on the schedule set forth below:
Fixed Charge at NPD -- _____________________________________________________
Replacement Satellite Total Advance Funding
Order Period Variable Charge (Fixed and Variable Charges)
- ------------ --------------- ----------------------------
ORION 2 NPD
ORION 2 NPD + 6 months
ORION 2 NPD + 12 months
ORION 2 NPD + 18 months
ORION 2 NPD + 21 months
19.3
The Contractor shall furnish the Replacement Satellite in accordance with the
provisions of the documents which constitute the ORION 2 Contract, with the
dates therein adjusted (if necessary) for the later timeframe of the Replacement
Satellite, and with the spacecraft test program revised as follows:
o Deletion of Sine Vibration Test (except Test in the thrust-axis)
o Deletion of EMC Test (however, the ESD Test is to be performed)
o Deletion of Separation Shock Test
o Rescheduling of adapter fit/fail check to Launch Site
o Reduction of Thermal Vacuum Test to one balance phase only
o Reduction in levels/durations from "Protoflight" to "Flight Acceptance"
19.4
The firm fixed price for the Replacement Satellite ("Replacement Satellite
Price"), assuming an order had been placed by ORION on or before 1 October 1996,
is as follows:
(a) In U.S. Dollars --The firm fixed price is ____________________________
_________________________________________________________________, or
(b) The sum of the following currency amounts:
US$
GB
Yen
D Fl
Fr F
DM
After 1 October 1996, upon request of ORION, Contractor shall provide ORION with
a firm fixed price in U.S. dollars for the Replacement Satellite at least ten
(10) Calendar Days prior to the time of order of the Replacement Satellite,
which firm
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COMMERCIAL-IN-CONFIDENCE
fixed price shall exceed the firm fixed price set forth in (a) above only to the
extent of currency fluctuations subsequent to 1 October 1996; in any event, the
price in U.S. dollars shall not exceed
________________________________________________________________________________
_________________________________ excluding the inflation adjustment described
in the second succeeding paragraph.
At the time of order of the Replacement Satellite, ORION shall advise the
Contractor which of the above pricing approaches (U.S. dollars or sum of
currencies) it selects.
Where ORION orders the Replacement Satellite afterE1 October 1996, the prices
set forth in this Article 19.4 shall be increased by a monthly inflation factor
of one-third of one percent (0.33%) from October 1996 to the month in which
ORION places the Replacement Satellite Order.
The Replacement Satellite Price set forth in this Article 19.4 shall be reduced
by the amount of any Advance Funding payments made by ORION under Article 19.2
hereof.
The Replacement Satellite Payment Plan and Termination Schedule shall be
negotiated between the Parties prior to ORION ordering the Replacement
Satellite; the Payment Plan shall match Contractor's actual expenditure profile
so as to avoid prepayments and financing costs.
Selection of the launch vehicle and launch services contractor will be made by
ORION (with the concurrence of Contractor) in sufficient time to permit
Replacement Satellite delivery on the schedule set forth in Article 19.1. The
prices for both such items will be identified and agreed as a part of such
process.
ORION shall provide for launch insurance for the Replacement Satellite.
Except as otherwise required by the terms of this Article 19, contract terms for
the Replacement Satellite will be identical to the ORION 2 Contract, with risk
elements (e.g., liquidated damages for late delivery and warranty payback
incentives) adjusted to the change in price from the ORION 2 Spacecraft so as to
represent the same percentage risk.
19.5
Where the Advance Funding for the Replacement Satellite has been paid by ORION,
but ORION fails to order the Replacement Satellite by the time required in this
Article 19, the option for the Replacement Satellite shall no longer be
effective and Contractor shall deliver to ORION, within thirty (30) Calendar
Days of the
<PAGE>
COMMERCIAL-IN-CONFIDENCE
expiration date of the option, the Long-Lead Items set forth in Part 4, said
Long-Lead items to be mutually agreed to by the Parties no later than 15 August
1996.
20. TERMINATION FOR CONVENIENCE
20.1.1
ORION may, by notice in writing, and without giving any reason or showing cause
therefor, at any time prior to Launch of the ORION 2 Spacecraft, terminate the
ORION 2 Contract with respect to the Work in its entirety and the Contractor
shall immediately cease Work accordingly, and shall similarly direct its
Subcontractors.
20.1.2
In the event of such termination under this Article, ORION shall be obligated to
pay (i) to the Contractor an amount equal to the sum of the Termination
Liability Amounts for the ORION 2 Spacecraft and Launch Services as specified in
Part 1(B) corresponding to the month in which termination occurs less the
greater of the Advance Payment or the sum of the Milestone Payments actually
received by the Contractor, provided that, where such amount is a negative
number, the Contractor shall pay such amount promptly to ORION within twenty
(20) Calendar Days; and (ii) to the Launch Vehicle Agency an amount equal to the
Termination Liability Amount for the Launch Vehicle as specified in Part 1(B)
corresponding to the month in which Termination occurs less any Progress Payment
actually received by the Launch Vehicle Agency.
The Contractor shall submit an invoice to ORION within sixty (60) Calendar Days
after the termination date which shall specify the amounts due to the Contractor
and the Launch Vehicle Agency from ORION pursuant to this Article 20.1.2 and the
Contractor and the Launch Vehicle Agency shall immediately be entitled to
payment by ORION of such amounts immediately thereafter. Payment by the
Financing Entities of such amount to the Contractor and the Launch Vehicle
Agency shall relieve ORION from its obligation to make such payments.
20.2
The amount payable by ORION to the Contractor pursuant to Article 20.1 shall
constitute a total discharge of ORION's liabilities to the Contractor for
termination pursuant to this Article 20.
20.3
If the ORION 2 Contract is terminated as provided in this Article and full
payment made in accordance with Articles 20.1, ORION may require the Contractor
to transfer to ORION, in the manner and to the extent directed by ORION, title
to and possession of any items comprising all or any part of the Work terminated
(including, without limitation, all Work-in-progress and all
<PAGE>
COMMERCIAL-IN-CONFIDENCE
inventories), and the Contractor shall, upon the direction and at the expense of
ORION, protect and preserve property in the possession of the Contractor or its
Subcontractors in which ORION has an interest and shall facilitate access to and
possession by ORION of items comprising all or any part of the Work so
terminated.
If ORION so requests or ORION has not taken delivery of property in which it has
an interest within sixty (60) Calendar Days after termination, or such longer
period as is agreed between the Parties, the Contractor shall make a reasonable,
good faith effort to sell such items and to remit any sales proceeds to ORION,
less a deduction for costs of disposition reasonably incurred by the Contractor.
21. REMEDIES FOR DEFAULT
21.1
(a) If, at any time prior to Intentional Ignition in respect of the ORION 2
Spacecraft (but not thereafter), the Contractor has failed to make
adequate progress toward the completion of the ORION 2 Spacecraft,
including where such failure is due to the ORION 2 Spacecraft or any
component being damaged or destroyed where such damage or destruction
does not constitute an Excusable Delay, such that the Contractor, due
to causes related to the ORION 2 Spacecraft, and regardless of the
status of the Launch Vehicle (or associated services provided by the
Launch Vehicle Agency), will not be able to Launch the ORION 2
Spacecraft by ninety (90) Calendar Days after the Delivery Date (as
such date may have been modified in accordance with the ORION 2
Contract), then ORION shall be entitled to deliver to the Contractor a
Demand for correction of the failure within thirty (30) Calendar Days
after ORION learns of such failure. Such Demand shall state full
details of the failure. Within ten (10) Calendar Days after receipt of
the Demand, or such longer time as the Parties agree, the Contractor
shall submit to ORION a Correction Plan for achieving Final Acceptance
not later than two hundred and seventy (270) Calendar Days after the
Delivery Date provided that no Correction Plan shall ever result in a
change to a Delivery Date as specified in Article 8, unless the Parties
agree in accordance with Article 27. If the Correction Plan does not
reasonably correct or offset the effect of the failure so as to
demonstrate that Final Acceptance can be achieved not later than two
hundred and seventy (270) Calendar Days after the ORION 2 Spacecraft
Delivery Date, ORION may reject the Correction Plan within thirty (30)
Calendar Days after receipt, in which case the Parties shall negotiate
in good faith to develop a Correction Plan which will be satisfactory
to both Parties. If ORION does not reject the Correction Plan within
thirty (30) Calendar Days after receipt, the ORION 2 Contract shall be
deemed modified in accordance with the Correction Plan and the failure
shall be deemed cured so long as Contractor complies with the terms of
such Correction Plan.
(b) If, in addition to the Contractor's failure to make adequate progress
toward completion of the ORION 2 Spacecraft due to the causes set forth
in (a) above, the Contractor is
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COMMERCIAL-IN-CONFIDENCE
experiencing any delays other than Excusable Delays such that the
Contractor will not be able to Launch the ORION 2 Spacecraft in order
to achieve Final Acceptance within three hundred sixty-five (365)
Calendar Days after the ORION 2 Spacecraft Delivery Date (as may have
been modified in accordance with this ORION 2 Contract), then ORION
shall be entitled to deliver to the Contractor a Demand for correction
of the failure within thirty (30) Calendar Days after ORION learns of
such failure. Such Demand shall state full details of the failure.
Within ten (10) Calendar Days after receipt of the Demand, or such
longer time as the Parties agree, the Contractor shall submit to ORION
a Correction Plan for achieving Final Acceptance not later than three
hundred and sixty-five (365) Calendar Days after the ORION 2 Spacecraft
Delivery Date provided that no Correction Plan shall ever result in a
change to a Delivery Date as specified in Article 8, unless the Parties
agree in accordance with Article 27. If the Correction Plan does not
reasonably correct or offset the effect of the failure so as to
demonstrate that Final Acceptance can be achieved not later than three
hundred and sixty-five (365) Calendar Days after the ORION 2 Spacecraft
Delivery Date, ORION may reject the Correction Plan within thirty (30)
Calendar Days after receipt, in which case the Parties shall negotiate
in good faith to develop a Correction Plan which will be satisfactory
to both Parties. If ORION does not reject the Correction Plan within
thirty (30) Calendar Days after receipt, the ORION 2 Contract shall be
deemed modified in accordance with the Correction Plan and the failure
shall be deemed cured so long as Contractor complies with the terms of
such Correction Plan.
21.2
In the event (i) the Contractor does not submit a Correction Plan to ORION
within ten (10) Calendar Days after receipt of a Demand, or (ii) the Parties
cannot develop a Correction Plan which reasonably corrects or offsets the effect
of the failure, or which otherwise is satisfactory to both Contractor and ORION
within twenty (20) Calendar Days after the rejection of the Correction Plan,
ORION may, as its sole remedy, elect one of the remedies set forth in Article
21.3 below, and the Contractor shall forthwith notify ORION of completed Work
and all Work-in-progress relating to the ORION 2 Spacecraft in respect of which
ORION exercises its rights under this Article. ORION shall elect one of the
remedies specified in Article 21.3 (i) within forty (40) Calendar Days after the
Contractor's receipt of a Demand, if the Contractor fails to submit a Correction
Plan, or (ii) within thirty (30) Calendar Days after the deadline for the
Parties' joint development of a satisfactory Correction Plan.
21.3 ORION's remedies as referenced in Article 21.2 are as follows:
(a) ORION may terminate the ORION 2 Contract with respect to the ORION 2
Spacecraft and may cause the ORION 2 Spacecraft to be completed by
another party, and as total damages (in addition to any applicable
liquidated damages for delay levied pursuant to Article 11 and/or
Article 12 up to the date of termination) may charge the Contractor for
any reasonable increased cost incurred in connection therewith in
excess of the Contract Price as set forth in Article 5, as adjusted;
provided that the Contractor's liability under
<PAGE>
COMMERCIAL-IN-CONFIDENCE
this paragraph shall not exceed the Contract Price as set forth in
Article 5, as adjusted (without regard to any payments made to the
Contractor to the date of termination). The amount payable by the
Contractor shall be verified at the Contractor's request and expense by
an internationally recognized firm of accountants appointed by the
Contractor for that purpose subject to approval of ORION, such approval
not to be unreasonably withheld or delayed. A demand for any such
excess costs must be made within one (1) year after the termination and
must be paid within sixty (60) Calendar Days of receipt of such
verification. In the event of election by ORION under this paragraph,
the Contractor shall complete the Launch Vehicle and Launch Services
portion of the ORION 2 Contract (as it may need to be amended as a
consequence of ORION's election) and shall be liable for any reasonable
additional costs over and above the Contract Price for those Launch
Vehicle and Launch Services so affected as set forth in Article 5, as
adjusted. The Contractor's right to verification shall be without
prejudice to the rights of either Party under Article 30. The report
issued by the accountants may be used by either Party during any
arbitration proceedings, but the report shall not be binding on the
arbitrator(s). By notice in writing received by ORION no later than
sixty (60) Calendar Days after receipt of ORION's invoice pursuant to
this Article 21.3, the Contractor may dispute the amount of said
invoice. In the event that the Contractor does not so notify ORION that
it disputes ORION's invoice, the Contractor shall be deemed to have
accepted said invoice; or
(b) ORION may terminate the ORION 2 Contract, and in which case the
Contractor shall pay ORION (i) all amounts previously paid by ORION to
the Contractor and (ii) applicable liquidated damages for delay levied
pursuant to Article 11 and/or Article 12 up to the date of termination.
Title to the ORION 2 Spacecraft shall vest or remain vested in the
Contractor.
21.4
The remedies provided in Article 21.3 are exclusive and in substitution for any
other rights and remedies under the ORION 2 Contract or otherwise at law or
equity with respect to such defaults. No termination rights shall be available
to ORION in respect of the ORION 2 Spacecraft after the same has been Launched.
21.5
If the Contractor refuses or fails to observe or perform any material duty or
obligation in the ORION 2 Contract, except those obligations covered in Articles
21.1 through 21.3 and other obligations of the Contractor for which particular
remedies are specified elsewhere in the ORION 2 Contract as being exclusive,
then ORION shall be entitled to deliver to the Contractor a Demand that it
correct the breach within thirty (30) Calendar Days. Such Demand shall state
fully the details of the breach. Within ten (10) Calendar Days after receipt of
the Demand, or such longer time as the Parties agree, the Contractor shall
submit to ORION a formal Correction Plan. If the Correction Plan does not
reasonably correct or offset the effect of the breach in a
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COMMERCIAL-IN-CONFIDENCE
timely manner, ORION may reject the Correction Plan within thirty (30) Calendar
Days after receipt, in which case the Parties shall negotiate in good faith to
develop a Correction Plan which will be satisfactory to both Parties. If ORION
does not reject the Correction Plan within thirty (30) Calendar Days after
receipt, the ORION 2 Contract shall be deemed modified in accordance with the
Correction Plan and the breach shall be deemed cured so long as Contractor
complies with the terms of such Correction Plan. In the event the Contractor
fails to submit a Correction Plan or the Parties cannot develop a Correction
Plan which reasonably corrects or offsets the effect of the breach in a timely
manner, or which otherwise is satisfactory to both Contractor and ORION within
twenty (20) Calendar Days after the Demand, ORION shall be entitled to any
remedies available at law or equity, subject to Article 14.2 hereof and pursuant
to the provisions of Article 30.
21.6 Contractor's Right to Terminate
21.6.1
(a) The Contractor shall be entitled to terminate the ORION 2 Contract in
whole or, where severable, in part, if Contractor gives written notice
to ORION of the following event and (except as provided in Article
6.1.1(e)) ORION fails to cure such event within thirty (30) Calendar
Days after receiving such written notice: default in the payment of any
Progress Payment or Milestone Payment or Termination Liability Amount
when the same shall have become due and payable.
(b) The Contractor shall be entitled to terminate the ORION 2 Contract by
giving written notice to ORION where insurance proceeds are paid to any
Financing Entity pursuant to Article 18.1.4 (All-Risk Insurance), and
such proceeds are not paid over to the Contractor within thirty (30)
Calendar Days of receipt by any Financing Entity.
(c) Except as specified in the ORION 2 Contract, the Contractor shall not
have the right to terminate or suspend the ORION 2 Contract.
21.6.2
In the event of such termination, the Contractor shall be entitled forthwith to
take any or all of the following actions:
(a) treat the ORION 2 Contract as terminated as to any or all of the items
then undelivered or services unperformed and cease or suspend
manufacture of any of the items to be supplied hereunder;
(b) withhold delivery of any of the items to be supplied hereunder until
the Contractor has received full payment under this Article and retain
all sums then paid on account thereof;
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COMMERCIAL-IN-CONFIDENCE
(c) cease or suspend performance of any of the services to be provided to
ORION hereunder, except those services which are specifically intended
to be provided in connection with a termination of the ORION 2
Contract; and
(d) take payment of an amount equal to the Termination Liability Amount for
the ORION 2 Spacecraft for the calendar month next following the
calendar month in which the date of termination occurs, less the
greater of the Advance Payment or the sum of the Milestone and Progress
Payments actually received by the Contractor, provided that, where such
amount is a negative number, the Contractor shall refund such amount
promptly to ORION within twenty (20) Calendar Days. Where the
Contractor is owed money by ORION, the Contractor shall submit an
invoice to ORION within sixty (60) Calendar Days after the termination
date which shall specify the amount due to the Contractor from ORION
pursuant to this Article 21.6 and the Contractor shall immediately be
entitled to full payment by ORION immediately thereafter. Payment by
any Financing Entity of such amount to the Contractor shall relieve
ORION from its obligation to make such payment.
To the extent that full payment has been made therefor, ORION may
require the Contractor to transfer to ORION in the manner and to the
extent directed by ORION, title to and possession of any items
comprising all or any part of the Work terminated (including, without
limitation, all Work-in-progress and all inventories), and the
Contractor shall, upon direction of ORION, protect and preserve
property at ORION's expense in the possession of the Contractor or its
Subcontractors in which ORION has an interest and shall facilitate
access to and possession by ORION of items comprising all or part of
the Work terminated. Alternatively, ORION may request the Contractor to
make a reasonable, good faith effort to sell such items and to remit
any sales proceeds to ORION less a deduction for costs of disposition
reasonably incurred by the Contractor for such efforts.
21.7
In all instances, the Party terminating or claiming other remedies shall take
all reasonable steps available to it to mitigate any claim which it may have
against the defaulting Party.
21.8
Except in the case of a default under Article 21.6.1, Article 22.1(a) and
Article 22.3(a), prior to either Party exercising its right to terminate the
ORION 2 Contract under this Article, the Parties agree that ORION's Senior
Executive and the Contractor's Senior Executive, and if mutually agreed, an
independent third party, will meet within fifteen (15) Calendar Days of receipt
of written notice of the dispute by one Party to the other Party to try to
resolve the said dispute. If ORION's Senior Executive and the Contractor's
Senior Executive cannot agree on an appropriate resolution of the dispute, then
the Parties shall resolve their dispute in accordance with the provisions of
Article 30.
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21.9
Nothing in this Article 21 shall affect ORION's rights to liquidated damages
under Articles 11 or 12 hereof.
22. TERMINATION IN SPECIAL CASES
22.1 The Contractor shall be deemed to be in default under the ORION 2 Contract
if:
(a) it is declared insolvent or bankrupt by a court of competent
jurisdiction, is the subject of any proceedings related to its
liquidation, insolvency or for the appointment of a receiver or an
administrative receiver; or makes an assignment for the benefit of its
creditors or enters into an agreement for the composition, extension or
readjustment of all or substantially all of its obligations; or
(b) the Contractor has resorted to fraudulent or corrupt practices in
connection with its securing or implementing of the ORION 2 Contract.
22.2
If the Contractor is in default pursuant to Article 22.1, then ORION may
terminate the ORION 2 Contract in accordance with the provisions of Article
21.3.
22.3
ORION shall be deemed to be in default under the ORION 2 Contract if:
(a) it is declared insolvent or bankrupt by a court of competent
jurisdiction, is the subject of any proceedings related to its
liquidation, insolvency or for the appointment of a receiver or an
administrative receiver, makes an assignment for the benefit of all its
creditors or enters into an agreement for the composition, extension or
readjustment of all or substantially all of its obligations; or
(b) it has resorted to fraudulent or corrupt practices in connection with
its securing or implementing of the ORION 2 Contract.
22.4
If ORION is in default pursuant to Article 22.3, then the Contractor may
terminate the ORION 2 Contract in accordance with the provisions of Article
21.6.
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23.1
Neither the Contractor, nor ORION nor any of their independent consultants,
officers, employees, agents, contractors, Subcontractors or assignees, shall
publish any material (including articles, films, brochures, advertisements and
photographs), or authorize other persons to publish such material, or deliver
speeches about the Work without the prior written approval of the other Party,
which approval shall not be unreasonably withheld. This obligation shall not
apply to ORION's statement or publication of any sort relating to the
performance specifications or Statement of Work, which are intellectual property
of ORION and may be published as ORION so determines. The above obligation shall
also not apply to information which is publicly available from any Governmental
agencies or which is or otherwise becomes publicly available without breach of
this Agreement. Notwithstanding the foregoing, the Contractor, ORION, and
Subcontractors may make (i) any filings that the Contractor, ORION or a
Subcontractor considers advisable or necessary under applicable securities laws,
including the Securities Act of 1933, as amended, the Securities Exchange Act of
1934, as amended, the rules applicable to the National Market System, or the
securities laws applicable to public companies in the Republic of France (the
"French Securities Laws"), and the Parties shall comply with the provisions of
Article 24.5 with respect thereto, (ii) such other filings as may be required to
be made by any governmental agency or any administrative or judicial body before
which an action affecting the Contractor, ORION, a Subcontractor, any of their
Affiliates or the ORION 2 Spacecraft is pending, and (iii) such other filings as
may be required by applicable law.
23.2
The application for approval to publish any material or deliver speeches about
the Work shall be submitted to the other Party in writing and shall include full
particulars of any intended publication. Upon receipt of the other Party's
agreement in principle to the proposed publication, the applicant shall submit
for final approval by the other Party any material to be published in the form
and context in which it is intended to be used. The other Party may then approve
or decline to approve publication in whole or in part of the material and at its
discretion may specify a time for publication.
24. CONFIDENTIALITY AND NONDISCLOSURE OF PROPRIETARY INFORMATION
24.1
During the course of performance of the ORION 2 Contract each Party may have
access to or receive information from the other, such as information concerning
inventions, techniques, processes, devices, discoveries and improvements, or
regarding administrative, marketing, financial or manufacturing activities. All
such information, including any materials or documents containing such
information, whether disclosed orally or otherwise, shall be
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considered proprietary and confidential information of the disclosing Party
("Proprietary Information").
24.2
(a) For the purpose of this Article 24, "Proprietary Information" shall not
include any information which the receiving Party can establish to have
(i) become publicly known without breach of the ORION 2 Contract; (ii)
been given to the receiving Party by a third party who is not obligated
to maintain confidentiality; (iii) been independently developed by the
receiving Party without reference to the Proprietary Information of the
other, as established by documentary evidence; or (iv) been developed
by the receiving Party prior to the date of receipt from the other
Party, as established by documentary evidence.
(b) The Contractor agrees that it will not, for the period specified in
Article 24.3(a), disclose details of the Work to be provided to ORION
hereunder, to the extent that such disclosure would reveal specific
performance information regarding the ORIONSAT system and the ORION 2
Spacecraft or any other information which would materially affect
ORION's commercial interest or the commercial use of the ORIONSAT
System without the prior written consent of ORION which shall not be
unreasonably withheld. Notwithstanding the foregoing, the Parties
expressly agree that the Contractor shall have the unrestricted right
at any time to use and to supply to third parties services or equipment
similar or identical to any Work provided hereunder.
(c) ORION agrees that it will not, for the period specified in Article
24.3(a), disclose Proprietary Information of the Contractor to the
extent that such disclosure would reveal information to a direct
competitor of the Contractor which would materially affect the
commercial interests of the Contractor without the prior written
consent of the Contractor which shall not be unreasonably withheld.
Contractor agrees that for purposes of this Article 24, in the event
that TELESAT and/or COMSAT are engaged as Consultants to ORION for
purposes of the ORION 2 Contract, they shall not be deemed direct
competitors to the Contractor.
24.3
(a) Both during and for a period of three (3) years after the termination
or expiration of the ORION 2 Contract, each Party agrees to preserve
and protect the confidentiality of the Proprietary Information of the
other and all physical forms thereof, whether disclosed before the
ORION 2 Contract is signed or afterward. Neither Party shall disclose
or disseminate Proprietary Information of the other to any third party,
including employees, independent consultants, or Subcontractors unless
such party has (i) a need to know the Proprietary Information for the
purpose of establishing, maintaining, operating, financing or marketing
the ORIONSAT system, and (ii) has executed an agreement obligating the
party to maintain the confidentiality of the Proprietary Information
and limiting the use of the Proprietary Information to establishing,
maintaining, operating, financing or
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marketing the ORIONSAT system. Neither Party shall use Proprietary
Information of the other for its own benefit or for the benefit of any
third party, except as specifically provided under the terms and
conditions of the ORION 2 Contract.
(b) The foregoing shall not affect any right of ORION in respect of Data
and Documentation provided for under the ORION 2 Contract nor shall
either Party be prevented from using the general know-how and abilities
gained during the performance of the ORION 2 Contract for any purpose
whatsoever.
24.4
(a) Either Party shall be entitled to make copies of any documents
containing Proprietary Information under the terms and conditions
outlined above.
(b) ORION shall have the right at any time to remove, obliterate or ignore
any proprietary/confidential legend placed on any Data or
Documentation, or other information furnished under the ORION 2
Contract by the Contractor where the legend is not in accordance with
the ORION 2 Contract but only after notice to the Contractor and
reasonable opportunity for the Contractor to defend such legend.
24.5
Notwithstanding the foregoing, the Contractor, ORION and Subcontractors may make
(i) any filings that the Contractor, or ORION or a Subcontractor considers
advisable or necessary under applicable securities laws, including the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, the rules applicable to the National Market System, or the securities
laws applicable to public companies in the Republic of France (the "French
Securities Laws"), (ii) such other filings as may be required to be made by any
governmental agency or any administrative or judicial body before which an
action affecting the Contractor, ORION, a Subcontractor, any of their
Affiliates, or the ORION 2 Spacecraft is pending and (iii) such other filings as
may be required by applicable law. Prior to making any filings containing
Proprietary Information of the other Party, the disclosing Party shall provide
the other Party reasonable advance notice of the filing and cooperate with such
other Party in obtaining confidential treatment for such Proprietary
Information. In addition, if ORION or the Contractor desires for any information
to be contained within such a filing to be accorded confidential treatment and
not disclosed to the public, it shall so indicate to the other Party and such
other Party shall cooperate with the disclosing Party in obtaining confidential
treatment for such information.
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25. LICENSE RIGHTS
25.1
Except as set forth in Article 25.5, the Contractor grants to ORION an
irrevocable, non-exclusive license to use and have used throughout the world any
software, and any invention covered by any patent, now or hereafter owned by the
Contractor, or for which the Contractor has or may acquire the right to grant
such a license, which software and/or invention is directly incorporated in any
Deliverable Item or directly employed in the use of any Deliverable Item under
the ORION 2 Contract. Such license shall:
(a) be deemed to be fully paid-up for the purposes of the ORION 2 Contract
including use, redesign or modification of any items delivered under
the ORION 2 Contract; and
(b) be on reasonable terms and conditions for other purposes.
Such license shall be transferable to the Financing Entities and, subject to the
Contractor's approval, any other entity, such approval not to be unreasonably
withheld.
25.2
The Contractor shall, unless otherwise authorized or directed by ORION, include
in each Subcontract hereunder a license rights clause pursuant to which each
Subcontractor will grant rights to ORION to the same extent as the rights
granted by the Contractor in Article 25.1.
25.3
This Article shall not be construed as limiting any rights of ORION or
obligations of the Contractor under the ORION 2 Contract, including specifically
the right of ORION, without payment of additional compensation to the
Contractor, to use, have used, deliver, lease, sell or otherwise dispose of, any
item or any part thereof, required to be delivered under the ORION 2 Contract.
25.4
The Contractor grants to ORION a non-exclusive license to use the Contractor's
thermal propellant gauging software program (the "Software Program") on the
terms set out hereunder:
(a) such license shall be for the use of ORION and ORION's Consultants,
advisors and agents in support of ORION's internal business and for use
upon equipment notified in writing to the Contractor.
(b) ORION shall not, without the express written approval of the
Contractor, modify, enhance, copy, download or reverse engineer the
Software Program; provided, however,
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COMMERCIAL-IN-CONFIDENCE
ORION shall be permitted to copy the Software Program for archival or
disaster recovery purposes.
(c) ORION shall not assign, transfer, sell, lease, sub-license or otherwise
deal in the Software Program; provided, however, the license shall be
transferable to the Financing Entities with the prior written consent
of the Contractor, which consent shall not be unreasonably withheld or
delayed.
26. PATENTS, TRADEMARKS AND COPYRIGHTS
26.1
The Contractor, at its own expense, shall defend ORION and its officers,
employees, agents, consultants and Subcontractors and assignees against any
claim or suit based on an allegation that the manufacture of any item in the
performance of the ORION 2 Contract, or the use, lease or sale of any item
delivered or to be delivered under the ORION 2 Contract, infringes any letters
patent, trademarks, copyrights or other proprietary rights of any third party,
and shall pay any royalties and other costs related to the settlement of such
claim or suit and the costs and damages, including attorneys' fees, incurred as
the result of any such claim or suit; provided that (i) ORION promptly notifies
the Contractor in writing within ten (10) Calendar Days of any such claim or
suit, (ii) permits the Contractor to answer the claim or suit and defend the
same, (iii) gives the Contractor authority and such assistance and information
as is available to ORION for the defense of such claim or suit, and provided
further that ORION does not by any act (including any admission or
acknowledgment or omission) prejudice such defense. Any such assistance or
information which is furnished by ORION at the written request of the Contractor
is to be at the Contractor's expense.
26.2
If the manufacture of any item in the performance of the ORION 2 Contract or the
use, lease or sale of any item delivered or to be delivered under the ORION 2
Contract, is enjoined as a result of a suit based on a claim of infringement,
the Contractor shall resolve the matter so that the item is no longer subject to
such injunction or replace the item with a functionally-equivalent,
non-infringing item satisfactory to ORION.
26.3
ORION neither represents nor warrants that the performance of any Work or the
manufacture, use, lease or sale of any Deliverable Item will be free from third
party claims of infringement of any patents or other proprietary rights.
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27. ORION 2 CONTRACT AMENDMENTS
27.1
Except as otherwise specifically provided, the ORION 2 Contract shall not be
modified except by an Amendment to the ORION 2 Contract. No purchase order,
acknowledgment, quotation or other similar document issued by either Party with
respect to the subject matter of the ORION 2 Contract shall be deemed to be a
part of the ORION 2 Contract or to modify the ORION 2 Contract in any respect
relating to the Work. No oral agreement or conversation with any officer, agent
or employee of ORION or the Contractor, either before or after execution of the
ORION 2 Contract shall affect or modify any of the terms or obligations
contained in the ORION 2 Contract.
27.2
At any time prior to completion and Delivery of all the Work under the ORION 2
Contract, ORION may, in writing, vary the Work with respect to the unlaunched
ORION 2 Spacecraft within the general scope of the ORION 2Contract. If any such
variation causes an increase or decrease in the cost of, or in the time required
for the performance of the ORION 2 Contract, a change in the specifications of
any Deliverable Item, or a change in the Aggregate Predicted Transponder Life,
the Parties shall negotiate in good faith an equitable adjustment to the
Contract Price or any other terms affected by such variation, or to the Delivery
Dates, or the specifications, which shall be formalized in an Amendment to the
ORION 2 Contract. The Contractor shall not implement such variation, and ORION
shall not be liable for any change in Contract Price or Delivery Dates pursuant
to such variation, until and unless the Parties have entered into a written
Amendment to the ORION 2 Contract. Should ORION decide not to implement any
proposed variation of the Work it will pay the Contractor its reasonable
preparation costs in evaluating the same.
27.3
Atany time prior to Delivery of all the Work under the ORION 2 Contract, the
Contractor may, in writing, request a variation of the Work within the general
scope of the ORION 2 Contract. If ORION agrees with the request of the
Contractor for variation of the Work and such variation causes an increase or
decrease in the cost of, or in the time required for, the performance of the
ORION 2 Contract, or a change in the specifications of any Deliverable Item, the
Parties shall negotiate in good faith an equitable adjustment to the Contract
Price or any other terms affected, or Delivery Dates, or the specifications,
which shall be formalized in an Amendment to the ORION 2 Contract. The
Contractor shall not implement such variation, and ORION shall not be liable for
any change in Contract Price or Delivery Dates pursuant to such variation, until
and unless the Parties have entered into an Amendment to the ORION 2 Contract.
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27.4
At any time prior to Delivery of all the Work under the ORION 2 Contract, the
Contractor may, in writing, request to rearrange the Milestone Payments
contained in Part 1(B) in order to reflect the current program status. Any such
requested change shall not become effective until and unless the Parties have
entered into an Amendment to the ORION 2 Contract which implements the requested
change.
28. GOVERNMENTAL APPROVALS
Notwithstanding any other Article in the ORION 2 Contract, the Parties
understand and agree that certain restrictions, including those placed on access
to Contractor's and Subcontractor's plants and the use, sale or other
disposition of technical data, and/or Work delivered under the ORION 2 Contract
may be imposed by any Government which has jurisdiction over the Work. The
Parties at all times, both before and after completion of the ORION 2 Contract,
agree to be and remain bound by any such Government requirements pertaining to
the technical data or Work and shall cooperate in obtaining all required
consents and approvals.
ORION shall be given an opportunity to comment on any application to the United
States Government by the Contractor prior to submission of such application. The
Contractor shall in good faith consider any comments made by ORION.
29. RESPONSIBILITY FOR THE CONTRACT
29.1
The Contractor, by having submitting a tender to perform the Work and by
executing the ORION 2 Contract, shall be deemed:
(a) to have satisfied itself as to:
(i) all the conditions and circumstances which may affect the
Contract Price, as defined in Article 5; and
(ii) the feasibility of the Work to be performed in accordance with
the terms and conditions of the ORION 2 Contract;
(b) to warrant that it has the necessary skills, facilities and capacity to
perform the Work in accordance with the terms and conditions of the
ORION 2 Contract.
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29.2
The Contractor acknowledges that it has fixed the Contract Price according to
its own view and assessment of all relevant matters and no additional costs,
except as otherwise expressly provided for in the ORION 2 Contract, will be
charged over and above the Contract Price.
29.3
By executing the ORION 2 Contract, the Parties acknowledge that they have
thoroughly examined all parts of the ORION 2 Contract, and agree that they are
complete, consistent and accurate. If the Contractor decides, during the
performance of the Work, that any portion of the ORION 2 Contract is inaccurate
or incomplete, or that there are inconsistencies, it shall notify ORION in
writing specifying full particulars and request resolution before proceeding
with the Work in question. If the Contractor proceeds before obtaining such a
resolution, it does so at its own risk and expense, and whether or not the
course it has chosen is satisfactory to ORION, it shall be entitled to no
increase in the Contract Price or any extension of the Delivery Dates set out in
Article 8. If the Contractor proceeds with the Work before obtaining resolution
of any inaccuracy, incomplete information or inconsistency and the course of
action it has pursued is not chosen by ORION, it shall, upon request by ORION,
promptly at its own expense follow the course of action directed by ORION and
make all readjustments that may be required.
29.4
ORION shall within twenty (20) Calendar Days after written notification by the
Contractor pursuant to Article 29.3 provide a response and resolution of the
issues raised by the Contractor.
29.5
TheContractor covenants that it will cooperate fully with, and will use
reasonable efforts to ensure the full cooperation of, all Subcontractors with
ORION in doing all things reasonably necessary to achieve the due performance of
the ORION 2 Contract.
30. DISPUTE RESOLUTION
30.1
If any dispute arises out of or in connection with this ORION 2 Contract or the
breach thereof, including but not limited to any failure to reach agreement on
price, schedule or performance, any claim for breach of contract and any
question regarding its existence, validity or termination, such dispute shall be
finally settled by arbitration in accordance with this Article 30. Prior to
commencing arbitration with respect to any dispute, either Party shall give
written notice to the other of its position and reasons therefore and may
recommend corrective action. In the event that mutual agreement cannot be
reached within ten (10) Calendar Days after receipt of such
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notice, or such other period as may be specified in the ORION 2 Contract, the
respective positions of the Parties shall be forwarded to ORION's Senior
Executive and the Contractor's Senior Executive, for discussion and an attempt
shall be made by these persons to reach mutual agreement within a further ten
(10) Calendar Days. To increase the probability of an expeditious resolution of
the dispute, ORION's Senior Executive and Contractor's Senior Executive may meet
during the ten (10) Calendar Day period and have each side present its position
and reasoning directly to them at such meeting.
30.2
If mutual agreement is not reached through the above process, either Party may
refer such dispute for final determination to an arbitration tribunal convened
in accordance with the terms of Articles 30.3 and 30.4.
30.3
The arbitration tribunal shall consist of three (3) arbitrators, one (1)
arbitrator to be appointed by ORION, one (1) arbitrator by the Contractor and
the third arbitrator to be appointed by the former two (2) arbitrators; provided
that if a Party fails to appoint an arbitrator within the time stipulated in
Article 30.8, the other Party having appointed an arbitrator, such appointee
shall be the sole arbitrator.
30.4
Except as otherwise provided herein, the arbitration shall be conducted in
accordance with and subject to the rules of the American Arbitration Association
("AAA"), including the AAA's Supplementary Procedures for International
Commercial Arbitration and shall be held in Washington, District of Columbia,
USA. The Parties may be represented by persons of their choice.
30.5
The applicable law governing this arbitration proceeding shall be exclusively
the United States Arbitration Act, 9 U.S.C., Section 1 et seq.
30.6
Except as provided in this Article 30.6 with respect to enforcement of arbitral
awards, neither Party shall be entitled to maintain any action at law or suit in
equity in respect to matters covered by this Article 30; the exclusive means of
resolving all such matters shall be the arbitration process set forth in this
Article 30. The award of the arbitral tribunal shall be final and binding on the
Parties hereto, and, upon application duly made to a court of competent
jurisdiction by a Party hereto, judgment thereon shall be entered in such court.
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30.7
Pending a decision by the arbitrators as referred to in this Article, the
Contractor shall, unless directed otherwise by ORION in writing, fulfill all of
its obligations under the ORION 2 Contract, including, if and so far as it is
reasonably practicable, the obligation to take steps necessary during the
arbitration proceedings to ensure that the Work will be Delivered within the
time stipulated or within such extended time as may be allowed under the ORION 2
Contract, provided always ORION shall continue to make payments therefore in
accordance with the ORION 2 Contract.
30.8
The following time limits shall be observed in respect to any arbitration
referred to in this Article:
(a) either Party may demand arbitration in writing after the period of
twenty (20) Calendar Days referred to in Article 30.1 has expired, or
such other time period as may be specified in the ORION 2 Contract;
(b) each Party shall appoint its arbitrator within twenty (20) Calendar
Days of receipt of the AAA acknowledgment of a demand for arbitration;
(c) the two appointed arbitrators shall appoint a third arbitrator within a
further twenty (20) Calendar Days from the time stipulated in Article
30.8(b) (unless the two arbitrators agree to an extension not to exceed
an additional twenty (20) Calendar Days); and
(d) any decision by an arbitrator(s) referred to in Article 30.2 or 30.3
shall be made within six (6) months from the date on which a Party
demands arbitration or within such extended period as the arbitrator(s)
may allow.
30.9
The fees and expenses of the arbitrator(s) and AAA administrative fees and costs
shall be borne equally by the Parties. Each Party shall bear the costs of its
own legal representation, witnesses produced by such Party, document production
and other discovery expenses.
30.10
In the case of any dispute pursuant to Article 9 hereof, the arbitration
tribunal shall award prejudgment interest on any amount which the tribunal
determines is owing from one Party to the other, such interest to be calculated
at an annual rate equal to the Prime Rate then in effect for each Calendar Day
from forty-five (45) Calendar Days following the date of loss or from the date
of the filing for arbitration, whichever is the earlier, until the date full
payment is made.
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31. CONTRACT MANAGEMENT
31.1 In General
The Contractor shall conduct meetings, reviews and analyses and shall prepare
and deliver reports and documentation as provided in Part 2(A).
31.2 Approvals and Acceptances
No approval, acceptance, waivers or deviations prior to Final Acceptance by
ORION of any action or item under the ORION 2 Contract shall waive any of
ORION's contractual rights with regard to Final Acceptance of any Deliverable
Item.
31.3 ORION 2 Contract Monitoring
31.3.1
During the performance of the ORION 2 Contract, the Contractor and ORION shall
each designate a person to be its Contract Program Manager, whose duties shall
be to monitor the Work and to act as liaisons between the Parties. Such
monitoring by ORION shall not relieve the Contractor from performing the ORION 2
Contract in accordance with its terms and shall not in any way detract from the
Contractor's position as an independent contractor.
31.3.2
Any Consultant who performs services on behalf of ORION shall have access to the
Work and data and may witness tests in the same manner as ORION, as provided in
Article 7. ORION's Consultants shall execute non-disclosure agreements with the
Parties and, as necessary, with Subcontractors.
31.3.3
ORION's Consultants shall have no authority to change any part of the ORION 2
Contract, or to direct the Contractor or to bind ORION. Any changes to the ORION
2 Contract shall be made only in accordance with Article 27, but ORION's
Consultants may participate in discussions regarding such changes. Any action
taken by the Contractor prior to the resolution of any such question shall be at
the Contractor's own risk and expense.
32. SECURITY INTEREST AND FINANCIAL INFORMATION
The Contractor agrees to cooperate with ORION and endeavor in good faith to
provide security interests in the Work after ORION pays the Vendor Financing
Takeout Payment and periodic financial reports concerning the Contractor's
financial status, if such are required by any
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Financing Entity, and to negotiate in good faith the terms upon which such
security interests are to be provided and the content/frequency of such
financial reports.
33. ASSIGNMENT
33.1
The Contractor shall not, without the prior written approval of ORION and except
on such terms and conditions as are determined in writing by ORION, assign,
mortgage, charge or encumber the ORION 2 Contract or any part thereof, any of
its rights, duties, or obligations thereunder, the Work or any monies payable or
to become payable under the ORION 2 Contract, to any person, except to a parent
or a wholly-owned direct or indirect subsidiary company of the Contractor, or
for the purpose of corporate merger, recapitalization or reconstruction.
33.2
The Parties recognize that this ORION 2 Contract may be financed through
external sources. The Contractor agrees to work cooperatively to negotiate and
execute such documents as may be reasonably required to implement such financing
(other than any document requiring the subordination or delay of any payments
required to be paid hereunder) and agrees ORION shall have the right to assign
its rights, duties or obligations under the ORION 2 Contract to ORION Network
Systems, Inc., any ORION subsidiary, and to any Financing Entity, subject to
prior notice to the Contractor.
33.3
Provided that the Contractor's rights under the ORION 2 Contract, including the
ability to perform the Work, in the Contractor's reasonable judgment, are not
and would not be adversely affected, the Contractor shall not withhold its
approval to any assignment, mortgage, charge or encumbrance of any of the
rights, duties or obligations of ORION under the ORION 2 Contract.
33.4
Assignment of this ORION 2 Contract shall not relieve the assigning Party of any
of its obligations nor confer upon the assigning Party any rights except as
provided in the ORION 2 Contract.
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COMMERCIAL-IN-CONFIDENCE
34. NOTICES AND DOCUMENTATION
34.1
Any notice or other communication required or permitted pursuant to the ORION 2
Contract including invoices shall be sufficiently given if given in writing,
delivered personally or by pre-paid registered air mail, or by telex, or by
facsimile to the following address:
In the case of ORION:
ORION SATELLITE CORPORATION
2440 Research Boulevard
Suite 400
Rockville, Maryland 20850
United States of America
For the attention of Dr. Denis Curtin, Senior Vice President,
Engineering and Satellite Operations, for technical matters and Richard
H. Shay, Vice President of Corporate and Legal Affairs for contract
matters or such other persons at such address as ORION may from time to
time direct in writing for specific purposes.
with a copy to:
Shaw, Pittman, Potts & Trowbridge
2300 N Street, N.W.
Washington, DC 20037
United States of America
For the attention of John F. Dealy for notices relating to matters
under Articles 6, 9, 15 and 21.
In the case of Contractor:
MATRA MARCONI SPACE UK LIMITED
Gunnels Wood Road
Stevenage, Hertfordshire SG1 2AS
England
For the attention of Mr. B. Kirk, ORION Project Manager for technical
or management matters For the attention of Mr. Arthur Blick, Commercial
Manager
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COMMERCIAL-IN-CONFIDENCE
34.2
A notice given either by certified mail, or by confirmed facsimile or telex
followed the same day by the original document via certified mail, shall be
deemed to be a notice in writing for the purpose of the ORION 2 Contract and
shall be deemed to have been given upon receipt by the sender of the answer-back
code of the recipient at the conclusion of the telex or by the actual receipt of
the letter or of the facsimile confirmed by its answer-back code, provided
transmission is completed during normal business hours on a Business Day in the
place of the addressee and if it is not so completed then upon the commencement
of normal business hours on the next Business Day in the place of the addressee
after transmission is completed.
34.3
The Contractor agrees that any communication or notice required or permitted to
be given by ORION to the Contractor which is given by the Program Manager or
Contracts Manager or has, prior to the execution of the ORION 2 Contract been so
given, shall be deemed to have been given by ORION.
34.4
Without affecting the provisions of Article 34.2, the Parties agree that all
correspondence on contract matters shall, if sent by confirmed facsimile or
telex, be followed, as soon as reasonably practicable after the sending of such
correspondence, by the original document via first-class mail.
35. SEVERABILITY AND WAIVER
35.1
In the event any one or more of the provisions of the ORION 2 Contract shall,
for any reason, be held to be invalid or unenforceable, the remaining provisions
of the ORION 2 Contract shall be unimpaired, and the invalid or unenforceable
provision shall be replaced by a mutually acceptable enforceable provision which
comes closest to the intention of the Parties underlying the invalid or
unenforceable provision.
35.2
A waiver of any breach of a provision hereof shall not be binding upon either
Party unless the waiver is in writing and such waiver shall not affect the
rights of the Party not in breach with respect to any other or future breach.
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36. COMPLIANCE WITH THE LAW, PERMITS AND LICENSES
36.1
The Contractor shall, at its own expense, comply with the requirements of any
laws of any place in which any part of the Work is to be done and with the
lawful requirements of public, municipal and other authorities in any way
affecting or applicable to any Work.
36.2
The Contractor shall at its own expense obtain any permits, licenses, approvals
or certificates, including any required for import or export, necessary for the
performance of the Work under the ORION 2 Contract. The Contractor shall, at its
own expense, perform the Work in accordance with the conditions of any
applicable permits or licenses, approvals or certificates. ORION agrees to use
its best efforts in assisting the Contractor to obtain any of the documents
referred to above which are issued by a United States authority.
36.3
ORION shall not be responsible in any way for the consequences, direct or
indirect, of any violation by the Contractor or its Subcontractors, or their
officers, employees, agents or servants of any law of a country in which the
Work is performed, or of any country whatsoever.
37. APPLICABLE LAW; SUBMISSION TO JURISDICTION; APPOINTMENT OF
AGENT FOR ACCEPTANCE OF SERVICE; INTERPRETATION AND
LANGUAGE
37.1
Except as provided in Article 30.5 hereof, the ORION 2 Contract shall be
governed by and interpreted in accordance with the laws of the State of
Maryland, United States of America, without regard to the conflict of laws
provisions thereof.
37.2
The Contractor appoints Powell, Goldstein, Frazer & Murphy, attention J. Gail
Bancroft, 1001 Pennsylvania Avenue, N.W., Washington, D.C. 20004, United States
of America as its agent for acceptance of service of process in the United
States. Contractor shall notify ORION promptly in writing of the appointment by
Contractor of a new agent or of a change in the agent's address.
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37.3
In the ORION 2 Contract unless the context otherwise requires:
i) words of any gender include any other gender;
ii) the singular includes the plural and vice versa;
iii) "person" includes a reference to a partnership, firm, or any other body
of persons, company or organization whether incorporated or
unincorporated.
37.4
Any heading to this ORION 2 Contract shall not be used in the construction or
interpretation of the ORION 2 Contract.
37.5
All communications between the Parties to the ORION 2 Contract shall be in the
English language.
37.6
Any reference to liquidation damages means agreed liquidated or ascertained
damages and not a penalty.
38. SURVIVAL
Any provision of the ORION 2 Contract which can be reasonably construed to
survive the expiration or termination of the ORION 2 Contract for any reason,
including but not limited to the indemnification and confidentiality obligations
set forth herein, shall survive such expiration or termination of the ORION 2
Contract.
39. KEY PERSONNEL
39.1
The Contractor will assign properly qualified and experienced personnel to the
program contemplated under the ORION 2 Contract. Personnel assigned to the
following positions shall be considered "Key Personnel":
a) The Contractor's Project Manager
b) The Contractor's Contracts Manager
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COMMERCIAL-IN-CONFIDENCE
c) The Contractor's PA Manager
d) The Contractor's Resident Manager at NEC
e) The Contractor's Engineering Manager
f) The NEC Project Manager
g) The Contractor's AIT Manager
ORION shall have the right to approve the Contractor's Project Manager and NEC's
Project Manager which approval shall not be unreasonably withheld or delayed.
Other Key Personnel shall not be assigned to other duties without the Contractor
giving prior written notice to and consulting with ORION.
The Contractor shall provide a chart to ORION of the Program Key Personnel and
shall keep such chart current.
39.2
Subject to ORION's right to approve the selection of the Contractor's Project
Manager pursuant to Article 39.1, in the event that an employee included in the
list of Key Personnel becomes unavailable for work under the ORION 2 Contract,
the Contractor shall replace him by a person of substantially equivalent
qualifications and abilities.
40. PROGRESS REPORTS
40.1
The Contractor shall render such reports as to the progress of the Work and
attend such meetings with ORION as specified in Part 2(A) (Statement of Work)
and Part 2(B) (Contract Documentation Requirements List).
41. LAUNCH VEHICLE AGENCY
41.1
41.1.1 The Contractor hereby agrees that ORION shall have the right to direct
the Contractor to terminate the Launch Agreement at any time, in which case
ORION shall be liable for the termination charges specified in the termination
liability schedule set forth in Table 21.6 of the Launch Agreement and attached
hereto as Annex C.
41.1.2. The Contractor hereby agrees that ORION shall have the right to direct
the Contractor to terminate the Launch Agreement, in whole or, where severable,
in part and for ORION to receive directly from the Launch Vehicle Agency a full
refund of all amounts previously paid by ORION (excluding postponement fees and
retanking charges) (or where the Launch Vehicle Agency provides such amounts to
the Contractor, the Contractor shall pay over such amounts to ORION
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COMMERCIAL-IN-CONFIDENCE
with no right of offset) where there has been more than three hundred sixty-five
(365) cumulative Calendar Days of Launch postponement by the Launch Vehicle
Agency. In the event that, as a result of ORION exercising such right, there is
any delay in the performance of the Work, such delay shall constitute an
Excusable Delay and the provisions of Article 12 hereof shall be applicable.
ORION's right to direct the Contractor to terminate the Launch Agreement is
conditional upon receipt of the Contractor's written notification of a Launch
postponement or upon the occurrence of a single or cumulative delays by the
Launch Vehicle Agency which exceed three hundred sixty-five (365) Calendar Days.
ORION must direct the Contractor to terminate within sixty (60) Calendar Days of
the first of the two events above or must waive its right to direct the
termination of that Launch under this Article unless further delayed by the
Launch Vehicle Agency.
41.2
The Launch Vehicle Agency shall provide such insurance as required by the United
States Department of Transportation for loss or damage to United States.
Government property resulting from activities to be carried out in connection
with Launches to be provided under the ORION 2 Contract. In consideration of and
conditioned upon a reciprocal waiver by the United States Government, both ORION
and the Contractor agree to waive any claim against the United States Government
or its agencies for any property damage or loss they sustain or for any personal
injury to, death of, or any property damage or loss sustained by their own
employees.
41.3
The Launch Vehicle Agency has executed agreements with various United States
Government agencies for use of Government-owned property and facilities relating
to the production of launch vehicles and launch operations at Cape Canaveral Air
Station (CCAS) in Florida. ORION agrees that it will comply with the United
States Government's laws and regulations as they relate to ORION-furnished
property and personnel, and those agreements relating directly to the United
States expendable launch vehicle program. The Contractor will request the Launch
Vehicle Agency to furnish copies of such agreements to ORION upon ORION's
request. ORION will indemnify the Contractor for any ORION violation of the
laws, regulations or agreements as specified herein. In furtherance of the
foregoing, the Parties shall, before Launch, execute and deliver the Agreement
for Waiver of Claims and Assumption of Responsibility, the execution of which is
required by the United States Department of Transportation as a condition of
granting the Contractor's license to conduct launch activities and launch the
ORION 2 Spacecraft.
41.4
On or before the last day of the twenty-first (21st) month after NPD,
Contractor, acting upon the advice and with the consent of ORION, shall
cooperate in good faith with the Launch Vehicle Agency to finalize the selection
of a Launch Date. The Parties recognize that, if the Contractor and the Launch
Vehicle Agency cannot mutually agree upon a Launch Date, the Launch Vehicle
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COMMERCIAL-IN-CONFIDENCE
Agency may select the Launch Date, taking into account all available launch
opportunities and the Contractor's requirements and interests.
42. GUARANTEE OF CONTRACTOR OBLIGATIONS
The Contractor shall provide an unconditional corporate guarantee by Matra
Marconi Space NV and, if required, other entities acceptable to any Financing
Entity, in respect of its obligations under the ORION 2 Contract, including
repayment, if required, of the Advance Payment or any part thereof. Matra
Marconi Spare NV shall certify to ORION in writing on a quarterly basis that it
has the financial ability to repay any portion of the Advance Payment that may
be required under the ORION 2 Contract and it shall promptly advise ORION of any
event or circumstance that may impair such ability.
43. INTEREST
Except as set forth in Article 6.1.1(e)(iii), any interest due under the ORION 2
Contract shall be calculated in accordance with LIBOR plus three percent (3%).
IN WITNESS WHEREOF the President of ORION SATELLITE CORPORATION has hereto set
his hand for and on behalf of and as General Partner of International Private
Satellite Partners, L.P., on the 25th day of July 1996, and the Managing
Director of MATRA MARCONI SPACE UK LIMITED has hereto set his hand for and on
behalf of MATRA MARCONI SPACE UK LIMITED on the 31st day of July 1996.
INTERNATIONAL PRIVATE SATELLITE MATRA MARCONI SPACE
PARTNERS, L.P. UK LIMITED
By: Orion Satellite Corporation, its General
Partner
By: _____________________________ By: ________________________
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COMMERCIAL-IN-CONFIDENCE
ANNEX A
FORM OF REQUEST FOR PAYMENT
(Terms of this Form will be revised to conform
to the requirements of the ORION 2 Credit Agreement)
[Date]
ORION SATELLITE CORPORATION
2440 Research Boulevard
Suite 400
Rockville, Maryland 20850
United States of America
Attention: [ ]
RE: Part 1(A) ORION 2 Spacecraft Purchase Contract, dated as of
[...] (as amended, supplemented or modified from time to time,
the "ORION 2 Contract"), between INTERNATIONAL PRIVATE
SATELLITE PARTNERS, L.P., d/b/a ORION ATLANTIC, L.P. ("ORION")
and MATRA MARCONI SPACE UK LIMITED (the "Contractor")
Ladies and Gentlemen:
This Request for Payment is delivered to ORION pursuant to Article 6 of the
ORION 2 Contract and constitutes the Contractor's request for payment in the
amount of $ [...] for Milestone Payment No. ________, and Progress Payment No.
__________.
Very truly yours,
MATRA MARCONI SPACE UK LIMITED
By:
Title:
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COMMERCIAL-IN-CONFIDENCE
Appendix I to Annex A
Form of Contractor Certificate
(Terms of this Form will be revised to conform
to the requirements of the ORION 2 Credit Agreement)
Reference: Milestones Payment No. _____
Progress Payment No. _____
________________ ____, 19___
RE: ORION 2 Spacecraft Purchase Contract, with International
Private Satellite Partners, L.P. d/b/a Orion Atlantic, L.P.
(as amended, supplemented or modified and in effect from time
to time the "ORION 2 Contract")
ORION SATELLITE CORPORATION
2440 Research Boulevard
Suite 400
Rockville, Maryland 20850
United States of America
Attention: [ ]
Ladies and Gentlemen:
This Certificate is delivered to you in connection with the ORION 2 Contract.
Each capitalized term used herein and not otherwise defined shall have the
meaning assigned thereto in the ORION 2 Contract.
We hereby certify, after due inquiry, that, as of the date hereof:
1. The ORION 2 Contract is in full force and effect and except as set
forth in Schedule I hereto, has not been amended, supplemented or
otherwise modified, and attached hereto are true, correct and complete
copies of all Amendments to the ORION 2 Contract or any other
modification or amendment to the ORION 2 Contract not heretofore
delivered to the Financing Entity.
2. Except as set forth in Schedule I hereto, we are not aware of any event
that has occurred or failed to occur which occurrence or
non-occurrence, as the case may be, could
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COMMERCIAL-IN-CONFIDENCE
reasonably be expected to cause the date of Final Acceptance of the
ORION 2 Spacecraft to occur later than the Delivery Date therefor.
3. Except as set forth in Schedule I hereto, no event or condition exists
that permits or requires us to cancel, suspend or terminate our
performance under the ORION 2 Contract or that could excuse us from
liability for non-performance thereunder.
4. Except with respect to amounts that are the subject of a dispute (such
amounts and such disputes being described in reasonable detail in
Schedule II hereto), all amounts due and owing to us have been paid in
full through the date of the immediately preceding Construction
Certificate and are not overdue. To the extent payment to us has been
or will be made as specified in this and the immediately preceding
Contractor Certificates, there are and will be no mechanics' or
materialsmen's liens except Permitted Liens (as defined in the
Financing Agreements) on the Project (as defined in the Financing
Agreements), the Collateral (as defined in the Financing Agreements) or
on any other property in respect of the work which has or will be
performed under the ORION 2 Contract.
5. a. The amount contained in the Request for Payment delivered to
you concurrently herewith in accordance with the terms of
Article 6.1.1(b) of the ORION 2 Contract represents monies
owed to us in respect of Milestone Payment No. _____.
b. The amount referred to in paragraph (a) above was computed in
accordance with the terms of the ORION 2 Contract.
c. The Milestone to which Milestone Payment No. ____ relates has
been completed in accordance with the ORION 2 Contract.*
6. a. The amount of the Request for Payment delivered to you
concurrently herewith in accordance with the provisions of
Article 6.1.1(a) of the ORION 2 Contract represents monies
owed to us in respect of Progress Payment No. ____.
b. The amount referred to in paragraph (a) above was computed in
accordance with the ORION 2 Contract.*
7. a. The amount referred to in paragraph (a) above was computed in
accordance with the ORION 2 Contract.
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COMMERCIAL-IN-CONFIDENCE
8. An amount of $_________ is due to us and represents monies owed to us
in respect of the principal amounts due and payable on the outstanding
Note.*
Very truly yours,
MATRA MARCONI SPACE UK LIMITED
By:
Title:
* Include when relevant
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COMMERCIAL-IN-CONFIDENCE
SCHEDULE I to
Appendix I to Annex A
List of Exceptions:
Amendments to ORION 2 Spacecraft Purchase Contract:
Exceptions Affecting Final Acceptance Date:
Exceptions Affecting Contractor's Performance:
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COMMERCIAL-IN-CONFIDENCE
SCHEDULE II to
Appendix I to Annex A
List of Disputes:
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COMMERCIAL-IN-CONFIDENCE
ANNEX B
INTER-PARTY WAIVER OF LIABILITY PROVISIONS IN LAUNCH AGREEMENT
<PAGE>
COMMERCIAL-IN-CONFIDENCE
Lockheed Martin Commercial Launch Services, Inc. Proprietary Information
ANNEX B
CONTRACT FOR LAUNCH SERVICES
This Contract is made and entered into by and between Lockheed Martin
Commercial Launch Services, Inc., a Delaware corporation, having its principal
place of business at 101 West Broadway, San Diego, California 92101
("Contractor") and Matra Marconi Space UK Limited, a company organized and
existing under the laws of England and Wales with its registered office at the
Grove, Warren Lane, Stanmore, Middlesex, HA7 4LY, England ("Customer").
ARTICLE 1
DEFINITIONS
Capitalized terms used and not otherwise defined herein shall have the following
meanings:
Affiliate means the directors, officers, agents and employees of a
Party. This definition is for identification purposes only and shall not be
interpreted as creating any privity of contract between Affiliates of one Party
and the other Party or its Affiliates.
CSLA means the Commercial Space Launch Act, 49 U.S.C. Sections 70101 -
70119, as amended.
Contract means this instrument and all exhibits attached hereto, as the
same may be amended from time to time in accordance with the terms hereof,
including:
Exhibit A - Statement of Work
Exhibit B - Interface Control Document
Contract Price means the Launch Service Price as set forth in Article 4
entitled "Contract Price."
Effective Date shall have the meaning set forth in Article 32 entitled
"Effective Date."
Excusable Delay shall have the meaning set forth in Paragraph 8.1
entitled "Excusable Delays Defined."
1
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Lockheed Martin Commercial Launch Services, Inc. Proprietary Information
Insured Launch Activities means the activities carried out by either
Party or the Related Third Parties of either Party or by the United States
Government and operations necessary therefor or incidental thereto pursuant to
the terms of this Contract and, in the case of Launch Services licensed by the
CSLA, the launch license issued by the Office of Commercial Space Transportation
(or any successor agency thereto) to Contractor under the CSLA to conduct the
Launch Services, including the use of United States Goverment launch facilities
at the launch site used by Contractor and the Launch from the launch site.
Intentional Ignition means, with respect to the Launch Vehicle, the
point in time during the launch countdown when initiation of the gas generators
igniters firing command and firing of any of the gas generators igniters occurs.
Interface Control Document or ICD means that document referred to in
the Statement of Work attached or to be attached as Exhibit B to this Contract.
Launch means Intentional Ignition followed by either (i) release of the
Launch Vehicle from the launcher hold down restraints for the purpose of lift
off; or (ii) total loss or destruction of the Satellite or Launch Vehicle.
Launch Date means the calendar date within the Launch Slot during which
the Launch is scheduled to occur, as established in accordance with Article 6
entitled "Launch Schedule" and as such Launch Date may be adjusted in accordance
with Article 7 entitled "Launch Schedule Adjustments."
Launch Opportunity means an adequate time period during which
Contractor, in its reasonable judgment, may provide a Launch Service to
Customer, taking into account all relevant conditions, including but not limited
to, committments to other customers, maintenance of appropriate clearance times
between flights, hardware availability and requirements of the United States
Government for range support.
Launch Service means those services to be provided by Contractor to
Customer for a single Launch as set forth in Exhibit A entitled "Statement of
Work."
Launch Slot means a thirty (30) day period during which the Launch is
scheduled to occur, as set forth in Article 6 entitled "Launch Schedule" and as
such Launch Slot may be adjusted in accordance with Article 7 entitled "Launch
Schedule Adjustments".
2
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Lockheed Martin Commercial Launch Services, Inc. Proprietary Information
Launch Vehicle means the baseline launch vehicle system consisting of
an Atlas lower stage and Centaur upper stage connected by an interstage adapter,
the payload fairing and the payload adapter with separation system, collectively
identified as the Atlas ILAS Standard with a performance level as specified in
the Exhibit A Statement of Work.
NPD means the date upon which all the conditions set forth in Article
32 have been met.
Orion means Customer's customer, International Private Satellite
Partners, L.P.
Party or Parties means Contractor, Customer or both.
Related Third Parties means (i) the Parties' Affiliates and customers;
(ii) the Parties' contractors, subcontractors and suppliers at any tier involved
directly or indirectly in the performance of this Contract, and their directors,
officers agents and employees; (iii) entities involved with payload processing
or other activities in the payload processing facilities, including the
contractor providing the payload processing facilities, other customers of the
payload processing facilities contractor, and all employees and contractors of
those contractors and customers; and (iv) parties having any right, title or
interest, whether through sale, lease or service arrangement or otherwise,
directly or indirectly, in the Satellite or any transponder, the Launch Vehicle
or the Launch Service. This definition is for identification purposes only and
shall not be interpreted as creating any privity of contract between Affiliates
of one Party and the other Party or its Affiliates.
Satellite means Customer-provided Orion F2 satellite and associated
property to be launched on the Launch Vehicle.
Statement of Work or SOW means that document attached as Exhibit A to
this Contract.
Termination Charge means the charge calculated in accordance with
Paragraph 21.6 entitled "Termination Charge."
Third Party means any person or entity other than Contractor, Customer,
their Affiliates and Related Third Parties and the United States Government and
its agencies, contractors or subcontractors involved in the Launch Services.
3
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Lockheed Martin Commercial Launch Services, Inc. Proprietary Information
ARTICLE 14
COMPLETION OF CONTRACTOR'S OBLIGATION
TO PROVIDE LAUNCH SERVICES
The Launch Services to be provided under this Contract shall be considered
complete upon Launch and the submission of data required by the Statement of
Work, Sections 4 and 6.
ARTICLE 15
EXCLUSION OF WARRANTY AND WAIVER OF LIABILITY
AND ALLOCATION OF CERTAIN RISKS
15.1 No Representations or Warranties Contractor has not made nor does it make
any representation or warranty, whether written or oral, express or implied,
including, without limitation, any warranty of design, operation, condition,
quality, suitability or merchantability or of fitness for use or for a
particular purpose, absence of latent or other defects, whether or not
discoverable, with regard to the success of the Launch or other performance of
the Launch Service hereunder. Without limited or creating exceptions to the
reciprocal waiver of liability set forth in this Article 15, or the exclusive
remedies set forth in Article 18, in no event shall either Party be liable to
the other and to persons claiming by or through such Party under any theory of
tort, contract, strict liability, negligence of any type or under any other
legal or equitable theory for indirect, special, incidental or consequential
damages, including without limitation, costs of effecting cover, lost profits,
lost revenues or costs of recovering a payload or the Satellite, arising out of
or relating to this Contract.
15
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Lockheed Martin Commercial Launch Services, Inc. Proprietary Information
15.2 Waiver of Liability
-------------------
15.2.1 Contractor and Customer hereby agree to a reciprocal waiver of
liability pursuant to which each Party agrees not to bring a claim in
arbitration or otherwise or sue the other Party, the United States
Government or Related Third Parties of the other Party for any property
loss or damage it sustains and any property loss or damage, personal
injury or bodily injury, including death, sustained by any of its
Affiliates, arising in any manner in connection with the performance of or
activities carried out pursuant to this Contract, or other activities in
or around the launch site or Satellite processing area, or the operation
or performance of the Launch Vehicle or the Satellite. Such waiver of
liability shall also extend to any indirect, special, incidental or
consequential damages or other loss of revenue or business injury or loss
including but not limited to lost profits or costs of recovering a payload
or the Satellite resulting from any delay in Launch, damages to the
Satellite before, during or after Launch or from the failure of the
Satellite to reach its planned orbit or operate properly.
15.2.2 Claims of liability are waived and released regardless of whether
loss, damage or injury arises from the acts or omissions, negligent or
otherwise, of either Party or its Related Third Parties. This waiver of
liability shall extend to all theories of recovery, including in contract
for property loss or damage, tort, product liability and strict liability.
In no event shall this waiver of liability prevent or encumber enforcement
of the Parties' contractual rights and obligations to each other as
specifically provided in this Contract.
15.2.3 Contractor and Customer shall each extend the waiver and release of
claims of liability as provided in Paragraphs 15.2.1 and 15.2.2 to its
Related Third Parties (other than employees, directors and officers) by
requiring them to waive and release all claims of liability they may have
against the other Party, its Related Third Parties, the United States
Government and its contractors and subcontractors at every tier and to
agree to be responsible for any property loss or damage, personal injury
or bodily injury, including death, sustained by them arising in any manner
in connection with the performance of or activities carried out pursuant
to this Contract, or other related activities in or around the launch site
or Satellite processing area, or the operation or performance of the
Launch Vehicle or the Satellite.
16
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Lockheed Martin Commercial Launch Services, Inc. Proprietary Information
15.2.4 The waiver and release by each Party and its Related Third Parties
of claims of liability against the other Party and the Related Third
Parties of the other Party extends to the successors and assigns, whether
by subrogation or otherwise, of the Party and its Related Third Parties.
Each Party shall obtain a waiver of subrogation and release of any right
of recovery against the other Party and its Related Third Parties from any
insurer providing coverage for the risks of loss for which the Party
hereby waives claims of liability against the other Party and its Related
Third Parties.
15.2.5 In the event of any inconsistency between the provisions of this
Paragraph 15.2 and any other provisions of this Contract, the provisions
of this Paragraph 15.2 shall take precedence.
15.3 Indemnification - Property Loss and Damage and Bodily Injury
------------------------------------------------------------
15.3.1 To the extent that such liability is not covered by an insurance
policy of either Contractor or Customer, Contractor and Customer each
agree to defend, hold harmless and indemnify the other Party and its
Related Third Parties, for any liabilities, costs and expenses (including
attorneys' fees, costs and expenses), arising as a result of claims
brought by Related Third Parties of the indemnifying Party, for property
loss or damage, personal injury or bodily injury, including death,
sustained by such Related Third Parties, arising in any manner in
connection with the activities carried out pursuant to this Contract,
other activities in and around the launch site or the Satellite processing
area, or the operation or performance of the Launch Vehicle or the
Satellite. Such indemnification shall extend to any claim for indirect,
special, incidental, or consequential damages or other loss of revenue or
business injury or loss resulting from any loss of or damage to the
Satellite before or after launch or from the failure of the Satellite to
reach its planned orbit or operate properly.
15.3.2 To the extent that such claims of liability are not covered by the
third party liability insurance referred to in Paragraph 16.1 entitled
"Third Party Liability Insurance," or an insurance policy of either
Contractor or Customer or eligible for payment by the United States
Government (as provided in Paragraph 16.2 entitled "Insurance Required by
Launch License"), Contractor will defend, hold harmless and indemnify
Customer and its Related Third Parties for any and all claims of Third
Parties, for property loss or damage, personal injury or bodily injury,
including death, arising in any manner from the operation or performance
of the Launch Vehicle.
17
<PAGE>
Lockheed Martin Commercial Launch Services, Inc. Proprietary Information
15.3.3 To the extent that such claims of liability are not covered by the
third party liability insurance referred to in Paragraph 16.1 entitled
"Third Party Liability Insurance," or an insurance policy of either
Contractor or Customer or not paid by the United States Government (as
provided in Paragraph 16.2 entitled "Insurance Required by Launch
License,") Customer will defend, hold harmless and indemnify Contractor
and its Related Third Parties for any and all claims of Third Parties, for
property loss or damage, personal injury or bodily injury, including
death, arising in any manner from the operation or performance of the
Satellite or from any claim for indirect, special, incidental or
consequential damages or other loss of revenue or business injury or loss
resulting from any loss of or damage to the Satellite before or after
Launch or from the failure of the Satellite to reach its planned orbit or
operate properly.
15.3.4 Notwithstanding Paragraphs 15.3.2 and 15.3.3 above, Contractor
shall not be obligated to defend, hold harmless or indemnify Customer for
any claim brought by a Third Party against Customer resulting from any
damage to or loss of the Satellite, whether sustained before or after
Launch and whether due to the operation, performance, non-performance or
failure of the Launch Vehicle or due to any other causes. Customer shall
defend, hold harmless and indemnify Contractor for any claims brought by
Third Parties against Contractor for damage to or loss of the Satellite,
whether sustained before or after Launch or whether due to the operation,
performance, non-performance or failure of the Launch Vehicle or due to
other causes.
15.3.5 The indemnification provided by this Paragraph 15.3 for property
loss or damage, personal injury or bodily injury extends to all damage or
injury regardless of whether such loss, damage or injury arises from the
acts or omissions, whether negligent or otherwise, of either Party.
15.3.6 The right of either Party or Related Third Parties to
indemnification under this Article is not subject to subrogation or
assignment and either Party's obligation set forth herein to indemnify the
other Party or Related Third Parties extends only to that Party or those
Related Third Parties and not to others who may claim through them by
subrogation, assignment or otherwise.
18
<PAGE>
Lockheed Martin Commercial Launch Services, Inc. Proprietary Information
15.4 Indemnification by United States Government
-------------------------------------------
15.4.1 The Parties recognize that under the CSLA and subject thereto, the
Secretary of Transportation shall, to the extent provided in advance in
appropriations acts or to the extent there is enacted additional
legislative authority to provide for the payment of claims, provide for
the payment by the United States Government of successful claims
(including reasonable expenses of litigation or settlement) of a Third
Party against Contractor or subcontractors, or Customer or its contractors
or subcontractors, resulting from activities carried out pursuant to a
license issued or transferred under the CSLA for death, bodily injury, or
loss of or damage to property resulting from activities carried out under
the license, but only to the extent that the aggregate of such successful
claims arising out of the Launch:
15.4.1.1 is in excess of the amount of insurance or demonstration of
financial responsibility required of Contractor under its
license issued pursuant to the CSLA; and
15.4.1.2 is not in excess of the level that is $1,500,000,000 (plus any
additional sums necessary to reflect inflation occurring after
January 1, 1989) above the required amount of insurance or
demonstration of financial responsibility required by the
CSLA.
15.4.2 Contractor makes no representation or warranty that any payment of
claims by the United States Government will be available pursuant to the
CSLA. Contractor's sole obligation is the good faith effort to obtain such
payment as may be available from the United States Government.
15.5 Indemnification - Intellectual Property Infringement
----------------------------------------------------
15.5.1 Contractor shall defend, hold harmless and indemnify Customer and
its Related Third Parties for any and all claims resulting from the
infringement, or claims of infringement, of the patent rights or any other
intellectual property rights of a Third Party, that may arise from
Contractor's provision of Launch Services.
15.5.2 Customer shall defend, hold harmless and indemnify Contractor and
its Related Third Parties for any and all claims resulting from the
infringement, or claims of infringement, of the patent rights or any other
intellectual property rights of a Third Party, that may arise from the
design, manufacture, launch or operation of Customer's Satellite.
19
<PAGE>
Lockheed Martin Commercial Launch Services, Inc. Proprietary Information
15.6 Rights and Obligations The rights and obligations specified in Paragraphs
15.3 and 15.5 shall be subject to the following conditions:
15.6.1 The Party seeking indemnification shall promptly advise the other
Party in writing of the filing of any suit, or of any written or oral
claim alleging an infringement of any Related Third Party's or any Third
Party's rights, upon receipt thereof, and shall provide the indemnitor, at
the indemnitor's request and expense, with copies of all relevant
documentation.
15.6.2 The Party seeking indemnification shall not make any admission nor
shall it reach a compromise or settlement without the prior written
approval of the other Party, which approval shall not be unreasonably
withheld or delayed.
15.6.3 The Party required to indemnify, defend and hold the other harmless
shall assist in and shall have the right to assume, when not contrary to
the governing rules of procedure, the defense of any claim or suit or
settlement thereof, and shall pay all reasonable litigation and
administrative costs and expenses, including attorney's fees, incurred in
connection with the defense of any such suit, shall satisfy any judgments
rendered by a court of competent jurisdiction in such suits, and shall
make all settlement payments.
15.6.4 The indemnitee may participate in any defense at its own expense,
using counsel reasonably acceptable to the indemnitor, provided that there
is no conflict of interest and that such participation does not otherwise
adversely affect the conduct of the proceedings.
15.7 Inconsistency with Government Agreement In the event of any inconsistency
between any provision of this Article 15 or Article 16 entitled "Insurance" and
the Agreement for Waiver of Claims and Assumption of Responsibility referred to
in Paragraph 13.1, this Article 15 shall take precedence as between the Parties.
15.8 Survival of Obligations All indemnities, obligations, liabilities and
payments provided for in this Article 15 shall survive, and remain in full force
and effect, notwithstanding the expiration or other termination of this Contract
and, subject to the limitations set forth in this Article 15, notwithstanding
any other provision of this Contract to the contrary.
20
<PAGE>
Lockheed Martin Commercial Launch Services, Inc. Proprietary Information
15.9 Limitation of Liability Except for the obligation to indemnify provided in
Paragraph 15.3.2, Contractor's liability to Customer for any claim that has not
been waived or released pursuant to the terms of this Article 15 and any claim
to which the remedies are not limited pursuant to the terms of Article 18
entitled "Remedies and Limitations on Remedies" arising out of or relating to
this Contract, including, without limitation, any claim for termination, shall
not, under any circumstances, exceed the amount of the Contract Price paid by
Customer as of the date of such claim.
ARTICLE 16
INSURANCE
16.1 Third Party Liability Insurance Contractor shall procure and maintain in
effect insurance for third party liability to provide for the payment of claims
resulting from property loss or damage or bodily injury, including death,
sustained by Third Parties caused by an occurrence resulting from Insured Launch
Activities. The insurance shall have a limit of U.S. $164,000,000 per occurrence
and in the aggregate, or such other amount as may be required by the United
States Department of Transportion, whichever is higher. Coverage for damage,
loss or injury sustained by Third Parties arising in any manner in connection
with Insured Launch Activities shall attach upon arrival of the Satellite at
CCAS and will terminate upon the earlier to occur at the return of all parts of
the Launch Vehicle to Earth or twelve (12) months following the date of Launch,
unless the Satellite is removed from the Satellite processing area or CCAS other
than by Launch, in which case, coverage shall extend only until such removal.
Such insurance shall not cover loss of or damage to the Satellite even if such
claim is brought by any Third Party or Related Third Parties. Such insurance
also shall not pay claims made by the United States Government for loss of or
damage to United States Government property in the care, custody and control of
Customer or Contractor.
16.2 Insurance Required by Launch License Contractor shall provide such
insurance as is required by the launch license issued by the United States
Department of Transportation for loss of or damage to United States Government
property.
16.3 Miscellaneous Requirements The third party liability insurance shall name
as named insured Contractor and as additional insured Customer and the
respective Related Third Parties of the Parties identified by each Party, the
United States Government and any of its agencies. Such insurance shall provide
that the insurers shall waive all rights of subrogation that may arise by
contract or at law aginst the named insured or any additional insured. The
Contractor shall notify the Customer when a claim, arising out of activities
carried out as a result of this Contract, has been filed against a policy
maintained by the Contractor in accordance with this Article 16.
21
<PAGE>
(CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PAGES 101 TO 109 AND PORTIONS OF
PAGE 114 OF THIS EXHIBIT 1B)
----------------------------------------------------------
ORION SATELLITE CORPORATION
PART 1(B)
ORION 2 PAYMENT PLANS AND
TERMINATION LIABILITY AMOUNTS
----------------------------------------------------------
Signed: Date:
On behalf of ORION Satellite Corporation
Signed: Date:
On behalf of Matra Marconi Space UK Limited
Part 1(B)
<PAGE>
CONTENTS
--------
Section Description Page No.
- ------- ----------- --------
1 Progress Payment 2
2 Milestone Payment Plan 4
3 Termination Liability Amounts 7
<PAGE>
COMMERCIAL-IN-CONFIDENCE
SECTION 1
PROGRESS PAYMENT PLAN
page 1 Issue 1 323347 vl
<PAGE>
Progress Payment Plan
Launch Vehicle
Orion 2 Atlas IIAS
[ ]
<PAGE>
SECTION 2
MILESTONE PAYMENT PLANS
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PAGES 105 TO 109 OF THIS DOCUMENT.
<PAGE>
Lockheed Martin Commercial Launch Services, Inc. Proprietary Information
CONTRACT FOR LAUNCH SERVICES
This Contract is made and entered into by and between Lockheed Martin
Commercial Launch Services, Inc., a Delaware corporation, having its principal
place of business at 101 West Broadway, San Diego, California 92101
("Contractor") and Matra Marconi Space UK Limited, a company organized and
existing under the laws of England and Wales with its registered office at the
Grove, Warren Lane, Stanmore, Middlesex, HA7 4LY, England ("Customer").
ARTICLE 1
DEFINITIONS
Capitalized terms used and not otherwise defined herein shall have the following
meanings:
Affiliate means the directors, officers, agents and employees of a Party.
This definition is for identification purposes only and shall not be interpreted
as creating any privity of contract between Affiliates of one Party and the
other Party or its Affiliates.
CSLA means the Commercial Space Launch Act, 49 U.S.C. Sections 70101 -
70119, as amended.
Contract means this instrument and all exhibits attached hereto, as the
same may be amended from time to time in accordance with the terms hereof,
including:
Exhibit A - Statement of Work
Exhibit B - Interface Control Document
Contract Price means the Launch Service Price as set forth in Article 4
entitled "Contract Price."
Effective Date shall have the meaning set forth in Article 32 entitled
"Effective Date."
Excusable Delay shall have the meaning set forth in Paragraph 8.1 entitled
"Excusable Delays Defined."
<PAGE>
Lockheed Martin Commercial Launch Services, Inc. Proprietary Information
Insured Launch Activities means the activities carried out by either
Party or the Related Third Parties of either Party or by the United States
Government and operations necessary therefor or incidental thereto pursuant to
the terms of this Contract and, in the case of Launch Services licensed by the
CSLA, the launch license issued by the Office of Commercial Space Transportation
(or any successor agency thereto) to Contractor under the CSLA to conduct the
Launch Services, including the use of United States Goverment launch facilities
at the launch site used by Contractor and the Launch from the launch site.
Intentional Ignition means, with respect to the Launch Vehicle, the
point in time during the launch countdown when initiation of the gas generators
igniters firing command and firing of any of the gas generators igniters occurs.
Interface Control Document or ICD means that document referred to in
the Statement of Work attached or to be attached as Exhibit B to this Contract.
Launch means Intentional Ignition followed by either (i) release of the
Launch Vehicle from the launcher hold down restraints for the purpose of lift
off; or (ii) total loss or destruction of the Satellite or Launch Vehicle.
Launch Date means the calendar date within the Launch Slot during which
the Launch is scheduled to occur, as established in accordance with Article 6
entitled "Launch Schedule" and as such Launch Date may be adjusted in accordance
with Article 7 entitled "Launch Schedule Adjustments."
Launch Opportunity means an adequate time period during which
Contractor, in its reasonable judgment, may provide a Launch Service to
Customer, taking into account all relevant conditions, including but not limited
to, committments to other customers, maintenance of appropriate clearance times
between flights, hardware availability and requirements of the United States
Government for range support.
Launch Service means those services to be provided by Contractor to
Customer for a single Launch as set forth in Exhibit A entitled "Statement of
Work."
Launch Slot means a thirty (30) day period during which the Launch is
scheduled to occur, as set forth in Article 6 entitled "Launch Schedule" and as
such Launch Slot may be adjusted in accordance with Article 7 entitled "Launch
Schedule Adjustments".
2
<PAGE>
Lockheed Martin Commercial Launch Services, Inc. Proprietary Information
Launch Vehicle means the baseline launch vehicle system consisting of
an Atlas lower stage and Centaur upper stage connected by an interstage adapter,
the payload fairing and the payload adapter with separation system, collectively
identified as the Atlas ILAS Standard with a performance level as specified in
the Exhibit A Statement of Work.
NPD means the date upon which all the conditions set forth in Article
32 have been met.
Orion means Customer's customer, International Private Satellite
Partners, L.P.
Party or Parties means Contractor, Customer or both.
Related Third Parties means (i) the Parties' Affiliates and customers;
(ii) the Parties' contractors, subcontractors and suppliers at any tier involved
directly or indirectly in the performance of this Contract, and their directors,
officers agents and employees; (iii) entities involved with payload processing
or other activities in the payload processing facilities, including the
contractor providing the payload processing facilities, other customers of the
payload processing facilities contractor, and all employees and contractors of
those contractors and customers; and (iv) parties having any right, title or
interest, whether through sale, lease or service arrangement or otherwise,
directly or indirectly, in the Satellite or any transponder, the Launch Vehicle
or the Launch Service. This definition is for identification purposes only and
shall not be interpreted as creating any privity of contract between Affiliates
of one Party and the other Party or its Affiliates.
Satellite means Customer-provided Orion F2 satellite and associated
property to be launched on the Launch Vehicle.
Statement of Work or SOW means that document attached as Exhibit A to
this Contract.
Termination Charge means the charge calculated in accordance with
Paragraph 21.6 entitled "Termination Charge."
Third Party means any person or entity other than Contractor, Customer,
their Affiliates and Related Third Parties and the United States Government and
its agencies, contractors or subcontractors involved in the Launch Services.
3
<PAGE>
Lockheed Martin Commercial Launch Services, Inc. Proprietary Information
Table 21.6
Termination Liability Schedule
Date of Termination Termination Charge
- --------------------------------------------------------------------------------
Effective Date of Contract through 30 September [---------------------]
1996
1 October 1996 through 31 December 1996 or up to
NPD, whichever is earlier *
NPD through last day of NPD+18 months
First day of NPD+19 months, up to Launch
[---------------------]
Customer shall pay to Contractor any unpaid portion of the Termination Charge
within thirty (30) days of Contractor's invoice. Contractor shall refund to
Customer any amount paid, without interest, under this Contract for the
terminated Launch Service in excess of the Termination Charge within thirty (30)
days of the effective termination date for such Launch Service.
21.7 Effect of Termination If either Party terminates this Contract under this
Article 21, both Parties' obligations under this Contract with respect to such
Launch Service shall be discharged as of the Contract effective termination date
except that Customer's obligation to pay the Termination Charge described in
Paragraph 21.6 shall survive the termination of this Contract.
21.8 Effect on Termination Liability in Event of Launch Schedule Adjustment
In the event the Contractor postpones the launch schedule in accordance with
Article 7 or Article 8, the Customer's termination liability as set forth in
Table 21.6 above, shall not increase for a period of time equal to the actual
length of the delay.
24
<PAGE>
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PAGES 101 TO 109 AND PORTIONS OF
PAGE 114 OF THIS EXHIBIT 1B)
28 June 1996 Issue 3
ORION SATELLITE CORPORATION
PART 2(A)
ORION 2 STATEMENT OF WORK
Issue: 3
Dated: 28 June 1996
Signed: Date:
On behalf of ORION Satellite Corporation
Signed: Date:
On behalf of Matra Marconi Space UK Limited
Part 2(A) ORION 2 Statement of Work Page i
<PAGE>
TABLE OF CONTENTS
1. INTRODUCTION..............................................................1
1.1 Scope .............................................................1
1.2 Responsibilities....................................................1
2. EQUIPMENT, DOCUMENTATION, AND SERVICES......................................2
2.1 Introduction 2
2.2 Deliverable Equipment...............................................3
2.2.1 Flight Spacecraft............................................3
2.2.2 Mission Specific Hardware and Software.......................3
2.2.3 Optional Networking Transponders.............................3
2.2.4 Optional Spacecraft Dynamic Simulator........................3
2.3 Deliverable Documentation...........................................4
2.4 Services .........................................................4
2.4.1 Launch Support Services......................................4
2.4.2 Launch Services..............................................5
2.4.3 Reserved.....................................................5
2.4.4 Mission Support Services.....................................5
2.4.5 Operations Training..........................................5
3. PROGRAM MANAGEMENT........................................................6
3.1 Introduction........................................................6
3.1.1 Scope........................................................6
3.1.2 Responsibilities.............................................6
3.1.3 Program Management Plan......................................7
3.2 Program Management Interface........................................8
3.3 Documentation and Data Management...................................8
3.3.1 General......................................................8
3.3.2 Documentation Center.........................................9
3.3.3 Data Management Plan.........................................9
3.3.4 Documentation Submission Criteria............................9
3.3.5 Revision and Maintenance of Documentation....................9
3.3.6 Monthly Documentation Status Report..........................9
3.4 Meetings .........................................................9
3.4.1 Inaugural Meeting............................................9
3.4.2 Progress Meetings...........................................10
3.4.3 Senior Management Meetings..................................10
3.4.4 Quarterly Progress Meetings.................................10
3.4.5 Subcontractor Progress Meetings and Other Meetings..........10
Part 2(A) ORION 2 Statement of Work Page ii
<PAGE>
28 June 1996 Issue 3
3.4.6 Agenda Co-ordination Procedure..............................11
3.4.7 Minutes.....................................................11
3.5 Reviews ........................................................11
3.6 Action Item Control................................................12
3.7 Management of Contract Changes.....................................12
3.8 Program Planning and Status Information............................12
3.8.1 Hardware Matrix ............................................12
3.8.2 Qualification Status List...................................13
3.8.3 Critical Items List.........................................13
3.8.4 Program Schedules ..........................................13
3.8.5 Program Progress Report.....................................14
3.8.6 Executive Summary...........................................15
3.9 Program Monitoring and Notification Requirements...................15
3.9.1 ORION Representatives.......................................15
3.9.2 Office Accommodation and Facilities.........................16
3.9.3 Attendance at Meetings......................................16
3.9.4 Access to Documentation.....................................16
3.9.5 ORION Presence During Development, Qualification, and
Acceptance Tests............................................16
3.9.6 Notification Requirements...................................17
3.9.7 Material Review Board (MRB) and Failure Review
Board (FRB).................................................17
4. DESIGN ACTIVITIES........................................................18
4.1 General .........................................................18
4.2 Design Reviews.....................................................18
4.3 Design Analyses and Study Reports..................................18
4.3.1 Analyses at Spacecraft System Level.....................19
4.3.1.1 Spacecraft Failure Analysis.............................19
4.3.1.2 Dynamic Analysis........................................19
4.3.1.3 Antenna Pointing Error Analysis.........................20
4.3.1.4 Propellant Budget Analysis..............................21
4.3.1.5 Mass Properties Analysis................................21
4.3.1.6 Power Budget Analysis...................................21
4.3.1.7 Mission Analysis........................................22
4.3.1.8 Electromagnetic Compatibility (EMC) Analysis............22
4.3.1.9 Environmental Effects Analysis..........................23
4.3.1.10 Worst Case Performance Analysis.........................24
4.3.1.11 Autonomous Commands Analysis............................24
4.3.2 Subsystem Level Analyses................................24
4.3.2.1 Communications Subsystem Analysis.......................25
4.3.2.2 Telemetry, Tracking, and Command (TT&C) Subsystem
Analysis................................................28
Part 2(A) ORION 2 Statement of Work Page iii
<PAGE>
28 June 1996 Issue 3
4.3.2.3 Attitude and Orbit Control Subsystem (AOCS) Analysis....29
4.3.2.4 Propulsion Subsystem Analysis...........................30
4.3.2.5 Power Subsystem Analysis................................30
4.3.2.6 Thermal Subsystem Analysis..............................31
4.3.2.7 Structure Analysis......................................32
5. PRODUCT ASSURANCE.........................................................33
5.1 Product Assurance Requirements.....................................33
5.2 Quality Assurance Tasks............................................33
6. MANUFACTURING, ASSEMBLY, INTEGRATION AND TEST............................35
6.1 General ........................................................35
6.2 Test Plan ........................................................35
6.3 Test Procedures, Data, and Reports.................................36
6.3.1 Unit and Subsystem Test Procedures and Reports..............36
6.3.2 Spacecraft Test Procedures and Reports......................37
6.3.3 Test Data...................................................37
6.3.4 Spacecraft Log Book.........................................38
6.4 Test Reviews.......................................................38
6.5 Preshipment Review.................................................39
6.6 System and Major Subsystems Integration and Test Notification......39
6.7 Failure Notification..............................................39
6.8 Electrical and Mechanical Ground Support Equipment
(EGSE/MGSE)........................................................40
6.9 Test Equipment Requirements........................................40
6.10 Software Requirements..............................................40
6.11 Delivery of Drawings and Engineering Control Documents
for Spacecraft Operation and In-Orbit Control......................40
6.12 Secure Command System and Certification............................41
7. LAUNCH AND MISSION SUPPORT SERVICES......................................42
7.1 Scope ............................................................42
7.2 Launch Vehicle Compatibility.......................................42
7.3 Launch Support Services............................................42
7.3.1 Spacecraft Preparation at the Launch Sites..................43
7.3.2 Spacecraft Propellant and Pressurant........................43
7.3.3 Support of Meetings and Reviews.............................43
7.4 Safety ............................................................43
7.5 Launch Services....................................................44
Part 2(A) ORION 2 Statement of Work Page iv
<PAGE>
28 June 1996 Issue 3
7.6 Mission Support....................................................44
7.6.1 Scope ......................................................44
7.6.2 Mission Support Activities..................................45
7.6.2.1 Preparation and Definition of Mission Support Documents.45
7.6.2.2 World-Wide Ground Segment...............................48
7.6.2.3 Mission Support Procedures and Sequence of Events.......49
7.6.2.4 Spacecraft/ORION SCS Compatibility......................49
7.6.2.5 In-Orbit Test Plan and Procedure........................50
7.6.2.6 Mission Reviews.........................................50
7.6.2.7 Training ...............................................51
7.6.2.7.1 Classroom Training......................................51
7.6.2.7.2 On the Job Training.....................................52
7.6.2.7.3 Course Materials........................................53
7.6.2.8 Real-Time Mission Operations............................53
7.6.2.9 Post-Mission Review.....................................53
7.6.2.10 In-Orbit Testing and Test Report........................54
7.6.2.11 Spacecraft Acceptance Review............................54
7.6.2.12 Spacecraft Operational Support..........................54
8. SHIPPING AND TRANSPORTATION.............................................55
8.1 Shipping and Transportation Plan.................................55
8.2 Spacecraft Shipment ...............................................55
9. OPTIONS
9.1 Networking Transponders............................................56
9.2 Spacecraft Dynamic Simulator Software..............................56
10. MISSION SPECIFIC HARDWARE AND SOFTWARE ..................................57
10.1 Command Generators.................................................57
10.2 Propulsion Model...................................................57
10.3 Propellant Gauging.................................................57
10.4 Sensor Blinding Prediction Model...................................57
Part 2(A) ORION 2 Statement of Work Page v
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PAGES 130 TO 187 OF THIS DOCUMENT.
<PAGE>
28 June 1996 CONFIDENTIAL Issue 2
ORION SATELLITE CORPORATION
PART 2(B)
ORION 2 CONTRACT
DOCUMENTATION REQUIREMENTS
LIST (CDRL)
Issue: 2
Dated: 28 June 1996
Signed: Date:
On behalf of ORION Satellite Corporation
Signed: Date:
On behalf of Matra Marconi Space UK Limited
Part 2(B) ORION 2 Contractual Documentation Requirements List Page i
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PAGES 189 TO 206 OF THIS DOCUMENT.
<PAGE>
28 June 1996 CONFIDENTIAL Issue 3
ORION SATELLITE CORPORATION
PART 3(A)
ORION 2 SPACECRAFT SPECIFICATIONS
Issue:3
Dated: 28 June 1996
Signed: Date:
On Behalf of ORION Satellite Corporation
Signed: Date:
On Behalf of Matra Marconi Space UK Limited
Part 3(A) ORION 2 Spacecraft Specifications Page i
<PAGE>
TABLE OF CONTENTS
1. INTRODUCTION................................................................1
1.1 Scope and Purpose....................................................1
1.2 Description of the ORION 2 Spacecraft................................1
1.3 General Requirements.................................................1
2. SPACECRAFT SYSTEM CHARACTERISTICS...........................................3
2.1 Life ................................................................3
2.1.1 Manoeuver Life............................................3
2.1.2 Orbital Life..............................................3
2.2 Launch Configuration.................................................3
2.3 Spacecraft Reliability and Quality Assurance
Requirements....................................................3
2.5 General Spacecraft Design Considerations.............................6
2.5.1 Configuration.............................................6
2.5.2 Maintainability, Interchangeability, and
Accessibility...........................................6
2.5.3 Mechanical Design Criteria for Units and
Assemblies..............................................7
2.5.4 Thermal Design Criteria for Units and
Assemblies..............................................7
2.5.5 Design Criteria for Electronic Units and Onboard
Software...............................................7
2.5.6 Use of Connectors........................................8
2.5.7 Spacecraft Testing Via the Telemetry System...............8
2.5.8 Hard-line Connections for Communications and TT&C
Subsystem Testing.......................................8
2.5.9 Insulation of Conductors..................................8
2.5.10 Radiation Environment....................................9
2.5.11 Design Considerations Associated with
Charging Phenomena.......................................9
2.5.12 Zero-g Testing..........................................11
2.5.13 Operation Following Storage.............................11
2.5.14 Launch Windows and Mission Profile
Constraints............................................11
2.5.15 Telemetry Transmitters Status During Launch.............12
2.5.16 Helium Pressurant Venting (if applicable)...............12
2.5.17 Orbit Control Maneuvers.................................12
2.5.18 Operation in Inclined Orbit.............................12
2.5.19 Attitude Control Failure Mode Recovery and
Continued Operation....................................12
2.6 Definition of Coordinate Axes and Attitude Angles...................13
2.7 Antenna Beam Pointing Accuracy......................................13
2.8 Minimum Performance and Defect Criteria.............................15
<PAGE>
3.0 COMMUNICATIONS SUBSYSTEM..................................................16
3.1 General.............................................................16
3.1.1 Definitions...........................................16
3.1.2 Conditions for Specification..........................19
3.1.3 Primary Transmission Modes............................20
3.2 Coverage............................................................20
3.2.1 Coverage Regions......................................20
3.2.2 Beams.................................................22
3.3 Polarization........................................................27
3.3.1 Orthogonality.........................................27
3.3.2 Receive Beam Isolation................................28
3.3.3 Transmit Beam Isolation...............................28
3.4 Capacity............................................................30
3.5 Frequency Plan......................................................31
3.6 Communications Subsystem and Antenna Beam
Interconnectivity..............................................33
3.6.1 Communications Subsystem Configuration................33
3.6.2 Antenna Beam Interconnectivity........................33
3.7 Input Characteristics...............................................34
3.7.1 Receive Sensitivity (G/T).............................34
3.7.2 Gain and Level Control................................37
3.7.2.1 Fixed Gain Mode.......................................37
3.7.2.2 Automatic Level Control Mode..........................37
3.7.3 Transponder Gain......................................38
3.7.3.1 FG Mode...............................................38
3.7.3.2 ALC Mode..............................................38
3.7.4 Drive Conditions......................................38
3.7.4.1 Overdrive Capability..................................38
3.7.4.2 Overdrive Damage Limit................................39
3.7.4.3 Pulsed Transient Response.............................39
3.7.5 Receive Rejection.....................................39
3.7.6 Linearity of the Common Receive Section...............40
3.7.7 Interference from Command Carrier.....................40
3.8 Output Characteristics..............................................41
3.8.1 Effective Isotropic Radiated Power (EIRP).............41
3.8.2 Spurious Outputs......................................45
3.8.3 Spurious Modulation...................................46
3.8.4 AM/AM Transfer........................................46
3.8.5 AM/FM Transfer........................................48
3.8.5.1 Continuous Mode.......................................48
3.8.5.2 Pulsed Level..........................................48
3.8.6 Passive Intermodulation...............................48
3.8.7 Multipaction Requirements.............................48
3.9 Transfer Characteristics............................................48
3.9.1 Gain Versus Frequency.................................49
<PAGE>
3.9.2 Gain Slope...........................................51
3.9.3 Group Delay Versus Frequency.........................51
3.9.4 Group Delay Slope....................................53
3.9.5 Group Delay Stability................................53
3.9.6 Group Delay Ripple...................................53
3.9.7 Phase Linearity and AM/PM Conversion
Coefficient.........................................53
3.9.8 AM/PM TransferCoefficient............................54
3.9.9 Amplitude Linearity..................................54
3.9.10 Frequency Stability..................................55
3.9.11 Out-Of-Band Response.................................55
3.10 Cessation of Emissions.............................................56
3.11 Traffic Routing....................................................56
3.12 Redundancy.........................................................57
3.13 Power Amplifiers...................................................57
3.13.1 Linearized TWTAs.....................................57
3.13.2 TWTA Auto-Restart Capability.........................57
3.14 TT&C Interface.....................................................58
3.14.1 Command Requirements.................................58
3.14.2 Telemetry Requirements...............................58
4.0 TELEMETRY, TRACKING, AND COMMAND (TT&C).............................64
4.1 Telemetry...........................................................64
4.1.1 Functional Requirements..............................64
4.1.1.1 Purpose..............................................64
4.1.1.2 Function.............................................65
4.1.1.3 Operation............................................65
4.1.1.4 Interaction with the Communications
Subsystem............................................65
4.1.1.5 Redundancy...........................................65
4.1.1.6 Interfaces...........................................66
4.1.1.6.1 All Subsystems.......................................66
4.1.1.6.2 Communications Subsystem.............................67
4.1.1.6.3 Telemetry, Tracking and Command Subsystem............67
4.1.1.6.4 Attitude and Orbit Control Subsystem.................68
4.1.1.6.5 Propulsion Subsystem.................................69
4.1.1.6.6 Power Subsystem......................................69
4.1.1.6.7 Thermal Subsystem....................................70
4.1.1.6.8 Deployment and Pointing Mechanisms...................70
4.1.1.7 Accuracy.............................................71
4.1.1.8 Data Channel Dynamic Range...........................71
4.1.1.9 Spare Capacity.......................................72
4.1.2 RF Parameters........................................72
4.2 Command.............................................................73
<PAGE>
4.2.1 Functional Requirements..............................73
4.2.1.1 Purpose..............................................73
4.2.1.2 Function.............................................73
4.2.1.3 Operation............................................73
4.2.1.4 Isolation............................................73
4.2.1.5 Redundancy...........................................74
4.2.1.6 Interfaces...........................................74
4.2.1.7 System Test Considerations...........................74
4.2.1.8 Spare Capacity.......................................75
4.2.2 RF Parameters........................................75
4.2.3 Baseband Characteristics.............................75
4.2.3.1 Error Prevention and Detection......................76
4.2.3.2 Command Security.....................................76
4.2.3.3 Command Acceptance Probability.......................77
4.3 Ranging.............................................................77
4.3.1 Functional Requirement...............................77
4.3.1.1 Purpose..............................................77
4.3.1.2 Function.............................................77
4.3.1.3 Operation............................................78
4.3.1.4 Isolation............................................78
4.3.2 Performance Requirements.............................78
5. ATTITUDE AND ORBIT CONTROL SUBSYSTEM(AOCS).................................79
5.1 Functional Description..............................................79
5.2 Subsystem Performance and Design Requirements.......................79
5.2.1 Attitude Determination...............................79
5.2.1.1 Transfer Orbit.......................................79
5.2.1.2 Synchronous Orbit....................................80
5.2.2 Attitude Control.....................................80
5.2.2.1 Parking Orbit (If Applicable)........................80
5.2.2.2 Transfer Orbit.......................................80
5.2.2.3 Transfer to Geosynchronous Orbit and Initial
Acquisition.........................................80
5.2.2.4 On Orbit Control and Antenna Pointing Mode...........80
5.2.3 Reacquisition........................................81
5.2.4 Ground Control.......................................81
5.2.4.1 Ground Control Command Capability....................81
5.2.5 Safe Modes...........................................81
5.2.6 Special Features.....................................82
5.2.6.1 Antenna Pattern Measurement Capability...............82
5.2.6.2 Control Bias Capability..............................82
5.2.6.3 AOCS Switching.......................................82
5.2.6.4 Control Electronics Fault Protection.................82
5.2.6.5 Dynamic Stability....................................83
5.2.7 Subsystem Configuration and Interfaces...............83
5.2.7.1 Redundancy...........................................83
<PAGE>
5.2.7.2 TT&C Interfaces......................................83
5.2.7.3 Propulsion Interfaces................................83
6. PROPULSION SUBSYSTEM.......................................................84
6.1 Functional Description..............................................84
6.2 Design Requirements.................................................84
6.3 Redundancy..........................................................86
6.4 Maneuver Life and Propellant Loading................................87
6.4.1 General Requirements..................................87
6.4.2 Propellant Budgeting Methodology......................87
6.4.2.1 Actual Hardware Performance Test Data.................87
6.4.2.2 Inefficiencies of Operation...........................88
6.4.2.3 Inflight Performance..................................88
6.4.2.4 Specific Maneuver Requirements........................88
6.5 TT&C Interfaces.....................................................89
7. POWER SUBSYSTEM............................................................90
7.1 Functional Description..............................................90
7.2 General Requirements................................................90
7.3 Energy Generation...................................................91
7.3.1 Solar Cells...........................................91
7.3.2 Power Output..........................................91
7.3.3 Power Transfer Assembly...............................91
7.4 Energy Storage......................................................92
7.4.1 Batteries.............................................92
7.4.2 Battery Charge Management.............................92
7.4.3 Cell Failure..........................................93
7.4.4 Battery Removal and Storage...........................93
7.5 Power Conditioning and Control......................................93
7.5.1 Bus Configuration.....................................93
7.5.2 Failure Modes and Shutdown Sequence...................94
7.5.3 Bus Undervoltage and Overvoltage......................95
7.5.4 Interaction Between the Communications and
Power Subsystems.....................................95
7.6 TT&C Interfaces.....................................................95
8. THERMAL CONTROL SUBSYSTEM..................................................96
8.1 Functional Description..............................................96
8.2 Performance Requirements............................................96
8.3 Subsystem Design Requirements.......................................97
8.3.1 Instrumentation.......................................98
8.3.2 Materials.............................................98
<PAGE>
8.3.3 Venting...............................................98
8.3.4 Grounding.............................................99
8.3.5 Multi-Layer Insulating Blanket (MLI)..................99
8.3.6 Contamination Control.................................99
8.4 TT&C Interfaces....................................................100
9. STRUCTURE SUBSYSTEM.......................................................101
9.1 Functional Description.............................................101
9.2 Performance Requirements...........................................101
9.3 Design Requirements................................................101
10 MECHANISMS................................................................103
10.1 Design Requirements...............................................103
10.2 TT&C Interfaces...................................................104
11. PYROTECHNIC AND ELECTROEXPLOSIVE DEVICES.................................105
Attachment:
Annex A Radiation Environment Specification, Issue C, 13 October 1995
<PAGE>
13 October 1995 Issue C
CONFIDENTIAL
PART 3(A)
ANNEX A
RADIATION ENVIRONMENT
SPECIFICATION
'REDLINED' AND AMENDED 10 OCTOBER 1995
'REDLINED' AND AMENDED 13 OCTOBER 1995
--------------------------------------
Part 3(A) Annex A Radiation Environment Specification Page i
<PAGE>
TABLE OF CONTENTS
1. INTRODUCTION..............................................................1
2. SYNCHRONOUS ORBIT CONDITIONS..............................................1
2.1 Electrons........................................................1
2.2 Protons..........................................................2
2.3 Alpha Particles..................................................2
2.4 Cosmic Ray Radiation.............................................3
2.5 Ultraviolet Radiation............................................4
2.6 Plasma...........................................................4
2.7 Micrometeroids...................................................5
3. TRANSFER ORBIT CONDITIONS.................................................5
3.1 Transfer Orbit Electron Flux Values..............................5
3.2 Transfer Orbit Proton Flux Values................................5
Part 3(A) Annex A Radiation Environment Specification Page ii
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PAGES 212 TO 314 OF THIS DOCUMENT.
<PAGE>
28 June 1996 CONFIDENTIAL Issue 3
ORION SATELLITE CORPORATION
PART 3(B)
ORION 2 SPACECRAFT
PRODUCT ASSURANCE REQUIREMENTS
Issue: 3
Dated: 28 June 1996
Signed: Date:
On behalf of ORION Satellite Corporation
Signed: Date:
On behalf of Matra Marconi Space UK Limited
Part 3(B) ORION 2 Spacecraft Product Assurance Requirements page i
<PAGE>
TABLE OF CONTENTS
1. INTRODUCTION..............................................................1
1.1 Scope............................................................1
1.2 Product Assurance Objectives.....................................1
2. PRODUCT ASSURANCE REQUIREMENTS............................................3
2.1 Product Assurance Plan...........................................3
2.2 Organization and Management......................................3
2.3 Reporting........................................................3
2.4 Non-Conformance..................................................4
2.5 Contract Change Management.......................................4
2.5.1 Change Classification...................................4
2.5.2 Preliminary Change Assessment...........................5
2.5.3 Change Request (CR).....................................5
2.5.4 Contract Change Notice (CCN)............................6
2.5.5 Review and Approval of a Change.........................7
2.5.6 Change Review Board.....................................7
2.5.7 Implementation of a Change by the Contractor............8
2.5.8 Directed Changes........................................8
2.5.9 Go Ahead Procedure......................................8
2.5.10 CR/CCN Log..............................................9
2.5.11 Waivers and Deviations..................................9
3. REVIEWS AND AUDITS.......................................................11
3.1 Design Reviews..................................................11
3.1.1 Review Chairperson and Review Board....................12
3.1.2 Review Notification....................................12
3.1.3 Data Packages..........................................12
3.1.4 Review Procedures......................................12
3.1.5 Review Summary.........................................13
3.1.6 Review Completion......................................13
3.1.7 Subsystem and Unit Design Reviews......................13
3.1.7.1 Unit and Subsystem Preliminary Design Reviews..........14
3.1.7.2 Unit and Subsystem Critical Design Reviews.............14
3.1.7.3 Communications Subsystem Final Design Review...........15
3.1.7.4 Unit Qualification Design Review.......................15
3.1.8 Spacecraft System Design Reviews.......................15
3.1.8.1 System Preliminary Design Review.......................16
3.1.8.2 System Critical Design Review..........................16
3.1.8.3 System Final Design Review.............................16
3.2 Test Reviews....................................................17
<PAGE>
3.3 Preshipment Review..............................................17
3.4 Further Reviews and Inspections.................................18
3.5 Design Review Documentation.....................................19
3.6 Test Review Documentation.......................................19
3.7 Program Audits..................................................20
3.8 ORION Right of Access...........................................20
4. SUBCONTRACTOR AND SUPPLIER MANAGEMENT....................................21
4.1 Subcontractor/Supplier Product Assurance Plan...................21
4.2 Requirements....................................................21
4.3 Reviews and Controls............................................21
5. RELIABILITY ASSURANCE....................................................22
5.1 Reliability Analysis............................................22
5.2 Parts Derating and Stress Analysis..............................23
5.3 Failure Modes, Effects, and Criticality Analyses................23
5.4 Worst-Case Analysis (WCA).......................................24
5.5 Critical Items Control..........................................25
5.6 Design Verification Matrix (DVM)................................26
5.7 Qualification Status List (QSL).................................26
6. QUALITY ASSURANCE........................................................27
6.1 Quality Assurance...............................................27
6.2 Procurement and Fabrication.....................................27
6.3 Test and Inspection.............................................27
6.4 Workmanship Standards...........................................28
6.5 Quality Records and Traceability................................28
6.6 Non-Conformance Control.........................................28
6.6.1 Non-Conformance Reporting..............................29
6.6.2 Non-Conformance/Failure Review and Disposition.........29
6.6.3 Failure Analysis and Corrective Action.................29
7. PARTS PROCUREMENT........................................................30
7.1 Parts Procurement and Control...................................30
7.2 Organization and Responsibilities...............................30
7.3 Selection and Application.......................................30
7.4 Quality Provisions..............................................31
7.5 Radiation.......................................................32
7.6 Lot Transfer....................................................32
7.7 Traceability....................................................32
7.8 Hybrids, MCMs, Battery Cells, TWTs, and Magnetics...............32
<PAGE>
7.9 Traveling Wave Tube Amplifiers..................................33
7.10 Parts Documentation............................................34
8. MATERIALS AND PROCESSES..................................................35
8.1 Materials and Process Control...................................35
8.2 Organization....................................................35
8.3 Critical Materials and Processes................................35
8.4 Materials and Process Selection.................................35
8.5 Materials and Process Documentation.............................36
9. SOFTWARE QUALITY ASSURANCE...............................................37
9.1 Software Quality Assurance Plan.................................37
9.2 Software Development............................................37
9.3 Configuration Control...........................................37
9.4 Verification and Acceptance Testing.............................37
9.5 Non-Conformance Control.........................................38
10. CONFIGURATION MANAGEMENT.................................................39
10.1 Configuration Management.......................................39
10.2 Configuration Identification and Control.......................39
10.3 Change Control.................................................40
10.4 Configuration Verification.....................................40
10.5 Configuration Status Accounting and Documentation..............40
11. SAFETY...................................................................41
11.1 General........................................................41
11.2 Hazardous Conditions...........................................41
11.3 Safety and Hazard Analyses.....................................41
12. Launch Vehicle............................................................42
12.1 Introduction...................................................42
12.2 Reporting......................................................42
12.3 Reviews........................................................42
12.3.1 Interface Control Document Review (ICDR)............42
<PAGE>
12.3.2 Mission Peculiar Design Review (MPDR)...............42
12.3.3 Launch Vehicle System Review (LVSR).................42
12.3.4 Certificate of Completion Review (COCR).............43
12.3.5 Review Summary and Action Items.....................43
12.4 Launch Readiness Review........................................43
APPENDIX 1 REVIEW ITEM DISCREPANCY FORM......................................44
APPENDIX 2 CHANGE REQUEST FORM...............................................45
APPENDIX 3 CONTRACT CHANGE NOTICE FORM.......................................46
APPENDIX 4 REQUEST FOR DEVIATION/WAIVER FORM.................................47
APPENDIX 5 NON-CONFORMANCE REPORT FORM.......................................48
<PAGE>
28 June 1996 CONFIDENTIAL Issue 3
ORION SATELLITE CORPORATION
PART 3(C)
ORION 2 SPACECRAFT ON-GROUND
TEST REQUIREMENTS
Issue: 3
Dated: 28 June 1996
Signed: Date:
On behalf of ORION Satellite Corporation
Signed: Date:
On Behalf of Matra Marconi Space UK Limited
Part 3(c) ORION 2 Spacecraft On-Ground Test Requirement Page i
<PAGE>
TABLE OF CONTENTS
1. INTRODUCTION..............................................................1
2. GENERAL COMMENTS..........................................................2
2.1 TEST PHILOSOPHY........................................................2
2.2 DEFINITIONS............................................................3
2.3 TEST REQUIREMENTS......................................................4
2.3.1 GENERAL............................................................5
2.3.2 TEST EQUIPMENT AND TEST FACILITY REQUIREMENTS......................6
2.3.3 ZERO-G TESTING.....................................................6
2.3.4 ACCEPTANCE TESTS...................................................7
2.3.5 PROTOFLIGHT TESTS..................................................7
2.3.6 QUALIFICATION TESTS................................................
2.4 WITNESSING OF TESTS....................................................8
2.5 TEST DATA..............................................................9
2.6 TEST REVIEWS...........................................................9
2.7 DOCUMENTATION..........................................................9
2.8 ORGANIZATION...........................................................9
3. UNIT, SUBSYSTEM AND SPACECRAFT TEST PROGRAM .............................10
3.1 EQUIPMENT CATEGORIZATION...............................................
3.2 TEST PROGRAM OVERVIEW.................................................10
4. PROTOFLIGHT TESTS........................................................25
4.1 UNIT PROTOFLIGHT TESTS.................................................25
4.2 SUBSYSTEM PROTOFLIGHT TESTS............................................31
4.2.1 REPEATER SUBSYSTEM................................................31
4.2.2 ANTENNA SUBSYSTEM.................................................32
4.2.3 TELEMETRY, TRACKING, AND COMMAND (TT&C) SUBSYSTEM.................35
4.2.4 AOCS SUBSYSTEM PROTOFLIGHT DYNAMIC TEST...........................35
4.2.5 PROPULSION SUBSYSTEM..............................................36
4.2.6 POWER SUBSYSTEM...................................................36
4.2.6.1 SOLAR ARRAY.....................................................36
4.2.6.2 BATTERY ASSEMBLY................................................38
4.2.7 STRUCTURE SUBSYSTEM PROTOFLIGHT TEST..............................38
4.2.8 THERMAL SUBSYSTEM PROTOFLIGHT TEST....................37
<PAGE>
4.3 SPACECRAFT PROTOFLIGHT TEST............................................38
4.3.1 INTEGRATION TESTS................................................38
4.3.2 INTEGRATED SYSTEM TEST...........................................38
4.3.3 ELECTRO MAGNETIC COMPATIBILITY (EMC) TEST........................40
4.3.4 RF HEALTH CHECK..................................................40
4.3.5 ELECTRO STATIC DISCHARGE (ESD) TEST..............................41
4.3.6 SPACECRAFT ALIGNMENT TEST........................................42
4.3.7 SINUSOIDAL VIBRATION.............................................42
4.3.8 POST-SINUSOIDAL VIBRATION FUNCTIONAL TESTS.......................42
4.3.9 ACOUSTIC VIBRATION TEST..........................................43
4.3.10 POST-ACOUSTIC VIBRATION FUNCTIONAL TESTS.........................43
4.3.11 SHOCK AND DEPLOYMENT TESTS.......................................43
4.3.12 POST-LAUNCH ENVIRONMENT PERFORMANCE TEST.........................44
4.3.13 THERMAL BALANCE/THERMAL VACUUM TEST..............................44
4.3.14 FINAL PERFORMANCE TEST...........................................46
4.3.15 RF RANGE TEST....................................................45
4.3.16 SPACECRAFT MASS PROPERTIES MEASUREMENTS..........................46
5. FLIGHT ACCEPTANCE TESTS..................................................54
5.1 UNIT ACCEPTANCE TESTS..................................................54
5.1.1 PIM............................................................55
5.1.2 POWER HANDLING MP AND GP......................................55
5.2 SUBSYSTEM ACCEPTANCE TESTS.............................................55
5.2.1 ANTENNA SUBSYSTEM.................................................55
5.2.2 ATTITUDE AND ORBIT CONTROL SUBSYSTEM (AOCS).......................55
5.2.3 POWER SUBSYSTEM...................................................55
5.2.4 STRUCTURE SUBSYSTEM ACCEPTANCE TESTS..............................56
5.2.5 THERMAL SUBSYSTEM.................................................56
5.2.6 PLATFORM HARNESS..................................................56
5.3 SPACECRAFT ACCEPTANCE TEST.............................................56
6. LIFE TESTS...............................................................58
7. DEVELOPMENT AND QUALIFICATION TEST.......................................59
7.1 COMMUNICATIONS SUBSYSTEM TESTS.........................................59
7.1.1 ANTENNA UNIT AND SUBSYSTEM TEST...................................59
7.1.2 REPEATER UNITS....................................................60
<PAGE>
7.2 STRUCTURE SUBSYSTEM TESTS..............................................60
7.2.1 STRUCTURE STATIC TEST.............................................60
7.3 AOCS SUBSYSTEM QUALIFICATION TESTS.....................................60
7.3.1 AOCS SUBSYSTEM DYNAMIC TESTS......................................60
7.3.2 LIQUID SLOSH TEST.................................................60
7.4 PROPULSION SUBSYSTEM QUALIFICATION TESTS...............................61
7.4.1 GENERAL...........................................................61
7.4.2 THRUSTERS.........................................................61
7.4.3 LIQUID APOGEE/PERIGEE ENGINES.....................................62
7.4.4 PROPELLANT TANK...................................................62
7.4.5 SUBSYSTEM VERIFICATION TEST.......................................62
7.5 THERMAL SUBSYSTEM......................................................63
7.5.1 THERMAL SURFACES..................................................63
7.5.2 HEAT PIPES........................................................63
7.6 MECHANISMS.............................................................64
8. INTERFACE COMPATIBILITY TESTS............................................65
8.1 GROUND CONTROL SYSTEM COMPATIBILITY....................................65
8.2 LAUNCH VEHICLE COMPATIBILITY...........................................65
9. LAUNCH PREPARATION TEST..................................................66
9.1 GENERAL................................................................66
9.2 LAUNCH SITE FUNCTIONAL TEST............................................66
9.3 LAUNCH PREPARATION FUNCTIONAL TESTS....................................67
9.4 POST-ENCAPSULATION AND LAUNCH PAD TESTS................................68
10. DESIGN VERIFICATION MATRICES (DVM)...................................69
10.1 DESIGN VERIFICATION...................................................69
11. TEST CONFIGURATION MATRICES..........................................87
11.1 INTRODUCTION..........................................................87
<PAGE>
11.2 REPEATER TEST CONFIGURATIONS..........................................87
11.2.1 OVERALL GUIDELINES...................................87
11.2.2 SUBSYSTEM LEVEL......................................88
11.2.3 SPACECRAFT LEVEL.....................................88
11.2.4 RF LINK CALIBRATIONS.................................89
11.2.5 PERFORMANCE PARAMETERS...............................89
11.3 ANTENNA TEST CONFIGURATIONS...........................................90
11.3.1 UNIT/SUBSYSTEM LEVEL.................................90
11.3.2 SPACECRAFT LEVEL.....................................91
<PAGE>
28 June 1996 CONFIDENTIAL Issue 3
ORION SATELLITE CORPORATION
PART 3(D)
ORION 2 IN-ORBIT COMMISSIONING
AND
ACCEPTANCE TEST REQUIREMENTS
Issue: 3
Dated: 28 June 1996
Signed: Date:
On behalf of ORION Satellite Corporation
Signed: Date:
On behalf of Matra Marconi Space UK Limited
Part 3(D) ORION 2 In-Orbit Commissioning and Acceptance Test Requirements
Page i
<PAGE>
<PAGE>
28 June 1996 CONFIDENTIAL Issue 3
PART 3(D)
IN-ORBIT COMMISSIONING
AND
ACCEPTANCE TEST REQUIREMENTS
CONTENTS
PAGE NO.
1. SCOPE.................................................................1
2. DEFINITIONS...........................................................1
3. INTRODUCTION..........................................................2
4. COMMISSIONING.........................................................4
4.1 Commissioning Activities.......................................4
4.2 Documentation..................................................5
5. ACCEPTANCE TESTING....................................................6
5.1 Aggregate Predicted Transponder Life...........................6
5.2 Transponder Acceptance Tests...................................8
5.3 Determination of other Spacecraft Parameters..................12
5.4 Documentation.................................................15
6. POST ACCEPTANCE TRANSPONDER TESTING..................................18
ANNEX A GROUND TEST FACILITY CONCEPT..................................20
ANNEX B COMMISSIONING ACTIVITIES......................................23
ANNEX C TRANSPONDER PERFORMANCE TESTS.................................30
<PAGE>
ANNEX A
GROUND TEST FACILITY CONCEPT
<PAGE>
ANNEX B
COMMISSIONING ACTIVITIES
<PAGE>
ANNEX C
TRANSPONDER PERFORMANCE
TESTS
<PAGE>
PART IV TO ORION 2 SPACECRAFT PURCHASE CONTRACT
<PAGE>
[GRAPHIC OMITTED] MEMORANDUM
TO: DISTRIBUTION
FROM: G. Jansson
SUBJECT: ORION 2 Contract - Technical Documentation Rev A
DATE: 23 July 1996
cc: F. Weber, D. Curtin, R. Sorbello, P. Phung, D. Shay, S. Lewis, B.
Randall, L. Tang, J. Dealy (The Dealy Strategy Group), J. Sullivan
(Shaw, Pittman, Potts & Trowbridge)
- --------------------------------------------------------------------------------
Please find the attached sheets which represent revisions to the appropriate
pages of their respective document. The attached is delineated below:
<TABLE>
<CAPTION>
Document Page(s)
-------- -------
<S> <C>
Part 3(A) ORION 2 Spacecraft Specifications ii, iii, iv, v, vi,
20, 42
Part 3(B) ORION 2 Spacecraft Product Assurance Requirements iv, v, 42, 43
Part 3 (D) In-Orbit Commissioning and Acceptance Test Requirements ii
</TABLE>
The above changes have not affected the revision status of the pages mentioned
nor the complete document; each remains at Issue 3.
Please insert the attached pages into your existing documents and discard the
previous pages.
<PAGE>
[GRAPHIC OMITTED] MEMORANDUM
TO: DISTRIBUTION
FROM: G. Jansson
SUBJECT: ORION 2 Contract - Technical Documentation Rev B
DATE: 25 July 1996
cc: F. Weber, D. Curtin, R. Sorbello, P. Phung, D. Shay, S. Lewis, B.
Randall, L. Tang, J. Dealy (The Dealy Strategy Group), J. Sullivan
(Shaw, Pittman, Potts & Trowbridge)
- --------------------------------------------------------------------------------
Please find the attached sheet(s) which represent revisions to the appropriate
page(s) of their respective document. The attached is delineated below:
Document Page(s)
-------- -------
Part 3(B) ORION 2 Spacecraft Product Assurance Requirements iv
Part 3(A) ORION 2 Spacecraft Specifications 1
The above change(s) have not affected the revision status of the pages mentioned
nor the complete document; each remains at Issue 3.
Please insert the attached page(s) into your existing documents and discard the
previous page(s).
The portions of this Exhibit for which confidential treatment has been requested
are marked by brackets ([ ]). In addition, an asterisk (*) appears in the right
hand margin of each paragraph in which confidential information is included.
OPTION AGREEMENT
FOR
PURCHASE OF ORION 2 SPACECRAFT
This Option Agreement ("Agreement") is made this 10th day of December
1996 ("Effective Date") by and between International Private Satellite Partners,
L.P., d/b/a Orion Atlantic, L.P., a Delaware limited partnership with its
principal offices located at 2440 Research Boulevard, Rockville, Maryland 20850,
U.S.A. ("ORION"), and Matra Marconi Space UK Limited, a company organized and
existing under the laws of England and Wales with its registered office at The
Grove, Warren Lane, Stanmore, Middlesex, HA7 4LY, England ("MMS").
WHEREAS, ORION desires to purchase from MMS, and MMS desires to sell to
ORION, an option to purchase a communications satellite ("Orion 2 Spacecraft")
designed, developed, built and delivered in orbit on an Atlas IIAS launch
vehicle with the configuration, schedule and technical performance requirements
set forth in the ORION 2 Purchase Contract signed by the Parties and dated July
31, 1996, as such contract is to be restated and amended with respect to price,
payment schedule and other provisions set forth in the Memorandum of Agreement
signed by the Parties on December 10, 1996; and
NOW, THEREFORE, in consideration of the mutual promises and
undertakings contained herein, the Parties, intending to be legally bound, agree
as follows:
1. Grant of Option. MMS hereby grants to ORION the option ("Option") to purchase
from MMS the ORION 2 Spacecraft constructed and delivered in accordance with the
terms and conditions of the ORION 2 Purchase Contract, as amended. As of the
date ORION exercises the Option, the ORION 2 Purchase Contract, as amended,
shall be deemed to be fully effective and to have been in full force and effect
from the Option Purchase Date.
2. Option Purchase Date and Period. For the purposes of this Agreement, the
"Option Purchase Date" shall be the date upon which MMS receives Installment No.
2 as detailed in paragraph 3 hereof, but in no event later than February 28,
1997, and the "Option Period" shall be the period commencing on the Option
Purchase Date and expiring on the last day of the 16th month following the date
upon which MMS receives Installment No. 2, but in no event later than June 30,
1998. MMS agrees to extend the Option Period through July 31, 1998, provided
ORION pays MMS an extension fee of $2 million on or before June 30, 1998; and,
provided the Lockheed Martin price shall be increased by $700,000, said amount
to be paid on or before June 30,1998.
3. Consideration for Option.
------------------------
(a) In consideration for the Option hereby granted, ORION shall pay MMS
the sum of US$ 49.4 million (the "Option Price"), which sum shall be paid in
Installments as specified in the table below on or before the dates specified in
such table:
Option Agreement -1-
<PAGE>
Installment Payment Date Total Option Installment Installment
----------- ------------ ------------ ----------- -----------
No. Installment Amount Amount
--- ----------- ------ ------
Amount (Spacecraft) (Launcher)
------ ------------ ----------
1 Dec. 31, 1996 US $ 1.0 Million [ ] [ ]
2 Feb. 28, 1997 US $ 2.0 Million [ ] [ ]
3 Mar. 31, 1997 US $22.0 Million [ ] [ ]
4 June 15, 1997 [ ] [ ] [ ]
5 July 31, 1997 [ ] [ ] [ ]
6 Dec. 31, 1997 [ ] [ ] [ ]
- --------------------------------------------------------------------------------
Total US$ 49.4 Million US$ 40.0 Million US$ 9.4 Million
*Consists of $200,000 already paid and $800,000 to be paid to Lockheed Martin
(Launcher provider) for a Launch reservation (covering the period May 1, 1999
through July 31, 1999).
(b) MMS shall provide ORION ten (10) days written notice of each
payment due hereunder after Installment No.3;
(c) The Option Price shall not be refundable in whole or in part
under any circumstances, including the bankruptcy or insolvency of ORION;
(d) The parties have agreed that, in the event ORION's planned
financings are not closed and funds disbursed by March 31, 1997, ORION may
extend Installment No.3 until April 30, 1997 by making a partial payment of $2.5
million _________________________________ ______________ on or before March 31,
1997. Moreover, to the extent net proceeds from ORION's planned public debt
financings are greater than _________________ (exclusive of prefunded amounts
to pay interest), ORION will accelerate Installments No.4 and No.6 of the
Launcher Payments.
4. Manner of Exercise of Option. ORION may exercise the Option by paying to MMS,
on or before the date the Option Period expires, the sum ("Option Exercise
Price") of cumulative Milestone Payments and Progress Payments payable under the
ORION 2 Purchase Contract through the exercise date, less the Option Price
already paid under Section 3(a) above.
5. Title to Work. MMS shall retain title to all work in progress from the
Effective Date unless and until ORION exercises the Option. In the event ORION
exercises the Option in the manner provided by this Agreement, title to work in
progress shall be governed by the ORION 2 Purchase Contract, as amended.
Option Agreement -2-
<PAGE>
6. MMS's Covenant. MMS covenants to ORION and ORION acknowledges that (a)
upon receipt of Installment No. 2 detailed in Clause 3 hereof, MMS will commence
to perform the Work (and MMS will continue to perform the Work through the
expiration of the Option Period, provided ORION pays each Installment detailed
in Clause 3 hereof on the Payment Date), as defined in the ORION 2 Purchase
Contract, as though the ORION 2 Purchase Contract were then effective and (b) in
order to perform the Work according to the schedule set forth in the ORION 2
Purchase Contract, MMS will be required to expend funds in excess of the Option
Price.
7. Representations.
(a) MMS represents, warrants and covenants that it has the authority
and the right sufficient to grant the Option and to perform all of its
obligations under this Agreement and that MMS's performance of such obligations
will not violate any other agreement to which MMS is a party.
(b) ORION represents and warrants that (1) it has the power and
authority to execute, deliver, and perform this Option Agreement, (2) it is not
entering into this Agreement with an intent to hinder, delay, or defraud any of
its creditors, and (3) the making of the payments required to be made hereunder
will not, at the time such payments are made, cause ORION to be insolvent.
8. Confidentiality. Each Party acknowledges that it may, in the course of
performing its responsibilities under this Agreement, be exposed to or acquire
information that is proprietary to or confidential to the other Party. Each
Party agrees to hold such information in strict confidence and not to disclose
such confidential information for any purpose whatsoever other than the
performance of its obligations as contemplated by this Agreement (or as required
by law or regulation) and to advise each of its employees who may be exposed to
such proprietary and confidential information of his or her obligation to keep
such information confidential. This obligation of confidentiality will survive
the termination or expiration of this Agreement.
9. Failure to Exercise Option or to Make Payments -- Sole and Exclusive Remedy.
In the event: (a) ORION fails to exercise the Option in the manner provided in
this Agreement on or before the date the Option Period expires; or (b) ORION
fails to make any Installment Payment detailed in Clause 3 hereof (after receipt
of proper notice as set forth in Clause 3) on or before the dates specified in
Clause 3; then, at its option, MMS may terminate this Option Agreement
immediately upon written notice to ORION and retain all money paid by ORION to
MMS pursuant to this Agreement and the ownership of all work in progress. This
is MMS' sole remedy for ORION's failure to make any Option Installment Payments.
10. Term and Termination. The term of this Agreement will begin on the Effective
Date and will continue until the earliest to occur of the following: (i) ORION
exercises the Option in the manner provided in this Agreement; (ii) the last day
of the Option Period expires; (iii) MMS terminates this Option Agreement in
accordance with Section 9; and (iv) the date upon which ORION and MMS mutually
agree to terminate this Agreement. In addition, MMS may terminate this Option
Agreement, if on March 31, 1997 (or April 30, 1997, if extended pursuant to
Section 3(d) hereof), Restated Amendment #10 of even date is not in full force
and effect and there is no default thereunder.
Option Agreement -3-
<PAGE>
11. Notices. Any notice or other communication required or permitted to be made
or given by either Party pursuant to this Agreement will be deemed to have been
duly given: (i) five (5) business days after the date of mailing if sent by
registered or certified U.S. mail, postage prepaid, with return receipt
requested; (ii) when transmitted if sent by facsimile, confirmed by the specific
addressee, with a copy of such facsimile promptly sent by another means
specified in this section; or (iii) when delivered if delivered personally or
sent by express courier service. All notices will be sent to the other party at
its address as set forth below or at such other address as such Party will have
specified in a notice given in accordance with this section:
----------------------------------------------------------------------------
In the case of ORION: with a copy to:
----------------------------------------------------------------------------
Orion Satellite Corporation Shaw, Pittman, Potts & Trowbridge
2440 Research Boulevard, Suite 400 2300 N Street, N.W.
Rockville, MD 20850 Washington, D.C. 20037
Tel: (301) 258-8101 Tel: (202) 663-8181
Fax: (301) 258-3300 Fax: (202) 663-8007
Attn: Dr. Denis Curtin, Senior Vice Attn: John F. Dealy
President, Engineering and Satellite
Operations, for technical matters
Attn: Richard Shay, Esquire, Vice
President of Corporate and Legal
Affairs, for contract matters
----------------------------------------------------------------------------
------------------------------------
In the case of MMS:
------------------------------------
Matra Marconi Space UK Limited
Gunnels Wood Road
Stevenage, Hertfordshire SG1 2AS
England
Tel: + 44 (0) 1438 313456
Fax: + 44 (0) 1438 773637
Attn: Barrie Kirk, ORION Project
Manager, for technical or management
matters
Attn: Arthur Blick, Commercial
Manager, for commercial matters
------------------------------------
12. Rights Cumulative. All rights, powers and privileges conferred
hereunder upon the Parties, unless otherwise provided, shall be cumulative and
shall not be restricted to those given by law. Failure to exercise any power
given any party hereunder or to insist upon strict compliance by any other party
shall not constitute a waiver of any party's right to demand exact compliance
with the terms hereof.
13. General. This Agreement (and any Exhibits hereto) sets forth the entire
understanding between the Parties with respect to its subject matter and
supersedes all prior and
Option Agreement -4-
<PAGE>
contemporaneous agreements and understandings with respect thereto other than
the MOA and the ORION 2 Purchase Contract. This Agreement may be amended only by
a written instrument signed by an authorised representative of each Party. This
Agreement shall not constitute, give effect to, or otherwise imply, a joint
venture, pooling arrangement, partnership, agency or formal business
organisation of any kind. ORION may assign or transfer this Agreement to any
party that (i) demonstrates to MMS's reasonable satisfaction that it has the
financial ability to pay the Option Exercise Price and (ii) is within the scope
of any export license requirements applicable to MMS's performance of the work.
MMS shall not assign, delegate or in any manner transfer this Agreement without
the prior written consent of ORION. No waiver, delay or discharge by a Party
will be valid unless in writing and signed by an authorised representative of
the Party against which its enforcement is sought. Provisions of this Agreement
which by their express terms impose continuing obligations on the Parties will
survive the expiration or termination of this Agreement for any reason. This
Agreement will be governed by and construed in accordance with the substantive
laws of the State of Maryland, exclusive of its choice of law rules. If any
provision of this Agreement is declared invalid or otherwise unenforceable, the
enforceability of the remaining provisions shall be unimpaired, and the Parties
shall replace the invalid or unenforceable provision with a valid and
enforceable provision that reflects the original intentions of the Parties as
nearly as possible in accordance with applicable law. This Agreement shall
benefit the Parties hereto only.
IN WITNESS WHEREOF, the Parties have caused this Agreement to be
executed by their duly authorised representatives, with an Effective Date as set
forth in the introductory paragraph of this Agreement.
INTERNATIONAL PRIVATE MATRA MARCONI SPACE
SATELLITE PARTNERS, L.P. UK LIMITED
By: Orion Satellite Corporation,
its General Partner
By: /s/W. Neil Bauer By: /s/A. Carlier
---------------------------- --------------------------
(Signature) (Signature)
W. NEIL BAUER A. CARLIER
---------------------------- ---------------------------
(Name Printed) Name Printed)
PRESIDENT & CEO CHAIRMAN AND CEO
---------------------------- ---------------------------
(Title) (Title)
Option Agreement -5-
The portions of this Exhibit for which confidential treatment has been requested
are marked by brackets ([ ]). In addition, an asterisk (*) appears in the right
hand margin of each paragraph in which confidential information is included.
MEMORANDUM OF AGREEMENT
FOR
PROCUREMENT OF ORION 2 SPACECRAFT
The following agreement ("Agreement") is effective as of December 10,
1996 ("Effective Date") by and between International Private Satellite Partners,
L.P., d/b/a Orion Atlantic, L.P., a Delaware limited partnership with its
principal offices located at 2440 Research Boulevard, Rockville, Maryland 20850,
U.S.A. ("ORION") and Matra Marconi Space UK Limited, a company organised and
existing under the laws of England and Wales with its registered office at The
Grove, Warren Lane, Stanmore, Middlesex, HA7 4LY, England ("MMS"), hereinafter
singularly known as "the Party" or collectively as "the Parties."
WHEREAS, the Parties entered into an agreement (known as the "ORION 2
Purchase Contract") dated July 31, 1996 under which ORION agreed to purchase and
MMS agreed to sell, subject to certain conditions, a follow-on spacecraft to the
ORION 1 Spacecraft to provide coverage over the Atlantic and to be known as the
"Orion 2 Spacecraft";
WHEREAS, the Parties desire to amend the Orion 2 Purchase Contract;
WHEREAS, the Parties have reached agreement, as set forth below, on the
basic terms acceptable to both Parties for the amendment to the ORION 2 Purchase
Contract; and
WHEREAS, the Parties intend to enter into (a) an option agreement
substantially in the form attached hereto as Exhibit 1 pursuant to which the
Contractor will grant to ORION an option to purchase the ORION 2 Spacecraft upon
the terms and conditions set forth in such agreement (the "Option Agreement")
and (b) the Restated Amendment No. 10 to the Second Amended and Restated
Purchase Contract, dated as of 26th September 1991, between ORION and MMS Space
Systems Limited attached hereto as Exhibit 2 ("Amendment No. 10");
NOW, THEREFORE, in consideration of the mutual promises and
undertakings contained herein, the Parties, intending to be legally bound,
hereby agree as follows:
1. All terms used herein and not defined shall have the meanings
attributed to them in the ORION 2 Purchase Contract.
Memorandum of Agreement -1-
<PAGE>
2. Fixed Price.
-----------
The Contract Price is comprised of the following elements:
______________
ORION 2 Spacecraft [ ]
Launch Vehicle [ ]
Launch Services [ ]
Total Contract Price [______________]
Launch Insurance is not included in the Contract Price. The Contract
Price shall remain fixed until and through April 30, 1997.
3. Milestone Payments and Termination Liability Amounts.
----------------------------------------------------
Part 1(B) of the ORION 2 Purchase Contract shall be amended to reflect
the new schedule developed pursuant to Section 8 hereof and, as revised, shall
maintain the timing of payments in said Part 1(B).
4. Vendor Financing. The ORION 2 Purchase Contract shall be
amended to delete all references to vendor financing.
5. Delivery Schedule. Subject to the availability of a Launch
Slot, Delivery shall occur on or before 28.25 months from the date upon which
MMS receives Installment No. 2 under the Option Agreement, provided ORION does
not fail to make any payment under the Option Agreement when due.
6. Launch Provider and Launch Reservation. MMS shall use all reasonable
commercial efforts to reserve with Lockheed Martin a Launch Slot occurring no
later than July 1999 at a reservation cost not to exceed One Million U.S.
Dollars ($U.S. 1,000,000), said reservation cost ($800,000 plus $200,000 already
paid) to be paid by ORION no later than December 31, 1996. MMS shall arrange
termination provisions with the selected launch provider such that MMS can
enforce the termination and repayment provisions of the ORION 2 Purchase
Contract, as amended.
7. Access. Appropriate provisions will be negotiated between the
Parties and included in the Definitive Purchase Agreement.
8. Scheduling. The ORION 2 Spacecraft documents, as detailed in
the ORION 2 Purchase Contract, as amended, shall be revised to reflect
scheduling revisions of Reviews and Tests resulting from the new payment profile
in the Option Agreement.
Memorandum of Agreement -2-
<PAGE>
9. Repeater Subcontractor. MMS has advised ORION that NEC presently is
unwilling to proceed on the risk sharing basis set forth in this Agreement and
the Option Agreement. MMS will continue to negotiate with NEC and, if unable to
reach agreement by December 31, 1996, will proceed to perform the program
without NEC as repeater subcontractor, unless ORION elects to provide additional
consideration to NEC beyond that set forth in the Option Agreement.
10. Negotiation of Definitive Agreements. The Parties agree to
negotiate diligently and in good faith to amend the ORION 2 Purchase Contract in
accordance with the terms set forth herein and in the Option Agreement (the
"Definitive Purchase Agreement"). The Parties intend that such negotiations
commence promptly upon the Effective Date of this Agreement.
11. Term and Termination. The term of this Agreement shall begin on
the Effective Date and shall continue until the earlier of (i) the execution of
the Definitive Purchase Agreement, or (ii) April 30, 1997.
12. Confidentiality. Each Party acknowledges that it may, in the course
of performing its responsibilities under this Agreement, be exposed to or
acquire information that is proprietary or confidential to the other Party. Each
Party agrees to hold such information in strict confidence and not to disclose
such confidential information for any purpose whatsoever other than the
performance of its obligations as contemplated by this Agreement (or as required
by law or regulation) and to advise each of its employees who may be exposed to
such proprietary and confidential information of his or her obligation to keep
such information confidential. This obligation of confidentiality will survive
the termination or expiration of this Agreement.
13. Rights Cumulative. All rights, powers and privileges conferred
hereunder upon the Parties, unless otherwise provided, shall be cumulative and
shall not be restricted to those given by law. Failure to exercise any power
given any party hereunder or to insist upon strict compliance by any other party
shall not constitute a waiver of any party's right to demand exact compliance
with the terms hereof.
14. General. This Agreement (and any Exhibits hereto) sets forth the
entire understanding between the Parties with respect to its subject matter and
supersedes all prior and contemporaneous agreements and understandings with
respect thereto. This Agreement shall not constitute, give effect to, or
otherwise imply, a joint venture, pooling arrangement, partnership, agency or
formal business organisation of any kind. Neither Party shall assign, delegate
or in any manner transfer this Agreement without the prior written consent of
the other Party, which consent shall not be unreasonably withheld, except that
ORION may assign this Agreement to any party to whom ORION may assign the ORION
2 Purchase Contract. No waiver, delay or discharge by a Party will be valid
unless in writing and signed by an authorised representative of the Party
against which its enforcement is sought. Provisions of this Agreement that by
their express terms or context impose continuing obligations on the Parties will
survive the expiration or termination of this Agreement for any reason. This
Agreement will be governed by and construed in accordance with the substantive
laws of the
Memorandum of Agreement -3-
<PAGE>
State of Maryland, exclusive of its choice of law rules. This Agreement may be
amended only by a written instrument signed by an authorised representative of
each Party. This Agreement is limited to the subject matter hereof and shall not
bind, limit or otherwise affect either Party with regard to other spacecraft
configurations or different orbital locations.
IN WITNESS WHEREOF, the Parties have caused this Agreement to be
executed by their duly authorised representatives, with an Effective Date as set
forth in the introductory paragraph of this Agreement.
INTERNATIONAL PRIVATE MATRA MARCONI SPACE UK LIMITED
SATELLITE PARTNERS, L.P.
By: Orion Satellite Corporation, its
General Partner
/s/W. Neil Bauer /s/Armand Carlier
- ----------------------------------- ------------------------------
(Signature) (Signature)
W. NEIL BAUER ARMAND CARLIER
- ----------------------------------- ------------------------------
(Name Printed) (Name Printed)
PRESIDENT & CEO CHAIRMAN AND CEO
- ----------------------------------- ------------------------------
(Title) (Title)
Memorandum of Agreement -4-
The portions of this Exhibit for which confidential treatment has been requested
are marked by brackets ([ ]). In addition, an asterisk (*) appears in the right
hand margin of each paragraph in which confidential information is included.
TT&C EARTH STATION AGREEMENT
between
ORION ASIA PACIFIC CORP.
and
DACOM CORP.
Dated: November 11, 1996
<PAGE>
<TABLE>
<CAPTION>
Table of Contents
-----------------
Page
<S> <C> <C>
ARTICLE 1. FUNCTIONS TO BE PERFORMED BY THE TT&C
EARTH STATION................................................................. 1
1.1. Purpose of the TT&C Earth Station ........................................... 1
1.2. Particular Functions of the TT&C Earth Station .............................. 1
1.3. Future Modification of Functions ............................................ 1
ARTICLE 2. SITE SELECTION ............................................................. 2
2.1. Site Selection .............................................................. 2
2.2. Government Approvals ........................................................ 2
2.3. Land Acquisition ............................................................ 2
2.4. Termination if Steps Not Taken .............................................. 2
ARTICLE 3. CONSTRUCTION; ANTENNA ...................................................... 2
3.1. General ..................................................................... 2
3.2. The Antenna ................................................................. 3
ARTICLE 4. TT&C EQUIPMENT ............................................................. 3
4.1. Supply of TT&C Equipment .................................................... 3
4.2. Shipments; Duties ........................................................... 3
4.3. Spares, Tooling, Supplies, etc. ............................................. 4
4.4. Title to TT&C Equipment ..................................................... 4
ARTICLE 5. TESTING .................................................................... 4
5.1. TT&C Equipment Testing and Acceptance ....................................... 4
5.2. Antenna Testing and Acceptance .............................................. 4
5.3. TT&C Earth Station Testing and Acceptance ................................... 5
5.4. Periodic Testing ............................................................ 5
ARTICLE 6. PERSONNEL .................................................................. 5
6.1. DACOM Personnel ............................................................. 5
6.2. Training .................................................................... 6
6.3. Initial Advisory Supervision and On-Site Training ........................... 6
6.4. Confidentiality Agreements .................................................. 6
ARTICLE 7. OPERATION OF THE TT&C EARTH STATION ........................................ 6
7.1. Operations .................................................................. 6
7.2. Personnel; Utilities and Supplies; Security; etc. ........................... 7
7.3. Maintenance and Repair ...................................................... 7
7.4. Destruction of the TT&C Earth Station ....................................... 8
i
<PAGE>
ARTICLE 8. REPORTS AND DOCUMENTATION .................................................. 8
8.1. Summaries ................................................................... 8
8.2. Logs ........................................................................ 9
8.3. Regular Periodic Reports .................................................... 9
8.4. Special Reports of Anomalous Events ......................................... 9
8.5. Format of Logs and Reports .................................................. 9
ARTICLE 9. CHARGES; PAYMENTS ......................................................... 9
9.1. Charges ..................................................................... 9
9.2. Payments, Taxes and Bank Charges ........................................... 10
9.3. Time of Payment ............................................................. 10
9.4. Interest .................................................................... 11
ARTICLE 10. TERM; TERMINATION .......................................................... 11
10.1. Term ........................................................................ 11
10.2. Termination ................................................................. 11
10.3. Payment of Charges .......................................................... 11
10.4. Certain Provisions Survive Termination ...................................... 11
10.5. Option to Purchase or Lease the Site and the TT&C
Earth Station upon Termination .............................................. 12
10.6. Subsequent Modification or Expansion ........................................ 12
ARTICLE 11. FORCE MAJEURE .............................................................. 12
ARTICLE 12. GOVERNMENTAL APPROVALS ..................................................... 13
12.1. Korean Government Approvals ................................................. 13
12.2. United States Government Approvals .......................................... 13
ARTICLE 13. RISK ....................................................................... 13
13.1. Risk of Loss ................................................................ 13
13.2. Insurance ................................................................... 13
ARTICLE 14. INDEMNIFICATION; DAMAGES ................................................... 14
14.1. Indemnification ............................................................. 14
14.2. Consequential Damages ....................................................... 14
14.3. Procedure for Indemnification ............................................... 14
ARTICLE 15. CONFIDENTIALITY ............................................................ 15
15.1. Confidentiality ............................................................. 15
15.2. Confidentiality Agreements .................................................. 15
ARTICLE 16. ASSIGNMENT ................................................................. 16
16.1. Succession and Assignment ................................................... 16
16.2. Change of Control ........................................................... 16
ii
<PAGE>
ARTICLE 17. REPRESENTATIONS AND WARRANTIES OF ORION .................................... 16
17.1. Representation and Warranties ............................................... 16
17.2. Exclusion of Warranties ..................................................... 17
ARTICLE 18. REPRESENTATIONS AND WARRANTIES OF DACOM ..................................... 17
18.1. Incorporation, Power, etc. .................................................. 17
18.2. Due Authorization of Agreement; No Conflict with
Other Instruments ........................................................... 17
18.3. Government Regulation ....................................................... 17
18.4. Exclusion of Warranties ..................................................... 17
ARTICLE 19. MISCELLANEOUS .............................................................. 18
19.1. Further Assurances .......................................................... 18
19.2. Taxes and Expenses .......................................................... 18
19.3. Press Releases and Public Announcements ..................................... 18
19.4. Notices ..................................................................... 18
19.5. No Third-Party Beneficiaries ................................................ 19
19.6. Governing Law; Arbitration .................................................. 19
19.7. Amendments and Waivers ...................................................... 19
19.8. Matters of Construction, Interpretation and the Like ........................ 20
ARTICLE 20. DEFINITIONS ................................................................ 20
EXHIBIT A FUNCTIONS TO BE PERFORMED BY THE TT&C EARTH STATION
EXHIBIT B CONSTRUCTION SPECIFICATIONS FOR THE TT&C EARTH STATION
EXHIBIT C1 ANTENNA SPECIFICATIONS
EXHIBIT C2 RF/IF REQUIREMENTS INCLUDING TEST TRANSLATOR
EXHIBIT D TT&C EQUIPMENT
EXHIBIT E TESTING
EXHIBIT F INITIAL JOB SPECIFICATIONS, NUMBER OF PERSONNEL AND QUALIFICATIONS
EXHIBIT G FORM OF CONFIDENTIALITY AGREEMENT
EXHIBIT H CONSTRUCTION CHARGES
</TABLE>
iii
<PAGE>
TT&C EARTH STATION AGREEMENT
----------------------------
This TT&C EARTH STATION AGREEMENT, dated as of November 11,
1996 by and between ORION ASIA PACIFIC CORP., a corporation organized and
existing under the laws of Delaware, U.S.A. ("Orion"), and DACOM CORP., a
corporation organized and existing under the laws of Korea ("DACOM"),
W I T N E S S E T H:
WHEREAS, Orion intends to establish in Korea a facility for
the transmission of tracking telemetry and command signals to the Orion 3
Satellite ("Orion 3") and under certain circumstances, to a replacement
satellite and/or a successor satellite (collectively, the "Satellite"); and
WHEREAS, DACOM wishes to establish and operate in Korea one of
the facilities for the transmission to the Satellite of tracking, telemetry and
command signals generated by Orion (the "TT&C Earth Station"), and Orion is
willing to have the backup TT&C Earth Station located in Korea and operated by
DACOM, upon the terms and conditions contained in this Agreement.
Certain terms used herein are defined in Article 20.
NOW, THEREFORE, in consideration of the foregoing, and
intending to be legally bound, the parties hereto agree as follows:
ARTICLE 1.
FUNCTIONS TO BE PERFORMED BY THE TT&C EARTH STATION
---------------------------------------------------
1.1. Purpose of the TT&C Earth Station. The TT&C Earth Station is to be
constructed and operated pursuant to this Agreement to transmit to the Satellite
and receive from the Satellite electronic signals for the tracking, telemetry
and command ("TT&C") of the Satellite, including stationkeeping, attitude
control and other satellite maintenance and switching functions as shall be
necessary to operate the Satellite and the transponders and other equipment
thereon as contemplated by the Joint Investment Agreement and the various other
agreements with users of the Satellite and of such transponders and other
equipment, and to receive signals from the Satellite relating to the Satellite's
condition and operations. The TT&C Earth Station is to be operational for such
purpose on a twenty-four hours per day, seven days per week, fifty-two weeks per
year basis from the TT&C Acceptance Date until the end of the Term of this
Agreement.
1.2. Particular Functions of the TT&C Earth Station. On the TT&C
Acceptance Date, the TT&C Earth Station and the personnel operating the TT&C
Earth Station, including CSM Operations, are to be capable of performing the
functions summarized in Exhibit A hereto, in accordance with the standards
contained therein.
1.3. Future Modification of Functions. Orion and DACOM recognize that
during the Term of this Agreement, it may become necessary or appropriate to
modify or supplement the functions summarized in Exhibit A hereto in order to
take account of changed conditions or new technology. If Orion concludes that
such a modification or supplementation has become necessary or appropriate,
Orion shall so notify DACOM at least 60 days before the date when such
modification or supplementation is to be implemented. Orion and DACOM shall
cooperate in effecting each such modification or
<PAGE>
supplementation, upon the terms provided in this Agreement for the original
construction, equipping and operation of the TT&C Earth Station, or upon such
other terms as Orion and DACOM may agree.
ARTICLE 2.
SITE SELECTION
--------------
2.1. Site Selection. The TT&C Earth Station shall be located at such
place in ______ as shall be selected by DACOM, after consultation with Orion and
with Orion's consent, which shall not be unreasonably withheld. It is
anticipated that the site will be co-located with other similar DACOM satellite
operations. Orion's consent shall be based upon technical factors such as the
quality of the signals to be received by the Satellite from the Site, the
availability of support services at the Site (such as reliable uninterruptible
primary and backup electric power, water, heat, waste disposal, personnel,
security services and the like), the availability of adequate and reliable
communications and transportation to and from the Site, freedom from
electromagnetic interference, and similar factors. Initial selection of the Site
shall be made by DACOM as soon as practicable after execution and delivery of
this Agreement.
2.2. Governmental Approvals. DACOM shall be responsible for obtaining
all necessary governmental approvals from the government of _____, and from all
other Governmental Bodies within Korea having jurisdiction, with respect to all
aspects of the selection of the Site, the purchase or lease of real estate, the
construction and equipping of the TT&C Earth Station, and the operation of the
TT&C Earth Station, pursuant to this Agreement.
2.3. Land Acquisition. DACOM shall either purchase or lease sufficient
land for the construction and operation of the TT&C Earth Station pursuant to
this Agreement; provided, however, that the total purchase price for such land
or the aggregate lease payments for the entire term of the lease, as the case
may be, shall not exceed ________________________________________________. If
the land is purchased or leased by DACOM, DACOM shall make the land available
for uses contemplated herein and for the Term of this Agreement.
2.4. Termination if Steps Not Taken. If by June 30, 1997, (i) the Site
has not been selected by DACOM and consented to by Orion pursuant to Section
2.1, or (ii) the land for the TT&C Earth Station has not been purchased or
leased pursuant to Section 2.3, then Orion may terminate this Agreement upon
notice to DACOM given not more than 60 days after June 30, 1997.
ARTICLE 3.
CONSTRUCTION; ANTENNA
---------------------
3.1. General. As soon as practicable after full compliance with Article
2, DACOM shall cause the Site to be prepared for construction and operation of
the TT&C Earth Station (including ground preparation and construction of
foundations for the Antenna and the other TT&C Equipment), shall cause the
buildings to be located on the Site to be constructed, erected, equipped and
supplied with all necessary utilities and other services, and shall cause all
equipment (except equipment to be supplied by Orion pursuant to Article 4) to be
constructed and installed at the Site, all in accordance with the Construction
Specifications attached hereto as Exhibit B, and all at
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the expense of DACOM except as provided in Section 3.2. Orion shall have the
right, upon its request to DACOM, to inspect all civil, mechanical and
electrical engineering and construction contracts, and all other contracts, with
third parties relating to such construction, erection, equipping, supply and
installation, as well as all site layout plans and detailed mechanical and
electrical drawings related to the TT&C Earth Station. If such contracts, plans
and drawings are not reasonably satisfactory to Orion, DACOM shall cause such
contracts, plans and drawings to be modified to Orion's reasonable satisfaction.
Orion shall have the right at any time with prior notification, at Orion's
expense, to have personnel designated by Orion supervise, inspect and test any
and all aspects of such construction, erection, equipping, supply and
installation related to the TT&C Earth Station.
3.2. The Antenna. In coordination with its activities pursuant to
Section 3.1, DACOM shall purchase, construct, install and erect an antenna and
related systems and equipment to the interface point in accordance with the
Antenna Specifications attached hereto as Exhibit C, and having the capabilities
specified in Exhibit C. Orion shall have the right, upon its request to DACOM,
to inspect all civil, mechanical and electrical engineering and construction
contracts, and all other contracts, with third parties relating to such
purchase, construction, installation and erection, as well as all site layout
plans and detailed mechanical and electrical drawings. If such contracts, plans
and drawings are not reasonably satisfactory to Orion, DACOM shall cause such
contracts, plans and drawings to be modified to Orion's reasonable satisfaction.
Orion shall have the right at any time, at Orion's expense, to have personnel
designated by Orion supervise, inspect and test any and all aspects of such
construction, installation and erection. Construction, installation and erection
of the Antenna shall be completed by DACOM by such date as will permit
acceptance of the Antenna to occur on or prior to April 30, 1998, or as to be
agreed at the Final Design Review, as specified in Section 5.2 of this
Agreement.
ARTICLE 4.
TT&C EQUIPMENT
--------------
4.1. Supply of TT&C Equipment. Orion shall cause to be delivered to the
Site and installed the equipment specified in Exhibit D hereto (the "TT&C
Equipment"). Exhibit D may be modified or supplemented by Orion in any respect
at any time before the TT&C Acceptance Date, if in Orion's reasonable judgment
such modification or supplementation is necessary or appropriate for the
efficient and profitable operation of the Satellite. Orion shall notify DACOM of
any such modification or supplementation. DACOM and its contractors and agents
shall cooperate with Orion in such installation, at the expense of DACOM. Orion
shall use its best efforts to cause the TT&C Equipment to be shipped and
installed at times which coordinate with DACOM's construction schedule at the
Site. The TT&C Equipment shall be assembled in the United States, unless
otherwise agreed between Orion and DACOM.
4.2. Shipments; Duties. Orion shall be responsible for shipment of the
TT&C Equipment to the Site, by such means as Orion may choose. DACOM shall, upon
Orion's request, prepay all import duties and taxes, port charges, property
taxes and similar governmental levies imposed upon Orion in connection with such
shipment and the installation and use of the TT&C Equipment at the Site. If such
import taxes, duties and similar fees are prepaid by DACOM at the request of
Orion, Orion shall reimburse DACOM in full for such prepayment within 30 days
after receipt of an invoice from DACOM detailing the amounts prepaid. DACOM
shall use reasonable efforts to
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expedite customs clearance of the TT&C Equipment and to minimize import and
other duties, taxes, fees and costs imposed in connection with the shipment,
installation and use of the TT&C Equipment at the Site.
4.3. Spares, Tooling, Supplies, etc. From time to time Orion shall
cause to be delivered to the Site, and installed if appropriate, such spare and
replacement equipment, tooling and supplies for the TT&C Equipment as in Orion's
judgment is necessary or appropriate for the operation of the TT&C Equipment as
contemplated by this Agreement.
4.4. Title to TT&C Equipment. All TT&C Equipment delivered to the Site
pursuant to this Article 4, or otherwise obtained by Orion for the purposes of
this Agreement, shall be and remain the property of Orion, and DACOM shall have
no interest therein. Orion may sell, lease, mortgage, impose a Lien on or
otherwise deal with or dispose of any or all TT&C Equipment at any time or from
time to time, so long as such TT&C Equipment at the Site remains available to
perform its functions as contemplated by this Agreement. During the Term, Orion
shall have the right, at any time or from time to time, to remove any TT&C
Equipment which is no longer needed at the Site for purposes of this Agreement.
At the end of the Term, Orion shall have the right, at any time or from time to
time within 180 days after the end of the Term, to remove or cause to be removed
any or all of the TT&C Equipment then at the Site. If any of such TT&C Equipment
is not so removed within such 180-day period, such TT&C Equipment shall be
deemed to have been abandoned by Orion.
ARTICLE 5.
TESTING
-------
5.1. TT&C Equipment Testing and Acceptance. Prior to the shipment of
the TT&C Equipment to the Site, Orion shall perform or cause the equipment
manufacturers to perform testing to determine whether the TT&C Equipment is
capable of performing the functions summarized in Exhibit A hereto. Such testing
of the TT&C Equipment shall be in accordance with the Acceptance Test Plan
contained in Exhibit E hereto. Within 30 days following the conclusion of such
testing, Orion shall furnish to DACOM results of the test data in Orion's
possession relating to the TT&C Equipment in a format consistent with the
Acceptance Test Plan. At the conclusion of such testing and following the review
of such test data by DACOM and Orion, if any of the TT&C Equipment is not
capable of performing the functions summarized in Exhibit A hereto in all
material respects, Orion shall use reasonable efforts to correct the
deficiencies in the TT&C Equipment. Acceptance of the TT&C Equipment for
purposes of the performance of services under Article 7 shall occur upon
successful completion of the testing described in this Section 5.1, which shall
be acknowledged by DACOM and Orion in writing upon completion.
5.2 Antenna Testing and Acceptance. At a time prior to the TT&C
Acceptance Date which is mutually agreeable to Orion and DACOM, Orion and DACOM
shall cooperate in performing testing of the Antenna to determine whether the
Antenna is capable of performing the functions summarized in Exhibit A hereto.
Such testing of the Antenna shall be in accordance with the Acceptance Test Plan
contained in Exhibit E hereto. At the conclusion of such testing and following
the review of such test data by DACOM and Orion, if the Antenna is not capable
of performing the functions summarized in Exhibit A hereto in all material
respects, DACOM shall use reasonable efforts to correct the deficiencies in the
Antenna. Acceptance of the
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Antenna for purposes of the performance of services under Article 7 shall occur
upon successful completion of the testing described in this Section 5.2, which
shall be acknowledged by DACOM and Orion in writing at the Site upon completion
(the "Antenna Acceptance Date"); provided, however, that such acceptance shall
occur no later than April 30, 1998 or as determined at the Final Design Review.
5.3. TT&C Earth Station Testing and Acceptance. Following the testing
and acceptance of the TT&C Equipment pursuant to Section 5.1 and the testing and
acceptance of the Antenna pursuant to Section 5.2, Orion and DACOM shall
cooperate in performing testing of the TT&C Earth Station to determine whether
the TT&C Earth Station is capable of commencing operations in accordance with
the Acceptance Test Plan contained in Exhibit E. Upon successful completion of
such testing, Orion shall notify DACOM that the TT&C Earth Station is ready for
operation as contemplated by Article 1. Unless DACOM objects to such notice, by
notice to Orion given within 5 days after such notice to DACOM, DACOM shall be
deemed to have accepted the TT&C Earth Station as of the date of such notice
from Orion to DACOM. If DACOM does give notice of such objection, DACOM and
Orion shall negotiate in good faith to reach agreement on remedial measures, if
any, to meet DACOM's objection, and if DACOM and Orion are unable to reach such
agreement within 90 days after such notice by DACOM, this Agreement may be
terminated by DACOM or Orion after the end of such 90-day period. The TT&C
Acceptance Date shall be the date of such notice from Orion to DACOM or, if
DACOM objects to such notice, shall be the date when DACOM and Orion reach
agreement on any remedial measures and such measures are completed as
contemplated by this Section 5.3. If the TT&C Acceptance Date does not occur on
or before September 30, 1998, either Orion or DACOM may terminate this Agreement
by notice given by the terminating party to the other party within 60 days after
September 30, 1998.
5.4. Periodic Testing. After the TT&C Acceptance Date and during the
Term, DACOM and/or Orion shall perform such tests of the TT&C Earth Station and
the TT&C Equipment as are specified in Exhibit E hereto, at the times specified
in said Exhibit E. Exhibit E may be modified or supplemented by Orion in any
respect at any time during the Term, if in Orion's reasonable judgment such
modification or supplementation is necessary or appropriate. Orion shall notify
DACOM of any such modification or supplementation.
ARTICLE 6.
PERSONNEL
---------
6.1. DACOM Personnel. All personnel necessary or appropriate for the
operation and maintenance of the TT&C Earth Station throughout the Term shall be
supplied by DACOM, at the expense of DACOM. Such personnel may be employees or
agents of DACOM or independent contractors. The number and qualifications of
such personnel shall at least meet the job descriptions and other standards set
forth in Exhibit F hereto. In addition, at all times during the Term, DACOM
shall provide sufficient on-site personnel at the TT&C Earth Station who are
fluent in English. Exhibit F may be modified or supplemented by Orion in any
respect at any time during the Term, if in Orion's reasonable judgment such
modification or supplementation is necessary or appropriate for the efficient
and profitable operation of the Satellite. Orion shall notify DACOM of any such
modification or supplementation. The technical abilities and job performance of
such personnel shall be reasonably satisfactory to Orion, and if Orion notifies
DACOM with appropriate justification that any of such
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personnel are not satisfactory, DACOM shall promptly replace such personnel or
take other appropriate action satisfactory to Orion. However, none of such
personnel shall be deemed to be employees of Orion, and neither DACOM nor Orion
shall take any action pursuant to this Agreement which might result in such
personnel being treated as employees of Orion for tax, liability or any other
purposes.
6.2. Training. At the request and at the expense of DACOM, Orion will
cause up to 5 persons designated by DACOM to receive training by Orion's
qualified personnel in such matters relating to the operation of the TT&C Earth
Station as DACOM may request and Orion may deem appropriate. Each such training
session shall take place prior to the TT&C Acceptance Date during normal
business hours at the facilities in Rockville, Maryland, U.S.A., of Orion
Network Systems, Inc., or at such other facilities in the United States as Orion
may designate by notice to DACOM. The substance and duration of such training
shall be within the complete discretion of Orion, and the formal training period
for any individual shall be up to 4 weeks. Training material shall be provided
prior to commencement of training. Orion shall not impose any charge for such
training, but DACOM shall be responsible for the transportation, housing,
maintenance and other support of such persons in connection with such training,
and DACOM shall be responsible for any approvals of Governmental Bodies within
the United States required for such persons to enter and remain in the United
States for such training. In each year after the TT&C Acceptance Date, at the
request of DACOM, Orion will cause up to 2 persons designated by DACOM to
receive similar training, upon the same terms and conditions.
6.3. Initial Advisory Supervision and On-Site Training. During the
period commencing 30 days before the TT&C Acceptance Date and ending 120 days
after the TT&C Acceptance Date, Orion shall supply such numbers of qualified
technical or supervisory personnel as Orion may deem necessary or appropriate to
advise and train DACOM personnel concerning the start-up and initial operation
of the TT&C Earth Station. Such Orion personnel shall be available at the Site
at such times as DACOM or Orion deems appropriate. DACOM shall reimburse Orion
for the cost of local transportation, housing including adequate hotel room or
apartment, maintenance and other support of such personnel in connection with
such activities, and DACOM shall be responsible for any approvals by
Governmental Bodies in Korea required for such persons to enter and remain in
Korea for such activities. DACOM shall not be responsible for costs of Orion
personnel associated with in-orbit testing.
6.4. Confidentiality Agreements. Each person who receives training
pursuant to Section 6.2 shall, prior to the beginning of such training, execute
and deliver to Orion a confidentiality agreement in the form of Exhibit G
hereto.
ARTICLE 7.
OPERATION OF THE TT&C EARTH STATION
-----------------------------------
7.1. Operations. DACOM shall operate the TT&C Earth Station after the
TT&C Acceptance Date and at all times during the Term of this Agreement, on a
twenty-four hours per day, seven days per week, fifty-two weeks per year basis,
in such a manner that TT&C commands generated by Orion at other facilities and
transmitted to the TT&C Earth Station by such electronic or other means as Orion
may choose from time to time, will be transmitted to the Satellite as and when
directed by Orion, and that signals from the Satellite relating to the
Satellite's condition and operations will be received by the TT&C Earth Station
and transmitted by the TT&C Earth Station to
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Orion. DACOM shall not transmit any other signals to the Satellite, except as
specifically directed by Orion. Such commands by Orion may be encrypted in whole
or in part, and DACOM shall not de-encrypt any such encrypted commands or
signals except as specifically authorized by Orion. Orion may interrupt, suspend
or cease transmitting such commands or signals to the TT&C Earth Station at any
time and for any reason deemed sufficient by Orion in Orion's sole discretion.
DACOM hereby covenants and agrees, for itself and its employees, agents and
independent contractors, to operate the TT&C Earth Station, at all times during
the Term, in a workmanlike manner and in accordance with (a) generally accepted
worldwide industry standards for the operation of such TT&C stations, and (b)
any directions given by Orion from time to time with respect to such matters.
7.2. Personnel; Utilities and Supplies; Security; etc.
(a) Personnel. DACOM shall have sufficient trained and capable
personnel at the TT&C Earth Station at all times, and/or available on call near
the TT&C Earth Station, to operate the TT&C Earth Station pursuant to Sections
6.1 and 7.1 and to carry out the other functions required of DACOM pursuant to
this Article 7. At all times, the on-site personnel provided by DACOM shall
include trained and capable personnel who are fluent in the English language. If
in Orion's judgment the number or capabilities of such personnel are inadequate
with appropriate justification, immediately upon notice from Orion to that
effect DACOM shall provide such additional trained and capable personnel at the
Site as Orion may request.
(b) Utilities and Services. DACOM shall cause the TT&C Earth
Station to be supplied with adequate light, heat, air conditioning and other
climate control, uninterruptible primary and backup electric power, fire alarms
and fire protection, spare equipment, tools, supplies and other services and
materials necessary or appropriate in the judgment of Orion for the safe and
efficient operation of the TT&C Earth Station pursuant to this Agreement.
(c) Security. DACOM shall install and maintain such security
devices at the Site of the TT&C Earth Station, and provide such guards and other
security measures, as may be necessary or appropriate in the judgment of Orion
to prevent unauthorized entry onto the Site and to maintain the confidentiality
of all technological information concerning the design, construction,
installation and operation of the TT&C Equipment, the commands and other signals
sent to and from the TT&C Earth Station and all other Confidential Information.
(d) Visitation Rights. Orion with prior notification to DACOM
may at any time, at Orion's expense, send persons designated by Orion to the
Site to observe the operation of the TT&C Earth Station, inspect and test the
TT&C Equipment, and consult with TT&C personnel at the TT&C Earth Station or
elsewhere. DACOM shall cooperate fully with such persons.
7.3. Maintenance and Repair.
(a) Regular Maintenance and Routine Repairs. DACOM shall
perform such periodic maintenance and routine repairs of the TT&C Earth Station,
including the TT&C Equipment, as may be necessary or appropriate to cause the
TT&C Earth Station and the TT&C Equipment to remain in good operating condition,
reasonable wear and tear excepted. DACOM shall follow any instructions given by
Orion with respect to such periodic maintenance and routine repairs. If all or
part of the TT&C Equipment will be maintained and/or serviced pursuant to a
contract between Orion
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and the manufacturer and/or supplier of such equipment, Orion shall bear all
expenses in connection with such maintenance or service contract. DACOM shall
permit authorized representatives of such manufacturer and/or supplier to have
access to the TT&C Earth Station for the purpose of performing maintenance
and/or repairs to the TT&C Equipment.
(b) Malfunctions and Breakdowns. If either party learns that
any portion of the TT&C Earth Station, or any portion of the TT&C Equipment, has
ceased to operate, or may soon cease to operate, in the manner contemplated by
this Agreement, or that for any reason the TT&C Earth Station or the TT&C
Equipment is no longer able, or may soon be unable, to receive commands from
Orion and transmit such commands to the Satellite and receive signals from the
Satellite and transmit such signals to Orion, as contemplated by Section 7.1,
the party learning of such condition shall immediately notify the other party
thereof, by telephonic or electronic communication. In that event (except as
provided in Section 7.4) DACOM shall take such remedial action as Orion shall
specify, and shall take no other action (except emergency action, if necessary)
to remedy such condition. If such condition requires modifications to the TT&C
Equipment or replacement of any TT&C Equipment and such replacement TT&C
Equipment is not available at the Site, Orion shall use its best efforts (except
as provided in Section 7.4) to cause such replacement TT&C Equipment to be
delivered to the Site as soon as possible, and shall supply such technical
personnel to the Site as may be necessary, in Orion's judgment, to make such
modification or install such replacement TT&C Equipment.
(c) Test Equipment and Spares. Orion shall provide the
following test equipment as a minimum for general operation and maintenance
purpose:
-----------------------
-----------------------
-----------------------
-----------------------
Orion also shall provide necessary spares for _____ and ________ equipment such
as manufacturers recommended spares for normal operations. During initial
operation, manufacturers warranties will be utilized for maintenance and
calibration.
7.4. Destruction of the TT&C Earth Station. If the TT&C Earth Station
is destroyed, or is so damaged that it cannot reasonably be repaired within a
reasonable time, by accident or natural catastrophe or by any other cause
whatsoever, either Orion or DACOM may terminate this Agreement within 90 days
after such destruction or damage. Each party may carry such insurance against
such damage or destruction as such party chooses, in the sole discretion of such
party, subject, however, to the provisions of Section 13.2.
ARTICLE 8.
REPORTS AND DOCUMENTATION
-------------------------
8.1. Summaries. DACOM shall provide a summary, in English, of all
reports, procedures, including Antenna test plans and instruction manuals, and
other
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appropriate documentation with respect to the Antenna construction and operation
of the TT&C facility.
8.2. Logs. DACOM shall keep daily operations logs in the English
language recording such data as Orion may request from time to time concerning
the use, maintenance, repair and replacement of TT&C Equipment and the
operations of the TT&C Earth Station. Such logs shall be available at all times
for inspection by Orion, and at the request of Orion DACOM shall make copies of
such logs or portions thereof and supply such copies to Orion.
8.3. Regular Periodic Reports. At least once a month during the Term,
DACOM shall give Orion a written report summarizing the operations of the TT&C
Earth Station during the previous month, and containing such other information
concerning the TT&C Earth Station and the TT&C Equipment as Orion may request
from time to time. Such reports shall be in the English language and in such
format, and with such accompanying data and detail, as Orion may request from
time to time.
8.4. Special Reports of Anomalous Events. If the operations of the TT&C
Earth Station are interrupted, or if any of the TT&C Equipment or the Antenna
malfunctions in any material respect or is damaged or destroyed, or if any other
unusual event occurs which Orion notifies DACOM should be the subject of a
special report, DACOM shall give Orion a written report thereof containing such
other information concerning the TT&C Earth Station and the TT&C Equipment as
Orion may request from time to time. Such reports shall be given to Orion as
soon as practicable after the event being reported, and shall be in the English
language and in such format, and with such accompanying data and detail, as
Orion may request from time to time.
8.5. Format of Logs and Reports. All logs and reports provided for by
this Article 8 may be prepared and/or kept by DACOM in either a paper or
electronic format. If such logs and reports are prepared and/or kept by DACOM
electronically, back-up copies of such logs and reports also must be prepared
and/or kept.
ARTICLE 9.
CHARGES; PAYMENTS
-----------------
9.1. Charges. DACOM and Orion shall pay the following Charges:
(a) Land Acquisition Charges. Orion shall reimburse DACOM for
the amount paid by DACOM to third parties who are not Affiliates of DACOM to
purchase or lease the land for the Site pursuant to Section 2.3, provided that
the total amount of such reimbursement shall not exceed Two-Thousand and
Five-Hundred United States Dollars ($2,500 USD). If such land is purchased,
____________ of such land acquisition Charges shall be paid by Orion to DACOM on
the Antenna Acceptance Date. The remaining ______________ of such land
acquisition charges shall be paid by Orion to DACOM on the TT&C Acceptance Date.
If the land is leased, Orion shall pay to DACOM on the Antenna Acceptance Date,
_________________ of the aggregate amount of all lease payments theretofore paid
by DACOM. During the period between the Antenna Acceptance Date and the TT&C
Acceptance Date, Orion shall pay to DACOM ________________ of the aggregate
amount of all lease payments paid by DACOM during such period within 15 days
after Orion receives appropriate invoices for such Charges. The remaining
______________ of the
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aggregate lease payments paid by DACOM prior to the TT&C Acceptance Date shall
be paid by Orion to DACOM on the TT&C Acceptance Date. Orion shall reimburse
DACOM for _______________________ of all lease payments for such land made by
DACOM for periods after the TT&C Acceptance Date and through the end of the Term
of this Agreement, within 15 days after Orion receives appropriate invoices for
such Charges. If and when requested by Orion, DACOM shall provide Orion with
evidence of the payment of such amounts by DACOM.
(b) Construction Charges. Orion shall reimburse DACOM, subject
to Section 4.2, for the amount paid by DACOM to third parties who are not
Affiliates of DACOM to construct the TT&C Earth Station (which without Orion's
consent shall not exceed $50,000 USD) pursuant to Article 3, provided that (i)
no such reimbursement shall be payable with respect to portions of the TT&C
Earth Station which are not necessary for the installation of the TT&C Equipment
and the Antenna, as specified in Exhibit H hereto, and (ii) such reimbursement
shall not exceed the total amount, and the amount per component or portion of
the TT&C Earth Station, specified in Exhibit H hereto. If and when requested by
Orion, DACOM shall provide Orion with such invoices and other evidence of the
payment of such amounts by DACOM. The construction Charges payable by Orion to
DACOM pursuant to this Section 9.1(b) shall be payable within 15 days after
Orion receives appropriate invoices from DACOM for such charges, but in no event
shall such invoices be payable before the TT&C Acceptance Date.
(c) Antenna Charges. Orion shall reimburse DACOM, subject to
Section 4.2, for the actual amount paid by DACOM to third parties who are not
Affiliates of DACOM to purchase, construct and install the Antenna pursuant to
Article 3. The payment for the antenna subsystem described in Exhibit C1 shall
be a fixed amount at ____________. The payment for the RF/IF equipment and IFLs,
including shipping, installation, testing, taxes and other levies, shall be
reimbursed on the actual cost basis, but it shall not exceed
______________________________________________ ________. If and when requested
by Orion, DACOM shall provide Orion with such invoices and other evidence of the
payment of such amounts by DACOM. _______ ___________ of the Antenna Charges
payable by Orion to DACOM pursuant to this Section 9.1(c) shall be payable on
the Antenna Acceptance Date. The remaining ____ ___________ of the Antenna
Charges payable by Orion to DACOM shall be payable on the TT&C Acceptance Date.
(d) No Charge. All DACOM personnel and TT&C services shall
be provided by DACOM to Orion without charge, except as expressly set forth
herein.
9.2. Payments, Taxes and Bank Charges. All payments due to Orion or
DACOM hereunder shall be made in United States Dollars by telegraphic transfer
of immediately available funds to a bank account designated by Orion to DACOM
from time to time, in the case of payments to Orion, or by DACOM to Orion from
time to time, in the case of payments to DACOM, net of any bank fees, duties,
taxes (withholding or otherwise) or similar charges that may be imposed by such
banks or by any Governmental Bodies within Korea or the United States or any
other nation.
9.3. Time of Payment. Each party shall be deemed to have received
payment from the other party at the time the payment is received by the
designated bank of the party to receive such payment. Each party acknowledges
and agrees that any failure by it to pay any amount due to the other party
hereunder within 10 days of receipt of a notice from such other party that such
payment is due shall constitute a material breach of this Agreement.
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9.4. Interest. If any amount payable by either party hereunder is not
received when due, such amount shall bear interest until paid at the rate of
eighteen percent (18%) per annum, calculated daily.
ARTICLE 10.
TERM; TERMINATION
-----------------
10.1. Term. This Agreement shall be effective as of the date hereof,
and shall terminate effective as of the expiration of the Term under the Joint
Investment Agreement, except as otherwise provided in Sections 2.4, 5.3, 7.4,
10.2(a), 10.2(b), 10.2(c) and 10.2(d).
10.2. Termination. In addition to the termination rights of the parties
specified in Sections 2.4, 5.3 and 7.4:
(a) End of Joint Investment Agreement. If and when the Term of
the Joint Investment Agreement ends, Orion or DACOM may terminate this Agreement
at any time thereafter upon at least 6 months notice to the other party, unless
this Agreement is modified or extended by the parties.
(b) Force Majeure. If operation of the TT&C Earth Station as
contemplated by this Agreement is prevented by Force Majeure for more than 15
consecutive days, either party may terminate this Agreement at any time after
the end of such 15-day period and while such Force Majeure prevents such
operation, upon at least 30 days notice to the other party, unless this
Agreement is modified or extended by the parties.
(c) Breach of Agreement. If either party commits a material
breach of any of the provisions of this Agreement and such material breach has
not been cured within thirty days after receipt by the breaching party of the
other party's notice of such breach, then the non-breaching party may terminate
this Agreement upon notice given to the breaching party at least ten and not
more than sixty days after the expiration of such thirty-day period, unless this
Agreement is modified or extended by the parties.
(d) Bankruptcy, etc. If an Act of Bankruptcy occurs with
respect to either party, then the other party may terminate this Agreement upon
notice given to the party which is subject to such Act of Bankruptcy at least
ten and not more than 180 days after such Act of Bankruptcy, unless this
Agreement is modified or extended by the parties.
10.3. Payment of Charges. In the event of any termination of this
Agreement for any reason whatsoever after the TT&C Acceptance Date, (i) each
party shall promptly pay to the other party any Charges or other amounts which
have accrued to the date of such termination and neither party shall be entitled
to any refund or credit of any Charges theretofore paid by such party to the
other party. In the event of any termination of this Agreement for any reason
whatsoever before the TT&C Acceptance Date, neither party shall be entitled to
receive any Charges after the date of such termination, whether or not such
Charges may have accrued before the date of such termination, and neither party
shall be entitled to any refund or credit for Charges previously paid.
10.4. Certain Provisions Survive Termination. The provisions of Section
4.5, Article 9, Section 10.3, this Section 10.4, Articles 13 and 14, Section
15.1 and Article 19 shall survive any termination of this Agreement and shall
not be affected thereby.
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10.5. Option to Purchase or Lease the Site and the TT&C Earth Station
upon Termination. If Orion has purchased the Site and the TT&C Earth Station,
Orion shall, upon termination of this Agreement, offer to sell the Site and the
TT&C Earth Station back to DACOM at Fair Market Value (as defined below). If the
Site is leased to Orion, Orion shall, upon termination of this Agreement, permit
DACOM to acquire the remaining lease term and the TT&C Earth Station at Fair
Market Value. For purposes of this Section 10.5, "Fair Market Value" means the
fair market value of the Site and the TT&C Earth Station as determined by the
agreement of Orion and DACOM, or absent such agreement, the value determined by
the appraisal process described below. In the event Orion and DACOM are unable
to agree on the Fair Market Value of the Site and/or the TT&C Earth Station for
purposes of this Section 10.5, the issue shall be submitted to appraisal before
a panel of three appraisers. Orion and DACOM shall each have 15 days to appoint
one appraiser. The two appraisers appointed by the parties shall appoint the
third appraiser. The panel of appraisers shall determine, by unanimous or
majority decision, the Fair Market Value of the Site and/or the TT&C Earth
Station. The decision of the appraisers as to Fair Market Value shall be final.
10.6. Subsequent Modification or Expansion. If in the reasonable
judgment of Orion changed conditions, technological developments or commercial
opportunities make it desirable to modify or expand the TT&C Earth Station in
the future, Orion shall give DACOM at least 60 days notice of Orion's
determination to accomplish such modification or expansion. If such desired
modification or expansion does not involve any significant capital expenditure,
DACOM shall promptly carry out such requested modification or expansion. In all
other cases, DACOM and Orion shall proceed with such modification or expansion
upon the same basis as the original construction and equipping of the TT&C Earth
Station, with the same responsibility of the parties for payment of Charges
relating thereto.
ARTICLE 11.
FORCE MAJEURE
-------------
Any failure or delay in the performance by either party of its
obligations hereunder shall not be a breach of this Agreement if such failure or
delay is caused by any acts of God, fire, flood, weather, receive earth station
sun outage or other catastrophes, national emergencies, insurrections, riots or
wars, strikes, lockouts, work stoppages or other labor difficulties, or any law,
order, regulation, direction, action or request of any government, or of any
department, agency, commission, bureau, corporation or other instrumentality of
any government, or of any civil or military authority; provided that (i) the
party whose performance is prevented or delayed takes all reasonable steps to
avoid or remove such causes of nonperformance and continues performance whenever
and to the extent that such causes are removed or end. If Force Majeure is
claimed by either party, such party shall provide prompt notice to the other
party of both the commencement and cessation dates of such Force Majeure event.
The occurrence of a Force Majeure shall not entitle either party to any refunds
of Charges hereunder or to any other remedy whatsoever, except that both parties
shall have the termination right provided in Section 10.2(b) with the
consequences provided in Section 10.3.
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ARTICLE 12.
GOVERNMENTAL APPROVALS
----------------------
12.1. Korean Government Approvals. DACOM shall be responsible for
obtaining all authorizations, licenses, permits, consents and other approvals or
governmental actions, from or by the Government of Korea and any other
Governmental Body within Korea having jurisdiction, which are required by
Section 2.2 or otherwise necessary or appropriate to enable DACOM and Orion to
carry out their respective obligations under this Agreement, to obtain necessary
financing for the transactions contemplated hereby and to transfer any funds
required hereunder. Upon DACOM's request, and to the extent feasible, Orion
shall assist DACOM in obtaining any such governmental actions. Upon the request
of Orion, DACOM shall assist Orion in obtaining the support of any such Korean
Governmental Body to assist in the coordination or consultation of the Satellite
and the frequencies on which the transponders on the Satellite will operate, all
in accordance with ITU regulations and the INTELSAT Treaty.
12.2. United States Government Approvals. Orion shall be responsible
for obtaining all authorizations, licenses, permits, consents and other
approvals or governmental actions , from or by the Government of the United
States and any other Governmental Body within the United States having
jurisdiction, which are necessary or appropriate to enable Orion and DACOM to
carry out their respective obligations under this Agreement. Upon Orion's
request, and to the extent feasible, DACOM will assist Orion in obtaining any
such governmental actions. Any consultation with INTELSAT regarding the
operation of the Satellite will be the responsibility of Orion as Orion deems
appropriate.
ARTICLE 13.
RISK
----
13.1. Risk of Loss. All risk of damage, destruction or loss of the TT&C
Earth Station shall be borne by Orion, and DACOM shall have no responsibility or
liability therefor. Notwithstanding the foregoing, Orion shall have no
liability, responsibility or obligation hereunder with respect to any damage to,
or destruction or loss of, the Satellite or any transponder or other equipment
on the Satellite resulting from any malfunction or failure of the Antenna or the
TT&C Equipment, and DACOM's rights with respect to any such malfunction or
failure shall be governed solely by the Transponder Agreement. No such damage,
destruction, loss, malfunction or failure shall entitle either DACOM or Orion to
any refunds of any Charges or any other remedies.
13.2. Insurance. Each party shall be responsible for obtaining and
maintaining such insurance as such party may choose, in such party's sole
discretion, to cover such party's insurable interests in the TT&C Earth Station
or the TT&C Equipment, and the proceeds of any such insurance shall be payable
to the party obtaining and maintaining it and not to the other party. At the
request of either party, the other party shall use reasonable efforts to assist
the requesting party in obtaining any such insurance. In addition, DACOM shall
maintain insurance coverage in the amount of Two Million United States Dollars
(2,000,000 USD), or other sums as mutually agreed, with respect to loss or
damage to the TT&C Earth Station, the Antenna or the TT&C Equipment caused by or
resulting from the negligence of DACOM's employees or agents.
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ARTICLE 14.
INDEMNIFICATION; DAMAGES
------------------------
14.1. Indemnification. Each party shall indemnify and hold the other
party, and such other party's shareholders, officers, directors, agents,
employees and assigns, or any of them, whether acting through such other party
or otherwise, harmless from and against any and all claims, liabilities,
expenses, assessments, judgments and recoveries, including attorneys' fees,
incurred by any of them and occasioned by, arising out of or resulting from any
material misrepresentation, breach of warranty or covenant, or default or
nonfulfillment of any terms and conditions, on the part of such indemnifying
party under this Agreement.
14.2. Consequential Damages. In no event shall either party be liable
for any indirect, incidental or consequential damages, whether foreseeable or
not, occasioned by any cause whatsoever; except that DACOM's indemnification of
Orion pursuant to Section 14.1 shall cover damages suffered by Orion, including
loss of rentals, purchase price, income or profits, arising out of any damage to
or loss of the Satellite or any transponders or other equipment thereon or any
interruption of the Satellite's ability to transmit programming pursuant to the
various agreements between Orion and users of the Satellite or transponders or
other equipment thereon.
14.3. Procedure for Indemnification. In the event of a claim with
respect to which a party is entitled to indemnification hereunder, such party
("Indemnified Party") shall notify the other party ("Indemnifying Party") in
writing as soon as practicable, but in no event later than 15 days after receipt
of such claim; provided that a delay in giving such notice shall not preclude
the Indemnified Party from seeking indemnification hereunder if such delay has
not materially prejudiced the Indemnifying Party's ability to defend such claim.
The Indemnifying Party shall promptly defend such claim (by counsel of its own
choosing and reasonably satisfactory to the Indemnified Party) and the
Indemnified Party shall reasonably cooperate with the Indemnifying Party in the
defense of such claim, including the settlement of the matter on the basis
stipulated by the Indemnifying Party (with the Indemnifying Party being
responsible for all costs and expenses of such settlement and the reasonable
out-of-pocket expenses incurred by the Indemnified Party in cooperating with the
Indemnifying Party), subject to the limitations on settlement described in
subparagraphs (a) and (b) below. If a conflict of interest exists vis-a-vis the
interests of the Indemnifying Party and the Indemnified Party, the Indemnified
Party shall (i) be entitled to defend the claim, suit, or action or proceeding
at the expense of, for the account of and at the risk of the Indemnifying Party;
(ii) engage counsel of its own choosing reasonably acceptable to the
Indemnifying Party, and at the expense of, for the account of and at the risk of
the Indemnifying Party; and (if the actions specified in clauses (i) and (ii)
above are taken, then (iii) take reasonable steps to monitor and control the
fees and costs of counsel so chosen; and (iv) keep the Indemnifying Party
reasonably informed of the status of such defense, including without limitation
any settlement proposals by the claimant. If the Indemnifying Party, within a
reasonable time after notice of a claim, fails to defend the Indemnified Party,
the Indemnified Party shall be entitled to undertake the defense, compromise or
settlement of such claim at the expense of, for the account and at the risk of
Indemnifying Party. Upon the assumption by the Indemnifying Party of the defense
of such claim, the Indemnifying Party may settle or compromise such claim as it
sees fit; provided, however, that anything in this Section 14.3 to the contrary
notwithstanding:
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(a) Consent. If there is a reasonable probability that a
settlement or compromise of a claim may materially and adversely affect the
Indemnified Party, the Indemnifying Party shall not so settle or compromise such
claim without the consent of the Indemnified Party, which consent shall not be
unreasonably withheld; and
(b) Counterclaim. If the facts giving rise to indemnification
hereunder shall involve a possible claim by the Indemnified Party against a
third party, the Indemnified Party shall have the right, at its own cost and
expense, to undertake the prosecution, compromise, and settlement of such claim.
ARTICLE 15.
CONFIDENTIALITY
---------------
15.1. Confidentiality. Each party shall treat as confidential all of
the Confidential Information, refrain from using any of the Confidential
Information except in connection with this Agreement, and deliver promptly to
the other party or destroy, at the request of the other party, all tangible
embodiments, including all copies thereof, of the Confidential Information which
are within the possession or control of such party. If either party is requested
or required (by oral question or request for information or documents in any
legal proceeding, interrogatory, subpoena, civil investigative demand or similar
process) to disclose any Confidential Information, such party shall notify the
other party promptly of such request or requirement so that the other party may
seek an appropriate protective order or waive compliance with the provisions of
this Section 15.1. If, in the absence of such a protective order or waiver,
either party is, on the advice of counsel, compelled to disclose any
Confidential Information to any tribunal or else be liable for contempt, such
party may disclose such Confidential Information to such tribunal; provided,
however, that the disclosing party shall use such party's best efforts to
obtain, at the request and expense of the other party, an order or other
assurance that confidential treatment will be accorded to such portion of the
Confidential Information required to be disclosed as the other party shall
designate. For purposes of this Section 15.1, "Confidential Information" means
any information concerning the Site or the TT&C Earth Station, the operations of
the TT&C Earth Station, the Satellite and its components, the TT&C Equipment, or
the business and affairs of DACOM or Orion or their respective Affiliates, that
is not already generally available to the public. The parties recognize that
Orion's filing of this Agreement, including the Exhibits hereto, with the United
States Securities and Exchange Commission may be required by law. Such filing
shall not be subject to or a violation of this Section 15.1.
15.2. Confidentiality Agreements. At the request of Orion to DACOM at
any time during the Term of this Agreement, DACOM shall cause any employee,
agent, consultant or independent contractor of DACOM who may have access to
Confidential Information to execute and deliver to Orion a confidentiality
agreement in substantially the form of Exhibit G hereto, with such changes
therein as Orion and DACOM may agree in light of changes in circumstances,
technology and the like. If any such employee, agent, consultant or independent
contractor refuses to execute and deliver such a confidentiality agreement,
DACOM shall take such steps as may be necessary or appropriate, including
denying such person access to the Site, so that such person will not have access
to any Confidential Information.
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<PAGE>
ARTICLE 16.
ASSIGNMENT
----------
16.1. Succession and Assignment. This Agreement shall be binding upon
and inure to the benefit of DACOM and Orion and their respective successors and
permitted assigns. Neither party may assign this Agreement or any of such
party's rights, interests or obligations hereunder without the prior approval of
the other party hereto, except as follows:
(a) Orion may (i) assign any or all of its rights and
interests hereunder to one or more of its Affiliates or to a lender or other
person providing financing to Orion or such Affiliate, and (ii) designate one or
more of its Affiliates to perform its obligations hereunder; except that in any
event Orion shall remain responsible for the performance, by itself or its
assignee, of all of its obligations hereunder; and
(b) Orion may assign and convey to any other person any or all
of its title to or rights and interests in the TT&C Equipment, or impose a Lien
on any or all of the TT&C Equipment, so long as the assignee agrees that the
TT&C Equipment shall remain at the Site and be subject to use by DACOM in
accordance with this Agreement.
16.2. Change of Control. In the event of any merger or sale of stock or
assets of DACOM resulting in a change of control of DACOM, DACOM will provide
assurance that the quality of service at the TT&C Station will be maintained.
ARTICLE 17.
REPRESENTATIONS AND WARRANTIES OF ORION
---------------------------------------
17.1. Representations and Warranties. Orion represents and warrants to
DACOM as follows:
(a) Incorporation, Power, etc. Orion is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware, U.S.A., with all necessary corporate power to own and lease its
properties and to carry on its business as and where such properties are now
owned or leased and such business is now being carried on;
(b) Due Authorization of Agreement; No Conflict With Other
Instruments. Orion has full power and authority and has taken all necessary
action to execute, deliver and consummate this Agreement and to perform all the
terms and conditions hereof to be performed by Orion. This Agreement is a valid
and binding obligation of Orion enforceable against Orion in accordance with its
terms, except as the enforceability hereof may be limited by bankruptcy,
insolvency or other laws of general application relating to or affecting the
enforcement of creditors' rights or by general principles of equity limiting the
availability of equitable remedies. The execution and delivery by Orion of this
Agreement, the consummation by Orion of the transactions which this Agreement
contemplates will be consummated by Orion, and Orion's fulfillment of and
compliance with the terms and provisions hereof applicable to Orion, do not and
will not (i) violate any law applicable to Orion, or (ii) conflict with, result
in a breach of or constitute a default under Orion's articles of incorporation
or bylaws.
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<PAGE>
17.2. Exclusion of Warranties. ORION MAKES NO REPRESENTATIONS OR
WARRANTIES OF ANY KIND OR NATURE WHATSOEVER, WHETHER EXPRESS OR IMPLIED, AS TO
THE CONDITION OF THE TT&C EQUIPMENT, THE ANTENNA OR THE TT&C EARTH STATION, OR
AS TO THEIR SUITABILITY FOR THEIR INTENDED USE. ALL SUCH WARRANTIES ARE HEREBY
EXPRESSLY DISCLAIMED. DACOM ACKNOWLEDGES THAT ORION MAKES NO WARRANTY OF ANY
KIND, AND IN PARTICULAR THAT THERE IS NO IMPLIED WARRANTY OF MERCHANTABILITY OR
FITNESS FOR ANY PARTICULAR PURPOSE ASSOCIATED WITH THE TT&C EQUIPMENT, THE
ANTENNA OR THE TT&C EARTH STATION.
ARTICLE 18.
REPRESENTATIONS AND WARRANTIES OF DACOM
---------------------------------------
DACOM represents and warrants to Orion as follows:
18.1. Incorporation, Power, etc. DACOM is a corporation duly organized,
validly existing and in good standing under the laws of Korea, with all
necessary corporate power to own and lease its properties and to carry on its
business as and where such properties are now owned or leased and such business
is now being carried on.
18.2. Due Authorization of Agreement; No Conflict With Other
Instruments. DACOM has full power and authority and has taken all necessary
action to execute, deliver and consummate this Agreement and to perform all the
terms and conditions hereof to be performed by DACOM. This Agreement is a valid
and binding obligation of DACOM enforceable against DACOM in accordance with its
terms, except as the enforceability hereof may be limited by bankruptcy,
insolvency or other laws of general application relating to or affecting the
enforcement of creditors' rights or by general principles of equity limiting the
availability of equitable remedies. The execution and delivery by DACOM of this
Agreement, the consummation by DACOM of the transactions which this Agreement
contemplates will be consummated by DACOM, and DACOM's fulfillment of and
compliance with the terms and provisions hereof applicable to DACOM, do not and
will not (i) violate any law applicable to DACOM, or (ii) conflict with, result
in a breach of or constitute a default under the instruments and documents under
which DACOM is organized and by which DACOM is governed.
18.3. Government Regulation. The terms and conditions of this
Agreement, including the payments provided for herein, are not subject to
regulation or review by or consent from any Governmental Body in Korea to which
DACOM is subject. No such Governmental Body can require the amendment,
modification or supplementation of this Agreement without the prior written
consent of Orion.
18.4. Exclusion of Warranties. DACOM MAKES NO REPRESENTATIONS OR
WARRANTIES OF ANY KIND OR NATURE WHATSOEVER, WHETHER EXPRESS OR IMPLIED, AS TO
THE CONDITION OF THE TT&C EQUIPMENT, THE ANTENNA OR THE TT&C EARTH STATION, OR
AS TO THEIR SUITABILITY FOR THEIR INTENDED USE. ALL SUCH WARRANTIES ARE HEREBY
EXPRESSLY DISCLAIMED. ORION ACKNOWLEDGES THAT DACOM MAKES NO WARRANTY OF ANY
KIND, AND IN PARTICULAR THAT THERE IS NO IMPLIED WARRANTY OF MERCHANTABILITY OR
FITNESS FOR ANY PARTICULAR PURPOSE ASSOCIATED WITH THE TT&C EQUIPMENT, THE
ANTENNA OR THE TT&C EARTH STATION.
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ARTICLE 19.
MISCELLANEOUS
-------------
19.1. Further Assurances. DACOM and Orion shall take all appropriate
action and execute all documents, instruments or conveyances of any kind which
may be necessary or advisable to carry out any of the provisions hereof and to
consummate the transactions contemplated hereby
19.2. Taxes and Expenses. Each party hereto shall bear all taxes and
expenses incurred by such party in connection with the negotiation, preparation,
execution and performance of this Agreement, except as otherwise provided in
Sections 4.2, 9.1(d), 9.2 and Article 12.
19.3. Press Releases and Public Announcements. Except as otherwise
required by law or by applicable rules of any securities exchange or association
of securities dealers, neither party shall issue any press release, make any
public announcement or otherwise disclose any information for the purpose of
publication by any print, broadcast or other public media, relating to the
transactions contemplated by this Agreement, without the prior approval of the
other party.
19.4. Notices. All notices, demands, claims, requests, undertakings,
consents, opinions and other communications which may or are required to be
given hereunder or with respect hereto shall be in writing, and in the English
language, shall be given either by personal delivery or by established
international courier, charges prepaid, or by facsimile transmission, and shall
be deemed to have been given or made when personally delivered, when delivered
to the courier company, charges prepaid, and when transmitted by facsimile,
addressed to the respective parties as follows:
(a) If to Orion:
Orion Asia Pacific Corp.
2440 Research Boulevard
Rockville, Maryland 20850
Attention: Corporate Secretary
Fax: 301-258-3360
With a copy to:
Orion Asia Pacific Corp.
2440 Research Boulevard
Rockville, Maryland 20850
Attention: Vice President, Engineering
Fax: 301-258-3319
With copy to:
Reed Smith Shaw & McClay
1301 K Street, N.W.
Washington, D.C. 20005
Attention: Benjamin J. Griffin, Esq.
Fax: 202-414-9299
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or to such other address as Orion may from time to time designate by notice to
DACOM with respect to future notices, demands and other communications to Orion;
or
(b) If to DACOM:
DACOM Corp.
DACOM Building 65-228
3-GA, Hangang-Ro, Yongsan-Ku
Seoul, Korea
Attention: Youn Woo Lee
Head of Satellite Communications Business Team
Fax: 82-2-220-0761
With copy to:
Bae, Kim & Lee
Shin-A Bldg, 39-1 Seosomun-Dong
Chung-Ku, Seoul, 100-752
Korea
Attention: Suk Jin Chon, Esq.
Fax: 82-2-755-7676
or to such other address as DACOM may from time to time designate by notice to
Orion with respect to future notices, demands and other communications to DACOM.
19.5. No Third-Party Beneficiaries. This Agreement shall not confer any
rights or remedies upon any person other than the parties to this Agreement and
their respective successors and permitted assigns, and shall not create the
relationship of principal and agent, partnership or joint venture or any
fiduciary relationship between DACOM and Orion.
19.6. Governing Law; Arbitration.
(a) Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York, U.S.A., without
giving effect to any choice or conflict of law provision or rule (whether of the
State of New York or any other jurisdiction) that would cause the application of
the laws of any jurisdiction other than the State of New York.
(b) Arbitration. All disputes, controversies or differences
which may arise between the Parties, out of, or in relation to, or in connection
with this Agreement, or for the breach thereof, shall be finally settled by
arbitration in Vancouver, Canada, in accordance with the rules of the
International Chamber of Commerce. The award rendered by the three arbitrators
shall be final and binding upon both Parties concerned.
19.7. Amendments and Waivers. No amendment of any provision of this
Agreement, and no postponement or waiver of any such provision or of any
default, misrepresentation, or breach of warranty or covenant hereunder, whether
intentional or not, shall be valid unless such amendment, postponement or waiver
is in writing and signed by or on behalf of Orion and DACOM. No such amendment,
postponement or waiver shall be deemed to extend to any prior or subsequent
matter, whether or not similar to the subject-matter of such amendment,
postponement or waiver. No failure or delay on the part of Orion or DACOM in
exercising any right, power or privilege under
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this Agreement shall operate as a waiver thereof nor shall any single or partial
exercise of any right, power or privilege hereunder preclude any other or
further exercise thereof or the exercise of any other right, power or privilege.
19.8. Matters of Construction, Interpretation and the Like.
(a) Construction. Orion and DACOM have participated jointly in
the negotiation and drafting of this Agreement. If an ambiguity or question of
intent or interpretation arises, this Agreement shall be construed as if drafted
jointly by both parties and no presumption or burden of proof shall arise
favoring or disfavoring either party because of the authorship of any of the
provisions of this Agreement. Any reference to any law shall be deemed also to
refer to all rules, regulations, orders or decrees promulgated thereunder,
unless the context requires otherwise. The word "including" shall mean including
without limitation. Each representation, warranty and covenant contained herein
shall have independent significance. If either party breaches in any respect any
representation, warranty, covenant or other obligation contained herein or
created hereby, the fact that there exists another representation, warranty
covenant or obligation relating to the same subject matter (regardless of the
relative levels of specificity) which has not been breached shall not detract
from or mitigate the consequences of such breach. The rights and remedies
expressly specified in this Agreement are cumulative and are not exclusive of
any rights or remedies which any party would otherwise have. The Exhibits
specified in this Agreement are incorporated herein by reference and made a part
hereof. The article and section headings hereof are for convenience only and
shall not affect the meaning or interpretation of this Agreement. All
representations and warranties in this Agreement shall survive for the duration
of the Term. The English language version of this Agreement is controlling.
(b) Severability. The invalidity or unenforceability of one or
more of the provisions of this Agreement in any situation in any jurisdiction
shall not affect the validity or enforceability of any other provision hereof or
the validity or enforceability of the offending provision in any other situation
or jurisdiction.
(c) Entire Agreement; Counterparts. This Agreement (and the
other documents referred to herein) constitutes the entire agreement between the
parties and supersedes any prior understandings, agreements or representations
by or among the parties, written or oral, to the extent they relate to the
subject matter hereof. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument. It shall not be necessary
in making proof of this Agreement to produce or account for more than one such
counterpart.
ARTICLE 20.
DEFINITIONS
-----------
As used in this Agreement, unless the context otherwise requires, the
following terms shall have the following meanings:
"Act of Bankruptcy" means the institution of any proceeding by
one of the parties or by a third person seeking to have such party declared or
found to be insolvent or seeking dissolution, liquidation, reorganization or
similar relief with respect
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<PAGE>
to such party or such party's assets, or seeking appointment of a receiver, a
trustee or other custodian for such party or such party's assets, or the
voluntary cessation or suspension of the business of such party, or any similar
relief or event, under any law relating to bankruptcy, insolvency or protection
of creditors, unless such party contests such proceeding and such proceeding is
dismissed within 30 days.
"Affiliate," with respect to either party, means any entity
that directly or indirectly through one or more intermediaries controls, is
controlled by, or is under common control with, such party.
"Agreement" means this Agreement as originally executed and
delivered or, if amended or supplemented, as so amended or supplemented.
"Antenna" means the antenna to be purchased, constructed and
installed by DACOM pursuant to Section 3.2, and for purposes of this Agreement
shall include HPA's, LNAs, switch gear, IFL's and up and down converters to the
IF Patch Panel.
"Antenna Acceptance Date" has the meaning set forth in Section
5.2.
"Charge" means the various amounts payable pursuant to Section
9.1.
"Confidential Information" has the meaning set forth in
Section 15.1.
"Construction Specifications" means the specifications
referred to in Section 3.1 and attached hereto as Exhibit B.
"CSM Operations" means the operation of communications system
monitoring equipment.
"DACOM" means DACOM Corp., a Korean corporation.
"Fair Market Value" has the meaning set forth in Section 10.5.
"Force Majeure" means one or more of the events or causes
referred to in Article 11.
"Governmental Body" means any national, state, provincial
county, city, municipal, regional or local organ of government, including all
courts, boards and agencies of any thereof.
"Joint Investment Agreement" means the Joint Investment
Agreement of even date herewith between Orion and DACOM.
"Korea" means the Republic of Korea.
"Law," whether or not capitalized, means statutes, rules,
regulations, codes, plans, injunctions, judgments, orders, decrees and rulings
of any Governmental Body.
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"Lien" means any encumbrance, including any mortgage, deed of
trust, pledge, hypothecation, assignment, statutory or other lien, security
interest or other security arrangement, conditional sale, title retention
agreement, financing lease and the filing of any financing statement or similar
instrument under the Uniform Commercial Code of any state in the United States
or comparable law of any other jurisdiction.
"Orion" means Orion Asia Pacific Corp., a Delaware corporation.
"Orion 3" has the meaning set forth in the recitals hereto.
"Permitted Liens" means (i) Liens and charges for then current
taxes, levies or assessments not then due and payable or which remain payable
without interest or penalty, (ii) easements, rights of way, title exceptions and
reservations, restrictions, zoning ordinances and other encumbrances which do
not adversely affect the use of the properties subject thereto for the purpose
contemplated by this Agreement, (iii) obligations and duties of DACOM, not
interfering with the use of the properties subject thereto for the purpose
contemplated by this Agreement, and (iv) such other Liens as Orion may approve
in Orion's sole discretion.
"Person," whether or not capitalized, means an individual,
corporation, partnership, limited liability company or partnership,
unincorporated organization, voluntary association, joint stock company, trust,
joint venture or Governmental Body.
"Satellite" means Orion 3 and any Replacement Satellite or
Successor Satellite, as those terms are defined in the Transponder Agreement.
"TT&C Earth Station" means the facilities to be constructed
and operated on the Site pursuant to this Agreement.
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"Site" means the location for the TT&C Earth Station selected
as provided in Section 2.1.
"Joint Investment Agreement" means the Joint Investment
Agreement dated as of November 11, 1996 between DACOM and Orion, as originally
executed and delivered or, if amended or supplemented, as so amended or
supplemented.
"Term" means the period of time during which this Agreement is
in effect as provided in Section 10.1.
"TT&C" has the meaning set forth in Section 1.1.
"TT&C Acceptance Date" has the meaning set forth in Section
5.3.
"TT&C Equipment" has the meaning set forth in Section 4.1.
WITNESS the due execution hereof as of the day and year first
above written.
<TABLE>
<CAPTION>
<S> <C>
ORION ASIA PACIFIC CORP. DACOM CORP.
By: By:
--------------------------------- --------------------------------
W. Neil Bauer Kwak, Chi-Young
Chief Executive Officer Senior Executive Vice President
Date: Date:
--------------------------------- ---------------------------
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</TABLE>
<PAGE>
EXHIBIT A
Confidential Treatment has been
requested for this entire exhibit.
FUNCTIONS TO BE PERFORMED
BY THE TT&C EARTH STATION
<PAGE>
EXHIBIT B
Confidential Treatment has been
requested for this entire exhibit.
CONSTRUCTION SPECIFICATIONS
FOR THE TT&C EARTH STATION
<PAGE>
EXHIBIT C1
Confidential Treatment has been
requested for this entire exhibit.
ANTENNA SPECIFICATIONS
<PAGE>
EXHIBIT C2
Confidential Treatment has been
requested for this entire exhibit.
RF/IF REQUIREMENTS INCLUDING TEST TRANSLATOR
<PAGE>
EXHIBIT D
Confidential Treatment has been
requested for this entire exhibit.
TT&C EQUIPMENT
<PAGE>
EXHIBIT E
Confidential Treatment has been
requested for this entire exhibit.
TESTING
<PAGE>
EXHIBIT F
Confidential Treatment has been
requested for this entire exhibit.
INITIAL JOB SPECIFICATIONS,
NUMBER OF PERSONNEL
AND QUALIFICATIONS
<PAGE>
EXHIBIT G
FORM OF CONFIDENTIALITY AGREEMENT
NON-DISCLOSURE AGREEMENT
This Agreement is between Orion Network systems, inc., Orion satellite
Corporation and OrionNet Inc., each Delaware Corporations, hereinafter
collectively referred to as "ONS", and _________________________________,
hereinafter referred to as "Recipient". Recipient will provide certain services
to Orion Network Systems, Inc., or one of its subsidiaries, i.e., Orion
Satellite Corporation, OrionNet Inc., and Orion Asia Pacific Corp. As a result,
Recipient will receive and have access to certain information which is
confidential and proprietary to ONS. ONS desires to protect all its proprietary
and confidential information and, toward that end, Recipient hereby agrees and
represents as follows:
1. Proprietary and Confidential Information: Recipient agrees that any
information which is provided by ONS is subject to the terms of this Agreement.
Recipient agrees that all information which he receives from ONS shall be deemed
confidential, proprietary and secret whether or not any such information
received is in tangible form or is clearly marked as confidential or proprietary
or whether Recipient is expressly informed that such information is confidential
and proprietary. Information which is received orally shall also be deemed
confidential or proprietary.
2. Nondisclosure to Third Parties: The Recipient shall treat such
information received from ONS as the proprietary and confidential information of
ONS and shall not disclose said Information to any other person except as
specifically authorized in writing by ONS, and shall safeguard such Information
as he would his own proprietary and confidential information. The Recipient
shall immediately notify the disclosing party of any subpoena, court order,
administrative order, discovery request, or other event that could compel the
recipient to disclose such Information. The Recipient shall cooperate with ONS
in its efforts to protect the Information from disclosure.
3. Ownership and Use of Information: All written or oral data received by
Recipient from ONS for purposes of performing his consulting services shall be
and remain the property of ONS. Recipient shall not make copies of any tangible
data or printed information except upon specific written permission from ONS.
Any tangible data or printed information, and any copies thereof, shall be
promptly destroyed or returned immediately to ONS upon the request of ONS. The
Recipient shall not use the information received from ONS for any purpose except
to perform the specific consulting services requested.
G-1
<PAGE>
4. Term of Agreement: The obligations under this Agreement shall continue
and survive the completion of the aforesaid consulting services and shall remain
binding for a period of five (5) years from the date of execution of this
Agreement.
5. Employee Access and Control of Information: The Recipient shall
maintain a list of the names of its employees or associates who have access to
the information and shall furnish such list to ONS upon request. Each such
employee or associate shall be deemed a Recipient and shall execute this
Non-Disclosure Agreement prior to receiving such information.
6. Unauthorized Access to Information: If the Recipient has reason to
believe any information under his control and provided to him by ONS has been
accessed by unauthorized individuals, he shall immediately report the incident
fully to ONS.
7. Exceptions: The obligations contained herein shall not apply to: (a)
Information not public which hereafter is disclosed publicly without a breach of
this Agreement; (b) Information known to the recipient prior to the time of
disclosure by the disclosing party or independently developed by employees of
the recipient without access to the Information; or (c) Information disclosed in
good faith to the recipient by a third person legally entitled to disclose it.
8. Miscellaneous: The obligations of the parties shall be binding on and
inure to the benefit of their respective heirs, successors, and assigns. This
Agreement may be amended or modified only by a subsequent agreement in writing.
This Agreement does not obligate either party to disclose any information to the
other or enter into any other agreement or arrangement. The parties' obligations
under this Agreement shall survive the termination of their association
regardless of the manner of such termination. This Agreement shall be governed
by the laws of the State of Maryland.
I agree to the foregoing terms and conditions this ________ day of
________________, 1996.
Orion Network Systems, Inc. _________________________
Recipient
__________________________ _________________________
Signature Signature
__________________________ _________________________
Print Name Print Name
__________________________ _________________________
Title Title
G-2
<PAGE>
EXHIBIT H
Confidential Treatment has been
requested for this entire exhibit.
CONSTRUCTION CHARGES
<PAGE>
The portions of this Exhibit for which confidential treatment has been requested
are marked by brackets ([ ]). In addition, an asterisk (*) appears in the right
hand margin of each paragraph in which confidential information is included.
JOINT INVESTMENT AGREEMENT
BETWEEN
ORION ASIA PACIFIC CORP.
AND
DACOM CORP.
DATED: NOVEMBER 11, 1996
<PAGE>
TABLE OF CONTENTS
PAGE
-------
ARTICLE 1. DEFINITIONS .................................................. 1
ARTICLE 2. ACQUISITION OF TRANSPONDER CAPACITY .......................... 4
2.1. Transponders ..................................................... 4
2.2. Spare Transponders ............................................... 4
2.3. Launch Failure or Transponder Failure;Replacement Satellite ...... 4
2.4. Successor Satellite .............................................. 4
ARTICLE 3. TESTING ...................................................... 5
3.1. Ground Testing ................................................... 5
3.2. In-Orbit Testing ................................................. 6
3.3. Conclusion of Tests .............................................. 6
3.4. Accommodation of DACOM Personnel ................................. 6
3.5. Qualifications of DACOM Personnel ................................ 7
3.6. Schedule ......................................................... 7
ARTICLE 4. TERM ......................................................... 7
4.1. Initial Term ..................................................... 7
4.2. Orion's Right at End of Term ..................................... 7
ARTICLE 5. PAYMENTS ..................................................... 7
5.1. Joint Investment Amount .......................................... 7
5.2. Payment Schedule ................................................. 7
5.3. Notice of Payment, Payments, Taxes and Bank Charges .............. 8
5.4. Time of Payment .................................................. 8
5.5. Late Payment Penalty Interest .................................... 8
5.6. Security ......................................................... 8
5.7. Adjustment ....................................................... 9
ARTICLE 6. TRANSPONDER FAILURE AND RESTORATION; OTHER FAILURE .......... 9
6.1. Spare Transponders; Transponder Failure; Restoration ............. 9
6.2. Risk of Transponder Failure ...................................... 10
6.3. In-Orbit Insurance ............................................... 10
ARTICLE 7. TRACKING, TELEMETRY AND COMMAND .............................. 10
ARTICLE 8. CONTRACT PARTICIPATION RIGHTS; REPORTS AND COMMUNICATIONS ... 11
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<PAGE>
PAGE
-------
8.1. Participation in Satellite Construction Monitoring ............... 11
8.2. Schedule/Progress Reports/Meetings ............................... 11
8.3. Operational Reports and Communications ........................... 11
8.4. Anomalous Operation Notification ................................. 12
ARTICLE 9. USE OF TRANSPONDERS/ORION 3 SATELLITE ........................ 12
9.1. Use of and Right to Transponders ................................. 12
9.2. Technical Responsibilities of DACOM .............................. 12
9.3. Interruption Rights in Abnormal Circumstances .................... 13
9.4. Orion's Rights to Satellite ...................................... 13
9.5. Reactivation ..................................................... 13
9.6. Regional Beam Transponders ....................................... 14
ARTICLE 10. TERMINATION ................................................. 14
10.1. Termination by DACOM ............................................ 14
10.2. Termination by Orion ............................................ 15
10.3. Consequences of Termination ..................................... 15
10.4. Retirement of Orion 3 ........................................... 16
10.5. Launch Failure/Salvage .......................................... 17
ARTICLE 11. REPRESENTATIONS AND WARRANTIES OF ORION ..................... 17
11.1. Representations and Warranties .................................. 17
11.2. Exclusion of Warranties ......................................... 18
11.3. Manufacturer Reimbursement ...................................... 18
ARTICLE 12. REPRESENTATIONS AND WARRANTIES OF DACOM ..................... 18
12.1. Incorporation, Power, etc ....................................... 18
12.2. Due Authorization of Agreement; No Conflict With Other
Instruments ........................................................... 18
12.3. Government Regulation ........................................... 19
ARTICLE 13. COORDINATION; GOVERNMENT APPROVALS .......................... 19
13.1. Coordination .................................................... 19
13.2. Government Approvals ............................................ 19
ARTICLE 14. LIMITATION OF LIABILITY AND INDEMNIFICATION ................. 20
14.1. Force Majeure ................................................... 20
14.2. Consequential Damages ........................................... 20
14.3. Remedies ........................................................ 20
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<PAGE>
PAGE
-------
ARTICLE 15. INDEMNIFICATION ............................................. 20
15.1. Indemnification by DACOM ........................................ 20
15.2. Indemnification by Orion ........................................ 20
15.3. Procedure for Indemnification ................................... 21
ARTICLE 16. MISCELLANEOUS ............................................... 21
16.1. Further Assurances .............................................. 21
16.2. Taxes and Expenses .............................................. 22
16.3. Press Releases and Public Announcements ......................... 22
16.4. Notices.......................................................... 22
16.5. No Third-Party Beneficiaries .................................... 23
16.6. Governing Law; Arbitration ...................................... 23
16.7. Amendments and Waivers .......................................... 23
16.8. Succession and Assignment ....................................... 24
16.9. Confidentiality ................................................. 24
16.10. Matters of Construction, Interpretation and the Like ............ 25
16.11. Compliance ...................................................... 26
16.12. Registration .................................................... 26
EXHIBITS
A ORION ACCESS PROCEDURES
B TRANSPONDER PERFORMANCE SPECIFICATIONS
C FORM LETTER OF CREDIT
D OPERATIONAL REPORT ELEMENTS
E LETTER RE ORION WARRANT
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<PAGE>
JOINT INVESTMENT AGREEMENT
This JOINT INVESTMENT AGREEMENT, dated as of November 11, 1996 (this
"Agreement"), by and between ORION ASIA PACIFIC CORP., a corporation organized
and existing under the laws of Delaware, U.S.A. ("Orion"), and DACOM CORP., a
corporation organized and existing under the laws of the Republic of Korea
("DACOM"),
W I T N E S S E T H:
WHEREAS, Orion intends to procure and operate a communications
satellite to be known as Orion 3, to be launched into an orbital location
currently projected to be at 139 degrees East Longitude;
WHEREAS, DACOM wishes to acquire certain rights to certain dedicated
capacity on Orion 3 capable of serving the Korean Peninsula; and
WHEREAS, Orion is willing to dedicate to DACOM's use a customized
payload on Orion 3 consisting of eight (8) 36 MHz Ku-band transponders and three
(3) spare transponders (as defined hereinafter) which will cover the Korean
Peninsula as described in and on the terms and conditions set forth in this
Agreement;
NOW, THEREFORE, in consideration of the foregoing, and intending to be
legally bound, the parties hereto agree as follows:
ARTICLE 1.
DEFINITIONS
-----------
As used in this Agreement, unless the context otherwise requires, the
following terms shall have the following meanings:
"Acceptance Test Plan" means the plan for testing the Transponders and
Spare Transponders, both prior to launch and in-orbit, to be agreed among Orion,
DACOM and the satellite manufacturer consistent with customary and reasonable
standards in the industry;
"Agreement" means this Agreement as originally executed and delivered
or, if amended or supplemented, as so amended or supplemented;
"Commencement Date" means the date on which Orion (A) notifies DACOM
that (i) Orion has accepted Orion 3 (or any Replacement Satellite, as
applicable) from the satellite manufacturer after completion of the Acceptance
Test Plan, and (ii) the Transponders are available for use, and (B) delivers the
acknowledgment pursuant to Section 3.3;
"Confidential Information" shall have the meaning set forth in Section
16.9;
"DACOM" means DACOM Corp., a Korean corporation;
<PAGE>
"Effective Date" means the date of this Agreement;
"EL" means East Longitude;
"Force Majeure" means events or occurrences that are beyond the control
of Orion and DACOM and which are described in detail in Section 14.1;
"Initial Negotiations" shall have the meaning set forth in Section
2.4(a);
"ITU" shall have the meaning set forth in Section 11.1(d);
Joint Investment Amount" shall have the meaning set forth in Section
5.1;
"Launch Failure" means the failure of Orion 3 within _______ days after
launch (i) to reach its assigned orbital location, or (ii) to have at least
______________ of the transponders meeting their respective technical
specifications, or (iii) to have sufficient stationkeeping fuel to maintain
geosynchronous orbit for a minimum of _________ _____ of the Orion-3 thirteen
(13) year life upon reaching its assigned orbital location, or (iv) to otherwise
be commercially usable for any reason, including without limitation, as a result
of destruction or damage incurred during launch;
"New Offer" shall have the meaning set forth in Section 2.4(b);
"Orion" means Orion Asia Pacific Corp., a Delaware corporation;
"Orion Access Procedures" means the standards for ground stations that
transmit to Orion 3, and the procedures for operators of such ground stations to
follow when transmitting to Orion 3, as set forth in Exhibit A hereto;
"Orion 3" means the communications satellite which Orion intends to
cause to be launched on or before December 31, 1998, and to operate at the 139
degrees EL orbital location or within plus or minus three degrees of that
orbital location (i.e., between 136 and 142 degrees EL), and any Replacement
Satellite launched pursuant to Section 2.3;
"Parties" means the signatories to this Agreement and a "Party" means
either signatory;
"Permitted User" means any sublessee or assignee of DACOM, or any other
entity, that DACOM permits to use any of the Transponders in accordance with
Sections 9.1 and 9.2;
"Replacement Satellite" means a communications satellite which may be
launched by Orion under the circumstances described in Section 2.3(c), if such
satellite is designed to orbit at 139 degrees EL (plus or minus three (3)
degrees) and is capable of providing capacity substantially similar to the
capacity dedicated to DACOM's use under Section 2.1;
"Regional Beam Transponders" means transponders on Orion 3, other than
the Transponders and Spare Transponders, which cover the Asia-Pacific region,
including the Korean Peninsula;
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<PAGE>
"Resale Costs" shall have the meaning set forth in Section 10.3(b);
"Resale Proceeds" shall have the meaning set forth in Section 10.3(b);
"Satellite Failure" means that, at any time after the Commencement
Date, (A)(i) fewer than _______________ of the transponders on Orion 3 are
performing pursuant to their technical specifications, or (ii) Orion 3 can no
longer be maintained in its North/South and East/West orbit with tolerances of
_____ degrees, and (B) Orion, by notice to DACOM, has declared Orion 3 to be a
failure;
"Spare Transponders" means certain redundant equipment units consisting
of three (3) dedicated TWTAs and two (2) dedicated receivers; which are designed
as substitutes for equipment component units, the failure of which units could
cause a Transponder to fail to meet the Technical Specifications;
"Successor Satellite" means any satellite (other than a Replacement
Satellite) that Orion causes to be launched to substitute for Orion 3,
containing Ku-band transponders designed to provide the same or similar service
as the Transponders on Orion 3;
"Term" shall have the meaning set forth in Section 4.1;
"Transponder Failure," with respect to any Transponder, means that at
any time after the Commencement Date (i) the Transponder fails to meet the
Technical Specifications in any material respect for a cumulative period of more
than ________ hours during any consecutive ________day period or (ii) ______ or
more "outage units" occur within a period of _______ consecutive days (an outage
unit being a failure of the Transponder to meet the Technical Specifications in
any material respect for a period of _________ minutes or more). As used in this
definition, the term "day" means a twenty-four (24) hour period of time
commencing at 12:00 midnight Seoul time;
"Technical Specifications" means those minimum specifications for the
performance of the Transponders contained in Exhibit B hereto and also referred
to as the "Orion Asia Pacific Technical Specifications for DACOM DTH Payload";
"Transponders" means the transponders which DACOM has the right to use
hereunder, as specified in Section 2.1; and
"TT&C" shall have the meaning set forth in Article 7.
The Parties understand the terms "Launch Failure," "Satellite Failure"
and "Transponder Failure" also may be defined in the contract for the
manufacture or insurance of Orion 3. Orion shall notify DACOM of the final
satellite manufacturing contract or insurance contract and shall provide a copy
of the foregoing definitions therefrom to DACOM. The Parties will confer and
determine which, if any such definitions are to be included, by amendment, to
this Agreement.
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<PAGE>
ARTICLE 2.
ACQUISITION OF TRANSPONDER CAPACITY
-----------------------------------
2.1. Transponders. DACOM shall acquire from Orion all rights to use as
set forth in this Agreement eight (8) 36 MHz Ku-band Transponders on Orion 3
(designated as transponder numbers 1D through 8D) twenty-four (24) hours per
day, each and every day of the year, and for the Term hereof.
2.2. Spare Transponders. Orion shall reserve for DACOM's exclusive use
Spare Transponders on Orion 3 which shall be available to DACOM in the event of
Transponder Failure under the conditions set forth in Section 6.1.
2.3. Launch Failure or Transponder Failure; Replacement Satellite. If a
Launch Failure occurs with respect to Orion 3, or if at any time within the
first _______ months after the Commencement Date there are fewer than _______
Transponders meeting the Technical Specifications as a result of a Transponder
Failure which cannot be restored pursuant to Section 6.1(c) then,
(a) Refund. DACOM's sole and exclusive remedy shall be that
Orion shall unconditionally refund to DACOM all amounts previously paid to Orion
by DACOM pursuant to Sections 5.2 (a)-(d);
(b) Termination. Either Party may terminate this Agreement;
and
(c) Replacement Satellite. Orion may, in Orion's sole
discretion, choose to launch a Replacement Satellite, in which case Orion shall
so notify DACOM and, if such Replacement Satellite is scheduled to be launched
within ____________ months after such Launch Failure, DACOM shall have the
option to acquire the right to use up to eight (8) 36 MHz Ku-band transponders
on the Replacement Satellite for a period of 13 years after the commencement
date for such Replacement Satellite, on terms and conditions substantially
equivalent to those contained in this Agreement (including charges and payments,
but not including terms and conditions not applicable because of different or
changed conditions). DACOM shall exercise such option by notice to Orion given
within ninety (90) days after Orion notifies DACOM of its decision to launch
such Replacement Satellite. Orion's present intention is to launch a Replacement
Satellite within ___________ months after any Launch Failure, but Orion shall
not be legally bound to do so. Notwithstanding the foregoing, the Parties will
cooperate to determine if arrangements can be made with the manufacturer of the
Orion 3 satellite to have available a Replacement Satellite in a period less
than ___________ months after a Launch Failure, and the conditions, if any,
under which each Party agrees to proceed.
2.4. Successor Satellite.
(a) Initial Negotiations. In the event that Orion chooses to
launch a Successor Satellite to succeed Orion 3, subject to Section 10.4(b),
DACOM shall have the option to acquire the right to use capacity on the
Successor Satellite equivalent to the capacity acquired by DACOM on Orion 3
hereunder for a period of 13 years after the commencement date for such
Successor Satellite, on terms and conditions substantially equivalent to those
contained in this Agreement (except charges and
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<PAGE>
payments, and except terms and conditions not applicable because of different or
changed conditions). DACOM may exercise such option by notice to Orion given
within ninety (90) days after Orion notifies DACOM of Orion's intention to
launch a Successor Satellite. Such notice by Orion shall be given at least
____________________ days before Orion notifies the satellite manufacturer to
proceed under its contract to manufacture the Successor Satellite but not
earlier than __________ months prior to the end of the Term. DACOM and Orion
agree to negotiate for a period of up to six (6) months in good faith with
respect to the fees and charges to be paid by DACOM and the other terms and
conditions relating to such agreement between them, taking into account the
particular characteristics of the Successor Satellite and the transponders
thereon, the costs to Orion of acquiring and operating the Successor Satellite,
practices then common in the industry, and other relevant factors ("The Initial
Negotiations"). Such Initial Negotiations shall be conducted on a mutually
cooperative basis in consideration of the prior relationship of DACOM and Orion
during the Term hereof. If Initial Negotiations are not successfully concluded
with a binding agreement within such six (6) month period, neither Party shall
have any further rights or obligations regarding Successor Satellites pursuant
to this Section 2.4, except as set forth in Section 2.4 (b).
(b) New offer. If the Initial Negotiations do not lead to a
binding agreement, and if within six (6) months after the end of the six (6)
month Initial Negotiations period, Orion has received a bona fide offer that
Orion is willing to accept from a third party for the equivalent capacity which
was the subject of Initial Negotiations pursuant to 2.4(a), which offer is based
on terms, which as a whole, are more favorable than those previously proposed to
DACOM, Orion shall notify DACOM of said terms and conditions ( "New Offer").
DACOM shall have a period of thirty (30) days from such notice to accept the New
Offer by written notice to Orion. If DACOM does not accept the New Offer, Orion
shall be free to enter into an agreement with the third party and shall have no
further obligation to DACOM for Successor Satellite capacity.
(c) No Successor Satellite. In the event Orion chooses not to
launch a Successor Satellite, at the request of DACOM, Orion shall consult with
DACOM regarding the process by which DACOM might launch a DACOM owned and
operated satellite to continue its DTH service then being operated on Orion 3,
consistent with Orion's business needs and appropriate international regulatory
procedures. Orion shall not oppose DACOM's applications to operate a DACOM
satellite at the same frequencies as the Transponders, at the orbital location
of Orion 3 so long as DACOM's operations would not interfere with the intended
operations of Orion.
ARTICLE 3.
TESTING
-------
3.1. Ground Testing. Prior to the shipment of Orion 3 to its launch
site, Orion shall perform or cause the Orion 3 satellite manufacturer to perform
ground testing to determine whether the Transponders and Spare Transponders on
Orion 3 are capable of meeting the Technical Specifications. Such ground testing
shall be in accordance with the Acceptance Test Plan. Subject to the
requirements of the Orion 3 satellite manufacturer, at DACOM's expense, up to
three (3) representatives of DACOM may be
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<PAGE>
present at such testing and observe such testing. Within thirty (30) days
following the conclusion of such ground testing, Orion shall furnish to DACOM
results of the ground test data in Orion's possession relating to the
Transponders and Spare Transponders in a format consistent with the Acceptance
Test Plan. At the conclusion of the ground testing and DACOM's review of such
ground test data, if any of the Transponders or Spare Transponders do not meet
the Technical Specifications in all material respects, Orion shall use the same
level of effort it would use with respect to other transponders on Orion 3, and
consistent with the Orion 3 manufacturing contract, to raise issues (including
those raised by DACOM) regarding the performance of the Transponders and Spare
Transponders and to cause the Orion 3 satellite manufacturer, consistent with
program schedule and the best interests of the overall program, to correct the
deficiencies and to re-test the Transponders and Spare Transponders so that all
of the Transponders and Spare Transponders meet the Technical Specifications in
all material respects.
3.2. In-Orbit Testing. Following the launch of Orion 3 and prior to the
Commencement Date, Orion shall perform or cause to be performed in-orbit testing
of the Transponders and all relevant sub-systems of Orion 3 in accordance with
industry standards. Such in-orbit testing shall be in accordance with the
Acceptance Test Plan, and shall be designed to confirm that the Transponders and
Spare Transponders perform in accordance with the Technical Specifications in
all material respects. If the test results indicate that any of the Transponders
or Spare Transponders do not perform in accordance with the Technical
Specifications in all material respects, to the extent technically feasible,
Orion shall use the same level of effort it would use with respect to other
transponders on Orion 3, and consistent with the Orion 3 manufacturing contract,
to raise issues (including those raised by DACOM) regarding the performance of
the Transponders and Spare Transponders. Subject to the requirements of the
Orion 3 satellite manufacturer, at DACOM's expense, up to three (3)
representatives of DACOM may be present during such in-orbit testing, observe
such testing, and be supplied with results of the in-orbit test data relating to
the Transponders and Spare Transponders in a format consistent with the
Acceptance Test Plan.
3.3. Conclusion of Tests. At the satisfactory conclusion of the
in-orbit testing described in Section 3.2, Orion shall acknowledge to DACOM in
writing that the Orion 3 satellite manufacturer has delivered its certification
regarding the performance of Orion 3 and either that (i) all of the Transponders
meet the Technical Specifications in all material respects or (ii) that some or
all of the Transponders do not meet the Technical Specifications in all material
respects and the extent of any deficiencies. Simultaneously with the delivery of
the acknowledgment with the manufacturer's certificate attached by Orion to
DACOM, the Commencement Date shall occur, subject to DACOM's rights under
Section 2.3 hereof if acknowledgment by Orion is pursuant to clause (ii) above.
Upon the Commencement Date, DACOM may commence the use of the Transponders and
Spare Transponders pursuant to this Agreement for any business purpose of DACOM
including without limitation the DTH trial service..
3.4. Accommodation of DACOM Personnel. ORION shall permit the
representatives of DACOM that observe the tests pursuant to Article 3 and
monitor the construction pursuant to Article 8, to share any office space and
facilities supplied to Orion by the Orion 3 satellite manufacturer. To the
extent such space and facilities are not made available by the manufacturer,
Orion shall, at its expense, provide for the use
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<PAGE>
of office space and computer and communications equipment (but not including
long distance or international charges for the use thereof) by such DACOM
personnel.
3.5. Qualifications of DACOM Personnel. All DACOM personnel that
observe the tests pursuant to Article 3 and monitor the construction pursuant to
Article 8, shall be fully qualified, in the reasonable good faith judgment of
Orion, to perform the functions involved with the test observations and
construction monitoring. DACOM shall provide to Orion the qualifications of its
personnel, and Orion shall approve or disapprove such qualifications, prior to
such personnel leaving Korea.
3.6. Schedule. The schedule that the manufacturer of Orion 3 has
offered to Orion projects a launch date for Orion 3 on or before December 31,
1998, and a Commencement Date on or before January 31, 1999. Orion shall use
reasonable efforts to negotiate with the Orion 3 satellite manufacturer to
obtain an earlier launch date and Commencement Date, consistent with maintaining
quality control. If the Commencement Date is delayed and if, due to such delay,
Orion receives any damages from the Orion 3 satellite manufacturer, Orion shall
pay to DACOM ______ ___________ of the amount of such damages that Orion
receives from the satellite manufacturer, unless DACOM has exercised its rights
to terminate this Agreement pursuant to Section 10.1(a) hereof and to receive a
refund.
ARTICLE 4.
TERM
----
4.1. Term. The period during which DACOM shall have the right to use
the Transponders shall begin as of the Commencement Date, and shall end on the
thirteenth (13th) anniversary of the Commencement Date (the "Term") unless
terminated earlier pursuant to Article 10.
4.2. Orion's Right at End of Term. At the end of the Term, Orion shall
have no further obligations to DACOM hereunder.
ARTICLE 5.
PAYMENTS
--------
5.1. Joint Investment Amount. The Joint Investment Amount payable by
DACOM for its right to use the Transponders and Spare Transponders, shall be
Eighty Nine Million United States Dollars (89,000,000 USD) (the "Joint
Investment Amount"), which may be subject to adjustment pursuant to Section 5.7.
5.2. Payment Schedule. The Joint Investment Amount due hereunder shall
be due and payable to Orion as follows:
------------------------------------------------------
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------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
5.3. Notice of Payment, Payments, Taxes and Bank Charges. Orion shall
submit a Notice of Payment to DACOM for all payments due hereunder thirty (30)
days in advance of the payment date. Such Notice shall be transmitted by
facsimile with an original by U.S. first class mail. All payments due to Orion
hereunder shall be made by electronic transfer of immediately available funds to
a bank account designated by Orion to DACOM from time to time, net of any bank
fees, duties, taxes (withholding or otherwise) or similar charges that may be
imposed by DACOM's bank or by any governmental authority of Korea or any other
nation or any political subdivision.
5.4. Time of Payment. The due dates for all payments required to be
made to Orion shall be as specified in Section 5.2. Orion shall be deemed to
have received payment from DACOM at the time the payment is received by Orion's
designated bank. DACOM acknowledges and agrees that any failure by it to pay any
amount due to Orion hereunder within fifteen (15) days of receipt of a notice
from Orion that such payment is due shall constitute a material breach of this
Agreement.
5.5. Late Payment Penalty Interest. If any amount payable by DACOM
hereunder is not received when due, such amount shall bear interest until paid
at the rate of 18% per annum, calculated daily.
5.6. Security.
(a) DACOM. On or before March 31, 1997, DACOM shall deliver to
Orion an irrevocable stand by letter of credit, in the form of Exhibit C hereto,
of Citibank, N.A., or another bank satisfactory to Orion in Orion's sole
discretion, securing in full the obligations of DACOM to make when due the
payments to Orion required by clauses (d) and (e) of Section 5.2 and any
interest required by Section 5.5.
(b) Orion. Concurrent with the receipt of payments pursuant to
Sections 5.2(a), (b), (c) and (d), Orion shall deliver to DACOM an irrevocable
stand by letter of credit, in the form of Exhibit C hereto, of Citibank, N.A.,
or another bank satisfactory to DACOM in DACOM's sole discretion, securing the
obligations of Orion to refund in accordance with the terms of this Agreement,
amounts received by Orion pursuant to Sections 5.2(a), (b), (c) and (d).
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(c) Insurance as Security. After the launch date of Orion 3,
the Parties will cooperate to determine if Orion can obtain an insurance policy
that after the Commencement Date, could substitute for, or replace the letters
of credit required herein and that would provide DACOM, in its reasonable
judgment, with security for any refunds reasonably comparable to the security
provided by the letters of credit. DACOM is under no legal obligation to accept
such substitute for the letters of credit.
5.7. Adjustment. If, at the end of the ______ month anniversary of the
Commencement Date, there have been no unrestored Transponder Failures that would
entitle DACOM to a refund pursuant to Section 2.3(a), but the Orion 3 satellite
has experienced a partial failure such that the fuel on board is sufficient to
maintain normal stationkeeping for more than ___________________ years after the
Commencement Date but for less than _______ years after the Commencement Date,
DACOM shall be entitled to an adjustment in the Joint Investment Amount
calculated as follows:
Amount of Adjustment = ________ x 89,000,000 USD
where A = the number of years of projected fuel life of Orion 3 from the
Commencement Date
The amount of the adjustment, if any, shall be credited against the payment due
from DACOM pursuant to Section 5.2(e), and if the adjustment is greater than the
amount of such payment, the balance of the adjustment shall be refunded to DACOM
by Orion.
ARTICLE 6.
TRANSPONDER FAILURE AND RESTORATION; OTHER FAILURE
--------------------------------------------------
6.1. Spare Transponders; Transponder Failure; Restoration.
(a) Spare Transponders. After the Commencement Date DACOM
shall have the right to use Spare Transponders on Orion 3 in the event of a
Transponder Failure, if Spare Transponders are then available for DACOM's use
and are not then being used for the benefit of DACOM. Orion shall have the right
to utilize any and all Spare Transponders in any manner it deems fit in
performance of its obligations under Section 6.1(c).
(b) Notice of Transponder Failure. Each Party shall notify the
other Party as soon as reasonably possible upon learning of the commencement of
any event which, with the passage of time, could result in a Transponder Failure
and of the relevant facts known to it concerning such event. For purposes of
determining whether a Transponder Failure has occurred, the point when a
Transponder fails to meet its Technical Specifications shall be deemed to have
commenced upon receipt by Orion of notification thereof from DACOM, subject to
Orion's verification that the Transponder is not performing pursuant to the
Technical Specifications in any material respect. The event which, with the
passage of time, could result in a Transponder Failure shall be deemed to have
ended, and the Transponder shall be deemed to have been restored, when Orion
notifies DACOM that such Transponder has resumed performance in accordance with
the Technical Specifications in all material respects or that a Spare
Transponder has been made available to DACOM.
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(c) Restoration. In the event that a Transponder becomes a
Transponder Failure, it shall be restored as soon as possible and to the extent
technically feasible (and in all events if technically feasible within twelve
(12) hours) by a Spare Transponder on Orion 3 that meets the Technical
Specifications in all material respects. Orion shall have no obligation to
restore a Transponder Failure if, for any reason, there is no such Spare
Transponder then available.
6.2. Risk of Transponder Failure. After the ____month period referred
to in Section 2.3 has expired, Orion shall have no liability, responsibility or
obligation with respect to any Transponder Failure or loss of use of the
Transponders for any reason whatsoever, except as provided in Section 6.1 and
DACOM shall have no rights to refunds of any Joint Investment Amounts or any
other remedies, whether or not a Transponder that has become a Transponder
Failure is restored, and regardless of whether Orion 3 becomes a Satellite
Failure or is otherwise retired pursuant to this Agreement. DACOM will be
responsible for obtaining and maintaining any insurance to cover its insurable
interests on the Transponders or the operations of Orion 3 as DACOM chooses to
obtain and maintain in DACOM's sole discretion, and the proceeds of any such
insurance shall be payable to DACOM and not to Orion. At DACOM's request, Orion
shall use reasonable efforts to assist DACOM in obtaining any such insurance.
6.3 In-Orbit Insurance. Orion and DACOM shall cooperate in the
procurement of a commitment for insurance on or before June 30, 1997, to cover
the loss of the Orion 3 Satellite and the Transponders for a period at least
twelve (12) months after launch of Orion 3 and for such additional period as
DACOM wishes to have and that is available from the insurance market. Orion
shall be responsible for the cost of the insurance coverage and shall be the
loss payee during the period ending six (6) months after the Commencement Date.
DACOM shall be responsible for the cost of the insurance coverage and shall be
the loss payee during the period beginning six (6) months after the Commencement
Date through the end of the term of the insurance policy. DACOM shall be solely
responsible for any additional insurance on the Transponders it wishes to
obtain. Orion represents that it has been advised that an insurance product is
currently available in the market that would provide coverage for a period of at
least twelve (12) months.
ARTICLE 7.
TRACKING, TELEMETRY AND COMMAND
-------------------------------
Throughout the Term, Orion or its affiliates, at Orion's cost and
expense shall provide for all the functions of tracking, telemetry and command
("TT&C") including, without limitation, operational monitoring of Orion 3, the
Transponders and the other transponders and equipment on Orion 3,
stationkeeping, attitude control, and other satellite maintenance and switching
functions as shall be necessary to maintain the Transponders in accordance with
the Technical Specifications. Such TT&C shall be accomplished from facilities
located as Orion may determine. Orion shall promptly notify DACOM of its
selection of the primary sites for TT&C facilities.
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ARTICLE 8.
CONTRACT PARTICIPATION RIGHTS; REPORTS AND COMMUNICATIONS
---------------------------------------------------------
Orion will provide DACOM with the following participation rights,
reports and communications regarding the construction and operation of Orion 3:
8.1. Participation In Satellite Construction Monitoring. Subject to the
requirements of the manufacturer of the Orion 3 satellite, representatives of
DACOM may participate with Orion in the monitoring activities associated with
the construction of Orion 3. The number of DACOM monitoring representatives may
not exceed the number of Orion monitoring representatives and in no event shall
exceed three (3). Such representatives shall be qualified, shall be permanent
throughout the construction period (unless prohibited by disease, injury or
death) and shall conduct themselves and their activities in accordance with all
relevant requirements of the satellite manufacturer. DACOM representatives shall
be permitted to participate in such monitoring activities and to receive
documentation (including drawings) to the extent allowed by the manufacturer.
Orion shall maintain sole responsibility and control over the monitoring of the
construction of Orion 3. Any representatives of DACOM permitted to monitor
satellite construction shall do so under the strict supervision of Orion and the
manufacturer of Orion 3 and shall abide by the instructions and requirements of
Orion and the manufacturer in every respect. Such representatives shall have no
rights whatsoever to direct or authorize any activities related to the
construction of Orion 3, including but not limited to, ordering or approving any
changes in the design or specifications of Orion 3 or any component thereof.
DACOM shall be solely responsible for salaries, living expenses, and all other
expenses associated with any of its representatives permitted to participate in
the monitoring of satellite construction. In no event shall such representatives
be considered employees, agents, or consultants of Orion.
8.2. Schedule/Progress Reports/Meetings. Between the Effective Date and
the Commencement Date, on the same general schedule as Orion receives progress
reports from the Orion 3 satellite manufacturer, Orion shall submit to DACOM a
report on the frequency coordination, construction, launch and testing of Orion
3. Orion shall conduct quarterly progress report meetings with up to five (5)
DACOM representatives to discuss matters related to the satellite orbit and
frequency coordination, construction, launch, and testing of Orion 3. An agenda
for each meeting shall be submitted to DACOM at least seven (7) days in advance
thereof, along with any materials Orion has then prepared for such meeting. Such
meetings shall be scheduled at mutually convenient times and shall be held
either at Orion's offices in Rockville, Maryland or at the facilities of the
Orion 3 satellite manufacturer in California. DACOM shall be responsible for the
expenses of its representatives participating in the progress report meetings.
Orion shall notify DACOM promptly of any event that would have a material
adverse effect on the current schedule for construction, launch, and testing of
Orion 3.
8.3. Operational Reports and Communications. Following the Commencement
Date, Orion shall provide DACOM with quarterly written operational reports
concerning Orion 3 and the Transponders and Spare Transponders. Such reports
shall contain the elements set forth in Exhibit D hereto. Orion shall promptly
furnish DACOM with copies of written communications to or from Orion to or from
any governmental authority or its insurance carrier (and any Orion responses
thereto)
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which concern Orion 3, the contents of which materially affect operation of
Orion 3 or the Transponders.
8.4. Anomalous Operation Notification. Orion shall notify DACOM as soon
as reasonably possible, by telephone or in writing, of any significant incidents
(and any Orion responses thereto ) that have a potential material effect on
Orion 3 or on the Transponders. Orion shall also notify DACOM promptly of any
circumstances that make it clearly ascertainable or predictable that any of such
incidents will occur (and any Orion response thereto).
ARTICLE 9.
USE OF TRANSPONDERS/ORION 3 SATELLITE
-------------------------------------
9.1. Use of and Right to Transponders. DACOM agrees, and DACOM shall
require any of its Permitted Users to agree, that its or their use of Orion 3
and the Transponders, and its or their transmissions to the Transponders, shall
comply in all respects with the laws and regulations (including, without
limitation, any subversive, obscenity or other content standards) of (i) all
countries having jurisdiction over DACOM or such use or transmissions, (ii) all
countries from which DACOM or Permitted Users uplink transmissions to Orion 3
and (iii) all countries in which DACOM's or Permitted Users' transmissions are
authorized for reception by DACOM and Permitted Users. Upon receipt by Orion of
a written communication from a government agency, and with prior notice to and
consultation with DACOM, Orion shall have the right to suspend the use of the
Transponders by DACOM, and/or DACOM's Permitted Users, if and so long as, in
Orion's reasonable judgment, the continued use of Orion 3 or the Transponders by
DACOM or such Permitted Users in violation of the above laws and regulations may
jeopardize Orion's right to operate Orion 3 or may have a material adverse
effect upon Orion.
9.2. Technical Responsibilities of DACOM. DACOM shall be responsible,
at its cost and expense, for providing all uplink facilities and services
necessary to transmit information to Orion 3 and the Transponders and all
reception facilities and services necessary to receive transmissions from Orion
3 and the Transponders. DACOM and Permitted Users shall have the right to
uplink, or arrange for uplinking, to the Transponders from any uplink facilities
in any locations within the uplink footprint of the Transponders that meet the
Orion Access Procedures. When signals are being transmitted to the Transponders,
DACOM and/or its Permitted Users shall be responsible for proper illumination of
the Transponders in compliance with the Orion Access Procedures, so as not to
interfere with the use of or cause harm to the Transponders, any other
transponders, Orion 3 or any other satellite. For purposes of this Section 9.2,
interference shall include causing a transponder to fail to meet its technical
specifications. Should improper illumination be detected by Orion, Orion shall
immediately notify and consult with DACOM or its Permitted Users and DACOM or
the Permitted Users shall be responsible for taking corrective measures
immediately. If DACOM or the Permitted Users fail to take such action within ten
(10) minutes of notification from Orion, Orion may suspend the non-conforming
transmissions and Orion may take all action reasonably needed to effect such
suspension, including but not limited to deactivation of the Transponders until
such non-conformance has been corrected. DACOM and each Permitted User that
transmits to Orion 3 shall provide
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Orion with a telephone and facsimile number for each such uplink facility and
shall maintain personnel fluent in English at each such uplink facility on a
twenty-four (24) hours per day, seven (7) days per week basis. Such personnel
shall be under strict instructions from DACOM or the Permitted User to cease
transmissions to Orion 3 immediately upon request from Orion.
DACOM and all of its Permitted Users shall submit its or their
frequency and transmission plans, as specified in the Orion Access Procedures,
and any proposed changes thereto, to Orion for approval prior to transmission or
any proposed change thereof and shall take all necessary precautions to ensure
that its or their use of the Transponders is in conformity with such approved
frequency and transmission plans and is in all other respects consistent with
the Orion Access Procedures. Orion's approval or disapproval of DACOM's
transmission plans shall be based on the criteria set forth in the Orion Access
Procedures and shall not be unreasonably withheld, conditioned or delayed.
9.3. Interruption Rights in Abnormal Circumstances. DACOM recognizes
that it may be necessary, in unusual or abnormal technical situations or certain
unforeseen conditions, for Orion to deliberately interrupt the Transponders in
order to protect the overall health and performance of Orion 3. Such decisions
shall be made by Orion in its sole discretion, but Orion shall treat DACOM and
other transponder users or lessees, equally in determining which transponders
shall be interrupted or preempted. Orion shall give DACOM as much advance notice
as practicable of the need to interrupt any of the Transponders. DACOM and any
affected Permitted User shall immediately cease transmission to Orion 3 at such
time as a Transponder is interrupted pursuant to this Section 9.3.
9.4. Orion's Rights to Satellite. Unless other provisions of this
Agreement stipulate otherwise, Orion shall have the right to use Orion 3 and any
other transponders or spare transponders on Orion 3 for any purpose whatsoever,
and Orion shall have sole responsibility for the operation and maintenance of
Orion 3. Orion shall have the right to assign or transfer its interest in Orion
3, or any portions thereof, to any entity, including an assignment or transfer
to a financing entity as security for loans or other advances made to Orion
provided that Orion shall not attempt to transfer any of DACOM's interest in the
Transponders or Spare Transponders without DACOM's consent. Orion shall notify
DACOM of any such assignment or transfer, and the assignee or transferee shall
acknowledge in writing, DACOM's rights to use the Transponders and Spare
Transponders hereunder. Orion shall supply DACOM with a copy of such
acknowledgment. If Orion transfers Orion 3 to another entity, Orion shall assure
that Orion 3 is operated by an entity technically competent to maintain proper
operation of the Transponders and Spare Transponders.
9.5. Reactivation. If Orion takes any action to suspend or deactivate
DACOM's or any Permitted User's transmissions pursuant to this Article 9, Orion
shall promptly reactivate such transmissions upon the resolution favorable to
DACOM or such Permitted User of any issue that led to such suspension or
deactivation. Under no circumstances shall Orion be responsible for any loss or
damage to DACOM or a Permitted User for any action taken by Orion in conformity
with Orion's rights under this Article 9.
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9.6 Regional Beam Transponders. At the request of DACOM, Orion shall
negotiate in good faith the terms and conditions pursuant to which DACOM might
acquire the use of capacity on any available Regional Beam Transponders. Such
negotiations shall be conducted on a mutually cooperative basis in consideration
of the relationship between DACOM and Orion.
ARTICLE 10
TERMINATION
-----------
10.1. Termination by DACOM. DACOM may terminate this Agreement upon
thirty (30) days' (except as specified in Section 10.1(a)(ii) below) prior
written notice under the following circumstances:
(a) For Cause.
(i) Launch Delay; Launch Failure; Loss of Orbital
Position. Subject to clause (ii) below, if Orion 3 is not launched by
______ or if the Commencement Date is delayed beyond ______ or if there
is a Launch Failure and DACOM does not timely exercise its option to
acquire the right to use transponders on a Replacement Satellite
pursuant to Section 2.3 (or if such Replacement Satellite option is not
made available to DACOM by Orion), or if the orbital position in which
Orion 3 is located is not within the range of 136 degrees EL to 142
degrees EL;
(ii) Anticipated Delay. If, prior to the shipment of
the Orion 3 satellite to the launch site, the manufacturer of the Orion
3 satellite certifies that, because of termination of the Orion 3
satellite construction contract or for other reasons, the launch date
will not occur by ____________ or the Commencement Date will not occur
by ____________ then Orion shall promptly notify DACOM and advise DACOM
of the rescheduled launch date and Commencement Date, and, within ten
(10) days of such notice, DACOM may elect to terminate this Agreement,
provided that if DACOM does not terminate within such ten (10) day
period, it shall not be permitted to terminate this Agreement for delay
or obtain a refund for failure to meet the launch date and Commencement
Date set forth in Section 10.1.(a)(i) unless the Orion 3 satellite
manufacturer fails to meet the rescheduled launch date or Commencement
Date;
(iii) Transponder Failure. If, at any time within the
first ______ months after the Commencement Date there are fewer than
eight (8) Transponders meeting the Technical Specifications as a result
of a Transponder Failure which cannot be restored pursuant to Section
6.1(c) and DACOM does not timely exercise its option to acquire the
right to use transponders on a Replacement Satellite pursuant to
Section 2.3 (or if such Replacement Satellite option is not made
available to DACOM by Orion);
(iv) Insolvency. If, prior to the Commencement Date,
any bankruptcy, liquidation or insolvency proceedings are instituted
involving Orion or its parent, Orion Network Systems, Inc., as the
debtor or insolvent party and such proceeding is not dismissed within
sixty (60) days; or
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(v) Misrepresentation. If, between the Effective Date
and ______ months after the Commencement Date, any material
representation by Orion under Article 11 hereof proves to be incorrect
in any material respect, and such incorrect representation cannot be
cured by Orion within thirty (30) days after notice from DACOM, and
such incorrect representation will have a material adverse effect on
DACOM's rights to use the Transponders and Spare Transponders for the
Term.
(b) For DACOM's Convenience.
If DACOM fails, by _________ to obtain all necessary approvals
of Korean governmental authorities, as contemplated by Section 12.3, in which
case DACOM shall notify Orion of such termination on or before _____________ and
shall forfeit to Orion as a termination payment the sum of Ten Million United
States Dollars (10,000,000 USD) paid to Orion pursuant to section 5.2(a). If
DACOM has not provided notice of termination under this Section 10.1(b) on or
before ____________, DACOM's right to terminate for convenience under this
Section shall expire.
10.2 Termination by Orion. Orion may terminate this Agreement upon
thirty (30) days' prior written notice under the following circumstances:
(a) Launch Delay; Launch Failure. If Orion 3 is not launched
by May 31, 1999, or if the Commencement Date is delayed beyond ___________ or if
Orion is unable, for any reason, to enter into an agreement with a satellite
manufacturer to deliver Orion 3 by such dates;;
(b) Satellite Failure. If Orion 3 is a Satellite Failure prior
to the end of the Term and Orion cannot provide continued use of the
Transponders and elects not to provide transponders on a Successor Satellite
pursuant to Section 10.4;
(c) Governmental Restriction. If, prior to the Commencement
Date, the performance of this Agreement pursuant to the terms hereof has been
prohibited by any court, governmental or regulatory body with jurisdiction over
Orion and such prohibition is no longer subject to further proceedings or review
at any administrative or judicial level and no stay has been granted or request
for stay is pending;
(d) Force Majeure. If, prior to the Commencement Date, Orion's
operation of Orion 3 or the Transponders is prevented by reason of Force Majeure
for a period of thirty (30) consecutive days; or
(e) Breach of Agreement. If DACOM commits a material breach of
any of the provisions of this Agreement and such material breach has not been
cured within thirty (30) days after receipt by DACOM of Orion's notice of such
breach.
10.3. Consequences of Termination.
(a) Refund. If DACOM terminates this Agreement pursuant to
clauses (i) through (v) of Section 10.1(a) and elects a refund pursuant to
Section 2.3(a), or if Orion terminates this Agreement pursuant to Sections
10.2(a), (c) or (d), DACOM, as
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its sole and exclusive remedy, shall be entitled to a refund of all amounts it
has theretofore paid to Orion for Joint Investment Amount pursuant to Section
5.2. In addition Orion shall be relieved of any further obligation or liability
under this Agreement. If this Agreement is terminated for any other reason,
DACOM shall not be entitled to any refund of Joint Investment Amounts or any
other remedy of any kind. Upon termination of this Agreement for any reason, and
refund by Orion of any Joint Investment Amounts as may be specifically required
by this Section 10.3(a), neither Party shall have any further obligations to the
other Party, and Orion shall be free to lease, sell, use or dispose of Orion 3
and any of the Transponders and Spare Transponders in any manner Orion deems
appropriate.
(b) Resale by Orion. If Orion terminates this Agreement
pursuant to subparagraph (e) of Section 10.2, DACOM shall be obligated to pay
the unpaid portion of the Joint Investment Amount and Orion may call any DACOM
letters of credit and retain the proceeds thereof and those payments made to
date by DACOM under this Agreement, and if Orion chooses to and does sell, lease
or otherwise dispose of the right to use any of the Transponders, the Parties
shall make payments as follows:
(i) If the amount of purchase price, lease payments
or capacity charge to be realized by Orion from such sale, lease or
disposition of the Transponders and Spare Transponders ("Resale
Proceeds") is less than the sum of Orion's Resale Costs (as defined
below) plus _________________ ___________________________ then DACOM
shall pay to Orion the difference between the Resale Proceeds and the
sum of the Resale Costs plus _________ _____________________________
provided, if DACOM's Joint Investment Amounts paid to date exceed said
difference, DACOM shall make no further payments, and Orion shall
refund to DACOM ___________________________ of such excess; and
(ii) If the Resale Proceeds are more than the sum of
Orion's Resale Costs plus
______________________________________________ then Orion shall refund
to DACOM ______________________ of the aggregate amount of Joint
Investment Amounts theretofore paid by DACOM to Orion.
For purposes of this Section 10.3, "Resale Costs" means all costs and expenses
incurred by Orion as a result of such termination and in connection with such
sale, lease or other disposition.
10.4. Retirement of Orion 3. If at any time during the Term Orion 3 is
a Satellite Failure:
(a) Continue Operations. Orion shall (unless this Agreement is
terminated by DACOM) use reasonable efforts (including negotiations with any
insurance carrier entitled to salvage value of Orion 3) to continue operating
the Transponders for the remainder of the Term, if such operation is technically
and administratively practicable; or
(b) Successor Satellite. Orion may retire Orion 3 and choose
to launch a Successor Satellite, in which case Orion shall so notify DACOM and,
if such Successor Satellite is launched within ____________ months after such
retirement of Orion 3, DACOM shall have the option to acquire the right to use
capacity on the
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Successor Satellite equivalent to the capacity acquired by DACOM on Orion 3 for
a term of up to thirteen (13) years from the date when such transponders are
available for service, on terms and conditions substantially equivalent to those
contained in this Agreement (except charges and payments, and except terms and
conditions not applicable because of different or changed conditions). The
process for exercising DACOM's Successor Satellite option, and for negotiation
of an agreement for such Successor Satellite, shall be governed by Section 2.4.
10.5. Launch Failure/Salvage. If (a) Orion 3 is a Launch Failure, and
(b) DACOM exercises its right to a refund under Section 2.3, and (c) some of the
Transponders are still operational, and (d) the Transponders have been
transferred to the Orion 3 satellite insurer or manufacturer, then, at the
request of DACOM, Orion shall use reasonable efforts to acquire from such
insurer or manufacturer the rights for DACOM to use such Transponders, at
DACOM's expense, under terms and conditions acceptable to DACOM and Orion,
including appropriate consideration to Orion.
ARTICLE 11.
REPRESENTATIONS AND WARRANTIES OF ORION
---------------------------------------
11.1. Representations and Warranties. Orion represents and warrants to
DACOM as follows:
(a) Incorporation, power, etc. Orion is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware, U.S.A., with all necessary corporate power to own and lease its
properties and to carry on its business as and where such properties are now
owned or leased and such business is now being carried on;
(b) Due Authorization of Agreement; No Conflict With Other
Instruments. Orion has full power and authority and has taken all necessary
action to execute, deliver and consummate this Agreement and to perform all the
terms and conditions hereof to be performed by Orion. This Agreement is a valid
and binding obligation of Orion enforceable against Orion in accordance with its
terms, except as the enforceability hereof may be limited by bankruptcy,
insolvency or other laws of general application relating to or affecting the
enforcement of creditors' rights or by general principles of equity limiting the
availability of equitable remedies. The execution and delivery by Orion of this
Agreement, the consummation by Orion of the transactions which this Agreement
contemplates will be consummated by Orion, and Orion's fulfillment of and
compliance with the terms and provisions hereof applicable to Orion, do not and
will not (i) violate any law applicable to Orion (although Orion makes no
representation or warranty concerning any right to the orbital location proposed
for Orion 3), or (ii) conflict with, result in a breach of or constitute a
default under Orion's articles of incorporation or bylaws;
(c) Government Regulation. The terms and conditions of this
Agreement, including the payments provided for herein, are not subject to
regulation or review by or consent from any governmental or administrative
agency in the United States to which Orion is subject and cannot be amended,
modified or changed without the prior written consent of Orion and DACOM. There
is no requirement for a waiver
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from the Federal Communications Commission under Section 319(d) of the United
States Federal Communications Act or for any other authorizations from the
Federal Communications Commission for Orion to construct the Orion 3 satellite;
and
(d) Treaties. For the avoidance of doubt and the sake of
clarity, under the current INTELSAT Treaty and the current rules of the
International Telecommunications Union ("ITU"), there are no provisions that
would permit INTELSAT or the ITU, as organizations, to order a delay in the
launch of the Orion 3 satellite.
11.2. Exclusion of Warranties. ORION MAKES NO REPRESENTATIONS OR
WARRANTIES OF ANY KIND OR NATURE WHATSOEVER, WHETHER EXPRESS OR IMPLIED, AS TO
THE CONDITION OF ORION 3 OR THE TRANSPONDERS OR SPARE TRANSPONDERS. ALL SUCH
WARRANTIES ARE HEREBY EXPRESSLY DISCLAIMED. DACOM ACKNOWLEDGES THAT ORION MAKES
NO WARRANTY OF ANY KIND, AND IN PARTICULAR THAT THERE IS NO IMPLIED WARRANTY OF
MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE ASSOCIATED WITH ORION 3 OR
THE TRANSPONDERS OR SPARE TRANSPONDERS. DACOM SHALL INDEMNIFY ORION AND HOLD
ORION HARMLESS FROM ANY CLAIMS MADE UNDER ANY WARRANTY OR REPRESENTATION BY
DACOM TO ANY THIRD PARTY AS TO ORION 3 OR THE TRANSPONDERS.
11.3 Manufacturer Reimbursement. To the extent that, after the sixth
(6th) month anniversary of the Commencement Date, one (1) or more of DACOM's
Transponders becomes a Transponder Failure that cannot be restored and, if Orion
receives any compensation for such Transponder Failure from the manufacturer of
the Orion 3 satellite, Orion shall pay to DACOM the amount of any compensation
received from the manufacturer allocable to the Transponder Failure, taking into
account any other transponders on Orion 3 that may also have failed.
ARTICLE 12.
REPRESENTATIONS AND WARRANTIES OF DACOM
---------------------------------------
DACOM represents and warrants to Orion as follows:
12.1. Incorporation, Power, etc. DACOM is a corporation duly organized,
validly existing and in good standing under the laws of Korea, with all
necessary corporate power to own and lease its properties and to carry on its
business as and where such properties are now owned or leased and such business
is now being carried on;
12.2. Due Authorization of Agreement; No Conflict With Other
Instruments. DACOM has full power and authority and has taken all necessary
action to execute, deliver and consummate this Agreement and to perform all the
terms and conditions hereof to be performed by DACOM. This Agreement is a valid
and binding obligation of DACOM enforceable against DACOM in accordance with its
terms, except as the enforceability hereof may be limited by bankruptcy,
insolvency or other laws of general application relating to or affecting the
enforcement of creditors' rights or by general principles of equity limiting the
availability of equitable remedies. The execution and
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<PAGE>
delivery by DACOM of this Agreement, the consummation by DACOM of the
transactions which this Agreement contemplates will be consummated by DACOM, and
DACOM's fulfillment of and compliance with the terms and provisions hereof
applicable to DACOM, do not and will not (i) violate any law applicable to
DACOM, or (ii) conflict with, result in a breach of or constitute a default
under the instruments and documents under which DACOM is organized and by which
DACOM is governed; and
12.3. Government Regulation. Except for authorizations for overseas
investments from the Bank of Korea and the Korean Ministry of Information, the
terms and conditions of this Agreement, including the payments provided for
herein, are not subject to regulation or review by or consent from any
governmental or administrative agency in Korea to which DACOM is subject. No
such governmental or administrative agency can require the amendment,
modification or supplementation of this Agreement without the prior written
consent of Orion. DACOM will advise Orion of DACOM's progress toward obtaining
the necessary approvals of the Bank of Korea and the Korean Ministry of
Information and any final decisions thereon.
ARTICLE 13.
COORDINATION; GOVERNMENT APPROVALS
----------------------------------
13.1. Coordination. Prior to the Commencement Date and throughout the
Term, Orion shall use reasonable efforts to (i) coordinate the orbital location
of Orion 3, (ii) resolve frequency coordination issues with governmental
agencies having jurisdiction over the operation of Orion 3 or having claims of
interference by Orion 3 with other existing or planned satellites, and (iii)
maintain Orion 3 in the orbital location specified herein so that the
Transponders will comply in all material respects with the Technical
Specifications at all times. In connection with its coordination activities,
Orion shall use reasonable efforts to coordinate uplink frequencies of _____ GHz
to ____ GHz and downlink frequencies of _____ GHz to ____ GHz so that the
Transponders may operate on such frequencies. Orion shall notify DACOM of the
frequencies on which the Transponders will operate on or before June 30, 1997.
Upon the request of Orion, DACOM shall assist Orion in obtaining the support of
the government of the Republic of Korea to assist in the coordination or
consultation of Orion 3 and the frequencies on which the Transponders will
operate, all in accordance with ITU regulations and the INTELSAT Treaty. Any
consultation with INTELSAT regarding the operation of Orion 3 will be the
responsibility of Orion as Orion deems appropriate.
13.2. Government Approvals. DACOM shall be responsible for obtaining
any authorizations or approvals from the Government of the Republic of Korea as
may be necessary for DACOM to enter into this Agreement, to obtain necessary
financing for the transaction and to transfer any funds required hereunder.
DACOM and its Permitted Users shall be responsible for obtaining any
governmental approvals or authorizations necessary to transmit to Orion 3 and
the Transponders from any country and to receive and distribute any material
transmitted over the Transponders in any country. Upon DACOM's request, and to
the extent feasible, Orion will assist DACOM in obtaining any such approvals or
authorizations.
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<PAGE>
ARTICLE 14.
LIMITATION OF LIABILITY AND INDEMNIFICATION
-------------------------------------------
14.1. Force Majeure. Neither Party shall be liable to the other Party
for any failure of performance hereunder (except for the obligation to pay money
when due) due to acts of God, fire, flood, weather, receive earth station sun
outage or other catastrophes, national emergencies, insurrections, riots or
wars, strikes, lockouts, work stoppages or other labor difficulties, or due to
any law, order, regulation, direction, action or request of any government, or
of any department, agency, commission, bureau, corporation or other
instrumentality of any government, or of any civil or military authority. If
Force Majeure is claimed by either Party, such Party shall provide prompt notice
to the other Party of both the commencement and cessation dates of such Force
Majeure event. The occurrence of a Force Majeure shall not entitle DACOM to any
refunds of Joint Investment Amounts hereunder or to any other remedy whatsoever,
except for a refund if Orion terminates for Force Majeure pursuant to Section
10.2(d).
14.2. Consequential Damages. In no event shall either Party be liable
for any indirect, incidental or consequential damages, whether foreseeable or
not, occasioned by any defect in Orion 3 or the Transponders, delay in making
available the Transponders, failure of the Transponders to perform, or any other
cause whatsoever.
14.3. Remedies. The remedies of each Party for nonperformance of this
Agreement by the other Party shall be limited to those specifically set forth
herein, and there shall be no other remedies.
ARTICLE 15.
INDEMNIFICATION
---------------
15.1. Indemnification by DACOM. DACOM shall indemnify and hold Orion
and its shareholders, officers, directors, agents, employees and assigns, or any
of them, whether acting through Orion or otherwise, harmless from and against
any and all claims, liabilities, expenses, assessments, judgments and
recoveries, including attorneys' fees, incurred by any of them and occasioned
by, arising out of or resulting from (i) any claims for libel, slander,
infringement of copyright or any other matter arising from the material
transmitted by DACOM or a Permitted User over Orion 3 or the Transponders, and
(ii) the willful misconduct of DACOM or a Permitted User relating to use of any
Transponder.
15.2. Indemnification by ORION. Orion shall indemnify and hold DACOM
and its shareholders, officers, directors, agents, employees and assigns, or any
of them, whether acting through DACOM or otherwise, harmless from and against
any and all claims, liabilities, expenses, assessments, judgments and
recoveries, including attorneys' fees, incurred by any of them and occasioned
by, arising out of or resulting from the willful misconduct of Orion relating to
its operation of the Orion 3 satellite.
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<PAGE>
15.3. Procedure For Indemnification. In the event of a claim with respect to
which a Party is entitled to indemnification hereunder, such Party ("Indemnified
Party") shall notify the other Party ("Indemnifying Party") in writing as soon
as practicable, but in no event later than fifteen (15) days after receipt of
such claim; provided that a delay in giving such notice shall not preclude the
Indemnified Party from seeking indemnification hereunder if such delay has not
materially prejudiced the Indemnifying Party's ability to defend such claim. The
Indemnifying Party shall promptly defend such claim (by counsel of its own
choosing and reasonably satisfactory to the Indemnified Party) and the
Indemnified Party shall reasonably cooperate with the Indemnifying Party in the
defense of such claim, including the settlement of the matter on the basis
stipulated by the Indemnifying Party (with the Indemnifying Party being
responsible for all costs and expenses of such settlement and the reasonable
out-of-pocket expenses incurred by the Indemnified Party in cooperating with the
Indemnifying Party), subject to the limitations on settlement described in
subparagraphs (a) and (b) below. If a conflict of interest exists vis-a-vis the
interests of the Indemnifying Party and the Indemnified Party, the Indemnified
Party shall (i) be entitled to defend the claim, suit, or action or proceeding
at the expense of, for the account of and at the risk of the Indemnifying Party;
(ii) engage counsel of its own choosing reasonably acceptable to the
Indemnifying Party, and at the expense of, for the account of and at the risk of
the Indemnifying Party; (iii) take reasonable steps to monitor and control the
fees and costs of counsel so chosen; and (iv) keep the Indemnifying Party
reasonably informed of the status of such defense, including without limitation
any settlement proposals by the claimant. If the Indemnifying Party, within a
reasonable time after notice of a claim, fails to defend the Indemnified Party,
the Indemnified Party shall be entitled to undertake the defense, compromise or
settlement of such claim at the expense of, for the account and at the risk of
Indemnifying Party. Upon the assumption by the Indemnifying Party of the defense
of such claim, the Indemnifying Party may settle or compromise such claim as it
sees fit; provided, however, that anything in this Section to the contrary
notwithstanding:
(a) Consent. If there is a reasonable probability that a
settlement or compromise of a claim may materially and adversely affect the
Indemnified Party, the Indemnifying Party shall not so settle or compromise such
claim without the consent of the Indemnified Party, which consent shall not be
unreasonably withheld; and
(b) Counterclaim. If the facts giving rise to indemnification
hereunder shall involve a possible claim by the Indemnified Party against a
third party, the Indemnified Party shall have the right, at its own cost and
expense, to undertake the prosecution, compromise, and settlement of such claim.
ARTICLE 16.
MISCELLANEOUS
-------------
16.1. Further Assurances. DACOM and Orion shall take all appropriate
action and execute all documents, instruments or conveyances of any kind which
may be necessary or advisable to carry out any of the provisions hereof and to
consummate the transactions contemplated hereby. Orion hereby agrees that (i)
the Korean National Flag and DACOM's logo shall be affixed or marked on the
Orion 3 launching vehicle conspicuous from the observation decks; (ii) the name
of Orion 3 in Korea shall
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<PAGE>
be Orion 3/DACOM, and such name may be used in documents and marketing materials
distributed in Korea; (iii) throughout the Term, DACOM shall have the exclusive
right to use the Transponders for direct-to-home satellite service in Korea and
Orion will not provide comparable transponders on Orion 3 to any other entity
for the purpose of providing DTH service in Korea; (iv) Orion shall inform DACOM
of any matters related to the construction, launch and financing of Orion 3 that
would have a material adverse effect on DACOM's rights to the Transponders and
Spare Transponders hereunder or delay of launch of Orion 3; and (v) Orion shall
deliver to DACOM Orion's form of warrant containing the terms set forth in the
letter attached hereto as Exhibit E.
16.2. Taxes and Expenses. Each Party hereto shall bear all taxes and
expenses incurred by such Party in connection with the negotiation, preparation,
execution and performance of this Agreement.
16.3. Press Releases and Public Announcements. Except as otherwise
required by law or by applicable rules of any securities exchange or association
of securities dealers, neither Party shall issue any press release, make any
public announcement or otherwise disclose any information for the purpose of
publication by any print, broadcast or other public media, relating to the
transactions contemplated by this Agreement, without the prior approval of the
other Party.
16.4. Notices. All notices, demands, claims, requests, undertakings,
consents, opinions and other communications which may or are required to be
given hereunder or with respect hereto shall be in writing, and in the English
language, shall be given either by personal delivery or by established
international courier, charges prepaid, or by facsimile transmission, and shall
be deemed to have been given or made when personally delivered, when delivered
to the courier company, charges prepaid, and when transmitted by facsimile,
addressed to the respective parties as follows:
(a) If to Orion:
Orion Asia Pacific Corp.
2440 Research Boulevard
Rockville, Maryland 20850
Attention: Corporate Secretary
Fax: 301-258-3360
With copy to:
Reed Smith Shaw & McClay
1301 K Street, -
Washington, D.C. 20005
Attention: Benjamin J. Griffin, Esq.
Fax: 202-414-9299
or to such other address as Orion may from time to time designate by notice to
DACOM with respect to future notices, demands and other communications to Orion;
or
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<PAGE>
(b) If to DACOM:
DACOM Corp.
DACOM Building 65-228
3-GA, Hangang-Ro, Yongsan-Ku
Seoul, Korea
Attention: Youn Woo Lee
Head of Satellite Communications Business Team
Fax: 82-2-220-0761
With copy to:
Bae, Kim & Lee
Shin-A Bldg, 39-1 Seosomun-Dong
Chung-Ku, Seoul, 100-752
Korea
Attention: Suk Jin Chon, Esq.
Fax: 82-2-755-7676
or to such other address as DACOM may from time to time designate by notice to
Orion with respect to future notices, demands and other communications to DACOM.
Notwithstanding the foregoing, notices required under Sections 6.1,
8.4, 9.2, and 9.3 of this Agreement shall be deemed to be duly given by
telephone notice, provided written confirmation is received within three (3)
days thereafter.
16.5. No Third-Party Beneficiaries. This Agreement shall not confer any
rights or remedies upon any person other than the Parties to this Agreement and
their respective successors and permitted assigns, and shall not create the
relationship of principal and agent, partnership or joint venture or any
fiduciary relationship between DACOM and Orion.
16.6. Governing Law; Arbitration.
(a) Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York, U.S.A., without
giving effect to any choice or conflict of law provision or rule (whether of the
State of New York or any other jurisdiction) that would cause the application of
the laws of any jurisdiction other than the State of New York.
(b) Arbitration. All disputes, controversies or differences
which may arise between the Parties, out of, or in relation to, or in connection
with this Agreement, or for the breach thereof, shall be finally settled by
arbitration in Vancouver, Canada, in accordance with the rules of the
International Chamber of Commerce. The award rendered by the three arbitrators
shall be final and binding upon both Parties concerned.
16.7. Amendments and Waivers. No amendment of any provision of this
Agreement, and no postponement or waiver of any such provision or of any
default, misrepresentation, or breach of warranty or covenant hereunder, whether
intentional or not, shall be valid unless such amendment, postponement or waiver
is in writing and
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<PAGE>
signed by or on behalf of Orion and DACOM. No such amendment, postponement or
waiver shall be deemed to extend to any prior or subsequent matter, whether or
not similar to the subject-matter of such amendment, postponement or waiver. No
failure or delay on the part of Orion or DACOM in exercising any right, power or
privilege under this Agreement shall operate as a waiver thereof nor shall any
single or partial exercise of any right, power or privilege hereunder preclude
any other or further exercise thereof or the exercise of any other right, power
or privilege.
16.8. Succession and Assignment. This Agreement shall be binding upon
and inure to the benefit of the Parties and their respective successors and
permitted assigns. Neither Party may assign this Agreement or any of such
Party's rights, interests or obligations hereunder without the prior approval of
the other Party hereto except that either Party may (a) assign any or all of its
rights and interests hereunder to one or more of its affiliates or to a lender
or other person providing financing to such Party, (b) designate one or more of
its affiliates to perform its obligations hereunder; and (c) DACOM may assign
its rights to use the Transponders or sublease such Transponders to third
parties who shall be obligated to use the Transponders in accordance with this
Agreement, except that in any event the assigning Party shall remain responsible
for the performance, by itself or its assignee, of all of its obligations
hereunder. Orion shall notify DACOM upon the occurrence of any change of control
of Orion Network Systems, Inc. For purposes of the foregoing, a change of
control shall mean that at least thirty percent (30%) of the voting equity of
Orion Network Systems, Inc. becomes held by an individual shareholder or a
control group of shareholders that are not currently controlling group
shareholders of Orion Network Systems, Inc.
16.9. Confidentiality. Each Party shall treat as confidential all of
the Confidential Information, refrain from using any of the Confidential
Information except in connection with this Agreement, and deliver promptly to
the other Party or destroy, at the request of the other Party, all tangible
embodiments, including all copies thereof, of the Confidential Information which
are within the possession or control of such Party. If either Party is requested
or required (by oral question or request for information or documents in any
legal proceeding, interrogatory, subpoena, civil investigative demand or similar
process) to disclose any Confidential Information, such Party shall notify the
other Party promptly of such request or requirement so that the other Party may
seek an appropriate protective order or waive compliance with the provisions of
this Section 16.9. If, in the absence of such a protective order or waiver,
either Party is, on the advice of counsel, compelled to disclose any
Confidential Information to any tribunal or else be liable for contempt, such
Party may disclose such Confidential Information to such tribunal; provided,
however, that the disclosing Party shall use such Party's best efforts to
obtain, at the request and expense of the other Party, an order or other
assurance that confidential treatment will be accorded to such portion of the
Confidential Information required to be disclosed as the other Party shall
designate. For purposes of this Section 16.9, "Confidential Information" means
any information concerning the business and affairs of DACOM or Orion or their
respective affiliates that is not already generally available to the public. The
Parties recognize that Orion's filing of this Agreement, including the Exhibits
hereto, with the United States Securities and Exchange Commission may be
required by law. Such filing shall not be subject to or a violation of this
Section 16.9.
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<PAGE>
16.10. Matters of Construction, Interpretation and the Like.
(a) Construction. Orion and DACOM have participated jointly in
the negotiation and drafting of this Agreement. If an ambiguity or question of
intent or interpretation arises, this Agreement shall be construed as if drafted
jointly by both Parties and no presumption or burden of proof shall arise
favoring or disfavoring either Party because of the authorship of any of the
provisions of this Agreement. Any reference to any law shall be deemed also to
refer to all rules, regulations, orders or decrees promulgated thereunder,
unless the context requires otherwise. The word "including" shall mean including
without limitation. Each representation, warranty and covenant contained herein
shall have independent significance. If either Party breaches in any respect any
representation, warranty, covenant or other obligation contained herein or
created hereby, the fact that there exists another representation, warranty
covenant or obligation relating to the same subject matter (regardless of the
relative levels of specificity) which has not been breached shall not detract
from or mitigate the consequences of such breach. The Exhibits specified in this
Agreement are incorporated herein by reference and made a part hereof. The
article and section headings hereof are for convenience only and shall not
affect the meaning or interpretation of this Agreement. All representations and
warranties in this Agreement shall survive for the duration of the Term. The
English language version of this Agreement is controlling.
(b) Severability. The invalidity or unenforceability of one or
more of the provisions of this Agreement in any situation in any jurisdiction
shall not affect the validity or enforceability of any other provision hereof or
the validity or enforceability of the offending provision in any other situation
or jurisdiction.
(c) Entire Agreement; Counterparts. This Agreement (and the
other documents referred to herein) constitutes the entire agreement between the
Parties and supersedes any prior understandings, agreements or representations
by or among the Parties, written or oral, to the extent they relate to the
subject matter hereof. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument. It shall not be necessary
in making proof of this Agreement to produce or account for more than one such
counterpart.
/ / / / /
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<PAGE>
16.11. Compliance. The Parties acknowledge that their participation in
matters specified herein shall be subject to applicable laws, rules and
regulations, including those affecting technology transfer and export controls.
16.12. Registration. DACOM reserves the right, at its expense, to
register this Agreement in any jurisdiction.
WITNESS the due execution hereof as of the day and year first above
written.
ORION ASIA PACIFIC CORP. DACOM CORP.
By: /s/ By: /s/
-------------------------- -------------------------------
W. Neil Bauer Kwak, Chi-Young
Chief Executive Officer Senior Executive Vice President
Date: Date:
------------------------- -----------------------------
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<PAGE>
EXHIBIT A
Confidential Treatment has
been requested for this
entire exhibit.
ORION ACCESS PROCEDURES
<PAGE>
EXHIBIT A
Access Procedures
for the
Orion Satellite System
Version: 1.2
11 November 1996
<PAGE>
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PAGES 33 TO 33 OF THIS DOCUMENT.
<PAGE>
CONTENTS
SECTION PAGE
- --------------------------------------------------------------------------------
1.0 INTRODUCTION..............................................................1
2.0 SUMMARY OF PROCEDURES TO ACCESS ORION SATELLITES..........................2
3.0 ORION'S RESPONSIBILITIES..................................................3
3.1 Transmission Plan.......................................................3
3.2 Telephone Contact and Coordintion.......................................4
4.0 RESPONSIBILITIES OF ALL SATELLITE USERS...................................4
4.1 Obtain Contract via Orion Satellite Services Sales......................5
4.2 Schedule Occasional-Use Access via Orion Satellite Services
Scheduling Office.......................................................5
4.3 Identify Person Responsible for Uplink..................................5
4.4 Complete and Forward the Earth Station Description Forms to Orion.......5
4.5 Perform Initial Earth Station Performance Verification..................6
4.6 Contact Orion Operations Center when Ready to Initiate Circuit..........7
4.7 Maintain a Log of Transmitted Signals...................................7
4.8 Notify Orion Operations Center prior to Cessation of Transmission.......7
4.9 Retesting Earth Station Performance.....................................8
4.10 Fault Isolation.........................................................8
4.11 Cessation of Transmissio for Anomalous Conditions.......................8
APPENDIX 1: DEFINITIONS.....................................................1-1
APPENDIX 2: EARTH STATION PERFORMANCE REQUIREMENTS..........................2.1
1.0 Scope.................................................................2-1
1.1 Mandatory and Recommended Standards...................................2.1
1.2 Requirements 7 Recommendations for RF Parameters......................2-2
1.3 Frequency Band........................................................2-2
1.4 Frequency Resolution..................................................2-2
1.5 Polarization Angle Steerability.......................................2-2
1.6 Transmit Cross Polarization Isolation.................................2.3
1.7 Receive Cross Polariztion Isolation...................................2-3
1.8 Maximum Emission Levels Outside Allocated Bandwidth...................2-3
1.9 EIRP Stability and Control............................................2-3
1.10 Earth Station Transmitter Termination.................................2-4
1.11 Uplink Power Limits...................................................2-5
1.12 Antenna Transmit Co-Polarized Sidelobe Pattern........................2-5
1.13 Antenna Transmit Cross-Polarized Sidelobe Pattern.....................2-6
1.14 Antenna Receive Co-Polarized Sidelobe Pattern.........................2-7
1.15 Antenna Receive Cross-Polarized Sidelobe Pattern......................2-8
1.16 Pointing Stability....................................................2-8
1.17 Local Control and Monitoring..........................................2-8
APPENDIX 3: EARTH STATION DESCRIPTION FORMS.................................3-1
APPENDIX 4: SPECIFIC STEPS FOR CUSTOMERS ACCESSING THE ORION SATELLITE
SYSTEM..........................................................4-1
- --------------------------------------------------------------------------------
Page iii
<PAGE>
Summary...............................................................4-1
Steps Prior to Access.................................................4-1
Steps to Access the Orion Satellite System............................4-2
- --------------------------------------------------------------------------------
Page iv
<PAGE>
EXHIBIT B
TRANSPONDER PERFORMANCE SPECIFICATIONS
<PAGE>
EXHIBIT B
ORION ASIA PACIFIC
TECHNICAL SPECIFICATION
FOR
DACOM DTH PAYLOAD
Issue 2.2
Revised: November 11, 1996
Signed: /s/ Date:
On Behalf of Orion Satellite Corporation
Signed: /s/ Date:
On Behalf of DACOM Corporation
<PAGE>
EXHIBIT C
FORM LETTER OF CREDIT
<PAGE>
<PAGE>
IRREVOCABLE STANDBY LETTER OF CREDIT
ISSUANCE DATE:
CREDIT NUMBER:
Dear Sirs:
1. [Name of issuing Bank] (the "Bank") hereby establishes, in your favor,
at the request and for the account of __________________________, a
_____________________ corporation at [Address] (the "Paying Party"), the Bank's
IRREVOCABLE STANDBY LETTER OF CREDIT NO. __ (this "Letter of Credit), in an
amount not to exceed _____________________ United States Dollars (___________
USD) (such amount, as it may be reduced from time to time in accordance with
Section 3 hereof, being called the "Maximum Drawing Amount"). This Letter of
Credit is being issued pursuant to the JOINT INVESTMENT AGREEMENT dated as of
November 11, 1996 (the "Agreement"), between DACOM CORP. and ORION ASIA PACIFIC
CORP. This Letter of Credit is effective immediately and will expire at 4:00
p.m., _______ time, on the earlier of (a) the date (the "Surrender Date") upon
which ____________ presents to the Bank a certificate in the form of Annex A
hereto or (b) __________________________________________________ (the "Expiry
Date") (the earlier of the Surrender Date or the Expiry Date being referred to
herein as the "Termination Date").
2. The Bank hereby irrevocably authorizes __________ to draw on the Bank,
in accordance with the terms and conditions hereinafter set forth, an amount not
in excess of the Maximum Drawing Amount on the date of such drawing (the "Date
of Drawing").
3. The Maximum Drawing Amount shall be modified from time to time as
follows:
(a) upon payment by the Bank of a drawing hereunder, the Maximum
Drawing Amount applicable to each Date of Drawing subsequent to such payment but
prior to the first day after the next succeeding Modification Date (as
hereinafter defined) shall be automatically reduced by an amount equal to the
amount of the drawing so paid.
4. Funds under this Letter of Credit are available to ___________ against
presentation of a draft of _____ in the form of Annex B hereto and a certificate
<PAGE>
signed by ____________ in the form of Annex C hereto. Each such draft and
certificate shall be dated the date of presentation and shall be presented at
the Bank's office at [beneficiary's country] (telecopy No. ___________). The
Bank agrees that, so long as this Letter of Credit is in effect, it will
maintain an office in, or an arrangement reasonably satisfactory to ___________
with a paying bank having an office in [beneficiary's country] where such
presentation may be made. The aforesaid drafts and certificates shall have all
blanks appropriately completed, shall be signed by a person purporting to be an
authorized officer of _____________ and shall be either in the form of a letter
or a communication by telecopier delivered to the Bank. Any communication by
telecopier pursuant to which a drawing is made hereunder shall be promptly
confirmed to the Bank in writing.
5. The Bank hereby agrees that all drafts drawn under the terms of this
Letter of Credit will be duly honored by the Bank upon delivery, or transmission
by telecopier (promptly confirmed in writing), of the draft and the certificate
as specified in Section 2 and if presented (by such delivery or transmission) at
our aforesaid office on or before 4:00 p.m., ______ time, on the Termination
Date. If a drawing is made by _______ hereunder at or prior to 11:00 a.m., _____
time, on a Business Day (as hereinafter defined), and provided that such draft
and certificate presented in connection therewith conform to the terms and
conditions hereof, payment shall be made of the amount specified in immediately
available funds not later than 3:00 p.m., ____________ time, on the same
Business Day. If a drawing is made by __________________ hereunder after 11:00
a.m., ____________ time, and provided that such draft and certificate presented
in connection therewith conform to the terms and conditions hereof, payment
shall be made of the amount specified in immediately available funds not later
than ____________ p.m., __________ time, on the next succeeding Business Day.
Payment under this Letter of Credit shall be by wire transfer of immediately
available funds to the account specified in the the draft. As used in this
Letter of Credit, "Business Day" shall mean any day, other than a Saturday,
Sunday or other day on which commercial banks in ______________, __________ are
authorized by law to close.
6. Upon receipt of a draft and certificate which are not in conformity
with terms and conditions of this Letter of Credit, the Bank will promptly (and
in any event within one Business Day of such receipt) notify ___________ of such
nonconformity and the reason therefor.
7. Multiple drawings may be made hereunder.
8. Only ____________ may make drawings under this Letter of Credit. Upon
payments as provided in Section 5 of the amount specified in a draft hereunder,
the Bank shall be fully discharged of its obligation under this Letter of Credit
with respect to such draft.
9. Should the Expiry Date be a date prior to the time in which [payments]
[refunds] covered by this Letter of Credit could potentially be due from the
Paying Party under the Agreement, then at least 30 days prior to the Expiry
Date, this Letter of Credit shall be replaced with a substitute Letter of Credit
in an equal Maximum Drawing Amount. If it is not so replaced, then ____________
may draw upon this Letter of Credit in full.
10. To the extent not inconsistent with the express terms hereof, this
Letter of Credit shall be governed by the Uniform Customs and Practice for
Documentary Credits
-2-
<PAGE>
(revision effective October 1, 1984) International Chamber of Commerce
Publication No. 400. Communications with respect to this Letter of Credit shall
be in writing or shall be transmitted by telecopier (promptly confirmed in
writing) and shall be addressed to the Bank at ___________________________
(telecopy No. ______________) and shall specifically refer to the number of this
Letter of Credit.
11. Any drawing under this Letter of Credit will be paid from the general
funds of the Bank and not directly or indirectly from funds or collateral
deposited with or for the account of the Bank by or on behalf of the Paying
Party, or pledged with or for the account of the Bank will seek reimbursement
for payments made pursuant to a drawing under this Letter of Credit only after
such payments have been made.
12. This Letter of Credit sets forth in full the Bank's undertaking, and
such undertaking shall not in anyway be modified, amended, amplified or limited
by reference to any document, instrument or agreement referred to herein, except
only Annexes A, B and C, and the notices referred to herein; and any such
reference shall not be deemed to incorporate herein by reference any document,
instrument or agreement except as set forth above.
Very truly yours,
[ISSUING BANK]
By:_____________________________________
[Title]
-3-
<PAGE>
ANNEX A
[ISSUING BANK]
[ADDRESS]
Attention:
Dear Sirs:
Reference is made to that certain IRREVOCABLE STANDBY LETTER OF CREDIT
bearing Letter of Credit No. __________ dated [Date of Issuance], which has been
established by you in favor of ___________________________________________.
The undersigned, a duly authorized representative of _____________, hereby
surrenders the Letter of Credit for immediate cancellation on behalf of
__________________.
The Letter or Credit is returned herewith and we request that you cancel
the Letter of Credit as of the date hereof.
Capitalized terms used herein and not otherwise defined shall have the
meanings given to them in the Letter of Credit.
_____________________________
By:____________________________________
[Name and Title of Authorized
Representative of _____________]
<PAGE>
ANNEX B
[Place]
[Date]
ON [Business Day of presentation if presented before ll:00 a.m. (_______ time);
next Business Day if presented after 11:00 a.m.]
PAY TO: ________________________________ US$[not to exceed the
Maximum Drawing Amount]
DOLLARS
[Insert wire instructions]
FOR VALUE RECEIVED AND CHARGE TO ACCOUNT OF LETTER OF CREDIT
NO. _________ OF ___________________________________
[Issuing Bank]
[Address]
________________________
By:___________________________
[Name and Title of Authorized
Representative of _____________]
<PAGE>
ANNEX C
CERTIFICATE FOR DRAWING
The undersigned, a duly authorized representative of
__________________, as a beneficiary under that certain IRREVOCABLE STANDBY
LETTER OF CREDIT No. ___________________, dated [the Date of Issuance],
established by [Issuing Bank] (the "Bank") (the "Letter of Credit"), hereby
certifies as follows:
1. A payment in the amount of US$ _________________________required to be
made to _________________________by the Paying Party pursuant to the Agreement
is overdue.
2. The aggregate amount of the accompanying draft does not exceed the
Maximum Drawing Amount.
Capitalized Terms used herein and not otherwise defined herein shall
have the meaning given to them in the Letter of Credit.
IN WITNESS WHEREOF, each of the undersigned has executed this
Certificate as of [Date].
____________________________
By:________________________________
[Name and Title of Authorized
Representative]
<PAGE>
EXHIBIT D
OPERATIONAL REPORT ELEMENTS
<PAGE>
EXHIBIT D
Operational Report Elements
The following reports will be provided on a quarterly basis by ORION.
1) Health status of the satellite.
o Overall health of the satellite.
o Number, frequency and type of maneuvers.
o Status of major subsystems.
o Number and type of configuration changes.
o Fuel state and calculated life expectancy.
o Predicted events - eclipses; solar lunar and terrestrial.
o Unusual events or anomalies.
o Current power bus margins.
2) Status of the DACOM payload.
o Transponder status.
o TWT status.
o Receiver status.
o Status of spare equipment.
o Number and type of configuration changes.
<PAGE>
EXHIBIT E
LETTER RE ORION WARRANT
<PAGE>
The portions of this Exhibit for which confidential treatment has been requested
are marked by brackets ([ ]). In addition, an asterisk (*) appears in the right
hand margin of each paragraph in which confidential information is included.
[GRAPHIC OMITTED]
ORION
Network Systems, Inc.
November 11, 1996
Mr. Chi-Young Kwak
Senior Executive Vice President
DACOM Corporation
140-716 DACOM Bldg. 65-228, 3GA
Hangang-Ro, Yongsan-Ku
Seoul, Korea
Dear Mr. Kwak:
In the spirit of cooperation between Orion and Dacom and the execution of
the Joint Investment Agreement between our companies, Orion intends, subject to
its Board of Directors' approval, to issue a Warrant to Dacom Corporation. This
Warrant will entitle Dacom to purchase up to 50,000 shares of Orion Network
Systems, Inc. common stock at a price of $14.00 per share. The Warrant will be
exercisable for a six (6) month period beginning six (6) months after the
Commencement Date, as defined in the Joint Investment Agreement, and ending one
(1) year after Commencement Date and will terminate at that time or at any time
the Joint Investment Agreement is terminated.
We look forward to a successful and rewarding relationship for both
companies.
Yours truly,
/s/ W. Neil Bauer
W. Neil Bauer
President & CEO
2440 Research Blvd., Suite 400 Rockville, MD 20850 (301) 258-8101
<PAGE>
November 11, 1996
Mr. Youn Woo Lee
Managing Director,
Satellite Communication Business Team
DACOM Corporation
140-013 Sungji Bldg.
40-712, 3-Ga, Hangang-Ro
Yongsan-Ku,
Seoul, Korea
Ref: Joint Investment Agreement
Dear Mr. Lee
As you are aware, today DACOM and Orion Asia Pacific entered into the
Joint Investment Agreement for certain specific transponders on the
Orion 3 satellite for a period of 13 years. There is some possibility
that the Orion 3 lifetime may be extended to one or perhaps two
additional years. Therefore, I wish to extend to DACOM the opportunity
to acquire the use of the DACOM transponders covered by the Joint
Investment Agreement ( the "Agreement") under certain circumstances set
forth herein.
If Orion determines to operate Orion 3 for a year longer than the Term
of the Joint Investment Agreement ( the "First Extended Term"), it shall
so notify DACOM at least fourteen (14) months prior to the end of the
Term of the Agreement. DACOM shall have an option to continue to use the
Transponders for the First Extended Term; provided that not later than
twelve (12) months prior to the end of the Term, DACOM shall notify
Orion of its election to use all the Transponders then operating in
accordance with the Technical Specifications, for the First Extended
Term. Ninety (90) days after such notice DACOM shall pay to Orion a cash
sum equal to the number of said operating Transponders times
_______________________________ ____________________________. If, at any
time during the twelve (12) month period of the first Extended Term, any
of the Transponders for which DACOM has paid becomes a Transponder
Failure and cannot be restored, Orion shall refund to DACOM the amount
of ____________________ __________________________________________ times
the number of quarters (three (3) month periods) then remaining in the
First Extended Term, and DACOM shall surrender the failed Transponder to
Orion.
If Orion determines to operate Orion 3 for a year longer than the First
Extended Term, (the "Second Extended Term"), Orion shall notify DACOM
not later than ten (10) days prior to the end of the Term. Not later
than the first day of the First Extended Term, DACOM shall notify Orion
of its election to use all the Transponders then operating in accordance
with the Technical Specifications, for the period of Second Extended
Term. Ninety (90) days
<PAGE>
after such notice DACOM shall pay to Orion a cash sum equal to the
number of said operating Transponders times __________________________
______________________________. If, at any time during the Second
Extended Term, any of the Transponders for which DACOM has paid becomes
a Transponder Failure and cannot be restored, Orion shall refund to
DACOM the amount of ____________________________________
___________________ times the number of quarters (three (3) month
periods) then remaining in the Second Extended Term, and DACOM shall
surrender the failed Transponder to Orion.
If DACOM does not provide the notices and pay the amounts set forth
hereinabove Orion shall be relieved of any obligation to permit DACOM to
use the Transponders and Spare Transponders for the applicable Extended
Term.
If you have any questions regarding the foregoing, please do not
hesitate calling. If you concur in the proposed arrangement, please
execute a copy of this letter in the space provided.
Sincerely,
Hans Giner
President
Orion Asia Pacific
I accept the foregoing:
November 11, 1996
DACOM Corporation
By _________________
Lee, Youn Woo
Managing Director,
Satellite Communication Business Team
Exhibit 1
ORION NETWORK SYSTEMS, INC.
NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
ORION NETWORK SYSTEMS, INC., a Delaware corporation (the
"Corporation"), sets forth herein the terms of the Non-Employee Director Stock
Option Plan (the "Plan") as follows:
1. PURPOSE
1.1 The Plan is intended to attract and retain the best
possible members of the Board and to provide additional incentives to those
directors to promote the success of the Corporation. The Plan provides Eligible
Directors an opportunity to purchase shares of the Stock pursuant to Options. No
stock option granted under the Plan is intended to be an "incentive stock
option" within the meaning of Section 422 of the Internal Revenue Code of 1986,
or the corresponding provision of any subsequently enacted tax statute, as
amended from time to time. In addition, the Prior Options are hereby confirmed
and incorporated into the Plan.
1.2 The Plan is intended to constitute a "formula plan" and
Eligible Directors are intended to be "disinterested administrators" of other
plans maintained by the Corporation for purposes of Rule 16b-3 under the
Exchange Act.
2. DEFINITIONS
For purposes of interpreting the Plan and related documents
(including Stock Option Agreements), the following definitions shall apply:
2.1. "Additional Option" means any Option other than an
Initial Option or a Prior Option.
2.2. "Administrator" means the Secretary of the Corporation
or, as to any State where any other person is registered as an agent of the
Corporation for the sale of securities, such other person with respect to such
State, or (in either case) such other person as is appointed by the Board to
serve as Administrator.
2.3. "Anniversary Date" means the date of the annual meeting
of the shareholders of the Corporation at which Directors are elected.
2.4. "Board" means the board of directors of the Corporation.
2.5. "Code" means the Internal Revenue Code of 1986, as
amended.
2.6. "Commencement of Service" means the date of election or
appointment of an Eligible Director to his or her first term as a Director.
2.7. "Corporation" means Orion Network Systems, Inc., a
Delaware corporation.
2.8. "Current Eligible Director" means a member of the Board
who is not an officer or employee of the Corporation or any of its subsidiaries
and who received a grant of a Prior Option prior to the Effective Date.
2.9. "Effective Date" means the date of adoption of the Plan
by the Board.
<PAGE>
2.10. "Eligible Director" means a member of the Board who is
not an officer or employee of
the Corporation or any of its subsidiaries.
2.11. "Exchange Act" means the Securities Exchange Act of
1934, as now in effect or hereafter amended.
2.12. "Exercise Price" means the Option Price multiplied by
the number of shares of Stock purchased pursuant to exercise of an Option.
2.13. "Expiration Date" means the fifth anniversary of the
Grant Date or, if earlier, the termination of the Option pursuant to Section
4.2(c) hereof.
2.14. "Fair Market Value" means the value of each share of
Stock subject to the Plan determined as follows: If on the Grant Date or other
determination date the Stock is listed on an established national or regional
stock exchange, is admitted to quotation on the National Association of
Securities Dealers Automated Quotation System, or is publicly traded on an
established securities market, the Fair Market Value of the Stock shall be the
average closing price of the Stock on such exchange or in such market over the
twenty (20) trading days immediately preceding the Grant Date or other
determination date. If there is more than one such exchange or market, then the
closing price of the Stock on each day shall be the highest of the multiple
closing prices. If the Stock is not listed on such an exchange, quoted on such
system or traded on such a market, Fair Market Value shall be determined by the
Administrator in good faith.
2.15. "Grant Date" means the date on which an Option grant
takes effect pursuant to Section 7 hereof.
2.16. "Initial Option" means an Option received by each
Eligible Director as of the Effective Date or thereafter as of an Eligible
Director's Commencement of Service.
2.17. "New Eligible Director" means a member of the Board who
is not an officer or employee of the Corporation or any of its subsidiaries and
who is not a Current Eligible Director.
2.18. "Option" means any option to purchase one or more shares
of Stock pursuant to the Plan, including Prior Options, Initial Options, and
Additional Options.
2.19. "Optionee" means an Eligible Director who holds an
Option.
2.20. "Option Period" means the period during which Options
may be exercised as defined in Section 9 hereof.
2.21. "Option Price" means the purchase price for each share
of Stock subject to an Option.
2.22. "Prior Option" means each Option to purchase 10,000
shares of Stock granted by the Corporation to each Current Eligible Director
prior to the Effective Date.
2.23. "Reelection Date" means the date of election of an
Eligible Director to a term as a Director, other than his or her first term.
2.24. "Securities Act" means the Securities Act of 1933, as
now in effect or as hereafter amended.
2.25. "Stock" means the Common Stock ($0.01 par value per
share) of the Corporation.
<PAGE>
2.26. "Stock Option Agreement" means the written agreement
evidencing grant of an Option hereunder.
3. ADMINISTRATION
The Plan shall be administered by the Administrator. The
Administrator's responsibilities under the Plan shall be limited to taking all
legal actions necessary to document the Options provided herein, to maintain
appropriate records and reports regarding those Options, and to take all acts
authorized or required by the Plan.
4. STOCK SUBJECT TO THE PLAN
4.1. There are 80,000 Prior Options that are subject to the
Plan. Initial Options and Additional Options to purchase not more than 300,000
shares of Stock may be granted under the Plan (subject to increase as a result
of expiration, termination or cancellation of a Prior Option as provided below
in this Section). If any Option expires, terminates or is terminated or canceled
for any reason before it is exercised in full, the shares of Stock that were
subject to the unexercised portion of the Option shall be available for future
Options granted under the Plan. If any Prior Option expires, terminates or is
terminated or canceled for any reason before it is exercised in full, then
additional Initial Options and Additional Options to purchase the number of
shares of Stock that were subject to the unexercised portion of the Prior Option
may be granted under the Plan.
In the aggregate, Options to purchase not more than 380,000
shares of Stock may be granted under the Plan.
4.2(a). If the outstanding shares of Stock are increased or
decreased or changed into or exchanged for a different number or kind of shares
or other securities of the Corporation by reason of any recapitalization,
reclassification, stock split-up, combination of shares, exchange of shares,
stock dividend or other distribution payable on capital stock, or other increase
or decrease in such shares effected without receipt of consideration by the
Corporation, occurring after the Effective Date, the number and kinds of shares
for the purchase of which Options may be granted under the Plan shall be
adjusted proportionately and accordingly by the Corporation. In addition, the
number and kind of shares for which Options are outstanding shall be adjusted
proportionately and accordingly so that the proportionate interest of the holder
of the Option immediately following such event shall, to the extent practicable,
be the same as immediately prior to such event. Any such adjustment in
outstanding Options shall not change the aggregate Option Price payable with
respect to shares subject to the unexercised portion of the Option outstanding
but shall include a corresponding proportionate adjustment in the Option Price
per share.
4.2(b). Subject to Section 4.2(c) hereof, if the Corporation
shall be the surviving corporation in any reorganization, merger or
consolidation of the Corporation with one or more other corporations, any Option
theretofore granted pursuant to the Plan shall pertain to and apply to the
securities to which a holder of the number of shares of Stock subject to such
Option would have been entitled immediately following such reorganization,
merger or consolidation, with a corresponding proportionate adjustment of the
Option Price per share so that the aggregate Option Price thereafter shall be
the same as the aggregate Option Price of the shares remaining subject to the
Option immediately prior to such reorganization, merger or consolidation.
4.2(c). Upon the dissolution or liquidation of the
Corporation, or upon a merger, consolidation or reorganization of the
Corporation with one or more other corporations in which the Corporation is not
the surviving corporation, or upon a sale of substantially all of the assets of
the Corporation to another corporation, or upon any transaction (including,
without limitation, a merger
<PAGE>
or reorganization in which the Corporation is the surviving
corporation) approved by the Board which results in any person or entity owning
80 percent or more of the combined voting power of all classes of stock of the
Corporation, the Plan and all Options outstanding hereunder shall terminate,
except to the extent provision is made in writing in connection with such
transaction for the continuation of the Plan, the assumption of the Options
theretofore granted, or for the substitution for such Options of new options
covering the stock of a successor corporation, or a parent or subsidiary
thereof, with appropriate adjustments as to the number and kinds of shares and
exercise prices, in which event the Plan (if applicable) and Options theretofore
granted shall continue in the manner and under the terms so provided. In the
event of any such termination of the Plan and Options, each individual holding
an Option shall have the right immediately prior to the occurrence of such
termination and during such period occurring prior to such termination as the
Board in its sole discretion shall determine and designate, to exercise such
Option to the extent that such Option was otherwise exercisable at the time such
termination occurs. The Administrator shall send written notice of an event that
will result in such a termination to all individuals who hold Options not later
than the time at which the Corporation gives notice thereof to its stockholders.
4.2(d). Adjustments under this Section 4.2 related to stock or
securities of the Corporation shall be made by the Administrator, whose
determination in that respect shall be final and conclusive. No fractional
shares of Stock or units of other securities shall be issued pursuant to any
such adjustment, and any fractions resulting from any such adjustment shall be
eliminated in each case by rounding downward to the nearest whole share or unit.
4.2(e). The grant of an Option pursuant to the Plan shall not
affect or limit in any way the right or power of the Corporation to make
adjustments, reclassifications, reorganizations or changes of its capital or
business structure or to merge, consolidate, dissolve or liquidate, or to sell
or transfer all of any part of its business or assets.
5. ELIGIBILITY
Eligibility under the Plan is limited to Eligible Directors.
6. OPTION PRICE
The Option Price of the Stock covered by each Option granted
under the Plan shall be the greater of the Fair Market Value or the par value of
such Stock on the Grant Date. The Option Price shall be subject to adjustment as
provided in Section 4.2 hereof.
7. NUMBER OF SHARES AND GRANT DATES
7.1 Each Current Eligible Director has received a Prior
Option, granted January 17, 1996 (subject to occurrence of the Effective Date,
but with a Grant Date of January 17, 1996). Each Current Eligible Director shall
be annually granted an Additional Option to purchase 10,000 shares of Stock as
of the day after each Anniversary Date if the Eligible Director continues to be
an Eligible Director on the day after such Anniversary Date.
7.2 Each New Eligible Director serving on the Board on the
Effective Date and each New Eligible Director whose Commencement of Service is
after the Effective Date shall be granted an Initial Option, as of the Effective
Date or as of the day after the New Eligible Director's Commencement of Service,
respectively, to purchase the number of shares of Stock equal to (i) the number
of complete and partial years in the term to which such New Eligible Director
was elected or appointed, multiplied by (ii) 10,000.
<PAGE>
Each New Eligible Director also shall be annually granted an
Additional Option to purchase 10,000 shares of Stock as of each of (i) the day
after the New Eligible Director's first Reelection Date and (ii) the day after
each Anniversary Date after the New Eligible Director's first Reelection Date if
the New Eligible Director continues to be a New Eligible Director on the day
after such Anniversary Date.
8. VESTING OF OPTIONS
The Optionee may exercise each Option granted to such Optionee
in installments as follows: on the first Anniversary Date after the date of
grant of the Option as set forth in Section 7 above, the Option shall be
exercisable in respect of 10,000 shares, and, in the case of an Initial Option
which is an Option to purchase of more than 10,000 shares, the Option shall be
exercisable in respect of an additional 10,000 shares on the second Anniversary
Dates after the date of grant and (if the Initial Option is an Option to
purchase of more than 20,000 shares) on the third Anniversary Dates after the
date of grant, in each case as set forth in Section 7 above. The foregoing
installments, to the extent not exercised, shall accumulate and be exercisable,
in whole or in part, at any time and from time to time, after becoming
exercisable and prior to the termination of the Option; provided, that no single
exercise of the Option shall be for less than 100 shares, unless the number of
shares purchased is the total number at the time available for purchase under
this Option.
Upon the termination of service (a "Service Termination") of
the Optionee in all capacities as an employee and/or director of the Corporation
and all of its affiliated companies, any Option granted to an Optionee pursuant
to the Plan shall terminate to the extent it is not then exercisable, and such
Optionee shall have no further right to purchase shares of Stock to the extent
of such termination.
9. OPTION PERIOD
An Option shall be exercisable only during the Option Period.
The Option Period shall commence on the date of grant, as set forth in Section 7
above, and shall end at the close of business on the fifth anniversary of the
date of grant. An Optionee shall have no further right to purchase shares of
Stock after the end of the Option Period.
10. TIMING AND METHOD OF EXERCISE
Subject to Sections 8 and 9 hereof, an Optionee may, at any
time, exercise an Option with respect to all or any part of the shares of Stock
then subject to such Option by giving the Corporation written notice of
exercise, specifying the number of shares as to which the Option is being
exercised. Such notice shall be addressed to the Administrator at the
Corporation's principal office, and shall be effective when actually received
(by personal delivery, fax or other delivery) by the Administrator. Such notice
shall be accompanied by an amount equal to the Exercise Price of such shares, in
the form of any one or combination of the following: cash or cash equivalents,
or shares of Stock valued at Fair Market Value in accordance with the Plan.
Shares of Stock acquired by the Optionee through exercise of an Option may be
surrendered in payment of the Exercise Price of Options; provided, however, that
any Stock surrendered in payment must have been (a) held by the Optionee for
more than six months at the time of surrender or (b) acquired under an Option
granted not less than six months prior to the time of surrender. Payment in full
of the Exercise Price need not accompany the written notice of exercise provided
the notice directs that the Stock certificate or certificates for the shares for
which the Option is exercised be delivered to a licensed broker acceptable to
the Corporation as the agent for the individual exercising the Option and, at
the
<PAGE>
time such Stock certificate or certificates are delivered, the
broker tenders to the Corporation cash (or cash equivalents acceptable to the
Corporation) equal to the Exercise Price.
11. NO STOCKHOLDER RIGHTS UNDER OPTION
Neither an Optionee nor any person entitled to exercise an
Optionee's rights in the event of an Optionee's death shall have any of the
rights of a stockholder with respect to the shares of Stock subject to an Option
except to the extent the certificates for such shares shall have been issued
upon the exercise of the Option.
12. CONTINUATION OF SERVICE
Nothing in the Plan shall confer upon any person any right to
continue as a member of the Board or interfere in any way with the right of the
Corporation to terminate such relationship.
13. STOCK OPTION AGREEMENT
Each Option granted pursuant to the Plan shall be evidenced by
a written Stock Option Agreement notifying the Optionee of the grant and
incorporating the terms of the Plan. The Stock Option Agreement shall be
executed by the Corporation and the Optionee.
14. WITHHOLDING
The Corporation shall have the right to withhold, or require
an Optionee to remit to the Corporation, an amount sufficient to satisfy any
applicable federal, state or local withholding tax requirements imposed with
respect to exercise of Options. To the extent permissible under applicable tax,
securities and other laws, the Optionee may satisfy a tax withholding
requirement by directing the Corporation to apply shares of Stock to which the
Optionee is entitled as a result of the exercise of an Option to satisfy
withholding requirements under this Section 14.
15. NON-TRANSFERABILITY OF OPTIONS
Each Option granted pursuant to the Plan shall, during
Optionee's lifetime, be exercisable only by Optionee, and neither the Option nor
any right thereunder shall be transferable by the Optionee by operation of law
or otherwise other than by will or the laws of descent and distribution, and
shall not be pledged or hypothecated (by operation of law or otherwise) or
subject to execution, attachment or similar processes.
16. USE OF PROCEEDS
The proceeds received by the Corporation from the sale of
Stock pursuant to Options granted under the Plan shall constitute general funds
of the Corporation.
17. ADOPTION, AMENDMENT, SUSPENSION AND TERMINATION
17.1. The Plan shall be effective as of the date of adoption
by the Board, subject to stockholders' approval of the Plan within one year of
the Effective Date by a majority of the votes
<PAGE>
cast at a duly held meeting of the stockholders of the
Corporation at which a quorum representing a majority of all outstanding stock
is present, either in person or by proxy, and voting on the matter, or by
written consent in accordance with applicable state law and the Certificate of
Incorporation and Bylaws of the Corporation and in a manner that satisfies the
requirements of Rule 16b-3(b) of the Exchange Act; provided, however, that upon
approval of the Plan by the stockholders of the Corporation, all Options granted
under the Plan on or after the Effective Date shall be fully effective as if the
stockholders of the Corporation had approved the Plan on the Effective Date. If
the stockholders fail to approve the Plan within one year of the Effective Date,
any Options granted hereunder shall be null, void and of no effect.
17.2. Subject to the limitation of Section 17.4 hereof, the
Board may at any time suspend or terminate the Plan, and may amend it from time
to time in such respects as the Board may deem advisable; provided, however, the
Board shall not amend the Plan in the following respects without the approval of
stockholders then sufficient to approve the Plan in the first instance:
(a) To materially increase the benefits provided under the
Plan;
(b) To increase the maximum number of shares which may be
granted;
(c) To change the designation or class of persons eligible to
receive Options under the Plan.
17.3. No Option may be granted during any suspension or after
the termination of the Plan, and no amendment, suspension or termination of the
Plan shall, without the Optionee's consent, alter or impair any rights or
obligations under any Stock Option Agreement previously entered into under the
Plan. The Plan shall terminate ten years after the Effective Date unless
previously terminated pursuant to Section 4.2 hereof or by the Board pursuant to
this Section 17.
17.4. Notwithstanding the provisions of Section 17.2 hereof,
the Plan shall not be amended more than once in any six-month period other than
to comport with changes in the Code, the Employee Retirement Income Security Act
of 1974, or the rules promulgated thereunder.
18. SECURITIES LAWS
18.1. The Corporation shall not be required to sell or issue
any shares of Stock under any Option if the sale or issuance of such shares
would constitute a violation by the individual exercising the Option or the
Corporation of any provisions of any law or regulation of any governmental
authority, including without limitation any federal or state securities laws or
regulations. Specifically in connection with the Securities Act, upon exercise
of any Option, unless a registration statement under the Securities Act is in
effect with respect to the shares of Stock covered by such Option, the
Corporation shall not be required to sell or issue such shares unless the
Administrator has received evidence satisfactory to the Administrator that the
holder of such Option may acquire such shares pursuant to an exemption from
registration under the Securities Act. Any determination in this connection by
the Administrator shall be final and conclusive. The Corporation may, but shall
in no event be obligated to, register any securities covered hereby pursuant to
the Securities Act. The Corporation shall not be obligated to take any
affirmative action in order to cause the exercise of an Option or the issuance
of shares pursuant thereto to comply with any law or regulation of any
governmental authority. As to any jurisdiction that expressly imposes the
requirement that an Option shall not be exercisable unless and until the shares
of Stock covered by such Option are registered or are subject to an available
exemption from registration, the exercise of such Option (under circumstances in
which the laws of such jurisdiction apply) shall be deemed conditioned upon the
effectiveness of such registration or the availability of such an exemption.
<PAGE>
18.2. The intent of the Plan is to qualify for the exemption
provided by Rule 16b-3 under the Exchange Act. To the extent any provision of
the Plan does not comply with the requirements of Rule 16b-3, it shall be deemed
inoperative and shall not affect the validity of the Plan. In the event Rule
16b-3 is revised or replaced, the Administrator may exercise discretion to
modify the Plan in any respect necessary to satisfy the requirements of the
revised exemption or its replacement.
19. INDEMNIFICATION
19.1. To the extent permitted by applicable law, the
Administrator shall be indemnified and held harmless by the Corporation against
and from any and all loss, cost, liability or expense that may be imposed upon
or reasonably incurred by the Administrator in connection with or resulting from
any claim, action, suit or proceeding to which the Administrator may be a party
or in which the Administrator may be involved by reason of any action taken or
failure to act under the Plan, and against and from any and all amounts paid by
the Administrator (with the Corporation's written approval) in the settlement
thereof, or paid by the Administrator in satisfaction of a judgment in any such
action, suit or proceeding except a judgment in favor of the Corporation;
subject, however, to the conditions that upon the institution of any claim,
action, suit or proceeding against the Administrator, the Administrator shall
give the Corporation an opportunity in writing, at its own expense, to handle
and defend the same before the Administrator undertakes to handle and defend it
on the Administrator's own behalf. The foregoing right of indemnification shall
not be exclusive of any other right to which such person may be entitled as a
matter of law or otherwise, or any power the Corporation may have to indemnify
the Administrator or hold the Administrator harmless.
19.2. The Administrator and each officer and employee of the
Corporation shall be fully justified in reasonably relying or acting upon any
information furnished in connection with the administration of the Plan by the
Corporation or any employee of the Corporation. In no event shall any person who
is or shall have been the Administrator, or an officer or employee of the
Corporation, be liable for any determination made or other action taken or any
omission to act in reliance upon any such information, or for any action
(including furnishing of information) taken or any failure to act, if in good
faith.
20. GOVERNING LAW
The validity, interpretation and effect of the Plan, and the
rights of all persons hereunder, shall be governed by and determined in
accordance with the laws of Delaware, other than the choice of law rules
thereof.
The Plan was duly adopted and approved by the Board on March
20, 1996 and was duly approved by the stockholders of the Corporation on
________ __, 1996.
--------------------------------------
Richard H. Shay
Secretary
FIRST AMENDMENT TO SECTION 351 EXCHANGE AGREEMENT AND PLAN
----------------------------------------------------------
OF CONVERSION
-------------
THIS FIRST AMENDMENT TO SECTION 351 EXCHANGE AGREEMENT AND
PLAN OF CONVERSION (this "Amendment") is entered into as of December __, 1996,
by and among International Private Satellite Partners, L.P., a Delaware limited
partnership ("Orion Atlantic"); Orion Network Systems, Inc., a Delaware
corporation ("ONS"); Orion Satellite Corporation, a Delaware corporation
("OrionSat"); and each of the following entities: British Aerospace
Communications, Inc., a Delaware corporation, COM DEV Satellite Communications
Limited, a Canadian corporation, Kingston Communications International Limited,
a company incorporated under the laws of England, Lockheed Martin Commercial
Launch Services, Inc., a Delaware corporation, MCN Sat US, Inc., a Delaware
corporation, and Trans Atlantic Satellite, Inc., a Delaware corporation
(collectively, the "Exchanging Partners") under the Section 351 Exchange
Agreement and Plan of Conversion, dated as of June __, 1996, between and among
Orion Atlantic, ONS, OrionSat and the Exchanging Partners (the "Exchange
Agreement").
WHEREAS, Orion Atlantic, ONS and OrionSat are currently
pursuing and will continue to pursue certain financing transactions that were
contemplated by the Exchange Agreement, and the parties hereto desire to amend
the Exchange Agreement to extend potentially the termination date to provide for
the possibility that such financings will not be completed by January 30, 1997
and to refund certain payments.
NOW, THEREFORE, for and in consideration of the foregoing and
of the mutual covenants and agreements hereinafter set forth, the parties hereto
agree as follows:
1. CLOSING TERMINATION DATE EXTENSION
The first paragraph of Section 13.1(b) of the
Exchange Agreement is hereby amended to read in its entirety as follows:
(b) by ONS and OrionSat or by the Exchanging
Partners collectively or (as to a particular Exchanging Partner), by such
Exchanging Partner, by written notice of termination to the other parties
hereto, if the Closing has not occurred by April 30, 1997 (the "Closing
Termination Date"); provided, however, that the terminating party is not in
breach of any obligations or agreements hereunder that are causing any of the
conditions precedent to Closing not to be satisfied.
<PAGE>
2. REFUND OF CERTAIN PAYMENTS
Section 3.2(c) of the Exchange Agreement is hereby
amended by adding, at the end thereof, the following:
Notwithstanding the foregoing provisions of this Section
3.2(c), to the extent that amounts are paid by one or more Exchanging Partners
(or Affiliates of such Exchanging Partners) (i) pursuant to the Capacity
Agreements and which are subject to being refunded under the Refund Agreement
("Firm Capacity Payments") during the Adjustment Period for obligations of such
Exchanging Partners (or Affiliates) arising after January 29, 1997 and prior to
the Closing Date, and (ii) pursuant to the Contingent Capacity Agreements
("Contingent Capacity Payments") during the Adjustment Period for obligations of
such Exchanging Partners (or Affiliates) arising after the date hereof and prior
to the Closing Date (collectively, "Payments Subject to Refund"), then if (and
only if) ONS or Newco completes a Bond Offering prior to the Closing Termination
Date,
(x) to the extent that the gross proceeds from the Bond
Offering (excluding any amounts required to be set aside or pledged for the
purpose of pre-funding interest payments) for ONS or Newco, plus the gross
proceeds from the sale of Convertible Subordinated Debentures to BAe and Matra
Marconi Space UK Limited ("Matra Marconi Space") or their Affiliates, exceeds
the sum of (1) the amounts necessary to effect the Credit Facility Refinancing
and all other obligations relating thereto or arising therefrom, including
without limitation all principal and accrued interest due with respect to the
Credit Facility and all breakage fees and costs arising from termination of the
interest rate hedge relating to the Credit Facility, (2) $49.4 million,
representing the proposed initial payments to be made by ONS or Newco under the
Orion 2 Satellite Contract and related Orion 2 Option Agreement, (3) $13
million, representing the incentive payments that will be payable to Matra
Marconi Space or its Affiliates with respect to Orion 1 upon or immediately
following the Credit Facility Refinancing, (4) $3.5 million, representing the
amounts that will be payable to STET upon or immediately following the Credit
Facility Refinancing, (5) an amount reasonably determined by ONS or Newco to be
necessary working capital for ONS or Newco to conduct operations following the
Bond Offering and other transactions (not to exceed $10 million), and (6) the
costs and expenses of the Bond Offering, the Convertible Subordinated Debenture
financings and related transactions (not to exceed $14.3 million), the excess
(the "Available Funds") shall be used to refund the amounts of the Payments
Subject to Refund to the respective Exchanging Partners at the Closing (or, if
such excess is not sufficient to refund all of the Payments Subject to Refund to
the respective Exchanging Partners, the Available Funds shall be used first to
refund Contingent Capacity Payments to the extent of such Available Funds, and
second to refund Firm Capacity Payments to the extent of any remaining Available
Funds, in each case with partial refunds to be made pro rata among the
Exchanging Partners in proportion to their respective applicable
-2-
<PAGE>
Payments Subject to Refund), and amounts so refunded shall not be included in
clause (i)(A) of this Section 3.2(c); and
(y) any portions of the Payments Subject to Refund not so
refunded to the respective Exchanging Partners at the Closing shall be included
in clause (i)(A) of this Section 3.2(c) as part of the Adjustment Amounts of
such Exchanging Partners.
The refund of Available Funds shall be made at or within three
business days after the Closing. ONS and Newco shall deliver to the Exchanging
Partners simultaneously with such refund a certificate of their respective chief
financial officers setting forth in reasonable detail all calculations or
computations required or contemplated by this Section 3.2(c), including the
amount and application of the Available Funds. ONS and Newco shall provide
promptly, to any Exchanging Partner requesting the same, such additional detail
supporting such calculations and computations and such back-up or supporting
documentation as such Exchanging Partner may reasonably request.
3. TAX ADJUSTMENT
Section 3.2(c)(ii) of the Exchange Agreement is hereby amended
to read in its entirety as follows:
(ii) the product of the number of days in the Adjustment
Period through and including (but not beyond) January 29, 1997 multiplied by the
Tax Adjustment Factor for such Exchanging Partner, divided by
4. SALE OF CONVERTIBLE SUBORDINATED DEBENTURES
Notwithstanding the provisions of Section 5.8 of the Exchange
Agreement contemplating that Newco will, as of the Closing Date, complete a
Convertible Subordinated Debenture Offering of approximately $100 million, it is
presently intended that the Convertible Subordinated Debenture Offering consist
only of purchases of $50 million of Convertible Subordinated Debentures by BAe
and $10 million of Convertible Subordinated Debentures by Matra Marconi Space,
or Affiliates thereof. Accordingly, all references in the Exchange Agreement to
the Convertible Subordinated Debenture Offering shall refer only to the $60
million of Convertible Subordinated Debentures to be purchased by BAe and Matra
Marconi Space, or Affiliates thereof. While not intended to be legally binding,
BAe hereby reconfirms that it or its Affiliates intend to purchase from Newco
$50 million of Convertible Subordinated Debentures on terms being negotiated
between BAe and ONS, and MCN Sat hereby confirms that Matra Marconi Space or its
Affiliates intends to purchase from Newco $10 million of Convertible
Subordinated Debentures on terms substantially the same as those ultimately
agreed upon by
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<PAGE>
BAe and ONS for the BAe investment. Section 10.8 of the Exchange Agreement is
hereby amended to read in its entirety as follows:
Newco shall have raised at least $60 million from the sale of
Convertible Subordinated Debentures, including the sale of $50 million of
Convertible Subordinated Debentures to BAe or its Affiliates and the sale of $10
million of Convertible Subordinated Debentures to Matra Marconi Space or its
Affiliates.
5. ELIMINATION OF KINGSTON INVESTMENT IN PPU INTEREST SHARES
Section 3.2(d) of the Exchange Agreement is hereby amended to
delete such Section in its entirety; Section 3.2(a)(iii) of the Exchange
Agreement is hereby amended to delete the language "other than interest paid to
Kingston under Section 3.2(d)" in its entirety; Section 3.2(b)(iii) of the
Exchange Agreement is hereby amended to delete the language "and PPU Interest
Shares calculated as set forth in Section 3.2(d)" in its entirety; the last
paragraph of Section 3.2(b) of the Exchange Agreement is hereby amended to
replace the language "Section 3.2(b), in Sections 3.2(c) and 3.2(d)" with the
language "Section 3.2(b) and in Section 3.2(c); and Section 3.2(c) of the
Exchange Agreement is hereby amended to delete the language "other than Kingston
(or an Affiliate of Kingston)" in its entirety.
6. ORION 2 SATELLITE CONTRACT
Section 9.7 of the Exchange Agreement shall be amended to read
in its entirety as follows:
The Option Agreement, dated December 10, 1996, between Orion
Atlantic and Matra Marconi Space ("Orion 2 Option Agreement"), shall be in full
force and effect; Orion Atlantic shall not be in default thereunder; and Orion
Atlantic shall have made all payments required to be made thereunder through the
earlier of the Closing Date and March 31, 1997. Restated Amendment #10, dated
December 10, 1996, to the Second Amended and Restated Purchase Contract, dated
as of September 26, 1991, between Orion Atlantic and Matra Marconi Space, as
amended, shall be in full force and effect, and Orion Atlantic shall not be in
default thereunder.
7. MISCELLANEOUS
7(a) Defined Terms
Capitalized terms used in this Amendment and not otherwise
defined in this Amendment shall have the meanings provided for in the Exchange
Agreement.
-4-
<PAGE>
7(b) Governing Law
This Amendment, the rights and obligations of the parties
hereto, and any claims or disputes relating thereto, shall be governed by and
construed in accordance with the same laws as govern the Exchange Agreement.
7(c) Counterparts
To facilitate execution, this Amendment may be executed in as
many counterparts as may be required; and it shall not be necessary that the
signatures of, or on behalf of, each party, or that the signatures of all
persons required to bind any party, appear on each counterpart; but it shall be
sufficient that the signature of, or on behalf of, each party, or that the
signatures of the persons required to bind any party, appear on one or more of
the counterparts. All counterparts shall collectively constitute a single
agreement. It shall not be necessary in making proof of this Amendment to
produce or account for more than a number of counterparts containing the
respective signatures of, or on behalf of, all of the parties hereto.
7(d) Facsimile Execution
To facilitate execution, this Amendment may be executed
through the use of facsimile transmission, and a counterpart of this Amendment
that contains the facsimile signature of a party, which counterpart has been
transmitted by facsimile transmission to each of the other parties hereto at
such facsimile numbers as such other parties shall request, shall constitute an
executed counterpart of this Amendment.
7(e) Ratification
The Exchange Agreement, as amended and modified by this First
Amendment, is in all respects ratified and confirmed and the terms, covenants
and agreements thereof shall be and remain in full force and effect. The parties
executing this First Amendment agree that the Exchange Agreement, as amended and
modified by this First Amendment, shall be remain valid and binding upon such
parties, notwithstanding the failure of one or more Exchanging Partners to
execute this First Amendment and notwithstanding any such non-executing
Exchanging Partner seeking to terminate the Exchange Agreement as to such
non-executing Exchanging Partner under Section 13.1(b) of the Exchange Agreement
after January 30, 1997 and before April 30, 1997.
7(f) Effectiveness of the Amendment
This First Amendment to Section 351 Exchange Agreement and
Plan of Conversion is being made pursuant to Section 14.5 of the Exchange
Agreement
-5-
<PAGE>
which provides that an amendment to the Exchange Agreement shall be valid and
binding when set forth in writing and duly executed and delivered by the party
against whom enforcement of the amendment is sought. The parties executing this
First Amendment agree that this First Amendment shall be valid and binding upon
such parties, notwithstanding the failure of one or more Exchanging Partners to
execute this First Amendment.
-6-
<PAGE>
IN WITNESS WHEREOF, the undersigned have duly executed this
Amendment, or have caused this Amendment to be duly executed on their behalf, as
of the day and year first hereinabove set forth.
INTERNATIONAL PRIVATE
SATELLITE PARTNERS, L.P.
By: Orion Satellite Corporation, its
general partner
By:
-----------------------------------
Title:
--------------------------------
ORION NETWORK SYSTEMS, INC.
By:
-----------------------------------
Title:
------------------------------
ORION SATELLITE CORPORATION
By:
-----------------------------------
Title:
-------------------------------
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<PAGE>
BRITISH AEROSPACE
COMMUNICATIONS, INC.
By:
-----------------------------------
Title:
---------------------------------
COM DEV SATELLITE
COMMUNICATIONS LIMITED
By:
-----------------------------------
Title:
---------------------------------
KINGSTON COMMUNICATIONS
INTERNATIONAL LIMITED
By:
-----------------------------------
Title:
---------------------------------
LOCKHEED MARTIN
COMMERCIAL LAUNCH
SERVICES, INC.
By:
-----------------------------------
Title:
---------------------------------
MCN SAT US, INC.
By:
-----------------------------------
Title:
---------------------------------
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<PAGE>
TRANS-ATLANTIC SATELLITE,
INC.
By:
-----------------------------------
Title:
---------------------------------
-9-
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made and
entered into as of __________, 1997, between and among Orion Newco Services,
Inc., a Delaware corporation (the "Company"), British Aerospace Holdings, Inc.,
a Delaware corporation ("BAe"), and Matra Marconi Space UK Limited, a company
organized under the laws of England and Wales ("Matra") (together, the
"Purchasers").
WHEREAS, the Company proposes to issue and sell to the Purchasers
$60,000,000 aggregate principal amount of its Convertible Junior Subordinated
Debentures Due February 1, 2012 (Interest Payable in Common Stock) (the
"Debentures"), pursuant to the terms of a Debenture Purchase Agreement, dated as
of January , 1997 (the "Debenture Purchase Agreement");
WHEREAS, as a condition to the Purchasers' obligations under the
Debenture Purchase Agreement, the Company agrees with each of the Purchasers for
their benefit and for the benefit of the holders from time to time of the
Registrable Securities (as defined herein) whose names appear in the register
maintained by the Company's registrar in accordance with the provisions of the
Debenture Purchase Agreement (each of the foregoing a "Holder," and collectively
the "Holders"), to grant to the Purchasers certain registration rights;
WHEREAS, the purchase of the Debentures under the Debenture Purchase
Agreement and this Agreement are conditioned upon, among other things, the
consummation of the transactions contemplated under the Section 351 Exchange
Agreement and Plan of Conversion, dated as of June, 1996, as amended, and as may
be further amended from time to time (the "Exchange Agreement"), among Orion
Network Systems, Inc., a Delaware corporation ("ONS"), International Private
Satellite Partners, L.P., a Delaware limited partnership, Orion Satellite
Corporation, a Delaware corporation, and British Aerospace Communications, Inc.
("BAC"); COM DEV Satellite Communications Limited, a Canadian corporation ("COM
DEV"); Kingston Communications International Limited, a company incorporated
under the laws of England ("Kingston"); Lockheed Martin Commercial Launch
Services, Inc., a Delaware corporation ("Lockheed Martin"); MCN Sat US, Inc., a
Delaware corporation ("MCN Sat"); and TransAtlantic Satellite, Inc., a Delaware
corporation ("TA Sat") (collectively, BAC, COM DEV, Kingston, Lockheed Martin,
MCN Sat, and TA Sat are referred to herein as the "Exchanging Partners").
NOW, THEREFORE, in consideration of the premises, the parties hereby
consent and agree, as follows:
<PAGE>
1. Definitions.
-----------
As used in this Agreement, the following capitalized defined terms
shall have the following meanings:
Business Day: any day other than a Saturday or Sunday or day on which
banking institutions in the State of New York are not required to be open.
Closing Date: the date of closing of the Company's sale of the
Debentures to the Purchasers as contemplated by the Debenture Purchase
Agreement.
Commission: the Securities and Exchange Commission.
----------
Common Stock: the common stock, par value $.01 per share, of the
Company.
Company: the meaning set forth in the preamble and shall also include
the Company's successors or other parties who succeed to the Company's
obligations hereunder.
Debentures: the Convertible Junior Subordinated Debentures Due February
1, 2012 (Interest Payable in Common Stock) of the Company.
Debenture Purchase Agreement: the meaning set forth in the preamble.
----------------------------
Eligible Series C Securities: the Series C Securities which a holder
thereof is permitted to sell under the terms of the Transfer Restrictions
Agreements.
Exchange Act: the Securities Exchange Act of 1934, as amended from time
to time.
Exchange Agreement: the meaning set forth in the preamble.
------------------
Exchanging Partner: the meaning set forth in the preamble.
------------------
Holder: any holder of Registrable Securities.
------
Initial Shelf Registrable Securities: Registrable Securities, excluding
the shares of Common Stock or other securities issued or issuable upon
conversion of the Debentures.
Initial Shelf Registration Statement: the Shelf Registration Statement
filed by the Company pursuant to Section 2(a).
Losses: any losses, claims, damages, liabilities, costs and expenses,
including, but not limited to, reasonable attorney's fees.
-2-
<PAGE>
Managing Underwriters: the investment banker or investment bankers and
manager ormanagers that shall administer an Underwritten Offering of the
securities covered by any registration statement.
Market Value: with respect to a specified date, the aggregate closing
price of such shares of Common Stock on the principal national stock exchange or
automated quotation system upon which the Common Stock is listed or quoted,
averaged over a period of twenty (20) consecutive Business Days prior to such
date. If during this period the Common Stock is not listed on any securities
exchange, quoted on the Nasdaq National Market, or quoted in the
over-the-counter market, the Market Value will be the fair value of the Common
Stock determined by agreement between the Company and the holders of a majority
of the Registrable Securities. If such parties are unable to reach agreement
within a reasonable period of time, the fair value of the Common Stock shall be
determined by an independent appraiser experienced in valuing such type of
consideration jointly selected by the Company and the holders of a majority of
the Registrable Securities. The determination of such appraiser shall be final
and binding upon the parties, and the fees and expenses of such appraiser shall
be borne by the Company.
Other Registrable Stock: shares of Common Stock which the Company is
obligated to register, or include in a registration statement under the
Securities Act, under any Other Registration Rights Agreement.
Other Registration Rights Agreement: the following agreements entered
into by ONS on or before the date of the Exchange Agreement under which ONS is
obligated to register, or include in a registration statement under the
Securities Act, shares of capital stock of ONS, and amendments and supplements
to any such agreement entered into on or before the date of the Exchange
Agreement, in each case as such agreement will be amended prior to the closing
under the Exchange Agreement to transfer all of the ONS rights and obligations
under each of such agreements to the Company: (i) the Registration Rights
Agreement dated as of June 17, 1994, among ONS and the Schedule of Investors set
forth therein, as amended (the "Recent PRRAA")); (ii) the Registration Rights
Agreement, dated as of April 29, 1994, between ONS and Space Systems/Loral, Inc.
(the "SS/L RR Agreement"); and (iii) the Series C Registration Rights Agreement.
Person: any individual, partnership, corporation, limited liability
company, trust, or unincorporated organization, or a government or agency or
political subdivision thereof.
Piggyback Registration: the registration by the Company of the Common
Stock (whether for its own account or for the account of others) under the
Securities Act, other than pursuant to a registration statement filed pursuant
to the provisions of Section 2 or Section 3 hereof or a registration of
securities in connection with a business acquisition or combination or an
employee benefit plan.
Proceeding: any action, suit, proceeding or investigation or written
threat thereof.
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<PAGE>
Registrable Securities: regardless of who holds such securities at the
applicable time, (i)the shares of Common Stock of the Company received by BAe in
connection with the purchase by ONS of BAe's interest in Asia Pacific Space and
Communications Ltd.; (ii) the shares of Common Stock or other securities issued
or issuable upon conversion of the Debentures or issued as interest payments
pursuant to the Debenture Purchase Agreement; and (iii) the 86,505 shares of
Common Stock issued pursuant to the respective Warrants of ONS dated as of
December 20, 1991, granted to BAC, exercised on December 31, 1996; provided,
however, that such securities shall cease to be Registrable Securities when a
registration statement with respect to the registration of such securities shall
have been declared effective under the Securities Act and such securities shall
have been disposed of pursuant to such registration statement.
Registration Expenses: any and all expenses incident to the filing and
effectiveness of each registration statement and performance of or compliance by
the Company with this Agreement, including without limitation: (i) all
Commission, stock exchange or National Association of Securities Dealers, Inc.
("NASD") registration and filing fees, (ii) all fees and expenses incurred in
connection with compliance with state securities or Blue Sky laws (including
reasonable fees and disbursements of counsel in connection with Blue Sky
qualification of any of the Registrable Securities and the preparation of a Blue
Sky memorandum and compliance with the rules of the NASD, (iii) all expenses of
any Persons in preparing or assisting in preparing, word processing, printing
and distributing any registration statement, any prospectus, any amendments or
supplements thereto, any underwriting agreements, securities sales agreements,
certificates and other documents relating to the performance of and compliance
with this Agreement, (iv) all fees and expenses incurred in connection with the
listing of any of the Registrable Securities on any securities exchange or the
Nasdaq National Market, (v) the fees and disbursements of counsel for the
Company and of the independent public accountants of the Company, including the
expenses of any special audits or "cold comfort" letters required by or incident
to such performance and compliance, (vi) the reasonable fees and disbursements
of one special counsel representing the Holders of Registrable Securities, such
special counsel to be selected by the Holders of a majority of the Registrable
Securities being registered, (vii) the fees and expenses of a "qualified
independent underwriter" if required by Rule 2720(c) of the rules of the NASD in
connection with the offering of any of the Registrable Securities, (viii) the
fees and expenses of any escrow agent or custodian, and (ix) any fees and
disbursements of any Underwriters customarily paid by issuers or sellers of
securities and the reasonable fees and expenses of any special experts retained
by the Company in connection with any registration statement, but excluding
underwriting discounts and commissions and transfer taxes, if any, relating to
the sale or disposition of Registrable Securities by a Holder.
Registration Period: a period terminating fifteen (15) years following
the Closing Date.
Securities Act: the Securities Act of 1933, as amended from time to
time.
Series C Preferred Stock: the Series C 6% Cumulative Redeemable
Convertible Preferred Stock of the Company.
-4-
<PAGE>
Series C Registration Rights Agreement: the Registration Rights
Agreement dated as of ____________ 1996, among ONS and the Exchanging Partners
and as amended through the Closing Date.
Series C Securities: the shares of Common Stock or other securities
issued or issuable upon conversion of the Series C Preferred Stock purchased by
the Exchanging Partners pursuant to the Exchange Agreement or issued as
dividends or distributions pursuant to the Certificate of Designations, Rights
and Preferences establishing the terms and relative rights and preferences of
the Series C Preferred Stock.
Shelf Registration: a registration required to be effected pursuant to
Section 2(a).
Shelf Registration Statement: a "shelf" registration statement of the
Company which covers the registration of Registrable Securities on a Form S-3,
and all amendments and supplements to such registration statement, including
post-effective amendments, in each case including the prospectus contained
therein, all exhibits thereto and all material incorporated by reference
therein; "Shelf Registration Statement" shall include the Initial Shelf
Registration Statement and each Top-up Shelf Registration Statement.
Top-up Shelf Registration Statement: the meaning set forth in Section
2(b).
Transfer Restriction Agreement: means (i) each agreement, dated on or
about the Closing Date, between the Company and any Exchanging Partner and (ii)
each subsequent agreement entered into between the Company and any Exchanging
Partner, any affiliate thereof, any transferee of Series C Preferred Stock or
Common Stock into which such Series C Preferred Stock is converted or which is
issued as a dividend on such Series C Preferred Stock or any other party
pursuant to the terms of another Transfer Restriction Agreement, in each case
which provides for restrictions on transfer of the Series C Preferred Stock or
Common Stock into which such Series C Preferred Stock is converted or which is
issued as a dividend on such Series C Preferred Stock.
Underwriter: each Person who participates as an underwriter of
securities in a registered offering under the Securities Act.
Underwritten Offering: a sale of Company securities by the Company or a
holder of such securities to an Underwriter or Underwriters for reoffering to
the public.
2. Shelf Registration.
-----------------
2(a) Filing of Initial Shelf Registration Statement. The
Company shall prepare and cause to be filed as soon as practicable after the
date that is one hundred eighty (180) days after the Closing Date (but not later
than fifteen (15) days thereafter), the Initial Shelf Registration Statement
providing for the registration of all of the Initial Shelf Registrable
Securities. The Company shall use all its best efforts to have the Initial Shelf
Registration Statement declared
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<PAGE>
effective by the Commission as soon as practicable after filing. The Company
shall use its best efforts to keep the Initial Shelf Registration Statement
continuously effective for the Registration Period, or such shorter period which
will terminate when all of the Registrable Securities covered by the Initial
Shelf Registration Statement, as amended from time to time pursuant to Section
2(b), have been sold pursuant to the Initial Shelf Registration Statement.
Notwithstanding the foregoing, except as set forth below, any Holder who does
not provide information reasonably requested by the Company in connection with
the Initial Shelf Registration Statement shall not be entitled to have its
Registrable Securities included in the Initial Shelf Registration Statement.
2(b) Filing of Subsequent Shelf Registration Statements or
Amendments. The Company shall prepare and cause to be filed on or as soon as
practicable after the first anniversary of the Closing Date (but no later than
ten (10) days thereafter) and as soon as practicable after each of the
successive semi-annual interest payment dates provided for in the Debenture
Purchase Agreement (but no later than ten (10) days thereafter) an additional
Shelf Registration Statement or, at the Company's option, a post-effective
amendment to any then- effective Shelf Registration Statement (a "Top-up Shelf
Registration Statement") providing for the registration of all of the
Registrable Securities comprising shares of Common Stock or other securities
issued as interest payments pursuant to the Debenture Purchase Agreement which
have not been registered previously. The Company shall also use all reasonable
efforts to cause to be filed, as soon as practicable each time after receipt of
a written demand from a Holder (but no later than thirty (30) days thereafter),
provided, however, that such demand shall not be effective before the first
anniversary of the Closing Date or after the end of the Registration Period, an
additional Shelf Registration Statement or, at the Company's option, a
post-effective amendment to any then-effective Shelf Registration Statement
(also a "Top-up Shelf Registration Statement") providing for the registration of
any and all of the Registrable Securities each Holder demands to be included in
such Top-up Shelf Registration Statement which have not been registered
previously. The Company shall use its best efforts to have each such Shelf
Registration Statement or post-effective amendment declared effective by the
Commission as soon as practicable after filing. The Company shall use its best
efforts to keep each Top-up Shelf Registration Statement continuously effective
for the Registration Period, or such shorter period which will terminate when
all of the Registrable Securities covered by such Top-up Shelf Registration
Statement, as amended from time to time pursuant to this Section 2(b), have been
sold pursuant to such Top-up Shelf Registration Statement. Notwithstanding the
foregoing, except as set forth below, any Holder who does not provide
information reasonably requested by the Company in connection with the Top-up
Shelf Registration Statement shall not be entitled to have its Registrable
Securities included in the Top-up Shelf Registration Statement.
2(c) Effective Registration Statement, Amendments. A Shelf
Registration Statement pursuant to this Section 2 will not be deemed to have
become effective unless it has been declared effective by the Commission;
provided, however that if, after it has been declared effective, the offering of
any Registrable Securities pursuant to such registration statement is interfered
with by any stop order, injunction or other order or requirement of the
Commission or any other governmental agency or court, such registration
statement will be deemed not to have become effective, and the Company shall be
required to continue to use its best efforts to have such
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<PAGE>
registration statement declared effective. Further, the Company shall, if
necessary, supplement or amend each Shelf Registration Statement, if required by
the rules, regulations or instructions applicable to the registration form used
by the Company for such Shelf Registration Statement or by the Securities Act or
by any other rules and regulations thereunder for shelf registration.
2(d) Expenses. The Company shall pay any and all Registration
Expenses incident to the filing of each Shelf Registration Statement or
otherwise incident to the performance of or compliance by the Company with this
Section 2. Each Holder shall pay all underwriting discounts and commissions and
transfer taxes, if any, relating to the sale or disposition of such Holder's
Registrable Securities pursuant to the Shelf Registration Statement.
3. Demand Registration of Underwritten Offerings.
---------------------------------------------
3(a) Requests for Underwritten Registration. At any time
following one hundred eighty (180) days after the Closing Date, one or more
Holders may request that the Company effect a registration under the Securities
Act of all or any of their Registrable Securities in an Underwritten Offering;
provided, however, that, unless the requesting Holder is Matra, the requesting
Holders must request registration of Registrable Securities with a Market Value,
on the date of such request, of at least $20 million; and provided, further,
that if the requesting Holder is Matra, Matra must request registration of
Registrable Securities with a Market Value, as of the date of such request, of
at least $10 million. Each request for an Underwritten Offering shall specify
the approximate number of shares of Registrable Securities requested to be
registered and the anticipated per share price range for such offering. Within
ten (10) days after receipt of any such request, the Company will give written
notice of such requested demand registration to all other Holders and, subject
to Section 3(b), will include in any such registration which constitutes an
Underwritten Offering satisfying the requirements of this Section 3(a) all
Registrable Securities with respect to which the Company has received written
requests for inclusion therein within fifteen (15) days after the date the
Company's notice is given.
3(b) Priority on Underwritten Offering. If the Managing
Underwriters for an Underwritten Offering advise the Company in writing that in
their reasonable opinion the aggregate number of Registrable Securities to be
included in an Underwritten Offering (together with any other shares of Common
Stock which the Company is required to include in such registration) exceeds the
number of shares which can be sold in an orderly manner in such offering within
a price range acceptable to the holders of a majority of the Registrable
Securities and Other Registrable Stock requested to be included in such
registration, the Company will include in such registration (i) first, the
maximum amount of Registrable Securities requested to be included therein, pro
rata among the respective Holders thereof on the basis of the amount of
Registrable Securities requested to be included in such registration by each
such Holder, and (ii) second, the maximum amount of Other Registrable Stock and
any other securities requested to be included therein (including by the Company,
subject to Section 3(e)), pro rata among the Company and the holders of such
Other Registrable Stock and other securities on the basis of the number of
shares requested to be included in such registration by the Company and each
such holder, in each case up to the greatest number of shares of Common Stock
which in the reasonable opinion of such underwriters can be sold in an orderly
manner in the price range of such offering. In no event shall any Other
Registrable Stock or any other securities be included in an Underwritten
Offering under this Section 3 unless all
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Registrable Securities requested to be sold in any such offering have been
included therein.
3(c) Restrictions on Underwritten Offerings. The Company will
not be obligated to effect more than one Underwritten Offering for Holders of
Registrable Securities within any twelve (12) month period, except as provided
in the following sentence, and will not be obligated to effect an Underwritten
Offering for Holders of Registrable Securities at any time before ninety (90)
days after the earlier of (i) the date the previous registration statement
prepared in connection with an Underwritten Offering for holders of Registrable
Securities ceases to be effective or (ii) the date that all shares registered
thereunder have been sold. The foregoing limitation on Underwritten Offerings
within any twelve (12) month period shall not apply to a single Underwritten
Offering with respect to Registrable Securities of any Holder (other than Matra)
if the Company effected an Underwritten Offering made at Matra's request within
the preceding twelve (12) months or to a single Underwritten Offering requested
by Matra if the Company effected an Underwritten Offering with respect to
Registrable Securities of any other Holder within the preceding twelve (12)
months.
3(d) Selection of Underwriters. The Holders of a majority of
the Registrable Securities requested to be included in such Underwritten
Offering will have the right to select the Managing Underwriter(s) to administer
the offering; provided, first, that if the Company is successful in obtaining
the services of one or more Underwriters who have been the Managing Underwriters
for an Underwritten Offering of the Company's securities previously, such
Underwriters shall be the Managing Underwriter(s) to administer the offering;
provided, however, that such Managing Underwriter(s) shall be nationally
recognized investment banking firms approved by the Holders, which approval
shall not be unreasonably withheld; and provided, second, that if the Company
participates in the Underwritten Offering under Section 3(e), such Holders shall
obtain the Company's consent with respect to any Managing Underwriter(s) to
administer the offering, which consent shall not be unreasonably withheld.
3(e) Inclusion by the Company of its Common Stock in an
Underwritten Offering. If the Managing Underwriters for an Underwritten Offering
advise the Company in writing that in their opinion the aggregate number of
Registrable Securities to be included in an Underwritten Offering (together with
any Other Registrable Stock) is less than the number of shares which can be sold
in an orderly manner in such offering within a price range acceptable to the
holders of a majority of the Registrable Securities and Other Registrable Stock
requested to be included in such registration, the Company may include in such
registration, on its own behalf, up to the greatest number of shares of Common
Stock which in the opinion of such underwriters can be sold (together with the
Registrable Securities and Other Registrable Stock requested to be included in
such registration) in an orderly manner in the price range of such offering.
3(f) Participation in Underwritten Registrations.
Notwithstanding any other provision of this Section 3 to the contrary, no Person
may participate in any Underwritten Offering hereunder unless such Person (a)
agrees to sell such Person's securities on the basis provided in the applicable
underwriting arrangements and (b) completes and executes all questionnaires,
powers of attorney, indemnities, underwriting agreements and other documents
required under the terms of such underwriting arrangements; provided, however,
that no Holder of Registrable Securities included in any Underwritten Offering
shall be required to make any representations or warranties to the Company or
the underwriters other than representations and warranties regarding such Holder
and such Holder's intended method of distribution.
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3(g) Expenses of Underwriting Offering. The Company shall pay
any and all Registration Expenses incident to the filing of each registration
statement or otherwise incident to the performance of or compliance by the
Company with this Section 3. Each Holder shall pay all underwriting discounts
and commissions and transfer taxes, if any, relating to the sale or disposition
of such Holder's Registrable Securities included in the Underwritten Offering.
3(h) Relationship to Shelf Registration. The rights and
obligations of the parties hereto under Section 3 shall be in addition to, and
not in lieu of, their respective rights and obligations under Section 2.
4. Piggyback Registration Rights.
-----------------------------
4(a) Requests for Piggyback Registration. If at any time
following the date of this Agreement, the Company proposes to effect a Piggyback
Registration, the Company will give written notice to all Holders of its
intention to effect such a registration and, subject to Section 4(b) and Section
4(c), will include in such registration all Registrable Securities with respect
to which the Company has received written requests for inclusion therein within
fifteen (15) days after the date the Company's notice is given.
4(b) Priority on Primary Registrations. If the proposed
Piggyback Registration is an underwritten primary registration on behalf of the
Company, and the Managing Underwriters advise the Company in writing that in
their opinion the number of securities requested to be included in such
registration exceeds the number which can be sold in such offering in an orderly
manner within a price range acceptable to the Company, the Company will include
in such registration (i) first, the securities the Company proposes to sell and
the High Priority Registrable Securities (as defined in the Recent PRRAA), pro
rata among the Company and the holders of such High Priority Registrable
Securities on the basis of the number of shares requested to be included by the
Company and each such holder, (ii) second, any Other Registrable Stock requested
to be included therein, pro rata among the holders of such Other Registrable
Stock on the basis of the number of shares requested to be included in such
registration by each such holder, and (iii) third, the Registrable Securities
requested to be included in such registration, pro rata among the Holders
thereof on the basis of the amount of Registrable Securities requested to be
included by each such Holder, in each case up to the greatest number of shares
of Common Stock which in the reasonable opinion of such underwriters can be sold
in an orderly manner in the price range of such offering.
4(c) Priority on Secondary Registrations. If a Piggyback
Registration is an underwritten secondary registration on behalf of holders of
the Company's securities (other than the Registrable Securities), and the
Managing Underwriters advise the Company in writing that in their opinion the
number of securities requested to be included in such registration exceeds the
number which can be sold in such offering without adversely affecting the
marketability of the offering, the Company will include in such registration (A)
if such registration is on behalf of holders of the Eligible Series C
Securities, (i) first, the securities requested to be included in such
registration under the Series C Registration Agreement, and (ii) second, the
Registrable Securities requested to be
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included in such registration and any Other Registrable Stock (excluding
Eligible Series C Securities) and any other securities requested to be included
therein (including by the Company, subject to Section 3(e)), pro rata among such
Holders and the holders of such Other Registrable Stock and other securities on
the basis of the number of shares requested to be included in such registration
by each such holder, in each case up to the greatest number of shares of Common
Stock which in the reasonable opinion of such underwriters can be sold in an
orderly manner in the price range of such offering; or (B) if such registration
is not on behalf of holders of Series C Securities (i) first, the securities
requested to be included therein by the holders requesting such registration,
and (ii) second, the greatest number of the Registrable Securities, Other
Registrable Stock and any other securities requested to be included therein
(including by the Company, subject to Section 3(e)), pro rata among such Holders
and the holders of such Other Registrable Stock and other securities on the
basis of the number of shares requested to be included in such registration by
each such holder, in each case up to the greatest number of shares of Common
Stock which in the reasonable opinion of such underwriters can be sold in an
orderly manner in the price range of such offering.
4(d) Participation in Piggyback Registrations. Notwithstanding
any other provision of this Section 4 to the contrary, no Person may participate
in any Piggyback Registrations hereunder unless such Person (i) agrees to sell
such Person's securities on the basis provided in the applicable underwriting
arrangements and (ii) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents required
under the terms of such underwriting arrangements; provided, however, that no
Holder of Registrable Securities included in any Piggyback Registrations shall
be required to make any representations or warranties to the Company or the
underwriters other than representations and warranties regarding such Holder and
such Holder's intended method of distribution.
4(e) Expenses of Piggyback Registration. The Company shall pay
any and all Registration Expenses incident to the filing of each registration
statement or otherwise incident to the performance of or compliance by the
Company with this Section 4. Each Holder shall pay all underwriting discounts
and commissions and transfer taxes, if any, relating to the sale or disposition
of such Holder's Registrable Securities included in the Piggyback Registration.
5. Registration Procedures.
-----------------------
In connection with the obligations of the Company with respect to a
registration statement pursuant to Section 2, Section 3 or Section 4 hereof, the
Company shall effect or cause to be effected the registration of the Registrable
Securities under the Securities Act to permit the sale of such Registrable
Securities by the Holders in accordance with their intended method or methods of
distribution, and the Company shall:
5(a) prepare and file with the Commission a registration
statement with respect to such Registrable Securities and use its best efforts
to cause such registration statement to become effective within the time period
required hereunder (provided that before filing a registration statement or
prospectus or any amendments or supplements thereto, the Company will furnish to
one
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<PAGE>
counsel selected by the holders of 70% of the Registrable Securities (together
with any Other Registrable Stock) covered by such registration statement copies
of all such documents proposed to be filed, which documents will be subject to
the review of such counsel, and the Company will incorporate in such
registration statement the reasonable comments of such counsel not inconsistent
with the Company's disclosure obligations under applicable securities laws;
5(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective for
the period required hereunder (or if no period is so required, a period of not
less than one hundred eighty (180) days or such shorter period which is
sufficient to complete the distribution of the securities registered under the
registration statement) and comply with the provisions of the Securities Act
with respect to the disposition of all securities covered by such registration
statement during such period in accordance with the intended methods of
disposition by the sellers thereof set forth in such registration statement;
5(c) furnish to each seller of Registrable Securities, the
Managing Underwriters, if any, and their respective counsel, not less than five
(5) Business Days prior to the filing thereof with the Commission, such number
of copies of such registration statement, each amendment and supplement thereto,
the prospectus included in such registration statement (including each
preliminary prospectus) and such other documents as such seller may reasonably
request in order to facilitate the disposition of the Registrable Securities
owned by such seller and to use its best efforts to reflect in each such
document, when so filed with the Commission, such comments as the sellers of
Registrable Securities or their counsel shall reasonably propose;
5(d) use its best efforts to register or qualify such
Registrable Securities under such other securities or blue sky laws of such
jurisdictions as any seller reasonably requests and do any and all other acts
and things which may be reasonably necessary or advisable to enable such seller
to consummate the disposition in such jurisdictions of the Registrable
Securities owned by such seller (provided that the Company will not be required
to (i) qualify generally to do business in any jurisdiction where it would not
otherwise be required to qualify but for this subparagraph, (ii) subject itself
to taxation in any such jurisdiction or (iii) consent to general service of
process in any such jurisdiction);
5(e) notify each seller of such Registrable Securities as
promptly as practicable in any of the following circumstances: (i) at any time
when a prospectus relating thereto is required to be delivered under the
Securities Act, of the happening of any event as a result of which the
prospectus included in such registration statement contains an untrue statement
of a material fact or omits any fact necessary to make the statements therein
not misleading, and, at the request of any such seller, the Company will prepare
a supplement or amendment to such prospectus so that, as thereafter delivered to
the purchasers of such Registrable Securities, such prospectus will not contain
an untrue statement of a material fact or omit to state any fact necessary to
make the statements therein not misleading; (ii) when a registration statement
and any amendment thereto has been filed with the Commission and when the
registration statement or any post-effective amendment thereto
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<PAGE>
has become effective; (iii) of any request by the Commission for amendment or
supplements to the registration statement or the prospectus included therein or
for additional information; (iv) of the issuance by the Commission of any stop
order suspending the effectiveness of the registration statement or the
initiation of any proceedings for that purpose; and (v) the receipt by the
Company of any notification with respect to the suspension of the qualification
of the securities included therein for sale in any jurisdiction or the
initiation of any proceeding for such purpose;
5(f) cause all such Registrable Securities to be listed on
each securities exchange on which similar securities issued by the Company are
then listed and, if not so listed, to be listed on the NASD automated quotation
system and, if listed on the NASD automated quotation system, use its best
efforts to secure designation of all such Registrable Securities covered by such
registration statement as a Nasdaq "national market system security" within the
meaning of Rule 11Aa2-1 of the Exchange Act or, failing that, to secure Nasdaq
authorization for such Registrable Securities and without limiting the
generality of the foregoing, to arrange for at least two market makers to
register as such with respect to such Registrable Securities with the NASD;
5(g) provide a transfer agent and registrar for all such
Registrable Securities not later than the effective date of such registration
statement;
5(h) if requested, promptly incorporate in any registration
statement or prospectus, if necessary, pursuant to a supplement or
post-effective amendment to such registration statement, such information as the
Managing Underwriters, if any, or the holders of a majority of Registrable
Securities and Other Registrable Securities being registered reasonably request
to have included therein and shall make all required filings of such prospectus
supplement or post-effective amendment as soon as practicable after the Company
is notified of the matters to be incorporated in such prospectus supplement or
post-effective amendment.
5(i) enter into such agreements on terms reasonably acceptable
to the Company (including underwriting agreements) in form, scope and substance
as are customary in underwritten offerings, and take all other reasonable
actions necessary to facilitate the registration or the disposition of the
Registrable Securities included in any registration statement.
5(j) (i) make reasonably available at reasonable times for
inspection by the Holders of Registrable Securities to be registered thereunder,
any underwriter participating in any disposition pursuant to such registration
statement, and any attorney, accountant or other agent retained by the Holders
or such underwriters, at the office where normally kept during normal business
hours, all financial and other records, pertinent corporation documents and
properties of the Company and its subsidiaries, and cause the Company's
officers, directors and employees to supply all relevant information reasonably
requested by the Holders, underwriters, attorney, accountant or other agent in
connection with the registration statement as is customary for similar due
diligence examinations, provided, however, that such persons shall first agree
in writing with the Company that any information that is reasonably and in good
faith designated by the Company in writing as confidential at the time of
delivery of such information shall be kept confidential by such persons;
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<PAGE>
(ii) obtain opinions of counsel to the Company and updates thereof (which
counsel, if different from counsel to the Company referred to in the Debenture
Purchase Agreement, shall be reasonably satisfactory to the holders of a
majority of the Registrable Securities to be registered thereunder, the
underwriters, if any, and their respective counsel) addressed to each selling
Holder covering such matters in form, scope and substance as are customary in
underwritten offerings; (iii) obtain "cold comfort" letters (or, in the case of
any person that does not satisfy the conditions for receipt of a "cold comfort"
letter specified in Statement on Auditing Standards No. 72, an "agreed-upon
procedures letter") and updates thereof from the independent certified public
accountants of the Company (and, if necessary, any other independent certified
public accountants of any subsidiary of the Company or of any business acquired
by the Company for which financial statements and financial data are, or are
required to be, included in the registration statement), addressed where
reasonably practicable to each selling Holder of Registrable Securities
registered thereunder, and the underwriters, if any, in customary form and
covering matters of the type customarily covered in "cold comfort" letters in
connection with primary underwritten offerings; and (iv) deliver such documents
and certificates as may be reasonably requested by the holders of a majority of
the Registrable Securities and Other Registrable Securities to be registered and
the Managing Underwriters, if any, including those to evidence compliance with
Section 5(e). The foregoing actions set forth in clauses (ii), (iii) and (iv) of
this Section 5(j) shall be performed at (A) the effectiveness of such
registration statement and each post-effective amendment thereto and (B) each
closing under any underwriting or similar agreement as and to the extent
required thereunder;
5(k) otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission;
5(l) use its best efforts to cause such Registrable Securities
covered by such registration statement to be registered with or approved by such
other governmental agencies or authorities as may be necessary to enable the
sellers thereof to consummate the disposition of such Registrable Securities;
5(m) take all such action as may be necessary so that (i) any
registration statement and any amendment thereto and any prospectus forming part
thereof and any amendment or supplement thereto (and each report or other
document incorporated therein by reference in each case) complies in all
material respects with the Securities Act and the Exchange Act and the
respective rules and regulations thereunder; (ii) any registration statement and
any amendment thereto does not, when it becomes effective, contain an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading; and
(iii) any prospectus forming part of any registration statement, and any
amendment or supplement to such prospectus, does not include an untrue statement
of a material fact or omit to state a material fact necessary in order to make
the statements therein, in light of the circumstances under which they were
made, not misleading.
5(n) use its best efforts to prevent the issuance, and if
issued to obtain the withdrawal, of any order suspending the effectiveness of
any registration statement at the earliest
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possible time;
5(o) unless any Registrable Securities shall be in book-entry
form, cooperate with the Holders to facilitate the timely preparation and
delivery of certificates representing Registrable Securities to be sold pursuant
to any registration statement free of any restrictive legend and in such
permitted denominations and registered in such names as the Holders may request
in connection with the sale of Registrable Securities pursuant to such
registration statement; and
5(p) use its best efforts to comply with all applicable rules
and regulations of the Commission and make generally available to its security
holders in a regular filing on Form 10-Q or Form 10-K or otherwise provide in
accordance with Section 11(a) of the Securities Act within the period required
after the effective date of the applicable registration statement an earnings
statement satisfying the provisions of Section 11(a) of the Securities Act and
Rule 158 thereof.
The Company may require each Holder of Registrable Securities (i) to
furnish to the Company such information regarding the proposed distribution by
such Holder of such Registrable Securities as the Company may from time to time
reasonably request in writing, and (ii) to enter into an underwriting agreement
and securities sales agreement in the form contemplated by Section 5(i).
Each Holder agrees that, upon receipt of any notice from the Company of
the happening of any event of the kind described in Section 5(e) hereof, such
Holder will immediately discontinue disposition of Registrable Securities
pursuant to a registration statement until such Holder's receipt of the copies
of the supplemented or amended prospectus contemplated by Section 5(e) hereof,
and, if so directed by the Company, such Holder will deliver to the Company (at
the expense of the Company) all copies in its possession, other than permanent
file copies then in such Holder's possession, of the prospectus covering such
Registrable Securities current at the time of receipt of such notice. If the
Company shall give any such notice to suspend the disposition of Registrable
Securities pursuant to a registration statement, the Company shall extend the
period during which the registration statement shall be maintained effective
pursuant to this Agreement by the number of days during the period from and
including the date of the giving of such notice to and including the date when
the Holders shall have received copies of the supplemented or amended prospectus
necessary to resume such dispositions.
6. Hold-Back Agreements.
--------------------
6(a) Restrictions on Public Sale by Holders. By electing to
include Registrable Securities in a registration statement filed pursuant to
Section 3 or Section 4 hereof, each such Holder of Registrable Securities shall
be deemed to have agreed not to effect any public sale or public distribution of
securities of the Company of the same or similar class or classes of the
securities included in the registration statement or any securities convertible
into or exchangeable or exercisable for such securities, including a sale
pursuant to Rule 144 or Rule 144A under the Securities Act, during the 15-day
period prior to, and during such period of time as may be required by the
Underwriters, but not to exceed a 180-day period beginning on, the effective
date of the
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registration statement (except pursuant to the registration statement), except
to the extent otherwise agreed in writing by the Managing Underwriter.
6(b) Restrictions on Public Sale by the Company. The Company
shall not effect any public sale or public distribution of any securities which
are the same as or substantially similar to the Registrable Securities being
registered pursuant to a registration statement filed pursuant to Section 3 or
Section 4 hereof, or any securities convertible into or exchangeable or
exercisable for such securities during the 15-day period prior to, and during
the 180-day period beginning on, the effective date of a registration statement
(except pursuant to the registration statement).
7. Black-Out Periods for Shelf Registration Statements.
---------------------------------------------------
Notwithstanding anything to the contrary in this Agreement,
(A) commencing ninety (90) days after the effectiveness of a Shelf Registration
Statement, the Company may, not more than once in any 12-month period, and one
additional time during the term of this Agreement (but not during any other
Suspension Event or within ninety (90) days after termination of any other
Suspension Event), direct the Holders to suspend sales of Registrable Securities
registered thereunder, as provided herein, if one or more of the following
events (a "Suspension Event") occurs: (i) an underwritten primary offering by
the Company where the Company is advised by the Managing Underwriter(s) for such
offering that sale of Registrable Securities under the Shelf Registration
Statement would have a material adverse effect on the primary offering, or (ii)
pending negotiations relating to, or consummation of, a material corporate
transaction (x) that would require additional disclosure of material information
by the Company in the Shelf Registration Statement (or such filings), (y) as to
which the Company has a bona fide business purpose for preserving
confidentiality and (z) which renders the Company unable to comply with SEC
requirements, in each case under circumstances that would make it impractical or
inadvisable to cause the Shelf Registration Statement (or such filings) to
become effective or to promptly amend or supplement the Shelf Registration
Statement on a post-effective basis, as applicable; and (B) the Company may, not
more than once during the term of this Agreement, direct the Holders to suspend
sales of Registrable Securities registered thereunder, as provided herein, upon
the commencement (or such earlier date as may be required by law) of an
underwritten secondary offering covering not less than 5,250,000 Series C
Securities, with an aggregate minimum Market Value of $75,000,000 (a "Series C
Offering Event").
In the case of a Suspension Event, the Company may give notice
(a "Suspension Notice") to the Holders to suspend sales of the Registrable
Securities so that the Company may correct or update the Shelf Registration
Statement (or such filings). Each such suspension shall continue only for so
long as the Suspension Event or its effect is continuing, and in no event will
any such suspension exceed ninety (90) days. In the case of a Series C Offering
Event, the Company may give notice (also a "Suspension Notice") to the Holders
to suspend sales of Registrable Securities for so long as the Company reasonably
determines is necessary and in no event shall such suspension exceed the date
one hundred and eighty (180) days after the close of the Series C Offering
Event. The Holders agree that they will not effect any sales of the Registrable
Securities
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pursuant to such Shelf Registration Statement (or such filings) at any time
after they have received a Suspension Notice from the Company. If so directed by
the Company, Holders will deliver to the Company all copies of the prospectus
covering the Registrable Securities held by them at the time of receipt of the
Suspension Notice. The Holders may recommence effecting sales of the Registrable
Securities pursuant to the Shelf Registration Statement (or such filings)
following further notice to such effect (an "End of Suspension Notice") from the
Company, which End of Suspension Notice shall, in the case of a Suspension
Event, be given by the Company not later than five (5) days after the conclusion
of any Suspension Event and shall be accompanied by copies of the supplemented
or amended prospectus necessary to resume such sales. In the case of a Series C
Offering Event, the holders may recommence effecting sales immediately following
the conclusion of the one hundred and eighty (180) day period.
Notwithstanding Section 2, if the Company shall give a
Suspension Notice pursuant to this Section 7, the Company shall extend the
period during which the Shelf Registration Statement shall be maintained
effective pursuant to this Agreement by the number of days during the period
from the date of the giving of the Suspension Notice to and including the date
when the Holders shall have received the End of Suspension Notice and copies of
the supplemented or amended prospectus necessary to resume sales.
8. Indemnification.
---------------
8(a) Indemnification by the Company. The Company shall
indemnify, to the extent permitted by law, each Holder of Registrable
Securities, each Person who controls such Holder (within the meaning of Section
15 of the Securities Act or Section 20 of the Exchange Act) and their respective
officers, directors, partners, employees, agents and representatives, against
all Losses caused by any untrue or alleged untrue statement of material fact
contained in any registration statement, prospectus or preliminary prospectus or
any amendment thereof or supplement thereto or any omission or alleged omission
of a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which made, not
misleading, except insofar as the same are caused by or contained in any
information furnished in writing to the Company by such Holder expressly for use
therein or by such Holder's failure to deliver a copy of the registration
statement or prospectus or any amendments or supplements thereto after the
Company has furnished such Holder with a sufficient number of copies of the same
and except insofar as the same are caused by or contained in any prospectus if
such Holder failed to send or deliver a copy of any subsequent prospectus or
prospectus supplement which would have corrected such untrue or alleged untrue
statement of material fact or such omission or alleged omission of a material
fact with or prior to the delivery of written confirmation of the sale by such
Holder after the Company has furnished such Holder with a sufficient number of
copies of the same. In connection with an Underwritten Offering, the Company
will indemnify such Underwriters, each Person who controls such Underwriters
(within the meaning of Section 15 of the Securities Act or Section 20 of the
Securities Exchange Act) and their respective officers, directors, partners,
employees, agents and representatives to the same extent as provided above with
respect to the indemnification of the Holders of Registrable Securities.
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8(b) Indemnification by Holders. In connection with any
registration statement in which Holders of Registrable Securities are
participating, each such Holder will furnish to the Company in writing such
information as the Company reasonably requests for use in connection with any
such registration statement or prospectus and, to the extent permitted by law,
will indemnify the Company, each Person who controls the Company (within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act)
and their respective officers, directors, partners, employees, agents and
representatives against any Losses arising out of or based upon any untrue or
alleged untrue statement of a material fact contained in any registration
statement, prospectus, or form of prospectus, or arising out of or based upon
any omission or alleged omission of a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which made, not misleading, to the extent, but only to the
extent, that such untrue or alleged untrue statement is contained in, or such
omission or alleged omission is required to be contained in, any information so
furnished in writing by such Holder to the Company expressly for use in such
registration statement or prospectus and that such statement or omission was
relied upon by the Company in preparation of such registration statement,
prospectus or form of prospectus; provided, however, that such Holder of
Registrable Securities shall not be liable in any such case to the extent that
the Holder has furnished in writing to the Company prior to the filing of any
such registration statement or prospectus or amendment or supplement thereto
information expressly for use in such registration statement or prospectus or
any amendment or supplement thereto which corrected or made not misleading,
information previously furnished to the Company, and the Company failed to
include such information therein. In no event shall the liability of any selling
Holder of Registrable Securities hereunder be greater in amount than the dollar
amount of the proceeds (net of payment of all expenses) received by such Holder
upon the sale of the Registrable Securities giving rise to such indemnification
obligation. Such indemnity shall remain in full force and effect regardless of
any investigation made by or on behalf of such indemnified party.
8(c) Conduct of Indemnification Proceedings. If any Person
shall be entitled to indemnity hereunder such indemnified party shall give
prompt notice to the party or parties from which such indemnity is sought of the
commencement of any Proceeding with respect to which such indemnified party
seeks indemnification or contribution pursuant hereto; provided, however, that
the failure to so notify the indemnifying parties shall not relieve the
indemnifying parties from any obligation or liability except to the extent that
the indemnifying parties have been prejudiced by such failure. The indemnifying
parties shall have the right, exercisable by giving written notice to an
indemnified party promptly after the receipt of written notice from such
indemnified party of such Proceeding, to assume, at the indemnifying parties'
expense, the defense of any such Proceeding, with counsel reasonably
satisfactory to such indemnified party; provided, however, that an indemnified
party or parties (if more than one such indemnified party is named in any
Proceeding) shall have the right to employ separate counsel in any such
Proceeding and to participate in the defense thereof, but the fees and expenses
of such counsel shall be at the expense of such indemnified party or parties
unless the parties to such Proceeding include both the indemnified party or
parties and the indemnifying party or parties, and there exists, in the opinion
of the parties' counsel, a conflict between one or more indemnifying parties and
one or more indemnified parties,
-17-
<PAGE>
in which case the indemnifying parties shall, in connection with any one such
Proceeding or separate but substantially similar or related Proceedings in the
same jurisdiction, arising out of the same general allegations or circumstances,
be liable for the fees and expenses of not more than one separate firm of
attorneys (together with appropriate local counsel) at any time for such
indemnified party or parties. If an indemnifying party assumes the defense of
such Proceeding, the indemnifying, parties will not be subject to any liability
for any settlement made by the indemnified party without its or their consent
(such consent not to be unreasonably withheld).
8(d) Contribution. If the indemnification provided for in this
Section 7 is unavailable to an indemnified party or is insufficient to hold such
indemnified party harmless for any Losses in respect of which this Section 8
would otherwise apply by its terms, then each applicable indemnifying party, in
lieu of indemnifying such indemnified party, shall have an obligation to
contribute to the amount paid or payable by such indemnified party as a result
of such Losses, in such proportion as is appropriate to reflect the relative
fault of the indemnifying party, on the one hand, and such indemnified party, on
the other hand, in connection with the actions, statements or omissions that
resulted in such Losses as well as any other relevant equitable considerations.
The relative fault of such indemnifying party, on the one hand, and indemnified
party, on the other hand, shall be determined by reference to, among other
things, whether any action in question, including any untrue or alleged untrue
statement of a material fact or omission or alleged omission to state a material
fact, has been taken by, or relates to information supplied by, such
indemnifying party or indemnified party, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent any such
action, statement or omission. The amount paid or payable by a party as a result
of any Losses shall be deemed to include any legal or other fees or expenses
incurred by such party in connection with any Proceeding, to the extent such
party would have been indemnified for such expenses under Section 8(c), if the
indemnification provided for in Section 8(a) or Section 8(b) was available to
such party. The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 8(d) were determined by pro rata
allocation or by any other method of allocation that does not take account of
the equitable considerations referred to in the immediately preceding paragraph.
Notwithstanding the provisions of this Section 8(d), an indemnifying party that
is a selling Holder of Registrable Securities shall not be required to
contribute any amount in excess of the amount by which the net proceeds received
by such indemnifying party exceeds the amount of any damages that such
indemnifying party has otherwise been required to pay by reasons of such untrue
or alleged untrue statement or omission or alleged omission. No person adjudged
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any Person who was
not guilty of such fraudulent misrepresentation.
9. Miscellaneous.
------------
9(a) Amendments and Waivers. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given unless the Company has obtained the written consent of the
Holders of a majority of the Registrable Securities; provided, however, that
-18-
<PAGE>
no amendment, modification or supplement or waiver or consent to the departure
with respect to the provisions of Section 2, Section 3, Section 4, Section 7, or
Section 8 hereof shall be effective as against any Holder of Registrable
Securities unless consented to in writing by such Holder of Registrable
Securities.
9(b) Notices. All notices and other communications provided
for or permitted hereunder shall be made in writing by hand-delivery, registered
first-class mail, telex, telecopier, or any courier guaranteeing overnight
delivery (i) if to a Holder, at the most current address given by such Holder to
the Company by means of a notice given in accordance with the provisions of this
Section 9(b) (ii) if to the Company, at 2440 Research Boulevard, Suite 400,
Rockville, MD 20850, Attention: General Counsel, and thereafter at such other
address, notice of which is given in accordance with the provisions of this
Section 9(b).
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five business
days after being deposited in the mail, postage prepaid, if mailed; when
answered back, if telexed; when receipt is acknowledged, if telecopied; and on
the next business day if timely delivered to an air courier guaranteeing
overnight delivery.
9(c) Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors, assigns and transferees of each
of the parties, including, without limitation and without the need for an
express assignment, subsequent Holders. If any successor, assignee or transferee
of any Holder shall acquire Registrable Securities, in any manner, whether by
operation of law or otherwise, such Registrable Securities shall be held subject
to the terms of this Agreement, and by taking and holding such Registrable
Securities such Person shall be entitled to receive the benefits hereof and
shall be conclusively deemed to have agreed to be bound by all of the terms and
provisions hereof. Notwithstanding the foregoing, only Matra, as a Holder of
Registrable Securities, may request an Underwritten Offering pursuant to Section
3(a) with respect to Registrable Securities with a Market Value, as of the date
of such request, of less than $20 million.
9(d) Counterparts. This Agreement may be executed in any
number of counterparts and by the parties hereto in, separate counterparts, each
of which when so executed shall be deemed to be an original and all of which
taken together shall constitute one and the same agreement.
9(e) Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
9(f) Governing Law; Consent to Jurisdiction. THIS AGREEMENT
AND THE DUTIES AND OBLIGATIONS OF THE PARTIES HERETO SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF DELAWARE, WITHOUT
GIVING EFFECT TO THE CONFLICTS OF LAW PROVISIONS THEREOF. EACH OF THE PARTIES
HERETO AGREES TO SUBMIT TO THE NON-EXCLUSIVE JURISDICTION OF THE COURTS OF THE
STATE OF DELAWARE IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS
AGREEMENT.
-19-
<PAGE>
9(g) Severability. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstance, is
held invalid, illegal or unenforceable, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions contained herein shall not be affected or impaired thereby.
9(h) Specific Performance. The parties hereto acknowledge that
there would be no adequate remedy at law if any party fails to perform any of
its obligations hereunder, and accordingly agree that each party, in addition to
any other remedy to which it may be entitled at law or in equity, shall be
entitled to compel specific performance of the obligations of any other party
under this Agreement in accordance with the terms and conditions of this
Agreement in any court of the United States of America or any State thereof
having jurisdiction.
9(i) Entire Agreement. This Agreement is intended by the
parties as a final expression of their agreement and intended to be a complete
and exclusive statement of the agreement and understanding of the parties hereto
in respect of the subject matter contained herein. This Agreement supersedes an
prior oral or written agreements, commitments or understandings between the
parties with respect to the matters provided for herein.
-20-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
ORION NEWCO SERVICES, INC.
By:
-------------------------------
Name:
Title:
BRITISH AEROSPACE HOLDINGS,
INC.
By:
-------------------------------
Name:
Title:
MATRA MARCONI SPACE
UK LIMITED
By:
--------------------------------
Name:
Title:
-21-
EXHIBIT 21.1
ORION
SUBSIDIARIES LIST
-----------------
Orion Network Systems, Inc.*
Orion Satellite Corporation
International Private Satellite Partners, L.P.
OrionNet, Inc.
Orion Asia Pacific Corporation
Asia Pacific Space and Communications, Ltd.
Orion Atlantic Europe, Inc.
OrionNet Finance Corporation
- ---------------
*The issuer of the Units is a newly-formed Delaware corporation presently named
Orion Newco Services, Inc. The issuer will become the parent holding company
of the existing public company, Orion Network Systems, Inc. ("Old ONSI"), and
will change its name to Orion Network Systems, Inc., at which time Old ONSI
will change its name to_____________________.
EXHIBIT 23.1(A)
CONSENT OF INDEPENDENT AUDITORS
We consent to the references to our firm under the captions "Summary: The Merger
- - Certain Federal Income Tax Consequences of the Merger," "Summary: The Exchange
- - Conditions to Closing," "The Merger, The Exchange and the Debenture
Investments: Background of the Merger Transactions and the Debenture
Investments," "The Merger, The Exchange and the Debenture Investments: The
Merger Agreement - Conditions to Obligations to Effect the Merger," "The Merger,
The Exchange and the Debenture Investments: The Exchange Agreement - Results of
the Exchange - Conditions to the Exchange," "The Merger, The Exchange and the
Debenture Investments: Certain Federal Income Tax Consequences," and "Experts"
and to the use of our report dated February 9, 1996, included in the Proxy
Statement of Orion Network Systems, Inc. that is made a part of the Registration
Statement (Form S-4 No. 333-xxxxx) and Prospectus of Orion Network Systems, Inc.
dated January 14, 1997.
ERNST & YOUNG LLP
Washington, D.C.
January 10, 1997
[Draft--01/06/97]
Consent of Salomon Brothers Inc
-------------------------------
We hereby consent to the use of our name and the description of our
opinion letter, dated December 10, 1996, under the caption "THE MERGER AND THE
EXCHANGE--Opinion of Orion's Financial Advisor" in, and to the inclusion of such
opinion letter as Attachment C to, the Proxy Statement/Prospectus of Orion
Network Systems, Inc., which Proxy Statement/Prospectus is part of the
Registration Statement on Form S-4 (file number - ) of Orion Newco Services,
Inc. By giving such consent we do not thereby admit that we are experts with
respect to any part of such Registration Statement within the meaning of the
term "expert" as used in, or that we come within the category of persons whose
consent is required under, the Securities Act of 1933, as amended, or the rules
and regulations of the Securities and Exchange Commission promulgated
thereunder.
SALOMON BROTHERS INC
By________________________________
Managing Director
New York, New York
January _____, 1997
ATTACHMENT D
SALOMON BROTHERS
December 10, 1996
Orion Network Systems, Inc.
2440 Research Boulevard
Suite 400
Rockville, MD 20850
Dear Sirs:
You have requested our opinion, as investment bankers, as to the fairness,
from a financial point of view, to Orion Network Systems, Inc. ("Orion"), of the
consideration to be paid by Orion in connection with the Exchange (as defined
below). Pursuant to a Section 351 Exchange Agreement and Plan of Conversion (the
"Exchange Agreement") with Orion Satellite Corporation, a Delaware corporation
that is a wholly owned subsidiary of Orion ("OrionSat") and the sole general
partner of International Private Satellite Partners, L.P., a Delaware limited
partnership ("Orion Atlantic"), and each of the existing limited partners of
Orion Atlantic other than Orion (the "Exchanging Partners"), Orion has agreed,
among other things, to have Orion Newco Services, Inc., a newly formed Delaware
corporation with a certificate of incorporation, bylaws, capital structure
(before the issuance of the Newco Preferred Stock defined below) and management
substantially identical in all material respects to those of Orion ("Orion
Newco"), issue 121,988 shares of Orion Newco's Series C 6% Cumulative
Redeemable Convertible Preferred Stock (the "Newco Preferred Stock") in exchange
for the Exchanging Partners' limited partnership interests in Orion Atlantic
and other rights relating thereto (the "Exchange"). The Exchange is intended to
qualify as tax-free under Section 351 of the Internal Revenue Code of 1986, as
amended. As a result of the Exchange, Orion Newco will become the owner of all
the partnership interests in Orion Atlantic (through Orion Newco and Orion as
limited partners and OrionSat as the sole general partner of Orion Atlantic). In
addition, Orion Newco will acquire certain rights currently held by the
Exchanging Partners, including rights to receive repayment of various advances
(aggregating approximately $37.6 million at September 30, 1996) made to Orion
Atlantic. The 121,988 shares of Newco Preferred Stock expected to be issued in
the Exchange will be convertible into approximately 6.9971 million (assuming a
closing of the Exchange as of January 30, 1997; the number of shares will
increase if the closing occurs after that date) shares of common stock, par
value $.01 per share, of Orion Newco ("Orion Newco Common Stock").
We understand that concurrently with, and as a condition to, the consummation
of the Exchange, (i) Orion Newco intends to consummate financings (the
"Financings") consisting of (a) notes and warrants with expected net proceeds of
approximately $250 million to refinance the indebtedness of Orion Atlantic
outstanding under the existing Credit Agreement dated December 6, 1991 among
Orion Atlantic, the banks named therein and Chase Manhattan Bank (National
Association), as agent (the "Orion 1 Credit Facility"), and to release Orion's
and the Exchanging Limited Partners' (including their respective affiliates)
existing commitments and guarantees supporting the Orion 1 Credit Facility, (b)
the issuance and sale of approximately $50 million of Orion Newco's
convertible subordinated debentures to British Aerospace Public Limited Company,
an affiliate of one of the Exchanging Partners and (c) the execution by Orion or
one of its affiliates of an amendment to the satellite procurement contract with
Matra Marconi Space U.K. Limited for the Orion 2 satellite, which was entered
into in July 1996 and is expected to include an agreement by the manufacturer to
commence construction of the Orion 2 satellite based upon a $40 million initial
payment, and (ii) a wholly-owned subsidiary of Orion Newco will be merged with
and into Orion in a tax-free reorganization (the "Merger"). We have not been
asked to express an opinion, and we do not express any opinion, with regard to
the Financings or the Merger.
In arriving at our opinion, we have reviewed certain publicly available
business and financial information relating to Orion, as well as certain other
information, including financial projections, provided to us by Orion. We have
discussed the past and current operations and financial condition and prospects
D-1
<PAGE>
of Orion and Orion Atlantic with members of the respective senior management of
such entities. We have also considered such other information, financial
studies, analyses, investigations and financial, economic, market and trading
criteria which we deemed relevant.
We have assumed and relied on the accuracy and completeness of the
information reviewed by us for the purpose of this opinion and we have not
assumed any responsibility for independent verification of such information or
for any independent evaluation or appraisal of the assets of Orion or Orion
Atlantic. With respect to Orion's and Orion Atlantic's financial
projections, we have assumed that they have been reasonably prepared on bases
reflecting the best currently available estimates and judgments of Orion's and
Orion Atlantic's management, as the case may be, as to the future financial
performance of such entity, and while we express no opinion with respect to such
forecasts or the assumptions on which they are based, we have relied on
management's assumption that the Financings will occur concurrently with the
Exchange.
Our opinion is necessarily based upon business, market, economic and other
conditions as they exist on, and can be evaluated as of, the date of this letter
and does not address Orion's underlying business decision to effect the
Exchange or constitute a recommendation to any holder of Orion common stock as
to how such holder should vote with respect to the Merger or the Exchange. Our
opinion as expressed below does not imply any conclusion as to the likely
trading range for the Orion Newco Common Stock following the consummation of the
Exchange, which may vary depending on, among other factors, changes in interest
rates, dividend rates, market conditions, general economic conditions and other
factors that generally influence the price of securities.
We have acted as financial advisor to the Board of Directors of Orion in
connection with the Exchange and will receive a fee for our services, part of
which was paid upon execution by Orion of the engagement agreement with respect
to the Exchange, part of which is payable upon the initial submission of this
opinion and the remainder of which is payable upon consummation of the
Financings. In the ordinary course of our business, we actively trade the
securities of Orion for our own account and for the accounts of customers and,
accordingly, may at any time hold a long or short position in such securities.
Based upon and subject to the foregoing, it is our opinion as investment
bankers that, as of the date hereof, the consideration to be paid in the
Exchange is fair, from a financial point of view, to Orion.
Very truly yours,
SALOMON BROTHERS INC
D-2
REVOCABLE PROXY
ORION NETWORK SYSTEMS, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned stockholder of Orion Network Systems, Inc. (the
"Corporation") hereby appoints John G. Puente, W. Neil Bauer, David J. Frear and
Richard H. Shay, or any of them, attorneys and proxies of the undersigned, with
full power of substitution and with authority in each of them to act in the
absence of the other, to vote and act for the undersigned stockholder at the
Special Meeting of Stockholders to be held at 9:00 a.m., local time, on January
30, 1997, at 2440 Research Boulevard, Suite 400, Rockville, Maryland, and at any
adjournments thereof, upon the following matters:
Proposal 1: Ratification of the Agreement and Plan of Merger, dated as of
January 8, 1997, among Orion Network Systems, Inc. ("Orion"), Orion Newco
Services, Inc. ("Orion Newco"), a newly formed Delaware corporation, and Orion
Merger Company, Inc., a newly formed Delaware corporation and a wholly owned
subsidiary of Orion Newco, and the transactions contemplated thereby.
[ ] FOR [ ]AGAINST [ ] ABSTAIN
Proposal 2: Approval and adoption of the Section 351 Exchange Agreement and Plan
of Conversion, dated as of June 1996, as amended, among Orion, Orion Satellite
Corporation, a Delaware corporation that is a wholly owned subsidiary of Orion
and the sole general partner of International Private Satellite Partners, L.P.,
a Delaware limited partnership ("Orion Atlantic"), and each of the existing
limited partners of Orion Atlantic other than Orion, and the transactions
contemplated thereby. [ ] FOR [ ]AGAINST [ ] ABSTAIN
Proposal 3: Approval of the Debenture Investments, among Orion, Orion Newco and
each of British Aerospace Holdings, Inc. and Matra Marconi Space UK Limited. [ ]
FOR [ ]AGAINST [ ] ABSTAIN
This proxy will be voted as directed by the undersigned stockholder. IF NO
DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED FOR PROPOSALS 1, 2 AND 3. In
addition, this proxy may be voted upon such other business as may properly come
before the Special Meeting or any adjournments or postponements thereof as may
be determined by a majority of the Corporation's Board of Directors.The
undersigned stockholder may revoke this proxy at any time before it is voted by
delivering to the Secretary of the Corporation either a written revocation of
the proxy or a duly executed proxy bearing a later date, or by appearing at the
Special Meeting and voting in person. The undersigned stockholder hereby
acknowledges receipt of notice of the Special Meeting and Proxy
Statement/Prospectus dated January 5, 1997 and hereby revokes any proxy or
proxies heretofore given.
If you receive more than one proxy card, please sign and return all cards
in the accompanying envelope.
(Continued and to be dated and signed on reverse side)
(Continued from other side)
PLEASE MARK, DATE AND SIGN THIS PROXY AND RETURN IT PROMPTLY TO ENSURE A
QUORUM AT THE SPECIAL MEETING. IT IS IMPORTANT WHETHER YOU OWN FEW OR MANY
SHARES. DELAY IN RETURNING YOUR PROXY MAY SUBJECT ORION TO ADDITIONAL EXPENSE.
Date: , 1997
(Signature of Stockholder or
Authorized Representative)
(Print name)
Please date and sign exactly as name appears hereon. Each executor,
administrator, trustee, guardian, attorney-in-fact and other fiduciary should
sign and indicate his or her full title. In the case of stock ownership in the
name of two or more persons, both persons should sign.
[ ] I PLAN TO ATTEND THE JANUARY 30, 1997 SPECIAL STOCKHOLDERS MEETING
