As filed with the Securities and Exchange Commission on January 2, 1997
Registration No. 333-___________
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
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ORION NETWORK SYSTEMS, INC.*
(Exact name of registrant as specified in its charter)
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<S> <C> <C>
Delaware 4899 [TO BE APPLIED FOR]
(State of organization) (Primary S.I.C. Code Number) (I.R.S. Employer & 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)
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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)
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For Information regarding additional registrants, see "Table of
Additional Registrants."
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Copies to:
Anthony S. Harrington, Esq. Jerry V. Elliott, Esq.
Steven M. Kaufman, Esq. James S. Scott, Sr., Esq.
HOGAN & HARTSON L.L.P. SHEARMAN & STERLING
555 Thirteenth Street, N.W. 599 Lexington Avenue
Washington, D.C. 20004-1109 New York, New York 10022
(202) 637-5600 (212) 848-4000
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Approximate date of commencement of proposed sale to the public: As soon as
practicable after the Registration Statement becomes effective.
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If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended, check the following box: [ ]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration number of the earlier effective registration
statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of this prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
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Proposed Maximum
Aggregate Offering Amount of
Title of Securities Being Registered Price(1) Registration Fee
Units of Senior Notes and Warrants (2) $222,000,000 $67,273
Units of Senior Discount Notes and Warrants (3) $100,000,000 $30,304
Senior Notes due 2007 N/A (4)
Senior Discount Notes due 2007 N/A (4)
Warrants to Purchase Common Stock (5) N/A (4)
Common Stock N/A (4)
Subsidiary Guarantees of the Additional Registrants N/A (4)
=================================================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(o) under the Securities Act of 1933, as amended.
<PAGE>
(2) Each Unit will consist of a Senior Note due 2007 and a Warrant to purchase
Common Stock. The Senior Notes and Warrants will be offered only in Units.
(3) Each Unit will consist of a Senior Discount Note due 2007 and a Warrant to
purchase Common Stock. The Senior Discount Notes and Warrants will be
offered only in Units.
(4) As such securities are to be provided without additional cost to the
purchasers, no registration fee is required with respect thereto.
(5) Also being registered are such number of shares of Common Stock as may be
issuable upon exercise of the Warrants.
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, as amended, or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
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<PAGE>
INFORMATION REGARDING ADDITIONAL REGISTRANTS
The following additional registrants will be, after the merger and
exchange transaction that will occur prior to or simultaneously with the sale of
the securities registered hereby (as described in the registration statement and
included prospectus and in a merger proxy statement that will be sent to
stockholders prior to the sale of the securities registered hereby),
subsidiaries of the issuer of the Units and guarantors of the Senior Notes and
Senior Discount Notes:
<TABLE>
<CAPTION>
Primary standard
State of industrial classification I.R.S. Employer &
Name organization code number Identification Number
<S> <C> <C> <C>
Orion Network Systems, Inc.* Delaware 4899 52-1271418
Orion Satellite Corporation Delaware 4899 52-1564318
International Private Satellite Delaware 4899 52-1648586
Partners, L.P.
OrionNet, Inc. Delaware 4899 52-1564601
Orion Asia Pacific Corporation Delaware 4899 52-1959361
Asia Pacific Space and Delaware 4899 52-1611027
Communications, Ltd.
Orion Atlantic Europe, Inc. Delaware 4899 52-1959360
OrionNet Finance Corporation Delaware 4899 52-1959361
</TABLE>
The address and telephone number of the principal executive
offices and the agent for service for each of the additional registrants are the
same as for Orion Network Systems, Inc., as set forth on the facing page of this
Registration Statement.
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* The issuer of the Units is a newly-formed Delaware corporation presently named
Orion Newco Services, Inc., but will become the parent holding company of an
existing public company, Orion Network Systems, Inc., and will change its name
to Orion Network Systems, Inc., in a merger and exchange transaction that will
occur prior to or simultaneously with the sale of the securities registered
hereby (as described in the registration statement and included prospectus and
in a merger proxy statement that will be sent to stockholders prior to the
sale of the securities registered hereby). Since the issuer of the Units, on a
consolidated basis (through the existing public company which will become its
wholly-owned subsidiary), will succeed to and continue the business of the
existing public company Orion Network Systems, Inc., the issuer of the Units
believes that it is more informative and less confusing for potential
investors and existing stockholders if this registration statement and the
prospectus included herein refer to the issuer of the Units as Orion Network
Systems, Inc.
<PAGE>
PROSPECTUS (Subject to Completion)
Issued January 2, 1997 [Orion Logo]
Orion Network Systems, Inc.
$ REPRESENTING UNITS, EACH UNIT CONSISTING OF ONE %
SENIOR NOTE DUE 2007 AND ONE WARRANT
TO PURCHASE COMMON STOCK
$ REPRESENTING UNITS, EACH UNIT CONSISTING OF % SENIOR
DISCOUNT NOTE DUE 2007 AND ONE WARRANT
TO PURCHASE COMMON STOCK
---------------
Orion Network Systems, Inc. is offering Units ("Senior Note Units"), each of
which consists of one ___% Senior Note due 2007 of the Company guaranteed by
each Restricted Subsidiary (as defined below) of the Company (a "Senior Note")
and one Warrant to purchase shares of common stock, par value $.01 per share
("Common Stock") of the Company (a "Senior Note Warrant"), and Units ("Senior
Discount Note Units," and together with the Senior Note Units, the "Units"),
each of which consists of one % Senior Discount Note due 2007 of the Company
guaranteed by each Restricted Subsidiary of the Company (a "Senior Discount
Note," and together with the Senior Notes, the "Notes") and one Warrant to
purchase shares of Common Stock (a "Senior Discount Note Warrant," and
together with the Senior Note Warrants, the "Warrants"). Orion's Common Stock
is quoted on the Nasdaq National Market under the symbol "ONSI."
(Continued on Next Page)
---------------
SEE "RISK FACTORS" BEGINNING ON PAGE 16 FOR INFORMATION THAT
SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
---------------
THESE SECURITIES 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 PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------
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Underwriting
Price to Discounts and Proceeds to
Public (1) Commissions(2) Company(1)(3)
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Per Senior Note Unit..................... % % %
Total for Senior Note Units.............. $ $ $
Per Senior Discount Note Unit............ % % %
Total for Senior Discount Note Units..... $ $ $
Total.................................... $ $ $
</TABLE>
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(1) Plus accrued interest or accretion of original issue discount, if any,
from _____________________ , 1997.
(2) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933.
See "Underwriters."
(3) Before deducting expenses payable by the Company estimated to be
$___________________ million.
The Units are offered, subject to prior sale, when, as and if accepted
by the Underwriters and subject to approval of certain legal matters by Shearman
& Sterling, counsel for the Underwriters. It is expected that delivery of the
Units will be made on or about __________, 1997 at the offices of Morgan Stanley
& Co. Incorporated, New York, New York, against payment therefor in immediately
available funds.
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MORGAN STANLEY & CO. Merrill Lynch & Co.
Incorporated
, 1997
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This Prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
<PAGE>
(Continued from previous page)
Interest on the Senior Notes will be payable semi-annually in cash on
_________ and ________ year, commencing ________________, 1997. The Senior
Discount Notes will not accrue cash interest prior to ____________, 2002.
Thereafter, cash interest will accrue until maturity at an annual rate of
__________ % payable semi-annually on _______ and ____________ of each year,
commencing , 2002. See "Certain United States Federal Income Tax Consequences."
The Notes will be redeemable, at the Company's option, in whole or in part, at
any time on or after___________________ , 2002 at the redemption prices set
forth herein, plus accrued and unpaid interest, if any, to the redemption date.
The Notes will have the benefit of unsubordinated unsecured guarantees (the
"Guarantees") by each of the Restricted Subsidiaries of the Company (the
"Guarantors").
The shares of Common Stock of Orion initially issuable upon exercise of
all the Warrants would represent approximately _________ % of the outstanding
Common Stock of Orion on a fully diluted basis as of the closing date.
The indebtedness evidenced by the Notes and the Guarantees will rank
pari passu in right of payment with all existing and future unsubordinated
unsecured indebtedness of the Company and the Guarantors, respectively, and
senior in right of payment to all existing and future subordinated indebtedness
of the Company and the Guarantors, respectively. After giving pro forma effect
to the Transactions (as defined) and the application of the proceeds thereof, as
of September 30, 1996, the Company would have had $84.9 million of indebtedness
(other than the Notes) outstanding, including $24.9 million of senior
indebtedness ($7.2 million of which would have been secured) and $60.0 million
of subordinated indebtedness, and the Guarantors, collectively, would have had
$24.9 million of indebtedness (other than the Guarantees) outstanding, all of
which would have been senior indebtedness ($7.2 million of which would have been
secured) and no subordinated indebtedness. The Notes and the Guarantees will be
effectively subordinated to such secured indebtedness to the extent of the
collateral therefor.
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<PAGE>
[GRAPHICS]
The map provided above is a representation of the actual footprint of Orion 1
and the proposed footprints for Orion 2 and Orion 3. There can be no assurance
that Orion 2 or Orion 3 will be successfully launched, or ultimately will have
footprints that correspond to the proposed footprints.
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<PAGE>
No dealer, salesperson or any other person has been authorized
to give any information or to make any representations other than those
contained in this Prospectus in connection with the offer made by this
Prospectus and, if given or made, such information or representations must not
be relied upon as having been authorized by the Company or any of the
Underwriters. Neither the delivery of this Prospectus nor any sale made
hereunder shall, under any circumstances, create any implication that there has
been no change in the affairs of the Company since the dates as of which
information is given in this Prospectus. This Prospectus does not constitute an
offer or solicitation by anyone in any jurisdiction in which such offer or
solicitation is not authorized or in which the person making such offer or
solicitation is not qualified to do so or to any person to whom it is unlawful
to make such solicitation.
<PAGE>
TABLE OF CONTENTS
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Page Page
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Prospectus Summary............................. 4 Description of Units........................... 99
Risk Factors................................... 16 Description of Notes........................... 99
The Company.................................... 26 Description of Warrants........................ 123
The Merger and the Exchange.................... 27 Book-Entry System; Settlement; Delivery
Use of Proceeds................................ 29 and Form.................................... 125
Capitalization................................. 30 Certain United States Federal Income Tax
Pro Forma Condensed Consolidated Consequences................................ 127
Financial Statements........................ 31 Description of Certain Indebtedness............ 135
Selected Consolidated Financial and Description of Capital Stock................... 137
Operational Data............................ 38 Shares Eligible for Future Sale................ 144
Management's Discussion and Analysis of Underwriters................................... 145
Financial Condition and Results of Forward looking Statements..................... 146
Operations.................................. 40 Validity of the Notes.......................... 146
Business....................................... 47 Experts........................................ 146
Management..................................... 80 Additional Information......................... 148
Certain Transactions........................... 92 Appraisal of ........................ A-1
Principal Stockholders......................... 94 Index to Consolidated Financial Statements..... F-1
Market Prices for Orion Common Stock and Glossary....................................... G-1
Dividends................................... 98
</TABLE>
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE UNITS OFFERED
HEREBY OR THE COMMON STOCK AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL
IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ STOCK MARKET
OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
--------------
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<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more
detailed information, pro forma financial information, and financial statements
and notes thereto appearing elsewhere in this Prospectus. As used herein, unless
the context otherwise requires, "Orion" or the "Company" refers to (1) the
combined operations of the registrant's predecessor, Orion Network Systems,
Inc., a Delaware corporation that is an existing public company ("Old ONSI"),
prior to the Merger and the Exchange (as defined and discussed below under the
caption "The Merger and the Exchange"), and (2) the issuer of the Units, a
recently-formed Delaware corporation ("New ONSI") that will be the parent
company of Old ONSI following the Merger and the Exchange and will be renamed
Orion Network Systems, Inc. simultaneously with the closing of this Offering, in
each case together with its subsidiaries. Statements contained in this
Prospectus regarding Orion's expectations with respect to Orion 2 and Orion 3,
related financing, future operations and other information, which can be
identified by the use of forward looking terminology, such as "may," "will,"
"expect," "anticipate," "estimate," or "continue" or the negative thereof or
other variations thereon or comparable terminology, are forward looking
statements. See "Risk Factors" for cautionary statements identifying important
factors with respect to such forward looking statements, including certain risks
and uncertainties, that could cause actual results to differ materially from
results referred to in forward looking statements. There can be no assurance
that Orion's expectations regarding any of these matters will be fulfilled. See
"Glossary" beginning at page G-1 for certain defined terms and certain technical
terms used in this Prospectus.
The Company
Overview
Orion is a rapidly growing provider of satellite-based
communications services, focused primarily on (i) private communications
networks, (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 and Internet Service Providers ("ISPs") 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 very small
aperture terminals ("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.,
Colgate-Palmolive, 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. Through arrangements with 30 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. 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 1996, the Company generated revenues of $12.2
million and EBITDA (as defined below) of $1.7 million. For the first nine months
of 1996, the Company generated revenues of $30.0 million and EBITDA of $0.1
million.
The Company believes that demand for international satellite
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
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<PAGE>
U.S., (iv) increased size and scope of television programming distribution, (v)
worldwide deregulation of telecommunications markets, and (vi) continuing
technological advancements. The Company is well positioned to take advantage of
growth and foreign investment in developing economies (e.g., in Central and
Eastern Europe, Latin America and Asia). The Company is able to provide a
variety of bandwidth intensive services to customers doing business in areas
with underdeveloped infrastructure on a reliable and cost efficient basis. Orion
also is well positioned to carry Internet traffic from the U.S. to Europe, Latin
America and Asia.
The Orion Strategy
Orion's strategy is to provide basic satellite transmission services
while focusing on delivery of value-added private network services to end users
to maximize its revenues per transponder. Orion's strategy is based on the
following elements:
o Focus on Specialized Communications Needs of Multinational
Organizations. Orion targets the needs of multinational organizations 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, video 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.
o Bridge to Emerging Markets and Remote Locations. Orion targets
customers doing business in emerging markets and remote locations of developed
markets which 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 sends and
receives transmissions directly to and from customers at their specific
locations. 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.
o 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
terrestrial facilities. In addition, 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.
o 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 estimates that when Orion 2 and Orion 3 are deployed, the
satellite footprints in the aggregate will cover an area inhabited by
approximately 75% of the world's population.
o Early Market Entry; Local Presence. 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. Orion has arrangements with 30 local ground operators covering
most countries within the Orion 1 footprint. These ground operators obtain
necessary licenses, install and maintain the networks, provide in-country
business experience and often facilitate market entry.
o Ownership of Facilities. Orion believes it is strategically important
to own its satellite facilities. Orion believes that the ownership of satellite
facilities provides a cost advantage over the long term, and allows the
satellites to be designed to fit the Company's business plan. The Company's
satellite ownership enables it to
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<PAGE>
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.
The Orion Satellite System
Orion provides an integrated package of services to customers
through its satellite, its satellite control center and its network of local
ground operators.
The Company launched Orion 1, a high-power satellite with 34
Ku-band transponders, in November of 1994. Orion 1 covers 34 European countries,
much of the United States and parts of Canada, Mexico and North Africa.
The Company has recently signed a contract and an
authorization to proceed for the construction and launch of two additional
satellites, Orion 2 and Orion 3, respectively, and has commenced construction of
Orion 3. Orion 2 will expand the Company's European coverage and extend coverage
to portions of the Commonwealth of Independent States, Latin America and the
Middle East. Orion 2 will increase significantly the Company's pan-European
capacity, the area of strongest demand in the Company's current operations. 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.
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. 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 75% of the world's population.
Orion 1 is controlled through the Company's tracking,
telemetry and command ("TT&C") facility in Virginia. Orion 2 will also be
controlled through this facility and Orion 3 will be controlled through a leased
facility in the Asia Pacific region.
The Company has arrangements with 30 local ground operators,
covering 27 European countries, portions of the United States and a limited
number of Latin American countries. These ground operators are critical to
providing integrated service, because they obtain necessary local licenses,
install and maintain network equipment, provide in-country business experience
and often facilitate market entry. The Company will expand its network of local
ground operators to cover the areas within the footprints of Orion 2 and Orion
3.
Background
The Company was formed in 1982 to pursue authorization from
the U.S. Federal Communications Commission (the "FCC") to operate a
transatlantic communications satellite system. Orion and seven limited partners,
British Aerospace, Com Dev, Kingston Communications, Lockheed Martin CLS, Matra
Hachette, Nissho Iwai and STET, formed International Private Satellite Partners,
L.P. ("Orion Atlantic") in 1991 to own and operate Orion 1. The limited partners
(including the Company) invested $90 million in Orion Atlantic and provided
credit support of approximately $426 million for the Orion 1 credit facility
(the "Orion 1 Credit Facility"). Concurrently with the closing of the Offering,
the Company will acquire the remaining interests in Orion Atlantic and Orion
Atlantic will become a wholly-owned subsidiary of the Company. Orion 1 commenced
commercial operations in January 1995 and the Company completed an initial
public offering in August 1995.
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<PAGE>
Recent Developments
Exchange Agreement and Related Transactions
Exchange Agreement. Orion has entered into an Exchange
Agreement (the "Exchange Agreement") with all of the existing limited partners
in Orion Atlantic (the "Limited Partners"). Orion Atlantic was formed as a
limited partnership to comply with then-applicable requirements of the U.S.
Federal Communications Commission ("FCC") with regard to foreign ownership and
control. However, Orion believes the partnership structure limited its access to
the capital markets. Accordingly, under the Exchange Agreement, Orion will
become the owner of 100% of Orion Atlantic and acquire approximately $38 million
of obligations of Orion Atlantic to Limited Partners in return for redeemable
convertible preferred stock in Orion and the release of certain credit support
obligations of the Limited Partners (the "Exchange"). As a result of the
Exchange (and the OAP Acquisition described below), Orion will own 100% of its
significant subsidiaries and will have greatly simplified its corporate
structure. See "The Merger and The Exchange."
$60 million British Aerospace and Matra Marconi Space
Investments. Concurrently with the Offering, $50 million of junior subordinated
convertible debentures (the "Junior Subordinated Debentures") will be purchased
by British Aerospace Public Limited Company ("British Aerospace"), who will be
the largest beneficial owner of Orion Common Stock following the Transactions
(the "British Aerospace Investment"). The Junior Subordinated Debentures will
mature in 2012, and will bear interest at a rate of 8.75% per annum to be paid
semi-annually in arrears solely in Orion Common Stock. The Junior Subordinated
Debentures will be subordinated to all other indebtedness of the Company,
including the Notes. Also concurrently with the Offering, Matra Marconi Space
U.K. Limited ("Matra Marconi Space") will re-invest in Orion $10 million of the
$13 million of satellite incentive payments it will receive (as the Orion 1
manufacturer) upon consummation of the Offering. Such re-investment will be in
Junior Subordinated Debentures (the "Matra Marconi Investment," and together
with the British Aerospace Investment, the "Debenture Investments"). See
"Description of Certain Indebtedness."
Acquisition of Minority Interest. Orion has entered into an
agreement with an affiliate of British Aerospace to acquire the only outstanding
minority interest in Orion Asia Pacific (the entity with rights to certain
orbital slots) for approximately 86,000 shares of Orion Common Stock (the "OAP
Acquisition").
Orion 2 and Orion 3 Contracts
Orion 2 and Orion 3 Construction Contracts. Orion has entered
into a satellite procurement contract with Matra Marconi Space for Orion 2 (the
"Orion 2 Satellite Contract"). Orion has entered into an authorization to
proceed with Hughes Space and Communications International, Inc. ("Hughes
Space") for Orion 3, commenced construction of Orion 3 in mid-December 1996 and
expects to conclude a satellite procurement contract for Orion 3 by mid-January
1997 (the "Orion 3 Satellite Contract"). Orion expects to commence the
construction of Orion 2 immediately following completion of this Offering.
Pre-Construction Lease on Orion 3. Orion has entered into a
contract with DACOM Corp., a Korean communications company ("DACOM"), under
which the customer will, subject to certain conditions, lease eight dedicated
transponders on Orion 3 for 13 years, in return for approximately $89 million,
payable over a period from December 1996 through seven months following the
lease commencement date for the transponders (which is scheduled to occur by May
1999). Payments are subject to refund pending the successful launch and
commencement of commercial operation of Orion 3.
The Offering
The offering of Units made hereby (the "Offering") is
conditioned on consummation of the Merger (as defined below), the Exchange,
repayment of the Orion 1 Credit Facility with proceeds of the Offering and the
Debenture Investments; the Exchange is conditioned on, among other things, the
approval of the Orion stockholders, which will occur prior to the Offering. The
pro forma financial information included in this Prospectus gives effect to the
Offering and the transactions on which it is conditioned (collectively, the
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<PAGE>
"Transactions"), including the Merger and the Exchange, the Debenture
Investments, the OAP Acquisition and the application of the net proceeds of the
Offering to effect the Orion 1 Credit Facility repayment 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. See "Pro Forma
Condensed Consolidation Financial Statements."
-8-
<PAGE>
The Offering
The Units
Securities Offered.................. Senior Note Units, each consisting of one
Senior Note and one Warrant, and Senior
Discount Note Units, each consisting of
one Senior Discount Note and one Warrant.
See "Description of Units," "Description
of Notes," "Description of Warrants," and
"Description of Capital Stock."
Separability........................ The Notes and Warrants will become
separately transferable on the earlier of
(i) six months from the date of issuance,
(ii) such date as the Underwriters may, in
their discretion, deem appropriate and
(iii) in the event of an Offer to Purchase
(as defined in "Description of Notes --
Certain Definitions"), the date the
Company mails notice thereof to holders of
the Notes (the "Separation Date").
Use of Proceeds..................... A substantial majority of the net proceeds
from the sale of the Units will be applied
to repay the Orion 1 Credit Facility, and
the remainder will be used to repay
certain indebtedness and other obligations
of the Company and for working capital and
other general corporate purposes. See "Use
of Proceeds."
The Notes
Notes Offered....................... $ principal amount of % Senior Notes due
2007 and $ principal amount at maturity ($
initial accredited value) of % Senior
Discount Notes due 2007 ("Senior Discount
Notes").
Maturity............................ , 2007.
Yield and Interest.................. % per annum in the case of the Senior
Notes, and % per annum in the case of the
Senior Discount Notes. The Senior Discount
Notes are being sold at a substantial
discount from their principal amount at
maturity, and there will not be any
payment of interest on the Senior Discount
Note prior to _________ , 2002. For a
discussion of the federal income tax
treatment of the Senior Discount Notes
under the original issue discount rules,
see "Certain United States Federal Income
Tax Consequences."
Interest Payment Dates.............. Interest on the Senior Notes will be
payable semi-annually in cash on _____ and
_______ of each year, commencing
_________, 1997. No interest will be
payable on the Senior Discount Notes prior
to ___________, 2002. From and after
__________, 2002, the Senior Discount
Notes will pay interest semi-annually in
cash on and of each year, commencing
__________, 2002.
Guarantees.......................... The Notes will have the benefit of the
Guarantees issued on a senior unsecured
basis by each of the Restricted
Subsidiaries of the Company.
Security............................ The Senior Notes initially will be secured
by the Pledged Securities (as defined
below) until the Company makes the first
six scheduled interest payments on the
Senior Notes and thereafter the Senior
Notes will be unsecured. The Senior
Discount Notes will be unsecured.
Pledged Securities.................. The Senior Notes Indenture will provide
that on the closing date of the Offering
(the "Closing Date"), the Company must
purchase and pledge to the Senior Notes
trustee (the "Trustee") for the benefit of
the holders of the
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<PAGE>
Senior Notes Pledged Securities in such
amount as will be sufficient, upon receipt
of scheduled interest and principal
payments of such securities, to provide
for payment in full of the first six
scheduled interest payments due on the
Senior Notes. The Company expects to use
approximately $72 million of the net
proceeds of the Offering to acquire the
Pledged Securities; however, the precise
amount of securities to be acquired will
depend upon the interest rate on the
Senior Notes and on market interest rates
prevailing on the Closing Date. A failure
by the Company to pay interest on the
Senior Notes in a timely manner through
the first six scheduled interest payment
dates will constitute an immediate Event
of Default under the Senior Notes
Indenture, with no grace or cure period.
See "Description of Notes -- Security."
Optional Redemption................. The Notes will be redeemable, at the
Company's option, in whole or in part, at
any time, on or after__________, 2002 at
the redemption prices set forth herein,
plus accrued and unpaid interest, if any,
to the redemption date. See "Description
of Notes -- Optional Redemption."
Change of Control................... In the event of a Change of Control (as
defined herein), the Company will be
obligated to make an offer to purchase all
outstanding Notes at a purchase price
equal to 101% of their principal amount
(in the case of the Senior Notes) or 101%
of their Accreted Value (in the case of
the Senior Discount Notes), in each case
plus accrued and unpaid interest thereon
to the repurchase date. See "Description
of Notes -- Repurchase of Notes Upon a
Change of Control."
Ranking............................. The indebtedness evidenced by the Notes
and the Guarantees will rank pari passu in
right of payment with all existing and
future unsubordinated unsecured
indebtedness of the Company and the
Guarantors, respectively, and senior in
right of payment to all existing and
future subordinated indebtedness of the
Company and the Guarantors, respectively.
After giving pro forma effect to the
Transactions and the application of the
proceeds thereof, as of September 30,
1996, the Company would have had $84.9
million of indebtedness (other than the
Notes) outstanding, including $24.9
million of senior indebtedness ($7.2
million of which would have been secured)
and $60.0 million of subordinated
indebtedness, and the Guarantors,
collectively, would have had $24.9 million
of indebtedness (other than the
Guarantees) outstanding, all of which
would have been senior indebtedness ($7.2
million of which would have been secured)
and no subordinated indebtedness. The
Notes and the Guarantees, respectively,
will be effectively subordinated to such
secured indebtedness to the extent of the
collateral therefor. Under the Indentures,
the Company is permitted to incur
additional indebtedness for equipment,
including Orion 2 and Orion 3 and other
equipment and, subject to certain
conditions, up to $150 million of
indebtedness for other purposes. The
Company is permitted to secure
indebtedness used to purchase equipment
(other than Orion 1, Orion 2 and Orion 3),
and the Notes effectively will be
subordinated to such security interests.
Certain Covenants................... The Senior Notes Indenture and Senior
Discount Notes Indenture (collectively,
the "Indentures") will contain certain
covenants which, among other things, will
restrict distributions to stockholders of
the Company, the repurchase of equity
interests in the Company and the making of
certain other restricted payments, the
incurrence of additional indebtedness by
the Company and its restricted
subsidiaries, the creation of certain
liens, certain asset sales, transactions
with affiliates and related parties, and
mergers and
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<PAGE>
consolidations. See "Description of Notes
-- Covenants" and "Description of Notes --
Consolidation Merger and Sale of Assets."
The Warrants
Warrants Offered.................... Senior Note Warrants to purchase an
aggregate of _______ shares of Common
Stock (the "Senior Note Warrant Shares"),
representing approximately ____% of the
fully diluted Common Stock of Orion (after
giving effect to the Transactions), and
Senior Discount Note Warrants to purchase
an aggregate of shares of Common Stock
(the "Senior Discount Note Warrant Shares"
and, together with the Senior Note Warrant
Shares, the "Warrant Shares"),
representing approximately ____% of the
fully diluted Common Stock (after giving
effect to the Transactions). See
"Description of Warrants" and "Description
of Capital Stock."
Exercise............................ Each Warrant shall entitle the holder
thereof to purchase shares of Common Stock
of Orion at an exercise price of $_______
per share, subject to adjustment in
certain events as provided in the warrant
agreement relating to the Warrants (the
"Warrant Agreement"). The Warrants are not
exercisable prior to six months after the
Closing Date. The Warrants will expire on
the tenth anniversary of the Closing Date.
See "Description of Warrants."
Registration Rights................. The Company is required to use its best
efforts to maintain the effectiveness of
the Registration Statement of which this
Prospectus is a part until the earlier of
the tenth anniversary of the Closing Date
and the date all Warrants have been
exercised. See "Description of Warrants --
Registration Requirements."
Risk Factors
An investment in the Units is highly speculative and involves significant
risks that a prospective investor should consider carefully. See "Risk Factors."
<PAGE>
Summary Consolidated Financial and Operational Data
The following table sets forth summary consolidated financial data of
the Company as of and for the years ended December 31, 1994 and 1995, and as of
September 30, 1996 and for the nine months ended September 30, 1995 and 1996.
The data should be read in conjunction with the "Management's Discussion and
Analysis of Financial Condition and Results of Operations," the Pro Forma
Condensed Consolidated Financial Statements and the Consolidated Financial
Statements of the Company and the related notes included elsewhere in this
Prospectus. The summary consolidated financial data under the captions
"Consolidated Statements of Operations Data" and "Consolidated Balance Sheet
Data" as of and 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, customers and points of service data)
1995 Pro 1996 Pro
1994 1995 Forma(1) 1995 1996 Forma(1)
---- ---- -------- ---- ---- --------
<S> <C> <C> <C> <C> <C> <C>
Consolidated Statement of
Operations Data
Revenues $ 3,415 $ 22,284 $ 22,284 $ 13,947 $ 30,016 $ 30,016
Interest expense 61 24,738 46,849 17,080 20,229 35,033
Net loss (7,965) (26,915) (99,369) (19,985) (19,807) (62,774)
Net loss per common share $ (0.86) $ (3.07) $ (11.61) $ (2.42) $ (1.90) $ (6.07)
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
Points of service (5) 57 151 124 304
EBITDA (6) $ (14,014) $ (15,427) $ (15,177) $ 134
</TABLE>
As of September 30, 1996
------------------------
Actual Pro Forma(1)
------ ------------
Consolidated Balance Sheet Data:
Cash and cash equivalents $ 36,657 $ 98,214
Restricted cash (7) -- 72,000
Total assets 355,977 541,292
Long-term debt (less current
portion) 221,781 400,513
Limited Partners' interest in Orion
Atlantic (8) 19,961 --
Redeemable preferred stock 20,539 114,539
Total stockholders' equity 6,891 967
- ----------
(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 statement of operations data, on January 1, 1995
and, in the case of 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) 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
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<PAGE>
consummation of the Transactions, earnings would not have been sufficient
to cover fixed charges by $101.6 million and $66.0 million for the year
ended December 31, 1995 and the nine months ended September 30, 1996,
respectively. A .5% increase in the assumed interest rates on the Notes
would result in deficiencies of earnings to cover fixed charges of
approximately $103.2 million for the year ended December 31, 1995 and $67.2
million for the nine months ended September 30, 1996.
(4) Backlog represents future revenues under contract. See "Risk Factors --
Uncertainties Related to Backlog."
(5) Points of service includes installed VSATs and additional transmission
destinations (such as customer premises) that share a VSAT.
(6) "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 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.
(7) Restricted cash represents the estimated $72 million that will be placed in
escrow on the Closing Date to pre-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 rates on the Senior Notes and interest rates on government
securities on the Closing Date.
(8) Represents amounts invested by Limited Partners (net of syndication costs
related to the investments), adjusted for those Limited Partners' share of
net losses. The interests of the Limited Partners will be acquired by the
Company in the Exchange.
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<PAGE>
<TABLE>
<CAPTION>
Summary Satellite Data
Orion 1 Orion 2* Orion 3*
--------------------- --------------------------- ---------------
<S> <C> <C> <C>
Region Covered....................... Europe, Southeastern Eastern U.S., Southeastern China, Japan, Korea,
Canada, U.S. East of the Canada, Europe, India, Hawaii,
Rockies and parts of Commonwealth of Independent Southeast Asia,
Mexico States, Middle East, North Australia, New Zealand
Africa and Latin America and Eastern Russia
Expected Launch..................... Operational (1) Second Quarter 1999 Fourth Quarter of 1998
Satellite Manufacturer.............. MMS Space Systems Matra Marconi Space Hughes Space and
(subsidiary of Matra Communications
Marconi Space)
Transponders(2)..................... 34 30 43
Ku-Band(3)........................... 28@54 MHz 30@54 MHz 23@54 MHz
6@36 MHz 2@27 MHz
8@36 MHz (4)
C-Band(5)........................... -- -- 10@36 MHz
Usable Bandwidth(6)................. 1728 MHz 1620 Mhz 1944 MHz
EIRP(7)............................. 47 to 52 dBW 47 to 50 dBW 44 to 52
for Ku-Band;
34 to 38
for C-band
Total Prime Power(8)................ 4500 Watts 7000 Watts 8000 Watts
Expected End of Useful Life(9)...... 2005 2012 2013
Approximate Percentage of World
Population Covered by
Satellite(10)...................... 17.9% 28.0% 48.4%
</TABLE>
- ----------
* All information relating to Orion 2 and Orion 3 is based on currently
proposed satellite designs. Such designs are not finalized and, therefore,
particular features of Orion 2 and Orion 3 are subject to change, although
changes are not expected to have a material impact on the operating
specifications of the satellites.
(1) Orion 1 was launched on November 29, 1994 and commenced commercial
operations on January 20, 1995.
(2) Satellite transponders receive signals up from earth stations and then
convert, amplify and transmit the signals back down to other earth
stations.
(3) Ku-band frequencies are higher than C-band frequencies and are used
worldwide for commercial satellite communications.
(4) Orion has entered into a contract with DACOM under which Orion will provide
eight dedicated transponders on Orion 3 for direct-to-home television
service and other satellite services, provided that Orion 3 is delivered in
orbit and fully operational by May 1999.
(5) C-band frequencies minimize interference from atmospheric conditions such
as rain. C-band satellites share frequencies with terrestrial based
microwave systems and therefore require more on-ground coordination to
avoid interference problems and generally are lower power, requiring the
use of large earth stations to receive signals. A portion of Orion 3 is
designed to transmit over C-band frequencies since Orion 3 is to cover
areas of Asia where satellites experience significant interference from
rain during several months of the year.
(6) Bandwidth is a measure of the transponder resource which determines the
information carrying capacity. The actual information carrying capacity of
a transponder is determined by a combination of the transponder's bandwidth
and radio-frequency ("RF") power.
(7) Equivalent isotropic radiated power ("EIRP") is a measure of the RF power
of each transponder. Smaller and less expensive earth terminal antennas can
be used with higher EIRP transponders.
(8) Total prime power is the total amount of power that is required to support
all of the communications and electronics functions of the satellite.
(9) The expected end of a satellite's in-orbit useful life is based on the
period during which the satellite's on board fuel permits proper station
keeping maneuvers for the satellite. The information for Orion 1 is based
on fuel level estimates on February 5, 1996. The information for Orion 2
and Orion 3 is based on their expected launch dates and their expected
satellite designs, internal studies, the Orion 2 Satellite Contract and the
Orion 3 Satellite Contract.
(10) The approximate percentages of world population covered or to be covered by
the Orion satellites are not additive. In the aggregate, the footprints of
the Orion satellites would cover approximately 75% of the world's
population.
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<PAGE>
Appraisal
________________________ has delivered an appraisal to the Company valuing
Orion 1 at approximately $___________ million as of _________________, 1996. See
"Business -- Appraisal."
-15-
<PAGE>
RISK FACTORS
In addition to the other information contained in this Prospectus, the following
factors should be considered carefully in evaluating an investment in the Units,
which involves a high degree of risk. Statements contained in this 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.
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 results referred to in forward looking
statements. There can be no assurance that Orion's expectations regarding any of
these matters will be fulfilled.
Limited Operations; History of Losses and Negative EBITDA; and 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 $99.4 million and $62.8 million for 1995 and the nine
months ended September 30, 1996, respectively. 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. Accordingly,
Orion expects to continue to incur net losses and to continue to have negative
cash flow (after payments for capital expenditures and interest) for the
foreseeable future. The Company's negative cash flow has been substantial and
net losses and negative cash flows 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.
The Company has commenced construction of Orion 3 and intends to commence
construction of Orion 2 immediately after consummation of the 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 Warrants and 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), 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 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.
However, there can be no assurance that these amounts will not be substantially
higher. The Company believes these costs can be
-16-
<PAGE>
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 Offering of which $10 million will be re-invested in
Orion in the Matra Marconi Investment.
Further, 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.
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 $401 million of long-term
indebtedness, and will be highly leveraged. The accretion of original issue
discount on the Senior Discount Notes will substantially increase Orion's
liabilities. The Company also expects to incur substantial additional amounts of
indebtedness. Given the Company's limited cash flow available to service its
indebtedness, such additional indebtedness may be zero coupon or pre-funded
indebtedness, which would substantially increase the Company's liabilities. The
Company will deposit $72 million in escrow to pre-fund the first six scheduled
payments of interest on the Senior Notes. 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 adjusting for the
Transactions, interest costs of $46.8 million and $35.0 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 "Need for Substantial Additional Capital." The Company
does not have a revolving credit facility or other source of readily available
capital.
The Indentures will not limit the amount of secured
indebtedness the Company may incur to finance the acquisition of VSATs and other
equipment. However, the Indentures will prohibit the Company from using Orion 1,
Orion 2 or Orion 3 as collateral for indebtedness. In the event of a default on
the Notes or a bankruptcy, liquidation or reorganization of the Company, the
assets pledged to secured indebtedness will be available to satisfy obligations
of the secured debt before such assets could be used to make any payment on the
Notes. Accordingly, there may only be a limited amount of assets available to
satisfy any claims of the holders of the Notes upon an acceleration of the
Notes. In addition, to the extent that the value of such collateral is
insufficient to satisfy such secured indebtedness, holders of such secured
indebtedness would be entitled to share pari passu with the Notes with respect
to any other assets of the Company. As of September 30, 1996 after giving pro
forma effect to the Transactions, the Company would have had $7.2 million of
secured indebtedness.
The level of the Company's indebtedness could have important
consequences to holders of Units, Notes or Warrants 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 in the event of a downturn
in its business. See "Management's Discussion and Analysis of Financial
Condition and
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<PAGE>
Results of Operations -- Liquidity and Capital Resources -- Current Funding
Requirements" and "Description of Certain Indebtedness."
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 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 experienced 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 replacement satellites. 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, including of the Notes, and
the value of the Warrants and the 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 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, including the Notes, and the value of the Warrants and Common
Stock. See "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, including the Notes, and the value
of the Warrants
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and 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
"Business -- Insurance."
Limited Life of the 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 and start-up
expenses, are presently estimated to be approximately $260 million and 275
million. 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 "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 this 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, including the Notes, and on the value of
the Warrants and the 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. See "-- Need for Substantial
Additional Capital -- Substantial Financing Requirements; Risks of Commencing
Construction Prior to Completing Financing." Although the Orion 2 Satellite
Contract and the Orion 3 Satellite Contract are fixed-price contracts with firm
schedules for construction, delivery and launch, there can be no assurance that
increases in costs due to change orders or delay will not occur. See "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. 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 and its ability to
generate revenue and service its indebtedness, including the Notes, and on the
value of the Warrants and the 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."
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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 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. Orion believes that
certain of its indirect sales channels in Europe have not met expectations in
1996, and is seeking to supplement its sales in Europe by significantly
increasing its direct sales capabilities in Europe, particularly with respect to
sales of private communications network services. However, there can be no
assurance that this will be successful. Sales of Orion's services generally
involve a long-term complex sales process. 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 being able 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 communications networks (or services) will be
impaired. See "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 this process to continue as it continues to significantly
increase its sales force. Furthermore, the Company may from time to time enter
into joint ventures and acquire complementary businesses. 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, including
the Notes, and the value of the Warrants and 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, and have financial resources, experience and marketing capabilities 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 larger 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 private network services.
For example, the recently announced merger involving MCI and British
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Telecom may substantially increase the ability of the resulting businesses to
provide trans-Atlantic private network services. 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 offset 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 commence operations, they will
substantially increase the capacity available for the provision of services that
compete with the Company's services. 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, including the Notes, and on the
value of the Warrants and the Common Stock. See "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. In particular, Orion
would be adversely affected by any legislation imposing obligations on satellite
owners as a result of space debris.
Additional Regulatory Approvals Needed. The launch and
operation of Orion 2 and Orion 3 will require a number of additional 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. 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 none of
the other requisite approvals has yet been obtained. Failure to obtain such
approvals would have a material adverse effect on Orion and on its ability to
service its indebtedness, including the Notes, and the value of the Warrants and
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. While such
approvals generally have not been difficult for Orion to obtain in a timely
manner, the failure to obtain particular approvals has 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
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new licenses obtained) at the expiration of the license term, there can be no
assurance of renewal. See "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. Any 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 this will be
achieved. The Company has commenced construction of Orion 3 and will commence
construction of Orion 2 promptly following the Closing Date, which is 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 impact 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 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. Orion cannot predict the extent of any adverse effect on Orion from
any such occurrences. See "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. 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 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 $_____ million from
its backlog related to contracts under which customers failed to use the
contracted service or failed to make timely payment. The Company's contracts
commence and terminate on fixed dates. If the Company is delayed in commencing
service or does not provide the required service under any particular contract,
as it has occasionally done in the past, it may not be able to recognize all the
revenue it initially includes in backlog under that contract. In addition, the
current backlog contains some contracts for the useful life of Orion 1; if the
useful life of Orion 1 is shorter than expected, some portion of backlog may not
be realized unless services satisfactory to the customer can be provided over
another satellite.
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. There can be no
assurance that such changes will not adversely affect the prospects or proposed
operations or expenses of Orion.
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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."
Control of Orion by Principal Stockholders
Executive officers, directors and their affiliates are
expected to beneficially own approximately [12.0] million shares, or
approximately [46]% of the Common Stock that will be outstanding, after the
Transactions on a fully diluted basis. As a result, 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.
Risks Relating to Senior Preferred Stock
The Company has outstanding approximately $15.8 million
(including accrued dividends) of Series A 8% Cumulative Redeemable Convertible
Preferred Stock (the "Series A Preferred Stock") and approximately $4.7 million
(including accrued dividends) in Series B 8% Cumulative Redeemable Convertible
Preferred Stock (the "Series B Preferred Stock," and together with the Series A
Preferred Stock, the "Senior Preferred Stock"). Certain rights granted by Orion
to holders of the Senior Preferred Stock could adversely affect Orion or the
rights of holders of Warrants or Common Stock. In particular, such holders of
Senior Preferred Stock have the right to require Orion to repurchase the shares
of Common Stock received upon conversion of the 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 Senior Preferred Stock (and any Common
Stock received upon the conversion thereof) at the fair market value (in the
case of Common Stock) or liquidation value, including accrued and unpaid
dividends (in the case of Senior Preferred Stock). This right is exercisable
with respect to one-third of the Senior Preferred Stock (and any Common Stock
received upon the conversion thereof) in June 1999, two-thirds of such stock in
June 2000 and all of such stock in June 2001. The Indentures will contain a
covenant which restricts the ability of the Company to honor these repurchase
obligations. In addition, the documents relating to the Senior Preferred Stock
impose certain covenants on Orion, and failure to comply with those covenants
could have an adverse effect on Orion. The Company expects to issue $122.0
million in Series C Preferred Stock (assuming a closing of the Merger and the
Exchange as of January 30, 1997), and the Company may seek to repurchase such
stock in the future. The Indentures will contain a covenant which restricts the
Company's ability to repurchase such stock. See "Description of Capital Stock --
Preferred Stock" and "Description of Notes -- Certain Covenants -- Limitation on
Restricted Payments."
Consequences of Original Issue Discount on Senior Discount Notes
The Senior Discount Notes will be issued at a substantial
discount from their principal amount. Consequently, purchasers of the Senior
Discount Notes generally will be required to include amounts in gross income for
federal income tax purposes in advance of receipt of the cash payments to which
the income is attributable and no cash payments of interest are scheduled to be
made until _______________, 2002.
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Moreover, the Senior Discount Notes will constitute
"applicable high yield discount obligations" ("AHYDOs") if the yield to maturity
of the Senior Discount Notes exceeds the relevant applicable federal rate (the
"AFR") at the time of issue by more than 5 percentage points. If the Senior
Discount Notes constitute AHYDOs then the Company will not be entitled to deduct
original issue discount ("OID") accruing with respect thereto until such amounts
are actually paid. In addition, if the yield to maturity of the Senior Discount
Notes exceeds the AFR by more than 6 percentage points, then a portion of the
OID corresponding to such excess (i) will not be deductible by the Company at
any time and (ii) may be eligible for the dividends received deduction available
to corporate holders in certain circumstances. See "Certain United States
Federal Income Tax Consequences" for a more detailed discussion of the federal
income tax consequences to purchasers of the Senior Discount Notes.
If a bankruptcy proceeding is commenced by or against the
Company under the United States Bankruptcy Code after the issuance of the Senior
Discount Notes, the claim of a holder of Senior Discount Notes with respect of
the principal amount thereof may be limited to an amount equal to the sum of (i)
the initial public offering price for the Senior Discount Notes and (ii) that
portion of the original issue discount that is not deemed to constitute
"unmatured interest" for purposes of the United States Bankruptcy Code. Any
original issue discount that was not amortized as of the commencement of any
such bankruptcy proceeding would constitute "unmatured interest."
No Prior Public Market
There is no existing market for the Units, Notes or Warrants,
and there can be no assurance as to the liquidity of any market that may develop
for the Units, Notes or Warrants; the ability of holders of the Units, Notes or
Warrants to sell such securities, and the price at which such holders would be
able to sell such securities cannot be predicted. If such a market were to
develop, such securities could trade at prices that might be higher or lower
than the initial offering price thereof depending upon many factors, including
prevailing interest rates, the Company's operating results and prospects and the
market for similar securities. The Underwriters have advised the Company that
they currently intend to make a market in the Units, Notes and Warrants;
however, they are not obligated to do so and any market making may be
discontinued at any time without notice. The Company does not intend to apply
for listing for the Units, Notes or Warrants on any securities exchange.
Limitations on Paying Dividends on Common Stock
Orion has never paid any cash dividends on its Common Stock
and does not anticipate paying cash dividends in the foreseeable future. Orion
is not permitted to pay dividends on the Common Stock as long as the Preferred
Stock is outstanding, subject to certain limited exceptions. The Indentures and
the indenture for the Debenture Investments will effectively prohibit the
payment of dividends for the foreseeable future.
Potential Adverse Effect of Shares Eligible for Future Sale
Upon completion of the Merger and the Exchange, Orion will
have approximately 25.9 million shares of Common Stock outstanding on a fully
diluted basis. 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 Limited
Partners, including British Aerospace, will own the remaining 11.4 million
shares, all of which would be deemed to be "restricted securities" as that term
is defined in Rule 144, promulgated under the Securities Act. However, the
Limited Partners will be granted certain shelf, demand and "piggy-back"
registration rights with respect to the Common Stock issuable to them upon
conversion, including having the Company prepare and, as soon as practicable
after 180 days from the Closing Date cause to be filed a "shelf" registration
statement which covers the registration of certain Eligible Registrable
Securities (as defined to include approximately 25% of the Common Stock issuable
to the Limited Partners upon conversion). The Company will also be required to
file certain additional shelf registration statements so that the Limited
Partners will be able to sell, each quarter, up to an additional 25% of the
Common Stock issuable to them upon conversion, on a
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non-cumulative basis. No predictions can be made as to the effect, if any, that
sales of Common Stock or the availability of additional shares of Common Stock
for sale by the Limited Partners would have on the market price of such
securities. Nevertheless, the foregoing could adversely affect the market prices
of the Warrants and Common Stock and the ability of the Company to raise equity
financing. See "Shares Eligible for Future Sale."
Anti-Takeover and Other Provisions of the Certificate of Incorporation
Orion's Certificate of Incorporation includes provisions that may
discourage or prevent certain types of transactions involving an actual or
potential change in control of Orion, including transactions 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 without
action by the stockholders. The staggered terms of the Company's Board of
Directors could also discourage any potential acquirer. Orion's Certificate of
Incorporation also permits the redemption of Common Stock from stockholders
where necessary to protect Orion's regulatory licenses. See "Description of
Capital Stock." In addition, any change of control of Orion is subject to the
prior approval of the FCC. See "Business -- Regulation -- Unauthorized Transfer
of Control."
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THE COMPANY
The Company was incorporated in Delaware in 1982 and changed
its name to Orion Network Systems, Inc. in January 1988. Prior to the successful
launch of Orion 1 in November 1994, significant milestones included: (i) receipt
of initial conditional authorization from the FCC for Orion 1 in 1985,
completion of the consultation process relating to Orion 1 with INTELSAT in 1989
and receipt of final authorization for Orion 1 from the FCC in 1991; (ii) the
formation of Orion Atlantic and commencement of construction of Orion 1 in 1991;
and (iii) the commencement of VSAT services, using leased capacity, in Eastern
Europe in 1992. In 1991, Orion and the Limited Partners (plus STET, a former
limited partner) formed Orion Atlantic to finance the construction, launch and
operation of two communications satellites. In 1991, the Limited Partners
invested, either directly or through subsidiaries, $90 million in Orion Atlantic
and entered into firm and contingent capacity leases up to approximately $426
million over seven years to support the Orion 1 Credit Facility. The combination
of the equity contributions and the Orion 1 Credit Facility fully financed Orion
1.
Orion principally operates through subsidiaries. Orion
Atlantic, which Orion controls and operates through its subsidiary Orion
Satellite Corporation ("OrionSat"), a Delaware corporation and the sole general
partner of Orion Atlantic, owns and operates Orion 1 and will own and operate
Orion 2. Orion Atlantic Europe, Inc., a Delaware corporation, conducts certain
operations of Orion Atlantic in Europe. OrionNet, Inc., a Delaware corporation
("OrionNet"), serves as a representative agent of Orion Atlantic for sales of
network services and ground operations in the United States, and OrionNet
Finance Corporation, a Delaware corporation, conducts certain limited VSAT
financing activities for OrionNet. Asia Pacific Space and Communications, Ltd.
and Orion Asia Pacific Corporation, Delaware corporations (collectively, "Orion
Asia Pacific"), will own and operate Orion 3. Upon consummation of the
Transactions including the Exchange (discussed below), the Company will own,
directly or indirectly, 100% of each of the subsidiaries described above, each
of which will be a guarantor with respect to the Notes. See "The Merger and the
Exchange."
The Company's executive offices are located at 2440 Research Boulevard,
Suite 400, Rockville, Maryland 20850, and its telephone number is (301)
258-8101.
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THE MERGER AND THE EXCHANGE
Concurrently with consummation of the Offering, the Company
will consummate the Merger and the Exchange. The purposes of the Merger and the
Exchange are (i) to consolidate outside investor ownership of the Company at the
Orion level, (ii) improve the speed and efficiency of the Company's decision
making, (iii) provide Orion with 100% ownership of all of its material
subsidiaries, (iv) allow Orion to pursue its business plans and financings for
all of its satellites, (v) eliminate approximately $37.5 million of obligations
Orion Atlantic owes to certain of the Limited Partners, and (vi) increase the
Company's overall market capitalization.
Under the Exchange Agreement, the Limited Partners have agreed
to transfer their limited partnership interests in Orion Atlantic and other
rights relating thereto to the Company in exchange (collectively, the
"Exchange") for 121,988 shares of a newly created class of the Company's Series
C 6% Cumulative Convertible Redeemable Preferred Stock (the "Series C Preferred
Stock"). Upon consummation of the Exchange, the Company will own all of Orion
Atlantic. In addition, the Company will acquire certain rights held by certain
of the Limited Partners, including certain of the Limited Partners' rights to
receive repayment of various advances (aggregating approximately $37.5 million
at September 30, 1996). The 121,988 shares of Series C Preferred Stock to be
issued in the Exchange will be convertible into approximately 7 million shares
of the Company's Common Stock. As a result of the Exchange, certain of the
Limited Partners will be principal stockholders of the Company. See "Description
of Capital Stock" and "Principal Stockholders" for a description of the Series C
Preferred Stock and security ownership of Orion following the Exchange.
Simultaneously with the Exchange, under an Agreement and Plan
of Merger, Old ONSI will merge (the "Merger") with a wholly owned subsidiary
("Merger Sub") of a newly formed Delaware corporation, New ONSI, which will have
corporate governance documents, management structure, and other features
substantially similar to those of the Company. New ONSI will be the issuer of
the Units, Notes and Warrants offered hereby. Old ONSI will be the surviving
corporation in the Merger and will thereby become a wholly owned subsidiary of
New ONSI, and the holders of preferred and common stock of Old ONSI will receive
substantially identical preferred and common stock of New ONSI in exchange for
such stock. New ONSI will be re-named Orion Network Systems, Inc. concurrently
with the effectiveness of the Merger. New ONSI's stockholders will have
substantially the same securities and rights as before the Merger, although
their ownership of New ONSI will be diluted by the Exchange.
The closing of the Offering is conditioned upon the prior or
concurrent closing of the Merger and the Exchange. Occurrence of the Merger and
the Exchange are subject, among other things, to the satisfaction or waiver by
the Company and the Limited Partners of the following conditions: (a) completion
of a refinancing of the indebtedness of Orion Atlantic outstanding under the
Orion 1 Credit Facility among Orion Atlantic, the Banks named therein (the
"Banks") and Chase Manhattan Bank (National Association), as Agent ("Chase")
with the proceeds of the Offering, (b) the termination of all agreements between
or among the Banks and Chase, on the one hand, and one or more of Orion, Orion
Atlantic, OrionSat, Orion and the Limited Partners and/or their affiliates on
the other hand, relating to the Orion 1 Credit Facility or the security or
credit support thereof, (c) the release of the Limited Partners' (and their
affiliates) existing commitments under their firm and contingent capacity leases
and various guarantees or other commitments supporting the Orion 1 Credit
Facility, (d) the approval and adoption by Orion stockholders of the Merger and
the Exchange, and (e) the issuance of approximately $60 million of Orion junior
subordinated convertible debentures in the Debenture Investments.
-27-
<PAGE>
The diagram below illustrates the Company's structure
subsequent to the Transactions.
---------------------------------------------------------
Orion
-- Notes offered hereby
-- Warrants offered hereby
-- Junior Subordinated Convertible
Debentures
-- Series A, B and C Preferred Stock
-- Common Stock (publicly traded)
-- Options and Warrants
---------------------------------------------------------
100%
------------------------------------------------
Old ONSI and Orion Subsidiaries,
Including Orion Atlantic
(Guarantors of the Notes)
------------------------------------------------
The effect of the Merger and the Exchange on ownership of
Orion's capital stock is described under the caption "Principal Stockholders."
-28-
<PAGE>
USE OF PROCEEDS
The Offering
The net proceeds of the Offering to the Company are estimated
to be approximately $______ million. Other than the amounts placed in escrow to
pre-fund the first six interest payments on the Senior Notes, the net proceeds
will be used to repay the Orion 1 Credit Facility (including approximately
$_________ million of accrued interest and $_______ million of interest rate
hedging costs related to the Orion 1 Credit Facility), to pay accrued satellite
incentive fees, to pay amounts owing to STET, a former limited partner, and for
working capital and other general corporate purposes. The outstanding principal
and interest amount under the Orion 1 Credit Facility at September 30, 1996 was
$210.4 million, which bears interest at 1.75% over LIBOR. The loan under the
Orion 1 Credit Facility is repayable over seven years in graduated semi-annual
installments ranging from the approximately $11.9 million installment paid in
July 1996 to the two approximately $22.9 million semi-annual installments due in
2001 (and thereafter). See "Certain Transactions."
Set forth are the sources and uses of funds in the
Transactions, assuming a Closing Date of January 30, 1997. The amounts are
approximate with respect to the Orion 1 Credit Facility and STET Note, and will
vary depending on the date of repayment.
(Dollars in millions)
<TABLE>
<CAPTION>
Sources Uses
------- ----
<S> <C> <C> <C>
Senior Note Units............... $222 Credit Facility Repayment................. 224(1)
Senior Discount Note Units...... 100 Initial Payments for Orion 2 (2).......... 25
Escrow.................................... 72
BAe Investment.................. 50 STET Note Repayment....................... 3
Matra Investment................ 10 Orion 1 Incentive Payments................ 13
---
Total..................... 382 Transaction fees ......................... 14
====
Working capital and general
corporate purposes...................... 31(3)
---
Total................................ 382
===
</TABLE>
- ---------------
(1) To the extent that the Limited Partners make guarantee payments on or after
January 30, 1997 to the Banks under their capacity leases that support the
Orion 1 Credit Facility, the net proceeds from the sources indicated above
will be used, to the extent not needed to make the other payments set forth
above, to repay the Limited Partners the amounts paid to the Banks on or
after January 30, 1997.
(2) Initial payments (of $15 million, through May 1997) for Orion 3 are
expected to be made from cash on hand.
(3) Most of the $31 million of working capital, plus cash on hand and cash flow
from operations, will need to be used primarily to make payments on Orion 2
and Orion 3 and for VSATs and other capital expenditures. The Company does
not have a revolving credit facility or other source of readily available
capital.
-29-
<PAGE>
CAPITALIZATION
The following table sets forth as of September 30, 1996 (1) the cash
position and capitalization of the Company and (2) the pro forma cash position
and capitalization of the Company adjusted to give effect to the Transactions
(assuming such events occurred on September 30, 1996). See "Pro Forma Condensed
Consolidated Financial Statements," "Management's Discussion and Analysis of
Financial Condition and Results of Operations," and the Consolidated Financial
Statements and Notes thereto.
<TABLE>
<CAPTION>
September 30, 1996
------------------
Actual Pro Forma
------ ---------
(in thousands, except shares)
<S> <C> <C>
Cash and cash equivalents.................................................... $ 36,657 $ 98,214
======== =========
Restricted cash(1)........................................................... $ -- $ 72,000
======== =========
Long term debt(2):
Orion 1 Credit Facility.................................................... $207,715 --
Senior Notes offered hereby................................................ -- 222,000 (3)
Senior Discount Notes offered hereby....................................... -- 100,000 (3)
Other long-term debt....................................................... 47,940 24,890
-------- ---------
Total long-term debt....................................................... 255,655 346,890
Junior Subordinated Convertible Debentures................................... -- 60,000
Other long term liabilities.................................................. 32,878 1,882
Limited partners' interest in Orion Atlantic(4).............................. 19,961 --
Redeemable preferred stock:
Series A 8% Cumulative Redeemable Convertible Preferred Stock $.01
par value, 15,000 shares authorized; 13,871 shares
issued and outstanding, plus accrued dividends.......................... 15,820 15,820
Series B 8% Cumulative Redeemable Convertible Preferred Stock,
$.01 par value, 5,000 shares authorized; 4,298 shares issued
and outstanding, plus accrued dividends................................. 4,719 4,719
Series C 6% Cumulative Redeemable Convertible Preferred Stock,
$.01 par value, shares authorized; 121,988 pro forma
shares issued and outstanding.......................................... -- 94,000
Stockholders' equity:
Common stock, $.01 par value, 40,000,000 shares authorized; 11,232,533
shares issued, 10,973,018 shares outstanding; and 259,515 held as
treasury shares (held at no cost); 11,058,732 shares outstanding
pro forma(5)............................................................... 112 113
Capital in excess of par value(3).......................................... 86,508 87,708
Accumulated deficit........................................................ (79,730) (86,854)
-------- ---------
Total stockholders' equity................................................. 6,891 967
-------- ---------
Total capitalization.................................................... $335,923 $ 524,260
======== =========
</TABLE>
- ----------
(1) Restricted cash represents the estimated $72 million that will be placed in
escrow on the closing date 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 rates
on the Senior Notes and the interest rates on government securities on the
Closing Date.
(2) Includes current portion of long term debt of $33.9 million (actual) and
$6.4 million (pro forma).
(3) Of the $322 million gross proceeds from issuance of the Units offered
hereby, $ million has been allocated to the Senior Notes, $ has been
allocated to Senior Discount Notes and $ million has been allocated to
capital in excess of par to reflect the issuance of the Warrants. No
assurance can be given that the value allocated to the Warrants is
indicative of the price at which the Warrants may actually trade.
(4) Represents amounts invested by Limited Partners other than the Company (net
of syndication costs related to the investments), adjusted for those
Limited Partners' share of net losses.
(5) Excludes 1,486,364 shares issuable upon exercise of options and warrants
outstanding as of September 30, 1996, at an average exercise price of $9.55
per share, 1,631,882 shares issuable upon conversion of outstanding Series
A Preferred Stock, 421,373 shares issuable upon conversion of outstanding
Series B Preferred Stock, 6,970,742 shares issuable upon conversion of
Series C Preferred Stock issued concurrently with this Offering as part of
the Exchange, shares of Common Stock issuable upon exercise of the
Warrants, and 4,285,714 shares issuable upon conversion of the $60 million
Debenture Investments.
-30-
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
As discussed more fully under the caption "The Merger and the
Exchange," pursuant to the Merger, each share of Old ONSI common stock, Series A
Preferred Stock and Series B Preferred Stock will be converted into rights to
receive an identical number of shares of New ONSI. In addition, pursuant to the
Exchange, New ONSI will issue shares of Series C Cumulative Redeemable Preferred
Stock for the Limited Partners' limited partnership interests in Orion Atlantic,
a consolidated subsidiary of Orion, as a result of which, among other things,
Orion will become the owner of all the partnership interests in Orion Atlantic.
Orion would also acquire approximately $37.5 of Orion Atlantic's obligations to
the Limited 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 Limited Partners' interests acquired as a result of the Exchange.
The determination of the fair value of the Series C Preferred Stock has been
based on a fairness opinion issued by Salomon Brothers Inc dated December 10,
1996. Such value has been allocated to Orion Atlantic's assets and liabilities
based on management's best estimate of fair value. Prior to the effective date
of the Exchange transaction, Orion Atlantic anticipates receipt of a current
valuation of its Orion 1 satellite. Differences between management's estimate of
the fair value of the Orion 1 satellite and the amounts specified in the
anticipated satellite valuation could be material.
In addition to the Merger and the Exchange, 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 and Exchange as described above, as if they took place on that
date: (i) the 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 the write-off of deferred financing fees and
interest rate hedge breakage costs associated with the Orion 1 Credit Facility),
(ii) the British Aerospace Investment, with gross proceeds of $50 million, (iii)
the satisfaction of $13 million owed to Matra Marconi Space through the Matra
Marconi Space 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 Common Stock and (v) payments of
approximately $3.9 million owed to STET, a former limited partner (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.
-31-
<PAGE>
<TABLE>
<CAPTION>
ORION NETWORK SYSTEMS
Pro Forma Condensed Consolidated Balance Sheet
September 30, 1996
(Unaudited)
Actual Debit Credit Pro Forma
------ ----- ------ ---------
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents $36,656,619 $236,000,000 (1) $216,280,254 (2) $98,213,532
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 48,206,508 284,750,000 223,193,087 109,763,421
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) 342,165,112
46,466,441 (6)
--------------------------------------------------------------------------------------
349,830,617 47,466,441 27,751,744 369,545,314
Less accumulated depreciation (57,914,578) 27,751,744 (6) (30,162,834)
--------------------------------------------------------------------------------------
Net property and equipment 291,916,039 75,218,185 27,751,744 339,382,480
Deferred financing costs 11,208,678 14,000,000 (1) 11,208,678 (2) 14,300,000
250,000 (3)
50,000 (4)
Restricted cash 72,000,000 (1) 72,000,000
Other assets 4,645,948 1,200,000 (3) 5,845,948
--------------------------------------------------------------------------------------
Total assets $355,977,173 $447,468,185 $262,153,509 $541,291,849
======================================================================================
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) $322,000,000 (1) 400,512,675
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 19,961,032 9,974,466 (2) --
Atlantic
9,986,566 (6)
Minority interests in other 52,984 52,984
entities
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 $477,200,000 $541,291,849
======================================================================================
</TABLE>
-32-
<PAGE>
ORION NETWORK SYSTEMS, INC.
Notes to Pro Forma Condensed Consolidated Balance Sheet
September 30, 1996
(Unaudited)
1. To reflect the estimated proceeds from the Offering of $308 million, net of
estimated financing costs of approximately $14 million. Of the $322 million
of gross proceeds from the 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 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.
2. To reflect the repayment of $207.7 million plus accrued interest of $2.7
million under the Orion 1 Credit Facility, the write-off of unamortized
deferred financing costs of $11.2 million and the costs of breaking the
existing swap of $5.9 million, and the pro rata allocation of such costs to
the minority interests of Orion Atlantic.
3. To reflect (i) the estimated proceeds from the British Aerospace Investment
of $49.8 million, net of estimated financing costs of $.25 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 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 corresponding reinvestment of $10 million
in junior subordinated convertible debentures, and financing costs of
$50,000.
5. To reflect the repayment of $3.5 million of promissory notes and $.4
million of accrued interest 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 Limited Partners aggregating
approximately $37.5 million through the exchange of Limited Partners' units
in Orion Atlantic for Series C Preferred Stock of Orion. The Preferred
Stock has been valued at approximately $94 million based on a fairness
opinion prepared by Salomon Brothers Inc dated December 10, 1996 using an
underlying Orion stock price of $12 per common share. Such amount has been
allocated to the obligations acquired and the 58.7% interest of Orion
Atlantic previously held by the exchanging Limited Partners. The Company
has allocated the step up in basis of approximately $46.5 million to the
Orion 1 satellite based on an estimate of its fair value September 30,
1996. Accumulated depreciation of $27.8 million relating to the portion of
the satellite fair valued has been offset against the basis of the
satellite. Prior to the effective date of the Exchange, the Company
anticipates receiving a appraisal of Orion 1. Differences between
management's estimate of the fair value of the Orion 1 satellite and the
amounts specified in the anticipated fairness opinion and satellite
valuation could be material.
-33-
<PAGE>
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>
Services revenue $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 14,804,581 (2) 35,033,100
Other (48,356) (48,356)
------------------------------------------------------------------------------
Total other expense (income) 18,338,295 14,804,581 33,142,876
------------------------------------------------------------------------------
Loss before minority interest (44,606,985) 18,167,500 (62,774,485)
Minority interest 24,799,698 24,799,698 (3) --
------------------------------------------------------------------------------
Net loss (19,807,287) 42,967,198 (62,774,485)
Preferred stock dividend accretion 1,006,285 6,329,100 (4) 7,335,385
------------------------------------------------------------------------------
Net loss attributable to common
shareholders $(20,813,572) $ 49,296,298 $(70,109,870)
==============================================================================
Net loss per common share $(1.90) $(6.07)
================ =====================
Weighted average common shares
outstanding 10,943,287 11,544,626 (5)
================ =====================
</TABLE>
-34-
<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 step up in basis on Orion 1 satellite resulting
from the acquisition of the Limited Partners' interest 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>
<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 Orion 1
Credit Facility (1,597,941)
Interest expense on Senior Notes 19,771,875
Interest expense on Senior Discount Notes 9,843,750
Interest expense on Junior Subordinated Convertible 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 1,050,000
Reduction in interest expense relating to repayment of other
obligations to Limited Partners (1,794,762)
----------
Net increase in pro forma interest expense $ 14,804,581
===========
</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 .5% would result in a change of $1.2 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 Offering between the
Notes and Warrants.
3. Elimination of minority interest as a result of the Exchange.
4. To record the dividend requirement on the 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
for interest on $60 million Junior Subordinated Convertible Debentures 515,625
Pro forma issuance of shares to BAe for purchase of 17% minority
interest in Orion Asia Pacific 85,714
------
Total pro forma weighted average shares outstanding 11,544,626
==========
</TABLE>
-35-
<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>
Services revenue $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 22,111,020 (2) 46,849,466
Other 3,359,853 3,359,853
----------------------------------------------------------------------------
Total other expense (income) 26,173,477 22,111,020 48,284,497
----------------------------------------------------------------------------
Loss before minority interest (73,004,188) 26,364,548 (99,368,736)
Minority interest 46,089,010 46,089,010 (3) --
----------------------------------------------------------------------------
Net loss (26,915,178) 72,453,558 (99,368,736)
Preferred stock dividend accretion 1,329,007 8,438,800 (4) 9,767,807
----------------------------------------------------------------------------
Net loss attributable to common
shareholders $(28,244,185) $80,892,358 $(109,136,543)
============================================================================
Net loss per common share $(3.07) $(11.61)
=============== ====================
Weighted average common shares
outstanding 9,103,505 9,376,719 (5)
=============== ====================
</TABLE>
-36-
<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 step up in basis on Orion 1 satellite resulting
from the acquisition of the Limited Partners' 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>
<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 Orion 1 Credit
Facility (2,012,222)
Interest expense on Senior Notes 26,362,500
Interest expense on Senior Discount Notes 13,125,000
Interest expense on Junior Subordinated Convertible 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 1,400,000
Reduction in interest expense relating to repayment of other obligations
to Limited Partners (1,894,123)
----------
Net increase in pro forma interest expense $ 22,111,020
===========
</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 .5% would result in a change of $1.6 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 Offering between the Notes and
Warrants.
3. Elimination of minority interest as a result of the Exchange.
4. To record the dividend requirement on the 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
for interest on $60 million Junior Subordinated Convertible 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>
-37-
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OPERATIONAL DATA
(Dollars in thousands, except per share data)
The following selected consolidated statement 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 statement 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
statement of operations and balance sheet data is 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," "Pro Forma Condensed Consolidated Financial Statements"
and the Consolidated Financial Statements and Notes thereto.
<TABLE>
<CAPTION>
Nine Months
Year Ended December 31, Ended September 30,
------------------------------------------- ---------------------------
1995 Pro 1996 Pro
1991 1992 1993(1) 1994 1995 Forma(2) 1995 1996 Forma(2)
---- ---- ----- ----- ----- -------- ---- ---- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Consolidated Statement of
Operations Data
Revenues $ 648 $1,403 $2,006 $3,415 $22,284 $22,284 $13,947 $30,016 $30,016
Interest Expense 456 180 133 61 24,738 46,849 17,080 20,229 35,033
Net loss (2,573) (3,295) (7,886) (7,965) (26,915) (99,369) (19,985) (19,807) (62,774)
Net loss per common share $ (0.35) $(0.40) $(0.85) $(0.86) $ (3.07) $(11.61) $ (2.42) $ (1.90) $ (6.07)
Shares used in calculating
pershare data(3) 7,318,147 8,232,548 9,266,445 9,272,166 9,103,505 9,376,719 8,522,067 10,943,287 11,544,626
---------- --------- --------- --------- ----------- --------- --------- ---------- ----------
Ratio of earnings to fixed
charges(4) -- -- -- -- -- -- --
Other Operating Data:
Number of customers 3 5 10 34 109 79 167
Capital expenditure $44,036 $78,429 $44,130 $ 51,103 $ 9,060 $ 3,863 $ 10,266
Customer contract backlog(5) $ 4,572 $ 9,402 $18,185 $ 39,122 $120,612 $ 94,890 $134,320
Points of Service(6) -- 57 151 124 304
EBITDA (7) $(2,045) $(5,354) $(10,773) $(14,014) $(15,427) $(15,177) $ 134
As of September 30, 1996
-------------------------
Actual Pro Forma(2)
---------- -----------
Consolidated Balance Sheet
Data:
Cash and cash equivalents $26,507 $ 7,668 $ 3,404 $ 11,219 $ 55,112 $ 36,657 $98,214
Restricted Cash(8) -- -- -- -- -- -- 72,000
Total assets 106,712 204,975 271,522 340,176 389,075 355,977 541,292
Long-term debt (less current
portion) 1,073 106,821 185,294 230,175 250,669 221,781 400,513
Limited Partners' interest in
Orion Atlantic(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
</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.
(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 statement 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 Notes 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
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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 $101.6 million and $66.0 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
$103.2 million for the year ended December 31, 1995 and $67.2 million for
the nine months ended September 30, 1996.
(5) Backlog represents future revenues under contract. See "Risk Factors --
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.
(8) Restricted cash represents the estimated $72 million that will be placed in
escrow on the closing date 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 the interest rates on government securities on the
closing date.
(9) Represents amounts invested by Limited Partners (net of syndication costs
related to the investments), adjusted for those Limited Partners' share of
net losses. The interests of the Limited Partners will be acquired by the
Company in the Exchange.
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
General
Orion's principal business is the provision of satellite
communications for private communications networks and video distribution and
other satellite transmission services. From its inception in 1982 through
January 20, 1995, when Orion 1 commenced commercial operations, Orion was a
development stage enterprise. Prior to January 1995, Orion's efforts were
devoted primarily to monitoring the construction, launch and in-orbit testing of
Orion 1, product development, marketing and sales of interim private
communications network services, raising financing and planning Orion 2 and
Orion 3.
OrionSat is the sole general partner in Orion Atlantic and
Orion has received 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. 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. 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 offset price
reductions. However, there can be no assurance that this will occur. See "Risk
Factors -- Potential Adverse Effects of Competition." Orion expects to continue
to incur net losses 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 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
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<PAGE>
Orion 2 and a more substantial increase in costs with Orion 3. 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
Offering and will increase again after additional financing for Orion 2 and
Orion 3 is obtained. Such financing will be required substantially in advance of
the anticipated revenues from Orion 2 or Orion 3. Orion's costs (other than
sales commissions) generally do not vary substantially with the amount of
revenue for 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
123 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.
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 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 services business and depreciation
of the Orion 1 satellite, which was placed in service January 20, 1995.
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<PAGE>
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
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.
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.
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<PAGE>
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 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.
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<PAGE>
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.
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
$3 million will be paid in cash on the Closing Date) 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 $600,000) will be
paid with proceeds of the Offering.
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 Company's cash
flows will be inadequate to cover its cash needs and the Company will seek
financing from outside sources. The Company has commenced construction of Orion
3 and intends to commence construction of Orion 2 immediately after consummation
of the 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 Warrants and 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 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 costs 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.
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<PAGE>
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 Offering of which $10 million will be re-invested in
Orion in the Matra Marconi Investment.
Further, 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.
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 -- Need for Substantial Additional Capital" and "Risk Factors
- -- Launch of Orion 2 and Orion 3 Subject to Significant Uncertainties --
Substantial Financing Requirements; Risks of Commencing Construction Prior to
Completing Financing."
Taxes
As of December 31, 1995, Orion had net operating loss carry
forward 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, 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 this Offering, 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
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<PAGE>
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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BUSINESS
Overview
Orion is a rapidly growing provider of satellite-based
communications services, focused primarily on (i) private communications
networks, (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 and ISPs 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.,
Colgate-Palmolive, 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. Through arrangements with 30 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. 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 believes that demand for international satellite
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. The
Company is well positioned to take advantage of growth and foreign investment in
developing economies (e.g., in Central and Eastern Europe, Latin America and
Asia). The Company is able to provide a variety of bandwidth intensive services
to customers doing business in areas with underdeveloped infrastructure on a
reliable and cost efficient basis. Orion also is well positioned to carry
Internet traffic from the U.S. to Europe, Latin America and Asia.
Features and Benefits
Orion's satellite-based network offers customers a number of
important features, which provide significant benefits versus competing
alternatives.
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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.
[Document Contains A Diagram Of An Orion Customer Network
Showing Direct Service To Customer Premises.]
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 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
smaller, less expensive earth station equipment. The satellite'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 30 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
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the Company's pan-European capacity, the area of strongest demand in the
Company's current operations. 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 signed an authorization to proceed
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 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 75% 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 the delivery of value-added private network
services to end-users, 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.
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Bridge to Emerging Markets and Remote Locations
Orion targets customers doing business in emerging markets and
remote locations of developed markets which 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 at their
specific locations, avoiding the need to interconnect with the local
infrastructure. A significant portion of Orion's private communications network
customers transmit high-speed data to and from locations in Central and Eastern
Europe. Orion 2 and Orion 3 will extend coverage to the Commonwealth of
Independent States, Latin America and the Asia Pacific Region.
End-to-End Service
Orion provides its services directly to and among customer
locations using satellite transmission and VSATs installed at customer premises.
Offering end-to-end services and bypassing terrestrial infrastructure allows
Orion to offer higher reliability and higher quality services than terrestrial
facilities by bypassing multiple telecommunications service providers and
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 75% 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 versus
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 ownership of satellite facilities
provides a long-term cost advantage over resellers and other private service
providers that must lease satellite capacity to provide services to customers.
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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 also can be accessed from virtually any
location within the geographic area they cover. This ubiquitous coverage allows
the satellite to transmit voice and data communications to remote locations and
emerging markets where terrestrial infrastructure is not well developed.
Historically, satellites were used primarily for international voice and data
traffic, using large earth stations that enabled lower-power satellites to
function as "cables in the sky." The principal drawback to satellite-based voice
transmission is the 1/4 to 1/2 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 extensive 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 distinct 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. As such, satellites enable high speed
communications service where there is no 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 and other
satellites. This enables satellites to use the higher broadcasting power
necessary to support smaller, low-cost VSAT earth stations and make it cost
effective to transmit to or among numerous locations.
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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 overall data networking
services revenues in Western Europe alone totaled approximately $2.7 billion in
1996, which number revenues excludes revenues from such services as leased line,
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. 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: 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.
(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 number and complexity of
commands needed to route data, reducing the cost of fully
meshed networks. According to a 1996 report prepared by
Vertical Systems Group, worldwide revenues from frame relay
services were $830 million in 1995. The Company expects that
demand for frame relay services will experience rapid growth
through the year 2000.
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(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. Companies attempting to
implement client/server architectures, install wide bandwidth applications or
employ Internet and intranet solutions are often unable to do so 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 international satellite
services will continue to grow because of (i) the expansion of businesses beyond
the limits of wide bandwidth terrestrial infrastructure, (ii) accelerating
demand for high speed data services, (iii) growing demand for Internet and
intranet services, especially outside the U.S., (iv)
increased size and scope of television programming distribution, (v) worldwide
deregulation of telecommunications markets, and (vi) continuing technological
advancements.
(i) Expansion of business beyond the limits of wide
bandwidth terrestrial infrastructure. Overall growth in the
international telecommunications market reflects the
increasingly international nature of business, the increasing
importance of emerging and newly industrialized economies and
the increase in international trade. International businesses
expanding into emerging markets often rely on the incumbent
communications service providers for voice circuits. However,
as large organizations increasingly rely on more
sophisticated, high speed communications services to run their
businesses, many of these companies face operational
bottlenecks when attempting to implement more sophisticated
communications networks. These problems are faced both by
companies in emerging markets and companies in developed
markets that rely on "last mile" copper infrastructure to
interconnect with a fiber optic network. Satellites offer a
solution to this problem by providing 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 cover sites in underdeveloped areas and bypass
"last mile" copper wire facilities that are unable to handle
high speed frame relay 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 frequently unable to use
current-
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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. They 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 into more
remote locations. 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 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.
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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 -- 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 transmit
using CDV technology.
Orion Services
Orion provides international, satellite-based digital
communications services comprised of: (i) private network services for
multinational business and governmental customers, (ii) Internet backbone and
access services for Internet service providers and corporate users 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. 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.
[GRAPHIC OMITTED]
- --------------
* Bookings represent new customer contracts executed during the period. See
"Risk Factors -- 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
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leased line services have constituted a majority of Orion's bookings of private
communications network services to date. Customers connect between three and
nine sites with data rates generally of 128 Kbps or greater.
One customer, Colgate Palmolive 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 Colgate-Palmolive's soap and toiletry products.
Colgate was seeking a "one-stop shopping" solution which allowed for
simultaneous exchange all of its voice/fax and data applications over a single
network provided by single network service provider. Colgate 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. Colgate Palmolive uses Orion's service for managing inventory and
"just-in-time" order entry.
[Document contains a diagram of the customer network]
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 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.
[Document contains a diagram of the customer network]
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
check image processing, 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 512 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. ISPs and content
providers are looking for reliable, wide bandwidth connections which bypass
congested Internet network segments. Orion's transatlantic capacity is well
suited for ISPs and companies in Europe 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
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<PAGE>
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.
[Document contains a diagram of the customer network]
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 Tier I ISPs, such as DIGEX and UUNet.
Multicast Satellite-Based Internet Services. Orion recently
introduced its NetCast service which allows ISPs or corporate users to
significantly reduce Internet bandwidth and ground facility costs. The NetCast
service is based on an asymmetric architecture which couples wide bandwidth
satellite broadcasting with narrow bandwidth terrestrial links to the Internet.
Furthermore, NetCast can provide a single channel that is shared among multiple
ISPs, which can remove a significant amount of traffic from ISP terrestrial
networks.
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. For example, Viacom has purchased capacity on Orion
1 for the purpose of transmitting video material from its
studio in New York to a broadcast facility in London, from
which it is inserted into programming and rebroadcast
throughout 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.
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Video Services - Distribution: Cable and television
programmers use Orion's satellite transmission services for
distribution of television programming to local broadcast
stations, cable head-ends, MMDS (multichannel microwave
distribution) systems and SMATV (satellite master antenna
television). Orion has a joint marketing agreement with NTL,
which operates one of the largest video gateways in Europe,
located in downtown London. Orion and NTL offer programmers
uplink, compression and distribution to cable head-ends
throughout the United Kingdom and to locations in Europe.
Orion's ability to offer video distribution services is aided
by the transponder switching capabilities of Orion 1, which
are (and those of Orion 2 and Orion 3 are expected to be)
designed to permit programs to be distributed simultaneously
throughout the satellite's coverage area.
Orion's video distribution customers include
Black Entertainment Television, Inc. ("BET"), which was
seeking a video distribution service for the distribution of
its BET On Jazz International Network, an internationally
distributed programming network dedicated to international
Jazz and Blues artists. BET required receipt of its signal at
its headquarters in Washington, D.C., conversion to a European
TV standard, digital compression and uplinking of the
compressed digital video signal for distribution to cable head
ends in the United Kingdom and other sites in Europe.
News and Special Events: Orion 1 is used for
transmission of special events or remote feeds to
international news bureaus from television stations and
on-location mobile transmitters. Because Orion's Ku-band
technology and VSAT ground segment infrastructure offers high
reception sensitivity, the Company is especially effective in
transmitting television signals sent from low-powered portable
transmitters typically used by news organizations and program
distributors. In contrast to video contribution services, news
and special events are characterized by occasional use rather
than long-term capacity contracts. CNN selected Orion's
service for its coverage of Bosnia, and Orion provided service
to the European Broadcasting Union for coverage of the
Olympics in Atlanta.
International Carriers: Orion satellite transmission
services are used by international carriers to provide backup
for terrestrial lines and to provide communications services
to areas with inadequate telecommunications capabilities.
These carriers resell Orion's capacity as part of their own
services.
Capacity Sales: Orion sells bulk capacity to
resellers who use Orion's transmission capacity as one
component of a customer's end-to-end communications solution.
For example, Orion currently sells capacity to a number of
firms that resell Orion's capacity to governmental
organizations.
Orion offers a range of value-added services in conjunction
with its video distribution and other satellite transmission services. Such
services may include the provision of video uplinking and receiving stations,
digital compression equipment and software, transmission monitoring, and gateway
interconnection services.
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, Internet access
services, manufacturing, government, banking and finance, energy, lottery,
consumer distribution and publishing. Selected customers from each service area
are set forth below.
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<TABLE>
SELECTED ORION CUSTOMERS
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Deere & Company
Private Network Services: AT&T EDS
Digital Link/Digital Channelized Amoco GE Americom
Link Amway Global One
Chase Manhattan Bank News International Limited
Citibank Westinghouse
Colgate Palmolive
Concert
- ---------------------------------------------------------------------------------------------------------------
Private Network Services: Balluff & Co. Pepsi Cola
VISN Creditanstalt Price Waterhouse
Fax International
- ---------------------------------------------------------------------------------------------------------------
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 Television Hungarian Broadcasting
Bonneville International MCI
British Telecom RTL Television
CNN Telecom Italia
Comsat Viacom International
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
More than half of Orion's customers are based in the U.S., but
these customers have a substantial majority of their points of service in
Western and Eastern Europe, as indicated in the charts below.
[GRAPHIC OMITTED]
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
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Orion would retain the $10 million paid) if it fails to obtain certain
approvals. Payments are subject to refund if the leased transponders are not
launched and in service by May 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 place Orion 3 in service by May 1999.
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 beyond 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
(and such event may 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 the necessary financing 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 $ million from its backlog related to
contracts under which customers failed to use the contracted service or failed
to make timely payment. The Company's contracts commence and terminate on fixed
dates. If the Company is delayed in commencing service or does not provide the
required service under any particular contract, as it has occasionally done in
the past, it may not be able to recognize all the revenue it initially includes
in backlog under that contract. In addition, the current backlog contains some
contracts for the useful life of Orion 1; if the useful life of Orion 1 is
shorter than expected, some portion of backlog may not be realized unless
services satisfactory to the customer can be provided over another satellite.
See "Risk Factors -- 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, with generally consistent quality of service throughout the 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
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<PAGE>
representatives, for sales in Europe. The majority of Orion's contract bookings
to date have been generated by its direct sales force. Orion believes that
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 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 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 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 both 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 some 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 its relationships with these and other carriers. 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.
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<PAGE>
Network Operations; Local Ground Operators
Orion has a centralized network operations function at its
corporate headquarters in Rockville, Maryland, supported by arrangements with
local companies in most countries within the Orion 1 footprint who assist Orion
with selling efforts and 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 to or
among points in 27 European countries, the United States and certain Latin
American countries (which comprises substantially all of the countries within
the coverage area of Orion 1). 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 their
VSAT installations for 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 or fails to perform as
expected, Orion's ability to offer private communications networks (or services)
will be impaired. See "Risk Factors -- Risks Relating to Potential Lack of
Market Acceptance and Demand; Ground Operations."
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<PAGE>
Set forth below is a map showing the locations of Orion's European
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 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
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<PAGE>
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. In-orbit satellites
comparable to Orion's typically cost in excess of $200 million (exclusive of
development, financing and other costs) and take two to three years to
construct, launch and place in orbit. Prior to launch, the owner generally must
obtain a number of licenses and approvals, including approval of the host
country's national telecommunications authorities to construct and launch the
satellite, coordination and registration of an orbital slot (of which there are
a limited number) through the ITU to avoid interference with other
communications systems and a consultation on interference with INTELSAT (and
EUTELSAT in the case of European satellites). Obtaining the necessary consents
can involve significant time and expense, and in the case of the United States,
requires a showing that the owner has the financial ability to fund the
construction and launch of the satellite and to operate for one year. The
Company has commenced construction of Orion 3 and 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 -- Approvals Needed; Regulation of Industry" and "--
Regulation."
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 first generation of satellites reaches the
end of its useful life.
Orion 1
Orion 1 was launched in November 1994 and commenced commercial
operations in January 1995.
Satellite Design and Footprint. Orion 1, which is in
geosynchronous orbit at 37.5(Degree) West longitude, is a high power Ku-band
telecommunications satellite that contains 28 transponders of 54 MHz bandwidth
and six transponders of 36 MHz bandwidth (although one of these transponders has
not operated in accordance with specifications, as described below). The
footprint of Orion 1 is shown below (although certain transponders of Orion 1
can be reconfigured to match changing business and telecommunications
requirements).
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[Document contains a map of North America and Europe showing in shaded areas
the coverage footprint of Orion 1 ]
Satellite Construction and Performance. Orion 1 was
constructed by Matra Marconi Space's subsidiary MMS Space Systems Limited, one
of the major satellite contractors in Europe. Orion 1 was designed both for the
delivery of high-speed data and for high-powered digital video transmission to
corporate users. In particular, Orion 1 was designed with high reception
sensitivity, which enables two-way transmission from and to small earth
stations, reducing the equipment and transmission cost to customers. Orion 1 has
transatlantic networking capability, which allows users to uplink data in the
U.S. or Europe and downlink that transmission simultaneously to the U.S. and
Europe.
This configuration simplifies customers' transatlantic
networking solutions. Orion believes that Orion 1's Ku-band technology and VSAT
ground segment infrastructure is among the least expensive, most flexible
technologies for interactive satellite transmissions in the North Atlantic
market. Like most recent satellites, Orion 1 offers digitally compressed
transmission, in addition to analog transmission, which allows the satellite to
increase by up to ten fold its usable bandwidth per transponder, leading to
greater revenue per transponder and greater network availability to customers in
need of bandwidth on demand.
When Orion 1 was delivered into orbit, one of the 36 MHz
transponders with coverage of the United States did not perform in accordance
with contract specifications. Orion settled the matter with the manufacturer for
a one time refund of $2.75 million (which amount was applied as a mandatory
prepayment under the existing Orion 1 Credit Facility). In addition, the
manufacturer will pay Orion approximately $7,000 per month for the life of the
satellite under the warranty to the extent the transponder is not used to
generate revenue. Orion believes that the failure of such transponder to perform
in accordance with specifications will not have a significant impact on Orion's
ability to offer its services.
In November 1995, one of Orion 1's components supporting nine
transponders of dedicated capacity serving the European portion of the Orion 1
footprint, experienced an anomaly that resulted in a temporary service
interruption, lasting approximately two hours. Full service to all affected
customers was restored using redundant equipment on the satellite. The redundant
equipment currently generates a majority of Orion's revenues. Orion believes,
based on the data received to date by Orion from its own investigations and from
the manufacturer,
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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 and on Orion
Atlantic. See "Risk Factors -- 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(Degree) West longitude for operation of Orion 2. The FCC has commenced the
coordination process through the ITU and will commence consultation with
INTELSAT upon request from Orion. Orion 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 -- Launch of Orion 2 and Orion 3 Subject to
Significant Uncertainties."
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[Document contains a map of North America, Latin America, Europe. Africa and
Asia showing in shaded areas the proposed coverage footprint of Orion 2 ]
Satellite Construction, Launch and Performance. Matra Marconi
Space and MMS Space Systems are the prime contractors for Orion 2 and will use
MMS Space Systems' EUROSTAR satellite platform for Orion 2. This platform was
previously used for Inmarsat 2, Telecom 2, Hispasat and Orion 1. Lockheed Martin
CLS will provide launch services for Orion 2 using the Atlas II A-S launch
vehicle. Atlas II A-S, which is larger than the launch vehicle used for the
launch of Orion 1, is an expanded version of Atlas II. All 25 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 --
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 Atlantic 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 Atlantic would be entitled to receive a partial refund based on
calculations of Orion 2's performance capabilities. Finally, 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
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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
indebtedness, including the Notes, and such insurance will not protect Orion
against business interruption, loss or delay of revenues or similar losses and
may not fully reimburse the Company for its expenditures. See "-- Insurance" and
"Risk Factors -- 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 -- 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(degree) East longitude. Orion has not commenced the consultation process
with INTELSAT with respect to such orbital slot. Orion commenced construction of
Orion 3 in December 1996. Orion 3 is scheduled to be launched in the fourth
quarter of 1998. See "Risk Factors -- 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 Operation -- Liquidity and Capital Resources" and "Risk Factors --
Need for Substantial Additional Capital" and "Risk Factors -- Launch of Orion 2
and Orion 3 Subject to Significant Uncertainties -- Substantial Financing
Requirements."
The proposed coverage of Orion 3 (excluding the dedicated
portion reserved for the Asian customer), is shown below.
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[Document contains a map of Asia and Australia showing in shaded areas the
proposed coverage footprint of Orion 3 ]
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 pending the successful launch and commencement of
commercial operations of Orion 3. 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 -- 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,
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 successful
launches with a failure rate of %. 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
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Operations -- Liquidity" and "Risk Factors -- 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 -- Satellite Risks -- Limited Insurance for
Satellite Launch and Operation."
Orion has the option to purchase a replacement satellite to be
launched within 15 months after Orion places the order for completion of a
replacement satellite. The order for a replacement satellite cannot be placed
earlier than the launch of Orion 3. Hughes Space is obligated to furnish the
replacement satellite on terms substantially similar to those contained in the
Orion 3 Satellite Contract.
The Orion 3 Satellite Contract provides for incentive payments
to encourage satellite performance and limited liquidated damages payable in the
event of late delivery. The incentive payments could total $18 million depending
on the satellite's performance, of which $10 million could be payable upon
acceptance of the Orion 3 satellite and $8 million is payable over the course of
the satellite's operational lifetime. In the event that the Orion 3 continues to
provide service after the expiration of its operational life, the Orion 3
Satellite Contract provides for further incentive payments. 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, except as discussed
above.
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 -- Launch of Orion 2 and Orion 3 Subject to
Significant Uncertainties."
Orbital Slots
Orion 1: Orion Atlantic has been licensed by the FCC and has
completed the coordination process with INTELSAT and interested administrations
to operate Orion 1 in geostationary orbit at 37.5(degree) West longitude.
Orion 2: OrionSat has obtained conditional authorization from the
FCC for the construction, launch and operation of Orion 2 at 12(degree) West
longitude. On behalf of Orion, the FCC has commenced the orbital slot
coordination process through the ITU. Orion believes that its use of the
12(degree) West longitude slot for Orion 2 is not likely to interfere with
proposed uses of adjacent slots filed for by other governments, except for a
possible overlap of 75 MHz with one such filing as discussed more fully below
under the caption "-- ITU Coordination Process." Orion will commence
consultation with INTELSAT for Orion 2, and believes that since there are no
INTELSAT satellites located adjacent to the 12(degree) West longitude orbital
slot, the INTELSAT coordination should be obtained in due course.
Orion 3: Orion, through the Republic of the Marshall Islands, has
filed the appropriate documentation with the ITU to begin the ITU coordination
process for Orion 3 at 139(degree) East longitude. Based upon the time of filing
by the Republic of the Marshall Islands, Orion believes that the proposed
orbital slot for Orion 3 would have effective priority under ITU procedures with
respect to the 139(Degree) East longitude orbital slot, but some proposals for
adjacent slots would be entitled to priority over the proposal by the Republic
of the Marshall Islands with respect to
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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 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 has not commenced the consultation
process with INTELSAT with respect to Orion 3, but as in the case of Orion 2
expects to complete the INTELSAT coordination in due course.
Other Orbital Slots: Orion has received an authorization from
the FCC for a Ku-band satellite in geostationary orbit at 47(degree) West
longitude, and has coordinated this orbital position with INTELSAT. Orion has
also filed an application with the FCC to operate a satellite at 126(degree)
East longitude. The FCC has filed documentation with the ITU to commence the
coordination process for this slot. In May 1996, in response to Orion's
application, the FCC assigned the U.S. domestic orbital location of 135(Degree)
West longitude to Orion. In November 1996, the FCC granted authorization to
Orion to utilize the slot, conditioned on Orion submitting financial
qualification information, or documentation justifying a waiver of the financial
requirements, within 120 days after the release of the individual order with
respect to Orion's application.
In September 1995, Orion filed applications for authority to
construct, launch and operate Ka-band satellites at 78.0(degree) East longitude,
93.0(degree) West longitude, and 83.0(degree) West longitude, and an amendment
to its pending application to construct, launch and operate a Ku-band satellite
at 127(degree) West longitude to add a Ka-band payload. In addition, Orion filed
an application to construct, launch and operate a Ka-band satellite at
47(degree) West longitude, and an application to modify its authority to
construct, launch and operate a Ku-band satellite at 47(degree) West longitude
to include a Ka-band payload. On November 9, 1996, Orion filed an application
for authority to construct, launch and operate a Ka-band satellite at 12(degree)
West longitude. In May 1996, the FCC assigned Ku-band orbital locations for 33
U.S. companies, including two assigned to Orion at 78(Degree) East longitude and
126.5(Degree) East longitude, and one to Orion Atlantic at 47(Degree) West
longitude. 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. 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.
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
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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 -- Approvals Needed; Regulation of Industry."
Appraisal
_______________________________________ has delivered an appraisal to the
Company valuing Orion 1 at approximately $____ million as of [September 30,
1996]. In preparing this appraisal, ___________ took into consideration the
design, location and capability of Orion 1, supply and demand for transponders
and the market size and growth in each market Orion Atlantic is serving or plans
to serve and the principal competition and revenues and operating costs of Orion
1. ___________ appraisal was based on projecting and discounting transponder
lease rates, adjusted for appropriate costs, to derive the present value of the
cash flows associated with the ownership of the transponder capacity of Orion 1.
___________ considered but rejected the use of replacement cost because, in its
experience, in-orbit transponders often trade at prices substantially in excess
of replacement cost. ___________ also noted that the most accurate way to value
Orion 1 would be to identify recent, closely comparable sales of transponders or
satellites serving similar markets. ___________ did not use this method since it
was unable to identify any closely comparable sales. However, ___________ did
identify the most comparable satellite sales as a check on approach in
appraising Orion 1.
Because events and circumstances frequently do not occur as expected and
for the reasons described under "Risk Factors" and elsewhere in this Prospectus,
there will usually be differences between assumed and actual results, and those
differences may be material. Therefore, no assurance may be given that the
appraised value of Orion 1 will be achieved and reliance should not be placed on
such appraised value. ___________ Appraisal Memorandum for Orion 1 (the "
___________ Memorandum"), a copy of which has been filed as an exhibit to the
Registration Statement of which this Prospectus is a part, sets forth other
material assumptions, information, qualifications and limitations upon liability
related to ___________ appraisal. The foregoing description of ___________
appraisal is qualified in its entirety by reference to the ___________
Memorandum.
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
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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
indebtedness, including the Notes. See "Risk Factors -- 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 and marketing capabilities
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 -- 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 or Iridium, 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.
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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, or its successors under
any restructuring plan, 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 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, is expected to compete 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 that will provide coverage of
the U.S., Central America and Mexico in 1997, 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 the
Orion satellites.
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 late 1996 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
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and/or the proposed footprints of Orion 2 and Orion 3. As these new satellites
commence operations, they will substantially increase the capacity available for
sale in the company's markets. 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 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. See "Risk Factors -- 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 that
is increasingly competitive with Orion's services.
Undersea Cable. Undersea fiber optic cable capacity has
increased substantially in recent years. Although Orion believes that undersea
cable capacity is not as well suited as satellite capacity to serve the
requirements of video broadcasters or the demand for multi-point private network
services, fiber optic and coaxial cables are well suited for carrying large
amounts of bulk traffic, such as long distance telephone calls, between two
locations. Operators of undersea fiber optic cable systems typically are joint
ventures among major telecommunications companies. Orion expects strong
competition from these carriers in providing private network services.
Regulation
Regulatory Overview
The international telecommunications environment is highly
regulated. As an operator of privately owned international satellite systems
licensed by the United States, Orion is subject to the regulatory authority of
the United States (primarily the FCC) and the national communications
authorities of the countries in which it provides service. Each of these
entities can 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 observed in some jurisdictions 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), and the Republic of the Marshall Islands (through which the Company
has applied for the Orion 3 orbital slot), (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,
including the Notes, and the value of the Warrants and 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. While such approvals generally have
not been difficult for Orion to obtain in a timely manner, the failure to obtain
particular approvals has delayed, and in the future may delay, the provision of
services by Orion. See "Risk Factors -- 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(degree) West longitude in accordance
with the terms, conditions and technical specifications submitted in its
application to the FCC. The Orion 1 license from the FCC expires in January
2005. Although Orion has no reason to believe that its licenses will not be
renewed (or new licenses obtained) at the expiration of the license term, there
can be no assurance of renewal.
Orion 2. Orion has obtained conditional authorization from the
FCC for the orbital slot at 12(degree) West longitude for operation of Orion 2.
The Orion 2 authorization will not become final until Orion completes a
consultation with INTELSAT and demonstration to the FCC of its financial ability
to meet the costs of construction, the launch of its satellite and operating
expenses for one year following launch. Orion has not yet met the required
financial qualifications demonstration to the FCC. It is required to make such
showing within ninety (90) days after completion of INTELSAT consultation, and
accordingly intends to commence consultation with INTELSAT after it has
completed 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(degree) East
longitude through the Republic of the Marshall Islands. Under an agreement with
the Republic of the Marshall Islands entered into in 1990, the Republic of the
Marshall Islands agreed to file with the ITU all documents necessary to secure
authorization for Orion to operate a satellite in geo-stationary orbit. In
return for the right to utilize any orbital slots secured by the Republic of the
Marshall Islands, Orion must, among other things, (i) commence construction of a
functioning operating center for satellites serving the Pacific Island portion
of the Orion Asia Pacific network at least a year prior to the operation of an
Orion satellite, (ii) train and support certain employees designated by the
Republic of the Marshall Islands at least a year prior to the operation of an
Orion Asia Pacific satellite, and (iii) construct, equip and install (except for
power supply or back-up) four earth stations capable of handling a "T-1" circuit
for operation with the Orion Asia Pacific system prior to the operation of an
Orion Asia Pacific satellite.
Consultation with INTELSAT and EUTELSAT
Orion 1. Prior to receiving final licensing and launch
authority for Orion 1, Orion successfully completed its consultation with
INTELSAT pursuant to the INTELSAT Treaty. A similar consultation for Orion 1 was
completed with EUTELSAT in May 1994, and Orion 1 may be used for non-switched
services in and between EUTELSAT signatory countries. Additional consultations
or other approvals may be needed in individual countries for the use of small
VSATs.
Orion 2. Orion has not commenced consultations with INTELSAT
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 satellites located adjacent to
the 12(degree) West longitude orbital slot, the INTELSAT 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(degree) 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 are process for coordinating
orbital slots through the ITU is discussed under the caption " -- Orbital Slots
- -- ITU Coordination Process."
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Orion 1: After Orion 1 reached its orbital position and
commenced operation, the FCC has notified the ITU, and the orbital location of
37.5(degree) West longitude was entered into the Master Registry of the ITU.
This concluded the process for coordination of the Orion 1 orbital slot.
Orion 2: On behalf of Orion, the FCC has commenced the orbital
slot coordination process through the ITU. Orion believes that its use of the
12(degree) West longitude slot for Orion 2 is not likely to interfere with
proposed uses of adjacent slots filed for by other governments, except for a
possible overlap of 75 MHz with one such administration's proposal as discussed
more fully under the caption "-- Orbital Slots -- ITU Coordination Process."
Orion 3: Orion, through the Republic of the Marshall Islands,
has filed the appropriate documentation with the ITU to begin the ITU
coordination process for Orion 3 at 139(degree) East longitude. As discussed
more fully under the caption "-- Orbital Slots -- ITU Coordination Process,"
based upon the time of filing by the Republic of the Marshall Islands, Orion
believes that the proposed orbital slot for Orion 3 would have priority under
ITU procedures with respect to the 139(Degree) East longitude orbital slot, but
some proposals by other administrations for adjacent slots would be entitled to
effective priority over the proposal by the Republic of the Marshall Islands
with respect to 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(Degree) East longitude, however, there can be no assurance
that this will be achieved.
United States Regulatory Restrictions
Orion is subject to regulation under the Communications Act,
the FCC's July 1985 Separate Systems decision as modified by subsequent FCC
decisions, other FCC regulations, and the terms of the various orders issued by
the FCC with respect to Orion and its subsidiaries, including the terms of the
Orion 1 License. These regulations, orders and authorizations impose various
restrictions on Orion and on other similarly situated companies. Certain
important restrictions are described below.
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
January 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. The Order will have no change in
the licensing of Orion's orbital positions at 37.5(degree) West, 12(degree)
West, 47(degree) West longitude and 126(degree) East longitude (the orbital slot
at 139(degree) East longitude is not being pursued through the FCC and is not
subject to the financial showing requirement.) To the extent that Orion is
seeking an orbital location through the FCC, Orion will need to have significant
financing on
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hand at the time of application or obtain a waiver of the required financial
demonstration. There is no assurance that Orion will be able to obtain such
waiver.
Unauthorized Transfer of Control. The Communications Act bars
a change in control of the holder of FCC licenses without prior approval from
the FCC. Any finding that a change of control without prior FCC approval had
occurred could have a significant adverse effect on Orion's ability to implement
its business plan.
International Regulation
Orion will need to comply with the applicable laws and obtain
the approval of the regulatory authority of each country in which it proposes to
provide network services or operate VSATs. The laws and regulatory requirements
regulating access to satellite systems vary from country to country. Some
countries have substantially deregulated satellite communications, making
customer access to Orion services a simple procedure, while other countries
maintain strict monopoly regimes. The application procedure can be
time-consuming and costly, and the terms of licenses vary for different
countries.
Orion provides service using the licenses it obtains or that
are obtained by local ground operators or, in certain cases, through
customer-obtained authorizations. For example, Orion's representatives in the
United Kingdom (Kingston Communications), France (Matra Hachette), Germany
(Nortel Dasa) and Italy (Telecom Italia) have licenses in such countries. Orion
also has obtained "landing rights" through the INTELSAT treaty (although each
INTELSAT signatory country retains sovereignty over the transmission of
satellite signals and retains the right to object to the use of the Orion 1
satellite 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. However, unlike the European Union, countries in the Asia Pacific
Region have fairly dissimilar regulatory structures. Orion may therefore
encounter regulatory barriers and high marketing costs that cannot be quantified
at this point. Laws and regulations regulating access to satellite systems in
some countries in the Pacific Region are unsettled, and many of these countries
maintain strict controls on the ability of any entity other than the PTT or the
government, or in certain cases local companies, to operate satellite earth
station facilities. See "Risk Factors -- 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, 6 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
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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 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.
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MANAGEMENT
Directors and Executive Officers
Orion's Board is 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
W. Neil Bauer....................... 50 President and Chief Executive Officer, 1999
Director (Principal Executive Officer)
David J. Frear...................... 40 Vice President, Chief Financial Officer
and Treasurer (Principal Financial Officer
and Principal Accounting Officer)
Richard H. Shay..................... 55 Vice President, Corporate and Legal
Affairs, and Secretary
Denis Curtin........................ 57 Senior Vice President, Orion Satellite
Corporation and General Manager,
Engineering and Satellite Operations
Hans C. Giner....................... 57 Vice President of Orion and President,
Orion Asia Pacific Corporation
Douglas H. Newman................... 57 Vice President of Orion and
President, Orion 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 is set forth
below.
Gustave M. Hauser has been Chairman of Orion since January 1996 and has
been a Director of Orion since December 1982. Since 1983, he has been Chairman
and Chief Executive Officer of Hauser Communications, Inc., an investment and
operating firm specializing in cable television and other electronic
communications. From 1973 to 1983 he served as Chairman and Chief Executive
Officer of Warner-Amex Cable Communications, Inc. (formerly Warner Cable
Communications, Inc.), a major multiple system operator of cable television
systems and originator of satellite delivered video programming. He is a trustee
of the Museum of Television and Radio. He is a past Vice Chairman of the
National Cable Television Association, and from 1970 to 1977 he served, by
appointment of the President of the United States, as a director of the Overseas
Private Investment Corporation.
W. Neil Bauer has been President of Orion since March 1993, and has
been Chief Executive Officer and a Director since September 1993. From 1989 to
February 1993, Mr. Bauer was employed by GE American Communications, Inc., where
he served as Senior Vice President and General Manager of Commercial Operations.
Prior to 1989, Mr. Bauer was Chief Financial Officer of GE American
Communications, Inc. and later head of
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commercial sales. He held several key financial planning positions at GE/RCA
from 1984 through 1986 focused on operational and business analysis of diverse
business units including all communications units. From 1974-1983, he was
employed by RCA Global Communications, an international record carrier. During
this period, he held several financial and operational positions and was
responsible for financial and business planning.
David J. Frear has been Vice President and Chief Financial Officer of
Orion since November 1993 and Treasurer of Orion since January 1994. From
September 1990 through April 1993, Mr. Frear served as Vice President and Chief
Financial Officer of Millicom Incorporated, an international telecommunications
service company. From January 1988 to September 1990, Mr. Frear held various
positions in the investment banking department at Bear, Stearns & Co. Inc. Mr.
Frear received his CPA in 1979.
Richard H. Shay has been Secretary of Orion since January 1993 and a
Vice President since April 1992. From July 1981 until September 1985, Mr. Shay
served as Chief Counsel to the National Telecommunications and Information
Administration ("NTIA") of the U.S. Department of Commerce and then as Deputy
General Counsel to the Department, where he was responsible for the legal
matters of the Department's agencies. In his capacity as Chief Counsel to NTIA,
Mr. Shay also served as Acting Director of its Office of International Policy,
served on the official U.S. delegation to the 1982 Nairobi Plenipotentiary
Conference of the ITU and was involved in preparation for the 1983 ITU Direct
Broadcast Satellite World Administrative Radio Conference.
Denis J. Curtin is Senior Vice President, OrionSat and General Manager,
Engineering and Satellite Operations. He joined the Company in September 1988 as
Vice President, Engineering. He previously was Senior Director of Satellite
Engineering of COMSAT's Systems Division. While at COMSAT, Dr. Curtin served for
over 21 years in the systems engineering, program and engineering management of
both domestic and international satellite systems. He has an MS in Physics, a
Ph.D. in Mechanical Engineering, and has published numerous papers on solar cell
and solar array technology, is the editor of the Trends in Satellite
Communications and is a Fellow of the American Institute of Astronautics and
Aeronautics.
Hans C. Giner became President of Orion Asia Pacific Corporation,
Orion's subsidiary devoted to pursuing construction and launch of a satellite
covering the Asia Pacific region, in the fourth quarter of 1995 and a Vice
President of Orion in the first quarter of 1996. Mr. Giner served as a
consultant to Orion from October 1995 through January 1996 relating to similar
matters. Prior thereto, he held senior positions in the satellite and
telecommunications industries for more than 20 years. Most recently, from April
1994 through September 1995 he served as President of Stellar One Corporation, a
high-tech company designing, manufacturing and distributing technologies for
telecommunications groups, particularly local telephone and cable television
companies. Prior to that, from November 1987 through March 1994, Mr. Giner held
several positions for, and ultimately served as president and CEO of Millisat
Holdings, Inc., a member of the Millicom Group, with worldwide responsibility
for development of media and telecommunications properties, including broadcast,
cable and wireless television.
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
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. ("CIBC"), 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.
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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 of Shenandoah Telecommunications
Company, the parent company of Shenandoah Telephone Company, from 1981 to 1988.
In 1988, he became Chairman of Shenandoah Telecommunications Company. He is a
past Chairman of the United States Telephone Association and is a director of
First National Corporation, Shenandoah Telephone Company and Shenandoah
Telecommunications Company.
Barry Horowitz 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 has served as Group Treasurer of British Aerospace, with full
responsibility for the treasury function at British Aerospace since 1991.
Recently, at the request of British Aerospace, he has been spending a portion of
his time working for Airbus Finance Corp. as Chief Operating Officer. Since 1986
he has served in treasury functions for British Aerospace.
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 is a director
of Celerex Corporation and Nordstrom National Credit Bank. Celerex Corporation
filed a petition for reorganization under Chapter 11 of the United States
Bankruptcy Code in 1995.
Robert M. Van Degna has been a Director of Orion since June 1994. He is
the managing general partner of Fleet Equity Partners. 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 was designated for election by Fleet
Venture Resources, Inc., one of the principal holders of the Preferred Stock.
Mr. Van Degna also serves as a director of ACC Corporation.
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Orion's Charter and By-Laws provide that the Board of
Directors of Orion, which presently consists of eleven (11) members, 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.
Three Directors, Messrs. Rice, Brekka and Van Degna were
elected pursuant to agreements with each of British Aerospace, CIBC and Fleet,
respectively, which terminated in August 1995 when the Common Stock became
publicly traded.
Committees of the Board of Directors
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 comprised 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 (as defined below) through December 31, 1995 (the
"1995 Public Company Period"), the Audit Committee held one meeting.
The Compensation Committee is comprised 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 comprised of Messrs. Hauser, Kahn,
Puente (chairman), Saeman and Van Degna. The Executive Committee provides
strategic direction with respect to financing, strategic partners, acquisitions
and market focus, subject to approval by the Board of Directors of all
significant actions. The Executive Committee 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 pursuit of the
Transactions.
The Finance Committee is comprised 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.
The Nominating Committee is comprised 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.
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Limits on Liability; Indemnification
Orion's Certificate of Incorporation provides that Orion's
directors will not be liable for monetary damages for breach of the directors'
fiduciary duty of care to Orion and its stockholders. This provision in the
Certificate of Incorporation does not eliminate the duty of care, and in
appropriate circumstances equitable remedies such as an injunction or other
forms of non-monetary relief would remain available under Delaware law. In
accordance with the requirements of Delaware law, as amended, Orion's directors
would 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 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.
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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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, 1995, 1994, and 1993.
<TABLE>
<CAPTION>
Long Term Compensation
---------------------------------------------
Annual Compensation Awards Payouts
---------------------------------------------------------------------------------------
Securities
Name and Other Annual Restricted Underlying All Other
Principal Compen- Stock Options/ LTIP Compen-
Position Year Salary($) Bonus($) sation($)(1) Award(s)($) SARs(#) Payouts($) sation($)
- ---------------- -------- ------------ ------------- -------------- -------------- -------------- --------------- -----------
<S> <C> <C> <C> <C> <C>
John G. Puente,* 1995 $275,000 $ --
Chairman 1994 275,000 75,000
1993 275,000 --
W. Neil Bauer, 1995 265,000 90,000 -- 110,294
President and 1994 250,000 100,000 100,684 --
Chief Executive 1993 185,000 -- -- 153,520
Officer
David J. Frear, 1995 179,005 40,000 4,570 55,147
Vice President, 1994 170,000 51,000 25,715 --
Treasurer and 1993 42,500 -- -- 73,528
Chief Financial
Officer
John J. Albert,* 1995 175,664 18,000 14,705
Vice President of 1994 162,000 -- --
Orion Satellite 1993 53,333 5,000 18,382
Corporation
Denis J. Curtin, 1995 151,081 38,000 24,705
Senior Vice 1994 133,850 35,700 --
President of 1993 130,000 25,000 --
Orion Satellite
Corporation
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- ----------
* Mr. Puente retired as Chairman of Orion in January, 1996, but since July
1996 has been serving as a consultant to the Company and chairman of the
Company's Executive Committee. Mr. Albert was considered an executive
officer of Orion as of December 31, 1995, but as a result of a recent
determination during 1996 by Orion's Board of Directors regarding control
of the management and policies of Orion is no longer considered an
executive officer of Orion.
(1) Relocation expenses.
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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 Common Stock are available
for grants to employees of Orion. Orion has also adopted a 1996 Non-Employee
Director Stock Option Plan as hereinafter defined). 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, 1995.
<TABLE>
<CAPTION>
Individual Grants
---------------------------------------------------------------------------
Potential Realized
Value at Assumed
Annual Rates of
Stock Price
Number of % of Total Appreciation for
Securities Options Exercise or Base Option Term
Underlying Granted to Price Per
Options Employees in Share($/Sh)(1) Expiration 5%($) 10%($)
Name Granted Fiscal Year Date
- ----- -------------- --------------- ------------------ -------------- ----------------------
<S> <C> <C> <C> <C> <C>
John G. Puente............ -- -- -- --
W. Neil Bauer............. 110,294 24.8 11.90 03/15/02(2) 533,823/1,245,219
David J. Frear............ 55,147 12.4 11.90 03/15/02(2) 266,911/622,610
John J. Albert............ 14,705 3.3 11.90 03/15/02(2) 71,172/166,019
Denis J. Curtin........... 14,705 3.3 11.90/ 03/15/02(2) 71,172/166,019
10,000 2.3 9.67 11/16/02(3) 70,700/135,200
</TABLE>
(1) The option exercise price is equal to one hundred percent of the fair
market value of the Common Stock on the date the option was granted.
(2) The options will vest in equal installments over a five year period from
the date of grant.
(3) Fifty percent of the option vest on the date of grant, and the remainder
will vest in equal installments over a two year period from the date of
grant.
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 1995 by the named executive officers. No named
executive officer exercised any stock options during the fiscal year.
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised In-the-
Underlying Unexercised Options Money Options at
at December 31, 1995 December 31, 1995(1)
------------------------------------ ------------------------------------
Name Exercisable/Unexercisable Exercisable/Unexercisable
- ------ ------------------------------------ ------------------------------------
<S> <C> <C>
John G. Puente........................... 33,087/0 $7,114/$0
W. Neil Bauer............................ 64,704/170,598 9,488/6,324
David J. Frear........................... 16,176/79,411 0/0
John J. Albert........................... 7,353/25,734 0/0
Denis J. Curtin.......................... 14,446/32,499 3,106/1,676
</TABLE>
- ----------
(1) Based on a per share price of $8.375 on December 31, 1995.
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Compensation of Directors
Prior to January 1996 (Orion having become publicly traded
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 Common Stock under
the 1996 Non-Employee Director Stock Option Plan. An initial grant of options to
purchase 10,000 shares of 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 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 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.
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 Common Stock at an exercise
price of $9.83 per share. Of the options granted to Mr. Puente, 50% will vest on
January 17, 1997 or earlier at the discretion of the Board, 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 certain financing
transactions (including the Offering). Finally, 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 Common Stock may be granted to key employees of Orion 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
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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 Optionee's
base salary, except for a reduction of up to 10% due to a reduction in
compensation generally applicable to executive officers of Orion; 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 fifty one percent (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 Common Stock on the date of grant. The
exercise price of nonstatutory stock options may be less than the fair market
value of the 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 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 Common Stock granted
pursuant to the Plan had been exercised. There are 449,057 shares of 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 Common Stock are
reserved for issuance thereunder. The stock options granted under the
Non-Employee Director Stock Option Plan are non-incentive options.
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 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 Common Stock, and an
unvested option to purchase 10,000 shares of Common Stock which will vest at the
next annual meeting of stockholders (expected to be 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 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 Common Stock equal to (i) the number of complete
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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 shall be
annually granted an additional option to purchase 10,000 shares of 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 one hundred percent of the fair market value of
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 (5)
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
Common Stock with a fair market value equal to the option price, or a
combination of cash and shares of 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 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
Common Stock were outstanding outside of such plans at an average exercise price
of $8.30. During 1995, Orion had 6,463 options granted outside of such plans
were exercised.
Other Employee Benefit Plans
1997 Employee Stock Purchase Plan. In September 1996, Orion adopted its
1997 Employee Stock Purchase Plan (the "Stock Purchase Plan"). Under the Stock
Purchase Plan, eligible employees may purchase up to an aggregate of 500,000
shares of Common Stock through payroll deductions. Eligible employees include
all employees except those who have been employed by Orion for less than three
months, those who work less than five months per calendar year or less than 20
hours per week, and those who would own 5% or more of the total combined voting
power of all classes of Orion's capital stock upon their participation in the
Stock Purchase Plan. The Stock Purchase Plan will terminate at the sooner of
September 2006 or such time as all shares of Common Stock available under the
Stock Purchase Plan have been issued.
The Stock Purchase Plan is administered by the Board, but the Board has
delegated administration to its Human Resources and Compensation Committee.
Employees may commence participation in the Stock Purchase Plan or change their
payroll deduction percentages effective at the beginning of each calendar
quarter. On the last
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day of each quarter, all funds accumulated in an employee's account are used to
purchase shares of Common Stock at a purchase price equal to the lesser of 85%
of the fair market value of such Common Stock (i) on the first trading day of
the quarter or (ii) on the last trading day of the quarter, but in no event
shall the per-share price be less than the par value of the Common Stock ($.01).
No employee may purchase in any one calendar year shares of Common Stock having
an aggregate fair market value in excess of $25,000. 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 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 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
Common Stock, and may make profit sharing contributions. Up to 100,000 shares of
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 equivalent amount of 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.
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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 Common Stock or other cash matching or profit sharing
contributions have been distributed under the 401(k) Plan.
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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
Limited 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, 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 and The Exchange."
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 which $10 million will be re-invested in Orion by Matra Marconi Space
in the Matra Marconi Investment (see "Description of Certain Indebtedness"). 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 Operation -- Liquidity and Capital Resources."
Orion has engaged certain Limited Partners as representative
agents for sales and ground operations. A joint venture between two Limited
Partners (Kingston Communications and British Aerospace) serves as a ground
operations representative in the United Kingdom, and another Limited Partner
(Matra Hachette) serves as a ground operations representative in France. Orion
expects to pay these Limited 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 has paid these Limited Partners $1.9
million in 1995 and $1.9 million in 1994 for these services. See "Business --
Sales and Marketing" and "Business -- Network Operations; Local Ground
Operators."
In December 1991, Orion issued 259,515 shares of 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 of Notes to
Consolidated Financial Statements). These shares were reconveyed to Orion and
are held in treasury at a value of $0. These shares are pledged as security for
British Aerospace Space Systems, Inc. in the event British Aerospace Space
Systems, Inc. is required to fund amounts under its guarantee and Orion does not
provide reimbursement. These arrangements will be terminated on the Closing
Date.
In December 1993, Orion issued an aggregate of 178,097 shares
of Common Stock as part of a private placement of its 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 purchasers to receive the
benefit of any lower price at which 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 Common Stock as
part of a private placement of its Common Stock to a limited number of
institutions and other investors (including 64,705
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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 Common Stock in December 1993. In addition, after Orion issued
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 Common Stock in December
1993 each exercised his or its right to receive Series A 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 $3,000,000 of
Series A Preferred Stock to such persons and entities.
In May 1994, Orion entered into an agreement with Space
Systems/Loral ("SS/L") whereby SS/L agreed to purchase 588,235 shares of 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 Series A Preferred Stock. For a description of the
Series A Preferred Stock, see "Description of 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.
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 and certain Directors and affiliates of
Directors who purchased Series A Preferred Stock in June 1994 purchased
approximately $4.2 million in Series B Preferred Stock of Orion. This purchase
was pursuant to an option granted in June 1994. 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 Common Stock at an initial price of
$10.20 per share, subject to certain anti-dilution adjustments.
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, $8.0 million of which was still outstanding as of
September 30, 1996 and $3.5 million (plus accrued interest of approximately
$600,000) of which will be payable on the Closing Date. 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 $600,000) of which become
payable on the Closing Date). 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 and caused to be posted a $10 million letter of credit to support such
indemnity. Such arrangements will be discontinued on the Closing Date.
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 "Business -- Implementation of the Orion
Satellite System -- Orion 2." Matra Hachette, one of the parent companies of
Matra Marconi Space, will be a more than 5% beneficial owner of Common Stock
after the Exchange and the Merger. See "The Merger and the Exchange."
In December 1996, Orion and the Limited Partners entered into
the Exchange Agreement and the Merger Agreement. See "The Merger and the
Exchange."
The net proceeds of the British Aerospace Investment, which
will occur concurrently with this 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 and Orion 3 Satellite
Contract.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock, as of September 30, 1996, and as
adjusted to reflect the beneficial ownership of Common Stock after the
Transactions, assuming for this purpose that the Transactions close January 30,
1997 (if the Transactions close after such date, the Limited Partners will
beneficially own greater amounts of Common Stock), by (i) each stockholder known
by the Company to be the beneficial owner of more than five percent of the
outstanding Common Stock, (ii) each Director of the Company, (iii) each current
executive officer named in the Summary Compensation Table, and (iv) all
Directors and officers as a group. Except as indicated, the Company believes
that the beneficial owners of the Common Stock listed below, based on
information furnished by such owners, have sole investment and voting power with
respect to such shares, subject to community property laws where applicable.
<TABLE>
<CAPTION>
After the Transactions
Before the Transactions After the Transactions On a Fully Diluted Basis
------------------------------- ----------------------------- ---------------------------
Percent of Amount of Percent of Percent of
Amount of Total Shares Beneficial Total Shares of Amount of Total Shares of
Name and Address of Beneficial of Common Stock Ownership Common Stock Beneficial Common Stock
Beneficial Owner (1) Ownership (1) Ownership(2) (1) Outstanding(2) Ownership Outstanding(3)
- -------------------- ------------- ---------------- ------------ -------------- --------- ----------------
Exchanging Limited Partners
- ---------------------------
<S> <C> <C> <C> <C> <C> <C>
British Aerospace Space 598,183 5.4 7,119,840 40.5 7,119,840 27.5
Systems, Inc. (4)
British Aerospace
Communications, Inc.
13873 Park Center Road
Herndon, VA 22071
Lockheed Martin Commercial 239,769 2.2 1,355,997 11.2 1,355,977 5.2
Launch Services, Inc.
P.O. Box 179
MSM DC-1400
Denver, CO 80201-0179
MCN Sat U.S., Inc * * 1,727,257 13.6 1,727,257 6.7
37, Avenue Louis
Breuget B.P.1.
78146 Velizy Villacoublay
Cedez
France
Trans-Atlantic Satellite, * * 796,457 6.8 796,457 3.1
Inc.
1211 Avenue of the Americas
41st Floor
New York, NY 10036
Kingston Communications 43,252 * 683,137 5.9 683,137 2.6
International Limited
Telephone House
Carr Lane
Kingston-upon-Hull
HU1 3RE
England
Com Dev Satellite 18,382 * 559,067 4.9 559,067 2.2
Communications Limited
150 Sheldon Drive
Cambridge, Ontario
Canada N1R 7H6
Limited Partners as a group 899,586 8.1 12,241,755 54.5 12,241,755 47.3
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
After the Transactions
Before the Transactions After the Transactions On a Fully Diluted Basis
------------------------------- ----------------------------- ---------------------------
Percent of Amount of Percent of Percent of
Amount of Total Shares Beneficial Total Shares of Amount of Total Shares of
Name and Address of Beneficial of Common Stock Ownership Common Stock Beneficial Common Stock
Beneficial Owner (1) Ownership (1) Ownership(2) (1) Outstanding(2) Ownership Outstanding(3)
- -------------------- ------------- ---------------- ------------ -------------- --------- ----------------
<S> <C> <C> <C> <C> <C> <C>
John V. Saeman 1,486,440 13.4 1,486,440 13.4 1,486,440 5.7
J.V. Saeman & Co.(5)(6)
Medellion Enterprises, LLC
Suite 570
3200 Cherry Creek South
Drive
Denver, CO 80209
CIBC Wood Gundy Ventures, 977,123 8.2 977,123 8.2 977,123 3.8
Inc. (5)(7)
425 Lexington Avenue
New York, NY 10017
Cumberland Associates 815,000 7.4 815,000 7.4 815,000 3.2
1114 Avenue of the Americas
New York, New York 10036
Fleet Venture Resources, 743,428 6.3 743,428 6.3 743,428 2.9
Inc.(5)(8)
Fleet Equity Partners VI,
L.P.
Chisholm Partners II, L.P.
111 Westminster Street
Providence, RI 02903
Space Systems/Loral 588,235 5.4 588,235 5.4 588,235 2.3
3925 Fabian Way
Palo Alto, CA 94303
Gustave M. Hauser(5)(9) 437,517 4.0 437,517 4.0 437,517 1.7
712 Fifth Avenue
New York, New York 01910
John G. Puente (5)(10) 432,181 3.9 432,181 3.9 432,181 1.7
2440 Research Blvd.
Suite 400
Rockville, MD 20850
Sidney S. Kahn(5)(11) 254,840 2.3 254,840 2.3 254,840 1.0
14 East 60th Street
Suite 500
New York, New York 10022
W. Neil Bauer (5)(12) 133,821 1.2 133,821 1.2 133,821 *
2440 Research Blvd.
Suite 400
Rockville, MD 20850
David J. Frear (5)(13) 60,181 * 60,181 * 60,181 *
2440 Research Blvd.
Suite 400
Rockville, MD 20850
Richard H. Shay (14) 35,805 * 35,805 * 35,805 *
2440 Research Blvd.
Suite 400
Rockville, MD 20850
Warren B. French, Jr. (15) 15,623 * 15,623 * 15,623 *
124 S. Main Street
Edinburg, VA 22824
Richard J. Brekka (16) 10,000 * 10,000 * 10,000 *
CIBC Wood Gundy Ventures,
Inc.
425 Lexington Avenue
New York, NY 10017
</TABLE>
-95-
<PAGE>
<TABLE>
<CAPTION>
After the Transactions
Before the Transactions After the Transactions On a Fully Diluted Basis
------------------------------- ----------------------------- ---------------------------
Percent of Amount of Percent of Percent of
Amount of Total Shares Beneficial Total Shares of Amount of Total Shares of
Name and Address of Beneficial of Common Stock Ownership Common Stock Beneficial Common Stock
Beneficial Owner (1) Ownership (1) Ownership(2) (1) Outstanding(2) Ownership Outstanding(3)
- -------------------- ------------- ---------------- ------------ -------------- --------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Barry Horowitz (17) 10,000 * 10,000 * 10,000 *
Mitretek Systems, Inc.
7525 Colshire Drive
McLean, VA 22102
Douglas H. Newman (18) 20,000 * 20,000 * 20,000 *
2440 Research Blvd.
Suite 400
Rockville, MD 20850
W. Anthony Rice (19) 10,000 * 10,000 * 10,000 *
British Aerospace
13873 Park Center Road
Herndon, VA 22071
Robert M. Van Degna (20) 10,000 * 10,000 * 10,000 *
Fleet Equity Partners
111 Westminster Street
Providence, RI 02903
Hans Giner (21) 5,000 * 5,000 * 5,000 *
2440 Research Blvd.
Suite 400
Rockville, MD 20850
Dennis J. Curtin (22) 26,039 * 26,039 * 26,039 *
2440 Research Blvd.
Suite 400
Rockville, MD 20850
All Directors and executive 2,947,447 25.6 2,947,447 25.6 2,947,447 11.4
officers as a group
(15 persons)
</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. This table includes shares of Common Stock subject to
outstanding options granted pursuant to Orion's Stock Option Plan and the
Non-Employee Director Stock Option Plan.
(2) For the purpose of computing the percentage ownership of each beneficial
owner, any securities which were not outstanding but which were subject to
options, warrants, rights or conversion privileges held by such beneficial
owner exercisable within 60 days were deemed to be outstanding in
determining the percentage owned by such person but were not deemed
outstanding in determining the percentage owned by any other person.
(3) The percentage ownership of each beneficial owner calculated on a fully
diluted basis by assuming 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.
(4) Includes 511,678 shares held of record and 86,505 shares issuable upon the
exercise of warrants held by British Aerospace Space Systems, Inc.
(5) Does not include shares issuable upon exercise of warrants which are
exercisable only in the event that the Preferred Stock is redeemed by
Orion prior to its conversion into Common Stock.
(6) The 1,486,440 shares of Common Stock beneficially owned by John V. Saeman
include 58,823 shares issuable upon conversion of Series A Preferred Stock
and 16,339 shares issuable upon conversion of 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 of
which Mr. Saeman and his wife are the sole stockholders. Includes 10,000
shares issuable upon exercise of stock options exercisable within 60 days.
(7) Includes 764,705 shares issuable upon conversion of 6,500 shares of Series
A Preferred Stock and 212,418 shares issuable upon conversion of 2,166.667
shares of Series B Preferred Stock held by CIBC.
(8) Includes 588,234 shares issuable upon
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<PAGE>
conversion of 4,000 shares of Series A Preferred Stock held by Fleet
Venture Resources, Inc. and Fleet Equity Partners, VI, L.P. and 1,000
shares of Series A Preferred Stock held by Chisholm, and 130,685 shares
issuable upon conversion of 1,333 shares of Series B Preferred Stock held
by Fleet and preferred options held by Chisholm which were convertible
into 24,509 shares of Common Stock.
(9) Includes 58,823 shares issuable upon the conversion of 500 shares of
Series A Preferred Stock and 16,339 shares of Common Stock issuable upon
conversion of 166.667 shares of 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. Also 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 Series A
Preferred Stock and 392 shares issuable upon conversion of 4 shares of
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 Series
A Preferred Stock and 8,169 shares issuable upon conversion of 83.333
shares of 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
Series A Preferred Stock, and 522 shares issuable upon conversion of 5.333
shares of 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, 1,176 shares issuable upon the conversion of
10 shares of Series A Preferred Stock and 326 shares issuable upon
conversion of 3.333 shares of 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 Series A Preferred Stock, and 8,170
shares issuable upon conversion of 83.334 shares of Series B Preferred
Stock 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. Includes 10,000 shares issuable upon
exercise of stock options exercisable within 60 days.
(17) Consists of shares issuable upon the exercise of stock options exercisable
within 60 days.
(18) Consists of shares issuable upon the exercise of stock options exercisable
within 60 days.
(19) Does not include 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 shares issuable upon conversion of shares of Series A Preferred
Stock held by Fleet and shares of Series A Preferred Stock held by
Chisholm. Mr. Van Degna, a Director of Orion, is the president of each of
the managing general partners of Fleet Equity Partners VI, L.P., is the
president of Fleet Venture Resources, Inc. and is the president 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) Consists of 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 Series A Preferred Stock and 196 shares issuable upon
conversion of 2 shares of Series B Preferred Stock.
-97-
<PAGE>
MARKET PRICES FOR ORION COMMON STOCK AND DIVIDENDS
Since completion of its initial public offering in August 1995, Orion's
Common Stock is quoted on the Nasdaq National Market under the trading symbol
"ONSI." As of December 15, 1996, there were approximately 349 stockholders of
record of Orion's Common Stock. The following table summarizes the high and low
prices of Common Stock by fiscal quarter for 1995 and 1996 as reported by
Nasdaq. The prices shown represent quotations among securities dealers, do not
include retail markups, markdowns, or commissions, and may not represent actual
transactions. STOCKHOLDERS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS.
Quarter Ended: 1995
August through September 30 $10 3/4 to $14 1/4
December 31 6 3/4 to 12
Quarter Ended: 1996
March 31 $8 1/4 to $14 3/4
June 30 10 1/4 to 14 1/4
September 30 7 1/4 to 12 1/8
December 31 (through December 15) 9 1/2 to 12 3/4
Orion has never paid any cash dividends on Common Stock and
the Board of Directors of Orion currently does not anticipate paying cash
dividends in the foreseeable future on shares of Common Stock. The Indentures
contain a covenant effectively prohibiting the payment of dividends for the
foreseeable future.
-98-
<PAGE>
DESCRIPTION OF UNITS
The Units are comprised of Senior Note Units, each consisting
of a Senior Note with a principal amount of $1,000 and Warrants to purchase
shares of Common Stock of Orion, and Senior Discount Note Units, each consisting
of a Senior Discount Note with a principal amount of $1,000 at maturity and
Warrants to purchase shares of Common Stock of Orion.
The Notes and Warrants will become separately transferable on
the earlier of (i) six months after the date of issuance, (ii) such date as the
Underwriters may, in their discretion, deem appropriate and (iii) in the event
of an Offer to Purchase (as defined in "Description of Notes -- Certain
Definitions"), the date the Company mails notice thereof to holders of the Notes
(the "Separation Date").
DESCRIPTION OF NOTES
The Senior Notes are to be issued under an Indenture, to be
dated as of the Closing Date (the "Senior Notes Indenture"), between the
Company, as issuer, each of the Company's Restricted Subsidiaries, as
guarantors, and [ ], as Trustee (the "Senior Notes Trustee"). The Senior
Discount Notes are to be issued under an Indenture, to be dated as of the
Closing Date (the "Senior Discount Notes Indenture"), between the Company, as
issuer, the Guarantors, as guarantors, and [ ], as Trustee (the "Senior Discount
Notes Trustee"). The Senior Notes and the Senior Discount Notes are hereinafter
collectively referred to as the "Notes." The Senior Notes Indenture and the
Senior Discount Notes Indenture are hereinafter collectively referred to as the
"Indentures." The Senior Notes Trustee and the Senior Discount Notes Trustee are
hereinafter collectively referred to as the "Trustees." The Senior Note
Guarantee and the Senior Discount Note Guarantee are hereinafter collectively
referred to as the "Note Guarantees." Any reference to a "Trustee" means the
Senior Notes Trustee or the Senior Discount Notes Trustee, as the context may
require.
A copy of each Indenture has been filed with the Commission as
an exhibit to the Registration Statement of which the Prospectus is a part. The
following summaries of certain provisions of the Indentures do not purport to be
complete and are subject to, and are qualified in their entirety by reference
to, all the provisions of the Indentures, including the definitions of certain
terms therein and those terms made a part thereof by reference to the Trust
Indenture Act of 1939, as amended. Whenever particular defined terms of the
Indentures not otherwise defined herein are referred to, such defined terms are
incorporated herein by reference. For definitions of certain capitalized terms
used in the following summaries, see "--Certain Definitions."
General
The Senior Notes will be unsubordinated obligations of the
Company, limited to $[ ] million aggregate principal amount, and will mature on
________, 2007. Interest on the Notes will accrue at the rate shown on the front
cover of this Prospectus from the Closing Date or from the most recent interest
payment date to which interest has been paid or provided for, payable
semiannually (to Holders of record at the close of business on the or
immediately preceding the interest payment date) on ________ and ________ of
each year, commencing July _____, 1997.
The Senior Discount Notes will be unsubordinated obligations
of the Company, limited to $[ ] million aggregate principal amount at maturity,
and will mature on __________, 2007. Although for federal income tax purposes a
significant amount of original issue discount, taxable as ordinary income, will
be recognized by a Holder as such discount accrues from the issue date of the
Notes, no interest will be payable on the Notes prior to July __________, 2002.
Interest on the Notes will accrue at the rate shown on the front cover of this
Prospectus from the Closing Date or from the most recent interest payment date
to which interest has been paid or provided for, payable semiannually (to
Holders of record at the close of business on the or immediately preceding the
interest payment date) on January______ and July_______ of each year, commencing
July ________, 2002
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<PAGE>
Principal of, premium, if any, and interest on the Notes will
be payable, and the Notes may be exchanged or transferred, at the office or
agency of the Company in the Borough of Manhattan, the City of New York (which,
for the Senior Notes, initially will be the corporate trust office of the Senior
Notes Trustee at [ ] and, for the Senior Discount Notes Trustee, initially will
be the corporate trust office of the Senior Discount Notes Trustee at [ ]);
provided that, at the option of the Company, payment of interest may be made by
check mailed to the address of the Holders as such address appears in the
Security Register.
The Notes will be issued only in fully registered form,
without coupons, in denominations of $1,000 of principal amount at maturity and
any integral multiple thereof. See "-Book-Entry; Delivery and Form." No service
charge will be made for any registration of transfer or exchange of Notes, but
the Company may require payment of a sum sufficient to cover any transfer tax or
other similar governmental charge payable in connection therewith.
Optional Redemption
The Notes will be redeemable, at the Company's option, in
whole or in part, at any time or from time to time, on or after , 2002 and prior
to maturity, upon not less than 30 nor more than 60 days' prior notice mailed by
first class mail to each Holders' last address as it appears in the Security
Register, at the following Redemption Prices (expressed in percentages of
principal amount at maturity), plus accrued and unpaid interest, if any, to the
Redemption Date (subject to the right of Holders of record on the relevant
Regular Record Date that is on or prior to the Redemption Date to receive
interest due on an Interest Payment Date), if redeemed during the 12-month
period commencing , of the years set forth below:
For the Senior Notes
Year Redemption Price
---- ----------------
2002 . %
2003 . %
2004 and thereafter 100.000%
For the Senior Discount Notes
Year Redemption Price
---- ----------------
2002 . %
2003 . %
2004 and thereafter 100.000%
In the case of any partial redemption, selection of the Notes
for redemption will be made by the relevant Trustee in compliance with the
requirements of the principal national securities exchange, if any, on which the
relevant Notes are listed or, if such Notes are not listed on a national
securities exchange, on a pro rata basis, by lot or by such other method as such
Trustee in its sole discretion shall deem to be fair and appropriate; provided
that no Note of $1,000 in principal amount at maturity or less shall be redeemed
in part. If any Note is to be redeemed in part only, the notice of redemption
relating to such Note shall state the portion of the principal amount at
maturity thereof to be redeemed. A new Note in principal amount at maturity
equal to the unredeemed portion thereof will be issued in the name of the Holder
thereof upon cancellation of the original Note.
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<PAGE>
Security
The Senior Notes Indenture will provide that on the Closing
Date, the Company must purchase and pledge to the Senior Notes Trustee for the
benefit of the Holders of the Senior Notes the Pledged Securities in such amount
as will be sufficient upon receipt of scheduled interest and principal payments
of such securities, in the opinion of a nationally recognized firm of
independent public accountants selected by the Company, to provide for payment
in full of the first six scheduled interest payments due on the Senior Notes.
The Company expects to use approximately $72 million of the net proceeds of the
Offering to acquire the Pledged Securities; however, the precise amount of
securities to be acquired will depend upon the interest rates on Government
Securities prevailing on the Closing Date. The Pledged Securities will be
pledged by the Company to the Senior Notes Trustee for the benefit of the
Holders of the Senior Notes pursuant to the Pledge Agreement and will be held by
the Senior Notes Trustee in the Pledge Account. Pursuant to the Pledge
Agreement, immediately prior to an Interest Payment Date on the Senior Notes,
the Company may either deposit with the Senior Notes Trustee from funds
otherwise available to the Company cash sufficient to pay the interest scheduled
to be paid on such date or the Company may direct the Senior Notes Trustee to
release from the Pledge Account proceeds sufficient to pay interest then due on
the Senior Notes. In the event that the Company exercises the former option, the
Company may thereafter direct the Senior Notes Trustee to release to the Company
proceeds or Pledged Securities from the Pledge Account in like amount. A failure
to pay interest on the Senior Notes in a timely manner through the first six
scheduled interest payment dates will constitute an immediate Event of Default
under the Senior Notes Indenture, with no grace or cure period.
Interest earned on the Pledged Securities will be added to the
Pledge Account. In the event that the funds or Pledged Securities held in the
Pledge Account exceed the amount sufficient, in the opinion of a nationally
recognized firm of independent public accountants selected by the Company, to
provide for payment in full of the first six scheduled interest payments due on
the Senior Notes (or, in the event an interest payment or payments have been
made, an amount sufficient to provide for payment in full of any interest
payments remaining, up to and including the sixth scheduled interest payment),
the Senior Notes Trustee will be permitted to release to the Company at the
Company's request any such excess amount. The Senior Notes will be secured by
the Pledged Securities and in the Pledge Account and, accordingly, the Pledged
Securities and the Pledge Account will also secure repayment of the principal
amount of the Senior Notes to the extent of such security.
Under the Pledge Agreement, assuming that the Company makes
the first six scheduled interest payments on the Senior Notes in a timely
manner, all of the remaining Pledged Securities will be released from the Pledge
Account and thereafter the Senior Notes will be unsecured.
Guarantees
The Company's obligations under the Notes are fully and
unconditionally guaranteed on a senior basis by the Guarantors, provided that
the Note Guarantees shall not be enforceable against any Guarantor in an amount
in excess of the net worth of such Guarantor at the time that determination of
such net worth is, under applicable law, relevant to the enforceability of such
Note Guarantees. Such net worth shall include any claim of such Guarantor
against the Company for reimbursement and any claim against any other Guarantor
for contribution.
Ranking
The indebtedness evidenced by the Notes and the Note
Guarantees will rank pari passu in right of payment with all existing and future
unsubordinated indebtedness of the Company or the Guarantors, respectively, and
senior in right of payment to all existing and future subordinated indebtedness
of the Company or the Guarantors, respectively. After giving pro forma effect to
the Transactions and the application of the proceeds thereof, as of September
30, 1996, the Company would have had $84.9 million of indebtedness (other than
the Notes) outstanding, including $24.9 million of senior indebtedness ($7.2
million of which would have been secured) and $60.0 million of subordinated
indebtedness, and the Guarantors, collectively, would have had $24.9 million of
indebtedness (other than the Note Guarantees) outstanding, including $24.9
million of senior indebtedness ($7.2 million of which would have been secured)
and no subordinated indebtedness. The Notes will be effectively subordinated to
all such secured indebtedness to the extent of the collateral therefor.
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<PAGE>
Certain Definitions
Set forth below is a summary of certain of the defined terms
used in the covenants and other provisions of the Indentures. Reference is made
to the appropriate Indenture for the full definition of all terms as well as any
other capitalized term used herein for which no definition is provided.
"Accreted Value" is defined to mean, for any Specified Date,
the amount calculated pursuant to (i), (ii), (iii) or (iv) for each $1,000
principal amount at maturity of Senior Discount Notes:
(i) if the Specified Date occurs on one or more of the
following dates (each a "Semi-Annual Accrual Date"), the Accreted Value
will equal the amount set forth below for such Semi-Annual Accrual
Date:
Semi-Annual Accreted
Accrual Date Value
------------ -----
, 1997................................................. $
, 1998................................................. $
, 1998................................................. $
, 1999................................................. $
, 1999................................................. $
, 2000................................................. $
, 2000................................................. $
, 2001................................................. $
, 2001................................................. $
, 2002................................................. $1,000.00
(ii) if the Specified Date occurs before the first Semi-Annual
Accrual Date, the Accreted Vale will equal the sum of (a) the original
issue price and (b) an amount equal to the product of (i) the Accreted
Value for the first Semi-Annual Accrual Date less the original issue
price multiplied by (2) a fraction, the numerator of which is the
number of days from the issue date of the Senior Discount Notes to the
Specified Date, using a 360-day year of twelve 30-day months, and the
denominator of which is the number of days elapsed from the issue date
of the Senior Discount Notes to the first Semi-Annual Accrual Date,
using a 360-day year of twelve 30-day months;
(iii) if the Specified Date occurs between two Semi-Annual
Accrual Dates, the Accreted Value will equal the sum of (a) the
Accreted Value for the Semi-Annual Accrual Date immediately preceding
such Specified Date and (b) an amount equal to the product of (1) the
Accreted Value for the immediately following Semi-Annual Accrual Date
less the Accreted Value for the immediately preceding Semi-Annual
Accrual Date multiplied by (2) a fraction, the numerator of which is
the number of days from the immediately preceding Semi-Annual Accrual
Date to the Specified Date, using a 360-day year of twelve 30-day
months, and the denominator of which is 180; or
(iv) if the Specified Date occurs after the last Semi-Annual
Accrual Date, the Accreted Value will equal $1,000.
"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.
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<PAGE>
"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 the "Limitation on Restricted Payments" covenant described below
(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 the "Limitation on Restricted Payments" covenant described below,
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 (vii) any net income of any Guarantor that ceases to be a Guarantor because
it 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 (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 pursuant to the
"Commission Reports and Reports to Holders" covenant.
"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.
"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 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
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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 the Indentures 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 satisfy clause (B) of the "Limitation on Asset
Sales" covenant.
"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.
"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 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" means such time as (i) a "person" or
"group" (within the meaning of Sections 13(d) and 14(d)(2) of the Exchange Act)
becomes the ultimate "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act) of more than 35% of the total voting power of the Voting Stock of
the Company on a fully diluted basis and such ownership is greater than the
amount of voting power of the Voting Stock on the Company, on a fully diluted
basis, held by the Existing Stockholders and their Affiliates on such date; (ii)
individuals who on the Closing Date constitute the Board of Directors (together
with any new directors whose election by the Board of Directors or whose
nomination for election by the Company's stockholders was approved by a vote of
at least two-thirds of the members of the Board of Directors then in office who
either were members of the Board of Directors on the Closing Date or whose
election or nomination for election was previously so approved) cease for any
reason to constitute a majority of the members of the Board of Directors then in
office; or (iii) the Company does not beneficially own 100% of the equity
interests in Orion Atlantic Partners, L.P. or such other entity as then owns the
Orion 1 satellite.
"Closing Date" means the date on which the Notes are
originally issued under the Indentures.
"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, 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
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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 Notes, 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 pursuant to the "Commission Reports and Reports
to Holders" covenant described below (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.
"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).
"Default" means any event that is, or after notice or passage
of time or both would be, an Event of Default.
"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 Notes, (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 Notes or (iii) convertible into or exchangeable
for Capital Stock referred to in clause (i) or (ii) above or Indebtedness having
a scheduled maturity prior to the Stated Maturity of the Notes; provided that
any Capital Stock that would not constitute Disqualified Stock but for
provisions thereof giving holders thereof the right to require such Person to
repurchase or redeem such Capital Stock upon the occurrence of an "asset sale"
or "change of control" occurring prior to the Stated Maturity of the Notes shall
not constitute Disqualified Stock if the "asset sale" or "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 "Limitation on Asset
Sales" and "Repurchase of Notes upon a Change of Control" covenants described
below 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 Notes as are required
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to be repurchased pursuant to the "Limitation on Asset Sales" and "Repurchase of
Notes upon a Change of Control" covenants described below.
"Existing Stockholders" means British Aerospace Space Systems,
Inc., Lockheed Martin Commercial Launch Services, Inc., MCN Sat U.S., Inc.,
Trans-Atlantic Satellite, Inc., Kingston Communications International Limited,
COM DEV Satellite Communications Limited, J.V. Saeman & Co., CIBC Wood Gundy
Ventures, Inc, Cumberland Associates, Fleet Venture Resources, Inc., Space
Systems/Loral and any Subsidiary of any of the foregoing.
"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.
"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 the Indentures 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 the
Indentures shall be made without giving effect to (i) the amortization of any
expenses incurred in connection with the offering of the Notes and (ii) except
as otherwise provided, the amortization of any amounts required or permitted by
Accounting Principles Board Opinion Nos. 16 and 17.
"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.
"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" means, collectively, all Restricted Subsidiaries;
provided that any Person that becomes an Unrestricted Subsidiary in compliance
with the "Limitation on Restricted Payments" covenant shall not be included in
"Guarantors" after becoming an Unrestricted Subsidiary.
"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
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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 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.
"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 the
"Limitation on the Issuance and Sale of Capital Stock of Restricted
Subsidiaries" covenant. For purposes of the definition of "Unrestricted
Subsidiary" and the "Limitation on Restricted Payments" covenant described
below, (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.
"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).
"Merger" means [TO COME].
"Moody's" means Moody's Investors Service, Inc. and its
successors.
"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
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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 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
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.
"Note Guarantees" means, collectively, the Senior Note
Guarantee and the Senior Discount Note Guarantee.
"Offer to Purchase" means an offer to purchase Notes by the
Company from the Holders commenced by mailing a notice to the relevant Trustee
and each Holder stating: (i) the covenant pursuant to which the offer is being
made and that all Notes validly tendered will be accepted for payment on a pro
rata basis; (ii) the purchase price and the date of purchase (which shall be a
Business Day no earlier than 30 days nor later than 60 days from the date such
notice is mailed) (the "Payment Date"); (iii) that any Note not tendered will
continue to accrue interest (or original issue discount) pursuant to its terms;
(iv) that, unless the Company defaults in the payment of the purchase price, any
Note accepted for payment pursuant to the Offer to Purchase shall cease to
accrue interest (or original issue discount) on and after the Payment Date; (v)
that Holders electing to have a Note purchased pursuant to the Offer to Purchase
will be required to surrender the Note, together with the form entitled "Option
of the Holder to Elect Purchase" on the reverse side of the Note completed, to
the Paying Agent at the address specified in the notice prior to the close of
business on the Business Day immediately preceding the Payment Date; (vi) that
Holders will be entitled to withdraw their election if the Paying Agent
receives, not later than the close of business on the third Business Day
immediately preceding the Payment Date, a telegram, facsimile transmission or
letter setting forth the name of such Holder, the principal amount at maturity
of Notes delivered for purchase and a statement that such Holder is withdrawing
his election to have such Notes purchased; and (vii) that Holders whose Notes
are being purchased only in part will be issued new Notes equal in principal
amount at maturity to the unpurchased portion of the Notes surrendered; provided
that each Note purchased and each new Note issued shall be in a principal amount
at maturity of $1,000 or integral multiples thereof. On the Payment Date, the
Company shall (i) accept for payment on a pro rata basis Notes or portions
thereof tendered pursuant to an Offer to Purchase; (ii) deposit with the Paying
Agent money sufficient to pay the purchase price of all Notes or portions
thereof so accepted; and (iii) deliver, or cause to be delivered, to the
relevant Trustee all Notes or portions thereof so accepted together with an
Officers' Certificate specifying the Notes or portions thereof accepted for
payment by the Company. The Paying Agent shall promptly mail to the Holders of
Notes so accepted payment in an amount equal to the purchase price, and the
relevant Trustee shall promptly authenticate and mail to such Holders a new Note
equal in principal amount at maturity to any unpurchased portion of the Note
surrendered; provided that each Note purchased and each new Note issued shall be
in a principal amount at maturity of $1,000 or integral multiples thereof. The
Company will publicly announce the results of an Offer to Purchase as soon as
practicable after the Payment Date. The relevant Trustee shall act as the Paying
Agent for an Offer to Purchase. The Company will comply with Rule 14e-1 under
the Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable, in the event that the Company
is required to repurchase Notes pursuant to an Offer to Purchase.
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"Orion 2" and "Orion 3" mean, respectively, each of the first
two satellites with respect to which the company has a Successful Launch after
the Closing Date, and any replacement for either of such satellites.
"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, provided that the amount of such obligations shall not exceed $
million at any one time outstanding.
"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 the "Limitation on Indebtedness"
covenant described below, (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 months after the later of the
acquisition, the completion of construction or the commencement of full
operation of such property or (2) to refinance any Indebtedness previously so
secured, (b) the principal amount of the Indebtedness secured by such Lien does
not exceed 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
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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.
"Pledge Account" means an account established with the Senior
Notes Trustee pursuant to the terms of the Pledge Agreement for the deposit of
the Pledged Securities purchased by the Company with a portion of the proceeds
from the sale of the Senior Notes.
"Pledge Agreement" means the Collateral Pledge and Security
Agreement, dated as of the date of the Senior Notes Indenture, made by the
Company in favor of the Senior Notes Trustee, governing the disbursement of
funds from the Pledge Account, as such Agreement may be amended, restated,
supplemented or otherwise modified from time to time.
"Pledged Securities" means the securities originally purchased
by the Company with a portion of the proceeds from the sale of the Senior Notes,
which shall consist of Government Securities, to be deposited in the Pledge
Account, all in accordance with the terms of the Pledge Agreement.
"Redemption Indebtedness" means Indebtedness of the Company
which is subordinated in right of payment of the Notes on terms substantially
similar to the terms contained in Exhibit [ ] to the Indenture 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.
"Restricted Subsidiary" means any Subsidiary of the Company
other than an Unrestricted Subsidiary.
"S&P" means Standard & Poor's Ratings Group and its
successors.
"Senior Discount Note Guarantee" means the Guarantee by the
Guarantors of the Company's obligations under the Senior Discount Notes and the
Senior Discount Notes Indenture, pursuant to the Senior Discount Notes
Indenture, and the Guarantee by any other Person that becomes a Guarantor of the
Company's obligations under the Senior Discount Notes and the Senior Discount
Notes Indenture.
"Senior Note Guarantee" means the Guarantee by the Guarantors
of the Company's obligations under the Senior Notes and the Senior Notes
Indenture, pursuant to the Senior Notes Indenture, and the Guarantee by any
other Person that becomes a Guarantor of the Company's obligations under the
Senior Notes and the Senior Notes Indenture.
"Series A Preferred Stock" means the Company's Series A 8%
Cumulative Redeemable Convertible Preferred Stock, par value $0.01 per share.
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"Series B Preferred Stock" means the Company's Series B 8%
Cumulative Redeemable Convertible Preferred Stock, par value $0.01 per share.
"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 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 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.
"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.
"Subsidiary" means, with respect to any Person, any
corporation, association or other business entity of which more than 50% of the
voting power of the outstanding Voting Stock is owned, directly or indirectly,
by such Person and one or more other Subsidiaries of such Person.
"Successful Launch" means [to come]
"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 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 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 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 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 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.
"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.
"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.
"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
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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 the "Limitation on Restricted Payments" covenant described below
and (C) if applicable, the Incurrence of Indebtedness and the Investment
referred to in clause (A) of this proviso would be permitted under the
"Limitation on Indebtedness" and "Limitation on Restricted Payments" covenants
described below. The Board of Directors may designate any Unrestricted
Subsidiary to be a Restricted Subsidiary; provided that immediately after giving
effect to such designation (x) tile Company could Incur $1.00 of additional
Indebtedness under the first paragraph of the "Limitation on Indebtedness"
covenant described below and (y) no Default or Event of Default shall have
occurred and be continuing. Any such designation by the Board of Directors shall
be evidenced to the relevant Trustee by promptly filing with the relevant
Trustee a copy of the Board Resolution giving effect to such designation and an
Officers' Certificate certifying that such designation complied with the
foregoing provisions.
"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.
"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 qualifying shares or Investments by foreign nationals
mandated by applicable law) by such Person or one or more Wholly Owned
Subsidiaries of such Person.
Covenants
The Indentures will contain, among others, the following
covenants.
Limitation on Indebtedness
(a) The Company will not, and will not permit any of its
Restricted Subsidiaries to, Incur any Indebtedness (other than the Notes and
Indebtedness existing on the Closing 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 that is (A) Incurred to finance the
purchase, construction, launch, insurance for and other costs with respect to
Orion 2 and Orion 3 or (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 the
"Limitation on Asset Sales" covenant described below; (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 refinance or refund the Notes, the Note Guarantees or
Indebtedness that is pari passu with, or subordinated in right of payment to,
the Notes shall only be permitted under this clause (iii) if (A) in case the
Notes or the Note Guarantees are refinanced in part or the Indebtedness to be
refinanced is pari passu with the Notes or the Note Guarantees, such new
Indebtedness, by its terms or by the terms of any 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 Notes or the
Note Guarantees, as the case may be, (B) in case the Indebtedness to be
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refinanced is subordinated in right of payment to the Notes or the Note
Guarantees, 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 Notes or
the Note Guarantees at least to the extent that the Indebtedness to be
refinanced is subordinated to the Notes or the Note Guarantees, as the case may
be, 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; (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 Notes tendered in an Offer to Purchase made as a result of a Change in
Control or (B) deposited to defease the Notes as described below under
"Defeasance"; (vi) Guarantees of the Notes and Guarantees of Indebtedness of the
Company by any Restricted Subsidiary provided the Guarantee of such Indebtedness
is permitted by and made in accordance with the "Limitation on Issuance of
Guarantees by Restricted Subsidiaries" covenant described below; (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 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 the "Limitation on Restricted Payments" covenant described below);
provided that such Indebtedness does not mature prior to the Stated Maturity of
the Notes and has an Average Life longer than the Notes; and (ix) Redemption
Indebtedness.
(b) Notwithstanding any other provision of this "Limitation on
Indebtedness" covenant, the maximum amount of Indebtedness that the Company or a
Restricted Subsidiary may incur pursuant to this "Limitation on Indebtedness"
covenant 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 "Limitation on Indebtedness" covenant, (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 the "Limitation on Liens" covenant described below shall not be
treated as Indebtedness. For purposes of determining compliance with this
"Limitation on Indebtedness" covenant, in the event that an item of Indebtedness
meets the criteria of more than one 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.
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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 (A) 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 Notes or of any Guarantor that is subordinated to the Note Guarantees
(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 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 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 the first paragraph of the
"Limitation on Indebtedness" covenant 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) 50% of the aggregate amount of the Adjusted Consolidated Net Income
(or, if the Adjusted Consolidated Net Income is a loss, minus 100% of the amount
of such loss) (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 period (taken as one 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 pursuant to the "Commission
Reports and Reports to Holders" covenant plus (2) the aggregate Net Cash
Proceeds received by the Company or any Guarantor after the Closing Date from
the issuance and sale permitted by the Indentures 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 Disqualified Stock
or any 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
Notes), in each case except to the extent such Net Cash Proceeds are used to
Incur Indebtedness pursuant to clause (viii) of the second paragraph under the
"Limitation on Indebtedness" covenant described above, 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 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 Notes 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 the "Limitation on
Indebtedness" covenant; (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
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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 Notes 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 the Indentures 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 the "Limitation on Indebtedness" covenant; or (vii) Investments, to
the extent the amount invested consists solely of Net Cash Proceeds received by
the Company or any Guarantor substantially currently with the making of such
Investment from the issuance and sale permitted by the Indentures 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 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
"Limitation on Restricted Payments" covenant 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 Notes, or Indebtedness that is pari passu with the Notes,
then the Net Cash Proceeds of such issuance shall be included in clause (C) of
the first paragraph of this "Limitation on Restricted Payments" covenant 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).
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 the "Limitation on Restricted
Payments" covenant, if made on the date of such issuance or sale.
Issuances of Guarantees by New Restricted Subsidiaries
The Company will provide to the Trustees, on the date that any
Person becomes a Restricted Subsidiary, a supplemental indenture to each of the
Indentures, executed by such new Restricted Subsidiary, providing for a full and
unconditional guarantee on a senior basis by such new Restricted Subsidiary of
the Company's obligations under the Notes and the Indentures to the same extent
as that set forth in Article of the Senior Notes Indenture and Article of the
Senior Discount Notes Indenture, as the case may be.
Limitation on Transactions with Shareholders and Affiliates
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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 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 the Trustees 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 the "Limitation on Restricted Payments" covenant or (vii) [list
matters to be "Grandfathered"]. Notwithstanding the foregoing, any transaction
covered by the first paragraph of this "Limitation on Transactions with
Shareholders and Affiliates" covenant 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.
Limitation on Liens
The Company will not, and will not permit any Restricted
Subsidiary to, create, incur, assume or suffer to exist any Lien 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 Notes and all other amounts due under the Indentures 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 Notes, 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; (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 the "Limitation on Indebtedness" covenant;
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.
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.
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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 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 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 the first
paragraph of the "Limitation on Asset Sales" covenant described below.
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 85% of the
consideration 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 Closing Date in any period of 12 consecutive months exceed 10% of
Adjusted Consolidated Net Tangible Assets (determined as of the date closest to
the commencement of such 12-month period for which a consolidated balance sheet
of the Company and its subsidiaries has been filed pursuant to the "Commission
Reports and Reports to Holders" covenant), then the Company shall or shall cause
the relevant Restricted Subsidiary to (i) within twelve months after the date
Net Cash Proceeds so received exceed 10% of Adjusted Consolidated Net Tangible
Assets (A) apply an amount equal to such excess Net Cash Proceeds to permanently
repay unsubordinated Indebtedness of the Company or any Restricted Subsidiary
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
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 and (ii) apply (no later than the end of the
twelve-month period referred to in clause (i)) such excess Net Cash Proceeds (to
the extent not applied pursuant to clause (i)) as provided in the following
paragraph of this "Limitation on Asset Sales" covenant. The amount of such
excess Net Cash Proceeds required to be applied (or to be committed to be
applied) during such twelve-month period as set forth in clause (i) of the
preceding sentence and not applied as so required by the end of such period
shall constitute "Excess Proceeds."
If, as of the first day of any calendar month, the aggregate
amount of Excess Proceeds not theretofore subject to an Offer to Purchase
pursuant to this "Limitation on Asset Sales" covenant totals at least $[ ]
million, the Company must commence, not later than the fifteenth Business Day of
such month, and consummate an Offer to Purchase from the Holders on a pro rata
basis an aggregate principal amount Notes equal to the Excess Proceeds on such
date, at a purchase price equal to 101% of the principal amount of the Senior
Notes and 101% of the Accreted Value of the Senior Discount Notes, plus, in each
case, accrued interest (if any) to the Payment Date.
Insurance.
The Indentures will provide that 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 180 days following the
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 [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
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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 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 50% but less than 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 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 spare) 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 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 15 months of the receipt of such proceeds. Any such proceeds
not used as permitted by this paragraph shall be applied, within 90 days, to
reduce Indebtedness of the Company or shall constitute "Excess Proceeds" for
purposes of the "Limitation on Asset Sales" covenant.
Repurchase of Notes upon a Change of Control
The Company must commence, within 30 days of the occurrence of
a Change of Control, and consummate an Offer to Purchase for all Notes then
outstanding, at a purchase price equal to 101% of the principal amount of the
Senior Notes and 101% of the Accreted Value of the Senior Discount Notes, plus
accrued interest (if any) to the Payment Date.
There can be no assurance that the Company will have
sufficient funds available at the time of any Change of Control to make any debt
payment (including repurchases of Notes) required by the foregoing covenant (as
well as may be contained in other securities of the Company which might be
outstanding at the time). The above covenant requiring the Company to repurchase
the Notes will, unless consents are obtained, require the Company to repay all
indebtedness then outstanding which by its terms would prohibit such Note
repurchase, either prior to or concurrently with such Note repurchase.
Commission Reports and Reports to Holders
At all times from and after March 31, 1997, whether or not the
Company is then required to file reports with the Commission, the Company shall
file with the Commission all such reports and other information as it would be
required to file with the Commission by Sections 13(a) or 15(d) under the
Securities Exchange Act of 1934 if it were subject thereto. The Company shall
supply the Trustees and each Holder or shall supply to the Trustees for
forwarding to each such Holder, without cost to such Holder, copies of such
reports and other information.
Events of Default
The following events will be defined as "Events of Default" in
the Indentures: (a) default in the payment of principal of (or premium, if any,
on) any Senior Note or Senior Discount Note, as the case may be, when the same
becomes due and payable at maturity, upon acceleration, redemption or otherwise;
(b) default in the payment of interest on any Senior Note or Senior Discount
Note, as the case may be, when the same becomes due and payable, and such
default continues for a period of 30 days; provided that a failure to make any
of the first six scheduled interest payments on the Senior Notes in a timely
manner will constitute an Event of Default with no grace or cure period; (c)
default in the performance or breach of the provisions of the Indentures
applicable to
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mergers, consolidations and transfers of all or substantially all of the assets
of the Company or the failure to make or consummate an Offer to Purchase in
accordance with the "Limitation on Asset Sales" or "Repurchase of Notes upon a
Change of Control" covenant; (d) the Company defaults in the performance of or
breaches any other covenant or agreement of the Company in the Indentures or
under the Senior Notes or Senior Discount Notes, as the case may be, (other than
a default specified in clause (a), (b) or (c) above) and such default or breach
continues for a period of 30 consecutive days after written notice by the
relevant Trustee or the Holders of 25% or more in aggregate principal amount at
maturity of the Senior Notes or Senior Discount Notes, as the case may be; (e)
there occurs with respect to any issue or issues of Indebtedness of the Company,
any Guarantor or any Significant Subsidiary having an outstanding principal
amount of $[ ] 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 acceleration has not been
rescinded or annulled within 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 30 days of such payment default; (f) any final judgment or order (not
covered by insurance) for the payment of money in excess of $[ ] 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, any Guarantor or any Significant Subsidiary and
shall not be paid or discharged, and there shall be any period of 30 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 $[ ] 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; (g) a court having jurisdiction in the
premises enters a decree or order for (A) relief in respect of the Company, any
Guarantor or any Significant Subsidiary in an involuntary case under any
applicable bankruptcy, insolvency or other similar law now or hereafter in
effect, (B) appointment of a receiver, liquidator, assignee, custodian, trustee,
sequestrator or similar official of the Company, any Guarantor or any
Significant Subsidiary or for all or substantially all of the property and
assets of the Company, any Guarantor or any Significant Subsidiary or (C) the
winding up or liquidation of the affairs of the Company or any Significant
Subsidiary and, in each case, such decree or order shall remain unstayed and in
effect for a period of 30 consecutive days; or (h) the Company, any Guarantor or
any Significant Subsidiary (A) commences a voluntary case under any applicable
bankruptcy, insolvency or other similar law now or hereafter in effect, or
consents to the entry of an order for relief in an involuntary case under any
such law, (B) consents to the appointment of or taking possession by a receiver,
liquidator, assignee, custodian, trustee, sequestrator or similar official of
the Company, any Guarantor or any Significant Subsidiary or for all or
substantially all of the property and assets of the Company, any Guarantor or
any Significant Subsidiary or (C) effects any general assignment for the benefit
of creditors or (i) the Senior Notes Guarantee or the Senior Discount Notes
Guarantee shall cease to be, or shall be asserted in writing by the Company or
any Guarantor not to be, in full force and effect or enforceable in accordance
with their respective terms.
If an Event of Default (other than an Event of Default
specified in clause (g) or (h) above that occurs with respect to the Company)
occurs and is continuing under the Indentures, the relevant Trustee or the
Holders of at least 25% in aggregate principal amount at maturity of the Senior
Notes or Senior Discount Notes, as the case may be, then outstanding, by written
notice to the Company (and to the Trustee if such notice is given by the
Holders), may, and the relevant Trustee at the request of such Holders shall,
declare the principal amount (in the case of Senior Notes) or Accreted Value (in
the case of Senior Discount Notes) of, premium, if any, and accrued interest on
such Notes to be immediately due and payable. Upon a declaration of
acceleration, such principal amount or Accreted Value of, premium, if any, and
accrued interest shall be immediately due and payable. In the event of a
declaration of acceleration because an Event of Default set forth in clause (e)
above has occurred and is continuing, such declaration of acceleration shall be
automatically rescinded and annulled if the event of default triggering such
Event of Default pursuant to clause (e) shall be remedied or cured by the
Company or the relevant Guarantor or Significant Subsidiary or waived by the
holders of the relevant Indebtedness within 60 days after the declaration of
acceleration with respect thereto. If an Event of Default specified in clause
(g) or (h) above occurs with respect to the Company, the principal amount or
Accreted Value, as the case may be, of, premium, if any, and accrued interest on
the Notes then outstanding shall ipso facto become and be immediately due and
payable without any declaration or other act on the part of the relevant Trustee
or any Holder. The Holders of at least a majority in principal amount at
maturity of the outstanding Notes by written notice to the Company and to the
relevant Trustee,
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may waive all past defaults and rescind and annul a declaration of acceleration
and its consequences if (i) all existing Events of Default, other than the
nonpayment of the principal of, premium, if any, and interest on the Notes that
have become due solely by such declaration of acceleration, have been cured or
waived and (ii) the rescission would not conflict with any judgment or decree of
a court of competent jurisdiction. For information as to the waiver of defaults,
see "-Modification and Waiver."
The Holders of at least a majority in aggregate principal
amount at maturity of the outstanding Senior Notes or Senior Discount Notes, as
the case may be, may direct the time, method and place of conducting any
proceeding for any remedy available to the relevant Trustee or exercising any
trust or power conferred on the relevant Trustee. However, the relevant Trustee
may refuse to follow any direction that conflicts with law or the relevant
Indenture, that may involve the relevant Trustee in personal liability, or that
the relevant Trustee determines in good faith may be unduly prejudicial to the
rights of Holders of Senior Notes or Senior Discount Notes, as the case may be,
not joining in the giving of such direction and may take any other action it
deems proper that is not inconsistent with any such direction received from
Holders of such Notes. A Holder may not pursue any remedy with respect to the
Indentures or the Notes unless: (i) the Holder gives the Trustee written notice
of a continuing Event of Default; (ii) the Holders of at least 25% in aggregate
principal amount at maturity of outstanding Notes make a written request to the
relevant Trustee to pursue the remedy; (iii) such Holder or Holders offer the
relevant Trustee indemnity satisfactory to such Trustee against any costs,
liability or expense; (iv) the relevant Trustee does not comply with the request
within 60 days after receipt of the request and the offer of indemnity; and (v)
during such 60-day period, the Holders of a majority in aggregate principal
amount at maturity of the outstanding Senior Notes or Senior Discount Notes, as
the case may be, do not give the relevant Trustee a direction that is
inconsistent with the request. However, such limitations do not apply to the
right of any Holder of a Note to receive payment of the principal of, premium,
if any, or interest on, such Note or to bring suit for the enforcement of any
such payment, on or after the due date expressed in the Notes, which right shall
not be impaired or affected without the consent of the Holder.
The Indentures will require certain officers of the Company to
certify, on or before a date not more than 90 days after the end of each fiscal
year, that a review has been conducted of the activities of the Company and its
Restricted Subsidiaries and the Company's and its Restricted Subsidiaries'
performance under the Indentures and that the Company has fulfilled all
obligations thereunder, or, if there has been a default in the fulfillment of
any such obligation, specifying each such default and the nature and status
thereof. The Company will also be obligated to notify the Trustees of any
default or defaults in the performance of any covenants or agreements under the
Indentures.
Consolidation, Merger and Sale of Assets
Each of the Company and each Guarantor will not consolidate
with, merge with or into, or sell, convey, transfer, lease or otherwise dispose
of all or substantially all of its property and assets (as an entirety or
substantially an entirety in one transaction or a series of related
transactions) to, any Person or permit any Person to merge with or into the
Company or any Guarantor unless: (i) the Company or any Guarantor, as the case
may be, shall be the continuing Person, or the Person (if other than the Company
or Guarantor) formed by such consolidation or into which the Company or any
Guarantor, as the case may be, is merged or that acquired or leased such
property and assets of the Company or any Guarantor, as the case may be, shall
be a corporation organized and validly existing under the laws of the United
States of America or any jurisdiction thereof and shall expressly assume, by a
supplemental indenture, executed and delivered to the Trustees, all of the
obligations of the Company or any Guarantor, as the case may be, on all of the
Notes and under the Indentures; (ii) immediately after giving effect to such
transaction, no Default or Event of Default shall have occurred and be
continuing; (iii) immediately after giving effect to such transaction on a pro
forma basis, the Company, or any Person becoming the successor to the Company as
obligor on the Notes shall have a Consolidated Net Worth equal to or greater
than the Consolidated Net Worth of the Company immediately prior to such
transaction; (iv) immediately after giving effect to such transaction on a pro
forma basis, the Company, or any Person becoming the successor obligor of the
Notes, as the case may be, could Incur at least $1.00 of Indebtedness under the
first paragraph of the "Limitation on Indebtedness" covenant; provided that this
clause (iv) 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
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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; and (v) the Company or Guarantor, as the case may be, delivers to the
Trustees an Officers' Certificate (attaching the arithmetic computations to
demonstrate compliance with clauses (iii) and (iv)) and Opinion of Counsel, in
each case stating that such consolidation, merger or transfer and such
supplemental indenture complies with this provision and that all conditions
precedent provided for herein relating to such transaction have been complied
with; provided, however, that clauses (iii) and (iv) 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. Notwithstanding the foregoing, the
provisions of this paragraph shall not apply to the Merger.
Defeasance
Defeasance and Discharge. Each Indenture will provide that the
Company will be deemed to have paid and will be discharged from any and all
obligations in respect of the Senior Notes or Senior Discount Notes, as the case
may be, on the 123rd day after the deposit referred to below, and the provisions
of the relevant Indenture will no longer be in effect with respect to such Notes
(except for, among other matters, certain obligations to register the transfer
or exchange of such Notes, to replace stolen, lost or mutilated Notes, to
maintain paying agencies and to hold monies for payment in trust) if, among
other things, (A) the Company has deposited with the relevant Trustee, in trust,
money and/or U.S. Government Obligations that through the payment of interest
and principal in respect thereof in accordance with their terms will provide
money in an amount sufficient to pay the principal of, premium, if any, and
accrued interest on the relevant Notes on the Stated Maturity of such payments
in accordance with the terms of the relevant Indenture and Notes, (B) the
Company has delivered to the relevant Trustee (i) either (x) an Opinion of
Counsel to the effect that Holders will not recognize income, gain or loss for
federal income tax purposes as a result of the Company's exercise of its option
under this "Defeasance" provision and will be subject to federal income tax on
the same amount and in the same manner and at the same times as would have been
the case if such deposit, defeasance and discharge had not occurred, which
Opinion of Counsel must be based upon (and accompanied by a copy of) a ruling of
the Internal Revenue Service to the same effect unless there has been a change
in applicable federal income tax law after the Closing Date such that a ruling
is no longer required or (y) a ruling directed to the relevant Trustee received
from the Internal Revenue Service to the same effect as the aforementioned
Opinion of Counsel and (ii) an Opinion of Counsel to the effect that the
creation of the defeasance trust does not violate the Investment Company Act of
1940 and after the passage of 123 days following the deposit, the trust fund
will not be subject to the effect of Section 547 of the United States Bankruptcy
Code or Section 15 of the New York Debtor and Creditor Law, (C) immediately
after giving effect to such deposit on a pro forma basis, no Event of Default,
or event that after the giving of notice or lapse of time or both would become
an Event of Default, shall have occurred and be continuing on the date of such
deposit or during the period ending on the 123rd day after the date of such
deposit, and such deposit shall not result in a breach or violation of, or
constitute a default under, any other agreement or instrument to which the
Company or any of its Subsidiaries is a party or by which the Company, or any of
its Subsidiaries is bound, and (D) if at such time the Notes are listed on a
national securities exchange, the Company has delivered to the relevant Trustee
an Opinion of Counsel to the effect that the Notes will not be delisted as a
result of such deposit, defeasance and discharge.
Defeasance of Certain Covenants and Certain Events of Default.
Each Indenture further will provide that the provisions of such Indenture will
no longer be in effect with respect to clauses (iii) and (iv) under
"Consolidation, Merger and Sale of Assets" and all the covenants described
herein under "Covenants," clauses (c) and (d) under "Events of Default" with
respect to such clauses (iii) and (iv) under "Consolidation, Merger and Sale of
Assets" and such covenants and clauses (e) and (f) under "Events of Default"
shall be deemed not to be Events of Default, upon, among other things, the
deposit with the relevant Trustee, in trust, of money and/or U.S. Government
Obligations that through the payment of interest and principal in respect
thereof in accordance with their terms will provide money in an amount
sufficient to pay the principal of, premium, if any, and accrued interest on the
Senior Notes or Senior Discount Notes, as the case may be, on the Stated
Maturity of such payments in accordance with the terms of the relevant Indenture
and Notes, the satisfaction of the provisions described in clauses (B)(ii), (C)
and (D) of the preceding paragraph and the delivery by the Company to the
relevant Trustee of an Opinion of Counsel to the
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effect that, among other things, the Holders will not recognize income, gain or
loss for federal income tax purposes as a result of such deposit and defeasance
of certain covenants and Events of Default and will be subject to federal income
tax on the same amount and in the same manner and at the same times as would
have been the case if such deposit and defeasance had not occurred.
Defeasance and Certain Other Events of Default. In the event
the Company exercises its option to omit compliance with certain covenants and
provisions of either Indenture with respect to the Senior Notes or Senior
Discount Notes, as the case may be, as described in the immediately preceding
paragraph and such Notes are declared due and payable because of the occurrence
of an Event of Default that remains applicable, the amount of money and/or U.S.
Government Obligations on deposit with the relevant Trustee will be sufficient
to pay amounts due on such Notes at the time of their Stated Maturity but may
not be sufficient to pay amounts due on such Notes at the time of the
acceleration resulting from such Event of Default. However, the Company will
remain liable for such payments.
Modification and Waiver
Modifications and amendments of the respective Indentures may
be made by the Company, the Guarantors and the relevant Trustee with the consent
of the Holders of not less than a majority in aggregate principal amount at
maturity of the outstanding Senior Notes or Senior Discount Notes, as the case
may be; provided, however, that no such modification or amendment may, without
the consent of each Holder affected thereby, (i) change the Stated Maturity of
the principal of, or any installment of interest on, any Note, (ii) reduce the
principal amount of, or premium, if any, or interest on, any Note, (iii) change
the place or currency of payment of principal of, or premium, if any, or
interest on, any Note, (iv) impair the right to institute suit for the
enforcement of any payment on or after the Stated Maturity (or, in the case of a
redemption, on or after the Redemption Date) of any Note, (v) reduce the
above-stated percentage of outstanding Senior Notes or Senior Discount Notes, as
the case may be, the consent of whose Holders is necessary to modify or amend
the applicable Indenture, (vi) waive a default in the payment of principal of,
premium, if any, or interest on the Senior Notes or Senior Discount Notes, as
the case may be, (vii) release the Guarantors from the Senior Notes Guarantee or
the Senior Discount Notes Guarantee, as the case may be, or (viii) reduce the
percentage or aggregate principal amount at maturity of outstanding Senior Notes
or Senior Discount Notes, as the case may be, the consent of whose Holders is
necessary for waiver of compliance with certain provisions of the applicable
Indenture or for waiver of certain defaults.
No Personal Liability of Incorporators, Stockholders, Officers,
Directors, or Employees
The Indentures provides that no recourse for the payment of
the principal of, premium, if any, or interest on any of the Notes or for any
claim based thereon or otherwise in respect thereof, and no recourse under or
upon any obligation, covenant or agreement of the Company in the Indentures, the
Pledge Agreement or in any of the Notes or because of the creation of any
Indebtedness represented thereby, shall be had against any incorporator,
stockholder, officer, director, employee or controlling person of the Company or
of any successor Person thereof. Each Holder, by accepting the Notes, waives and
releases all such liability.
Concerning the Trustees
The Indentures provide that, except during the continuance of
a Default, the Trustees will not be liable, except for the performance of such
duties as are specifically set forth in such Indentures. If an Event of Default
has occurred and is continuing, the Trustees will use the same degree of care
and skill in its exercise as a prudent person would exercise under the
circumstances in the conduct of such person's own affairs.
The Indentures and provisions of the Trust Indenture Act of
1939, as amended, incorporated by reference therein contain limitations on the
rights of the Trustees, should they become a creditor of the Company, to obtain
payment of claims in certain cases or to realize on certain property received by
it in respect of any such claims, as security or otherwise. The Trustees are
permitted to engage in other transactions; provided, however, that if they
acquire any conflicting interest, they must eliminate such conflict or resign.
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[If any Guarantors are located outside the U.S., add
"governing law & submission to jurisdiction", "currency indemnity" and
"additional amounts" disclosure]
DESCRIPTION OF WARRANTS
The Warrants will be issued by Orion pursuant to a warrant
agreement (the "Warrant Agreement") between Orion and _____________, as warrant
agent (the "Warrant Agent"), dated the Closing Date. The summary of certain
provisions of the Warrant Agreement set forth below does not purport to be
complete and is qualified in its entirety by reference to the Warrant Agreement,
including the definition of certain terms therein. A copy of the Warrant
Agreement has been filed with the Commission as an exhibit to the Registration
Statement of which this Prospectus is a part.
General
Each Warrant, when exercised, will entitle the holder thereof
to receive shares of Common Stock at an exercise price of $ per share (the
"Exercise Price"). The Exercise Price and the number of Warrant Shares issuable
on exercise of a Warrant are both subject to anti-dilutive adjustments in
certain cases. See "-- Adjustments" below. The Warrants are not exercisable
prior to six months after the Closing Date. Unless earlier exercised, the
Warrants will expire on the tenth anniversary of the Closing Date. The Warrants
will become separately transferable from the Notes on the earlier of (i) six
months from the date of issuance, (ii) such date as the Underwriters may, in
their discretion, deem appropriate and (iii) in the event of an Offer to
Purchase (as defined in the Indentures), the date the Company mails notice
thereof to holders of the Notes.
On the Closing Date, the Senior Note Warrant Shares, will
represent approximately % of the fully diluted Common Stock of Orion, and the
Senior Discount Note Warrant Shares will represent approximately % of the fully
diluted Common Stock of Orion.
The Warrants may be exercised by surrendering to Orion the
Warrant certificates evidencing such Warrants with the accompanying form of
election to purchase, properly completed and executed, together with payment of
the Exercise Price. Payment of the Exercise Price by a holder may be made in the
form of cash or a certified or official bank check payable to the order of Orion
or the surrender of unexercised Warrant certificates. Upon surrender of the
Warrant certificate and payment of the Exercise Price, the Warrant Agent will
deliver or cause to be delivered, to or upon the written order of such holder,
stock certificates representing the number of Warrant Shares or other securities
or property to which such holder is entitled under the Warrants and Warrant
Agreement, including, without limitation, at Orion's option, cash payable to
adjust for fractional interests in Warrant Shares issuable upon such exercise in
an amount equal to the Current Market Price (as defined in the Warrant
Agreement) per Warrant Share, as determined on the day immediately preceding the
date the Warrant is presented for exercise, multiplied by such fraction,
computed to the nearest whole cent. If less than all of the Warrants evidenced
by a Warrant certificate are to be exercised, a new Warrant certificate will be
issued for the remaining number of Warrants.
No service charge will be made for registration of transfer or
exchange upon surrender of any Warrant certificate at the office of the Warrant
Agent maintained for that purpose. Orion may require payment of a sum sufficient
to cover any tax or other governmental charge that may be imposed in connection
with any registration of transfer or exchange of Warrant certificates.
The holders of the Warrants have no right to vote on matters
submitted to the stockholders of Orion or to receive notice of meetings of
stockholders or any other rights of stockholders of Orion, including any right
to receive cash dividends. The holders of the Warrants have no preemptive rights
and are not entitled to share in the assets of Orion in the event of the
liquidation, dissolution or winding up of Orion's affairs.
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Adjustments
The number of Warrant Shares that may be purchased upon the
exercise of the Warrants and the Exercise Price will both be subject to
adjustment in certain events including (i) the payment by Orion of dividends (or
other distributions) on Common Stock payable in shares of such Common Stock or
other shares of Orion's capital stock, (ii) subdivisions, combinations and
certain reclassifications of Common Stock, (iii) the issuance of Common Stock or
of rights, options or warrants entitling the holder to subscribe for shares of
Common Stock, or of securities convertible into or exchangeable for shares of
Common Stock, for a consideration per share which is less than the current
market price per share (as defined in the Warrant Agreement) of Common Stock,
(iv) the distribution to all holders of Common Stock of any of Orion's assets,
debt securities or any rights or warrants to purchase securities (excluding cash
dividends or other cash distributions from current or retained earnings) and (v)
in the discretion of Orion's Board of Directors. In addition, the Exercise Price
may be reduced in the event of purchase of shares of Common Stock pursuant to a
tender or exchange offer made by Orion or any subsidiary thereof at a price
greater than the Current Market Price of the Common Stock at the time such
tender or exchange offer expires.
In the event of a taxable distribution to holders of Common
Stock which results in an adjustment to the number of shares of Common Stock or
other consideration for which a Warrant may be exercised, the holders of the
Warrants may, in certain circumstances, be deemed to have received a
distribution subject to United States Federal income tax as a dividend. See
"Certain United States Federal Income Tax Consequences."
No adjustment in the Exercise Price will be required unless
such adjustment would require an increase or decrease of at least one percent
(1%) in the Exercise Price; provided, however, that any adjustment which is not
made will be carried forward and taken into account in any subsequent
adjustment.
In the case of certain reclassifications, redesignations,
reorganizations or changes in the number of outstanding shares of Common Stock
or consolidations or mergers of Orion or the sale of all or substantially all of
the assets of Orion, each Warrant shall thereafter be exercisable for the right
to receive the kind and amount of shares of stock or other securities or
property to which such holder would have been entitled as a result of such
consolidation, merger or sale had the Warrants been exercised immediately prior
thereto.
Reservation of Shares
At the time of issuance of the Warrants, Orion will have
authorized and reserved for issuance such number of shares of Common Stock as
shall be initially issuable upon the exercise of the Warrants. Such shares of
Common Stock, when paid for and issued must be duly and validly issued, fully
paid and non-assessable, and not subject to any preemptive rights.
Amendment
From time to time, Orion and the Warrant Agent, without the
consent of the holders of the Warrants, may amend or supplement the Warrant
Agreement for certain purposes, including, without limitation, curing defects or
inconsistencies or making any change that does not, in the opinion of Orion's
Board of Directors, have a material adverse effect on the rights of any holder.
Other amendments or supplements to the Warrant Agreement generally require the
written consent of the holders of a majority of the then outstanding Warrants.
The consent of each holder of the Warrants affected shall be required for any
amendment pursuant to which the Exercise Price would be increased or the number
of Warrant Shares purchasable upon exercise of Warrants would be decreased
(other than pursuant to adjustments provided in the Warrant Agreement).
Registration Requirements
The Company is required, under the terms of the Warrant
Agreement, to use its best efforts to maintain the effectiveness of the
Registration Statement of which this Prospectus is a part until the earlier of
(i) such time as all Warrants have been exercised and (ii) the tenth anniversary
of the Closing Date. During any consecutive
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365-day period while the Warrants are exercisable, the Company will have the
ability to suspend the availability of such registration statement for up to two
15-consecutive-day periods (except during the 30 days immediately prior to the
expiration of the Warrants) if the Company's Board of Directors determines in
good faith that there is a valid purpose for the suspension and provides notice
of such determination to the holders at their addresses appearing in the
register of Warrants maintained by the Warrant Agent.
Reports
So long as any Warrants remain outstanding, and whether or not
any Notes remain outstanding, the Company will cause copies of the reports and
other documents described under "Description of Notes -- Commission Reports and
Reports to Holders" to be filed with the Warrant Agent and mailed to holders of
Warrants at their addresses in the register maintained by the Warrant Agent.
BOOK-ENTRY SYSTEM; SETTLEMENT; DELIVERY AND FORM
General
The Units will be issued in the form of one or more fully
registered Units in global form ("Global Units"), each comprised of one or more
Notes in global form ("Global Notes") and one or more Warrants in global form
("Global Warrants"). The Global Units, Global Notes and Global Warrants are
sometimes referred to herein as the "Global Securities." Except in those limited
circumstances described below, Units, Notes or Warrants in definitive form
("Certificated Units," "Certificated Notes" and "Certificated Warrants,"
respectively, and sometimes referred to collectively as "Certificated
Securities") will not be issued.
Upon issuance of the Global Securities, the Depository or its
nominee will credit, on its book-entry registration and transfer system, the
number of Units represented by such Global Securities to the accounts of
institutions that have accounts with the Depository or its nominee
("participants"). The accounts to be credited shall be designated by the
Underwriters. Ownership of beneficial interests in the Global Securities will be
limited to participants or persons that may hold interests through participants.
Ownership of beneficial interest in such Global Securities will be shown on, and
the transfer of that ownership will be effected only through, records maintained
by the Depository or its nominee (with respect to participants' interests) for
such Global Securities, or by participants or persons that hold interests
through participants (with respect to interests of persons other than
participants). The laws of some jurisdictions require that certain purchasers of
securities take physical delivery of such securities in definitive form. Such
laws may impair the ability to transfer beneficial interests in the Global
Securities.
So long as DTC is the registered holder of any Global
Securities, DTC will be considered the sole owner and holder of such Units,
Notes or Warrants, as the case may be, represented by such Global Securities for
all purposes under the Indenture and the Warrant Agreement and the Units, Notes
and Warrants, as the case may be. No beneficial owner of an interest in any
Global Securities will be able to transfer that interest except in accordance
with DTC's applicable procedures.
Except in the limited circumstances referred to below, owners
of beneficial interests in Global Securities will not be entitled to have such
Global Securities or any Units, Notes or Warrants represented thereby registered
in their names, will not receive or be entitled to receive physical delivery of
Certificated Securities in exchange therefor and will not be considered to be
the owners or holders of such Global Securities or any Units, Notes or Warrants
represented thereby for any purpose under the Units, Notes or Warrants or the
Indenture or the Warrant Agreement.
Global Units, Global Notes and Global Warrants shall be
exchangeable for corresponding Certificated Securities registered in the name of
persons other than the Depository or its nominee only if (A) the Depository (i)
notifies the Company that it is unwilling or unable to continue as Depository
for any of the Global Securities or (ii) at any time ceases to be a clearing
agency registered under the Exchange Act, (B) there shall have occurred and be
continuing an Event of Default (as defined in the Indenture) with respect to the
Notes, or (C) the Company executes and delivers to the Trustee and or the
Warrant Agent, as appropriate, an order that the Global
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Units, Global Notes or Global Warrants shall be so exchangeable. Any
Certificated Securities will be issued only in fully registered form, and in the
case of Certificated Notes, shall be issued without coupons in denominations of
$1,000 and integral multiples thereof. Any Certificated Securities so issued
will be registered in such names and in such denominations as DTC shall request.
Any payment of principal or interest due on the Notes on any
Interest Payment Date or at maturity will be made available by the Company to
the Trustee by such date. As soon as possible thereafter, the Trustee will make
such payments to the Depository or its nominee, as the case may be, as the
registered owner of the Global Notes representing such Notes in accordance with
existing arrangements between the Trustee and the Depository. The Company
expects that the Depository or its nominee, upon receipt of any payment of
principal or interest in respect of the Global Notes, will credit immediately
the accounts of the related participants with payments in amounts proportionate
to their respective beneficial interests in the principal amount of such Global
Note as shown on the records of the Depository. The Company also expects that
payments by participants to owners of beneficial interests in the Global
Securities held through such participants will be governed by standing
instructions and customary practices, as is now the case with securities held
for the accounts of customers in bearer form or registered in "street name," and
will be the responsibility of such participants. None of the Company, the
Trustee, or any payment agent for the Global Securities will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in any of the Global
Securities or for maintaining, supervising or reviewing any records relating to
such beneficial ownership interests.
Unless and until exchanged in whole or in part for Notes in
definitive form in accordance with the terms of the Notes, the Global Notes may
not be transferred except as a whole by the Depository to a nominee of the
Depository or by a nominee of the Depository to the Depository or another
nominee of the Depository or by the Depository of any such nominee to a
successor of the Depository or a nominee of each successor.
The Clearing System
With respect to the Depository, the Company believes as
follows: the Depository is a limited-purpose trust company organized under the
Banking Law of the State of New York, a member of the Federal Reserve System, a
"clearing corporation" within the meaning of the New York Uniform Commercial
Code and a "clearing agency" registered pursuant to the provisions of section
17A of the Exchange Act. The Depository was created to hold securities of its
participants and to facilitate the clearance and settlement of securities
transactions among its participants in such securities through electronic
book-entry changes in accounts of the participants, thereby eliminating the need
for physical movements of securities certificates. The Depository's participants
include securities brokers and dealers (including each of the Underwriters),
banks, trust companies, clearing corporations and certain other organizations,
some of whom (and/or their representatives) own the Depository. Indirect access
to the Depository's book-entry system is also available to others, such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a participant, either directly or indirectly. The
Depository agrees with and represents to its participants that it will
administer its book-entry system in accordance with its rules and by-laws and
requirements of law.
Settlement
Initial settlement in the Units will be made in same-day
funds.
Investors electing to hold their Units through DTC will follow
settlement practices applicable to United States corporate debt obligations. The
securities custody accounts of investors will be credited with their holdings
against payment in same-day funds on the settlement date.
All payments of principal and interest on the Notes will be
made by the Company in same-day funds. The Notes will trade in the Same-Day
Funds Settlement System of the Depository until maturity. Secondary market
trading of the Units, the Notes and the Warrants between DTC participants (other
than the depositories) will be settled in same-day funds using the procedures
applicable to United States corporate debt obligations.
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CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
In the opinion of Hogan & Hartson L.L.P., tax counsel to the Company,
the following discussion summarizes, subject to the limitation set forth below,
the material U.S. federal income tax consequences of the acquisition, ownership
and disposition of Units and the Notes and Warrants that constitute the Units.
The discussion is based upon provisions of the U.S. Internal Revenue Code of
1986, as amended (the "Code"), its legislative history, judicial authority,
current administrative rulings and practice, and existing and proposed Treasury
Regulations, including regulations concerning the treatment of debt instruments
issued with original issue discount (the "OID Regulations"), all as in effect
and existing on the date hereof. Legislative, judicial or administrative changes
or interpretations may be forthcoming that could alter or modify the validity of
the statements and conclusions set forth below. Any such changes or
interpretations may be retroactive and could adversely affect a holder of the
Notes or Warrants. This discussion assumes that the Notes and Warrants are or
will be held as capital assets (as defined in Section 1221 of the Code) by the
holders thereof. Except as otherwise described herein, this discussion applies
only to a person who is an initial holder purchasing Units pursuant to this
offering at the "issue price" (as defined below) and who is (i) a citizen or
resident of the United States for United States federal income tax purposes,
(ii) a corporation, partnership or other entity created or organized in or under
the laws of the United States or of any political subdivision thereof, or (iii)
an estate or trust the income of which is subject to United States federal
income taxation regardless of its source (a "U.S. Holder"). This discussion does
not purport to deal with all aspects of U.S. federal income taxation that might
be relevant to particular holders in light of their personal investment
circumstances or status, nor does it discuss the U.S. federal income tax
consequences to certain types of holders subject to special treatment under the
U.S. federal income tax laws, such as certain financial institutions, insurance
companies, dealers in securities or foreign currency, tax-exempt organizations,
or persons that hold Notes or Warrants that are a hedge against, or that are
hedged against, currency risk or that are part of a straddle or conversion
transaction, or persons whose functional currency is not the U.S. dollar.
Moreover, the effect of any applicable state, local or foreign tax laws is not
discussed.
THE FOLLOWING DISCUSSION IS FOR GENERAL INFORMATION ONLY. EACH
PURCHASER IS STRONGLY URGED TO CONSULT WITH ITS OWN TAX ADVISORS TO DETERMINE
THE IMPACT OF SUCH PURCHASER'S PERSONAL TAX SITUATION ON THE ANTICIPATED TAX
CONSEQUENCES, INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN OR
OTHER TAX LAWS, OF THE ACQUISITION, OWNERSHIP AND DISPOSITION OF THE NOTES,
WARRANTS OR UNITS.
The Units
Each Unit is comprised of a Note and a Warrant. For U.S. federal income
tax purposes, the issue price of a Unit must be allocated between the Note and
the Warrant. Under the OID Regulations, the issue price of a Senior Note Unit or
a Senior Discount Note Unit should be equal to the offering price to the public
(not including any bond house, broker or similar person or organization acting
in the capacity of an underwriter, placement agent or wholesaler) at which a
substantial amount of the Senior Note Units or the Senior Discount Note Units,
as the case may be, are sold. The issue price of a Unit must be allocated
between its component parts based on their relative fair market values on the
date of issuance. Based on the foregoing, the Company intends (i) to treat a
Senior Note as having been originally issued with an issue price of $ and a
Senior Note Warrant as having been originally issued with an issue price of $ ,
and (ii) to treat a Senior Discount Note as having been originally issued with
an issue price of $ and a Senior Discount Note Warrant as having been issued
with an issue price of $ . This allocation by the Company reflects its judgment
as to the relative values of those instruments at the time of original issuance.
No assurance can be given, however, that the IRS will not challenge the
allocation by the Company of the issue price of the Notes and Warrants. If the
Company's allocation is successfully challenged, the issue price, OID accrual
and gain or loss on sale would be different from that resulting under the
allocation determined by the Company.
The determination by the Company of the issue price of the Notes and
Warrants will be binding on a holder, unless such holder discloses the use of a
different issue price allocation on the applicable form attached to such
holder's Federal income tax return for the taxable year that includes the
acquisition date of such Unit. If a
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holder acquires a Unit at a price different from that on which the Company's
allocation is based, such holder may be treated as having acquired its Note for
an amount greater or less than the amount allocated to such Note by the Company
as set forth above, thereby resulting in "acquisition premium," "amortizable
bond premium" or "market discount," as defined below. Holders intending to use
an issue price allocation different from that used by the Company should consult
their own tax advisors as to the consequences to them of their particular
allocation of the issue price of the Units, Notes and Warrants.
Senior Discount Notes -- Original Issue Discount
General
The Senior Discount Notes will bear OID, and each U.S. Holder will be
required to include in income (regardless of whether such U.S. Holder is a cash
or accrual basis taxpayer) in each year, in advance of the receipt of cash
payments on such Senior Discount Notes, that portion of the OID, computed on a
constant yield basis, attributable to each day during such year on which the
U.S. Holder held the Senior Discount Notes. See "Taxation of Original Issue
Discount" below.
The Amount of Original Issue Discount
The amount of OID with respect to each Senior Discount Note will be
equal to the excess of (i) its "stated redemption price at maturity" over (ii)
its "issue price" (as discussed above). Under the OID Regulations, the "stated
redemption price at maturity" of each Senior Discount Note will include all
payments to be made in respect thereof, including any stated interest payments.
Accordingly, payments on the Senior Discount Notes (including principal and
stated interest payments) are not separately included in a U.S. Holder's income
as interest, but rather are treated first as payments of previously accrued OID
and then as payments of principal.
Taxation of Original Issue Discount
A U.S. holder of a debt instrument issued with OID is required to
include in gross income for U.S. federal income tax purposes an amount equal to
the sum of the "daily portions" of such OID for all days during the taxable year
on which the holder holds the debt instrument. The daily portions of OID
required to be included in a holder's gross income in a taxable year will be
determined upon a constant yield basis by allocating to each day during the
taxable year on which the holder holds the debt instrument a pro rata portion of
the OID on such debt instrument which is attributable to the "accrual period" in
which such day is included. Accrual periods with respect to a Senior Discount
Note may be of any length selected by the U.S. Holder and may vary in length
over the term of the Senior Discount Note as long as (i) no accrual period is
longer than one year and (ii) each scheduled payment of interest or principal on
the Senior Discount Note occurs on either the final or first day of an accrual
period. The amount of the OID attributable to each "accrual period" will be the
product of (i) the "adjusted issue price" at the beginning of such accrual
period and (ii) the "yield to maturity" of the debt instrument (stated in a
manner appropriately taking into account the length of the accrual period). The
"yield to maturity" is the discount rate that, when used in computing the
present value of all payments to be made under the Senior Discount Note,
produces an amount equal to the issue price of the Senior Discount Note. The
"adjusted issue price" of a Senior Discount Note at the beginning of an accrual
period is generally defined as the issue price of the Senior Discount Note plus
the aggregate amount of OID that accrued in all prior accrual periods, less any
cash payments on the Senior Discount Note. Accordingly, a U.S. Holder of a
Senior Discount Note will be required to include OID thereon in gross income for
U.S. federal tax purposes in advance of the receipt of cash in respect of such
income. The amount of OID allocable to an initial short accrual period may be
computed using any reasonable method if all other accrual periods, other than a
final short accrual period, are of equal length. The amount of OID allocable to
the final accrual period at maturity of a Senior Discount Note is the difference
between (x) the amount payable at the maturity of the Senior Discount Note and
(y) the Senior Discount Note's adjusted issue price as of the beginning of the
final accrual period.
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Effect of Mandatory and Optional Redemptions on OID
In the event of a Change of Control, the Company will be required to
offer to redeem all of the Notes, including the Senior Discount Notes, at
redemption prices specified elsewhere herein. The required offer to redeem the
Notes should not affect, and will not be treated by the Company as affecting,
the determination of the yield or maturity of the Senior Discount Notes.
The Company may redeem the Notes, including the Senior Discount Notes,
in whole or in part, at any time on or after , 2002, at redemption prices
specified elsewhere herein plus accrued and unpaid interest to the date of
redemption. The OID Regulations contain rules for determining the "maturity
date" and the stated redemption price at maturity of an instrument that may be
redeemed prior to its stated maturity date at the option of the issuer. Under
the OID Regulations, solely for purposes of the accrual of OID, it is assumed
that the issuer will exercise any option to redeem a debt instrument if such
exercise will lower the yield-to-maturity of the debt instrument. The Company
believes that it will not be presumed to redeem the Senior Discount Notes prior
to their stated maturity under these rules because the exercise of such option
would not lower the yield-to-maturity of the Senior Discount Notes.
Tax Basis
A U.S. Holder's initial tax basis in a Senior Discount Note generally
will be equal to the purchase price paid by such U.S. Holder for such Senior
Discount Note. A U.S. Holder's tax basis in a Senior Discount Note will be
increased by the amount of OID that is included in such U.S. Holder's income
pursuant to the foregoing rules and will be decreased by the amount of any cash
payments received.
The Senior Notes
Stated interest payments on the Senior Notes will be taxable to a U.S.
holder when received or accrued in accordance with such holder's method of tax
accounting. If, as expected, the allocation of issue price to the Senior Note
Warrants and the Senior Notes will generate a discount element for the Senior
Notes that is de minimis, then the Senior Note will not bear original issue
discount. Under the de minimis rule, there is no original issue discount on a
debt instrument if the debt instrument is originally issued at a discount that
is less than 25% multiplied by product of its principal amount and number of
complete years to maturity from the issue date.
In certain circumstances, notes issued in connection with the same
transaction or related transactions may be treated as a single note for purposes
of the OID rules. The Company believes that a substantial portion of each of the
Senior Notes and the Senior Discount Notes will be issued to purchasers not
related to the Company or to other purchasers and who do not purchase both
Senior Note Units and Senior Discount Note Units in connection with the same
transaction or related transactions, and that, therefore, the aggregation rules
will not apply.
Market Discount, Acquisition Premium
If a U.S. Holder acquires a Note for an amount that is less than (i) in
the case of a Senior Note, its principal amount, or (ii) in the case of a Senior
Discount Note, its revised issue price (generally, adjusted issued price) at the
time of acquisition, the amount of such difference will be treated as "market
discount" for U.S. federal income tax purposes, unless such difference is less
than a specified de minimis amount. Under the market discount rules, a U.S.
Holder will be required to treat any principal payment on, or any gain on the
sale, exchange, retirement or other disposition of, a Note as ordinary income to
the extent of the market discount which has not previously been included in
income and is treated as having accrued on such Note at the time of such payment
or disposition. If a U.S. Holder makes a gift of a Note, accrued market
discount, if any, will be recognized as if such U.S. Holder had sold such Note
for a price equal to its fair market value. In addition, the U.S. Holder may be
required to defer, until the maturity of the Note or the earlier disposition of
the Note in a taxable transaction, the deduction of a portion of the interest
expense on any indebtedness incurred or continued to purchase or carry such
Note.
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Any market discount will be considered to accrue on a straight-line
basis during the period from the date of acquisition to the maturity date of the
Note, unless the U.S. Holder elects to accrue market discount on a constant
interest method. A U.S. Holder of a Note may elect to include market discount in
income currently as it accrues (on either a straight-line basis or constant
interest method), in which case the rules described above regarding the deferral
of interest deductions will not apply. This election to include market discount
in income currently, once made, applies to all market discount obligations
acquired on or after the first day of the first taxable year to which the
election applies and may not be revoked without the consent of the IRS.
A U.S. Holder who purchases a Senior Note at a cost in excess of the
greater of its principal amount or the amount payable on an earlier call date
will be considered to have purchased the Senior Note with "amortizable bond
premium," and may elect to amortize such premium as an offset to interest income
on the Senior Note. A U.S. Holder who acquires a Senior Discount Note for an
amount that is greater than the adjusted issue price of such Senior Discount
Note but equal to or less than the sum of all amounts payable on such Senior
Discount Note after the purchase date will be considered to have purchased such
Senior Discount Note at an "acquisition premium." Under the acquisition premium
rules of the Code and the OID Regulations, the amount of OID which such holder
must include in its gross income with respect to such Senior Discount Note for
any taxable year will be reduced by the portion of such acquisition premium
properly allocable to such year.
Proposed Treasury regulations issued on June 27, 1996 would clarify the
treatment of bond premium. The proposed regulations describe the constant yield
method under which such premium is amortized and provide that the resulting
offset to interest income can be taken into account only as a U.S. Holder takes
the corresponding interest income into account under such U.S. Holder's regular
accounting method. In the case of instruments that may be redeemed prior to
maturity, the proposed regulations provide that the premium is calculated by
assuming that the issuer or holder will exercise or not exercise its redemption
rights in the manner that maximize the U.S. Holder's yield. The regulations are
proposed to be effective for debt instruments acquired on or after the date 60
days after the date final regulations are published in the Federal Register.
However, if a U.S. Holder elects to amortize bond premium for the taxable year
containing such effective date, the regulations would apply to all the U.S.
Holder's debt instruments held on or after the first day of that taxable year.
It cannot be predicted at this time whether these regulations will become
effective or what, if any, modifications may be made to them prior to their
becoming effective.
A U.S. Holder's tax basis is a Note will be increased by any market
discount previously included in such U.S. Holder's income and decreased by any
bond premium previously amortized by such U.S. Holder.
Sale or Redemption of Notes
Unless a nonrecognition provision applies, the sale, exchange,
redemption (including pursuant to an offer by the Company) or other disposition
of a Note will be a taxable event for U.S. federal income tax purposes. In such
event, a U.S. Holder will recognize gain or loss equal to the difference between
(i) the amount of cash plus the fair market value of any property received upon
such sale, exchange, redemption or other taxable disposition (except to the
extent the consideration received is attributable to stated interest on a Senior
Note not previously taken into income, which consideration is treated as
interest income) and (ii) the U.S. Holder's adjusted tax basis therein. Except
with respect to accrued market discount, such gain or loss should be capital
gain or loss and will be long-term capital gain or loss if the Note will have
been held by the U.S. Holder for more than one year at the time of such sale,
exchange, redemption or other disposition. The excess of net long-term capital
gains over net short-term capital losses is taxed at lower rate than ordinary
income for certain non-corporate taxpayers. The distinction between capital gain
or loss and ordinary income or loss is also relevant for purposes of, among
other things, limitations on the deductibility of capital losses.
High-Yield Discount Obligations
The Senior Discount Notes will constitute "applicable high yield
discount obligations" ("AHYDOs") if the yield to maturity of such Senior
Discount Notes equals or exceeds the sum of the applicable federal rate in
effect at the time of the issuance of the Senior Discount Notes (the "AFR") plus
five percentage points. For___________ 1997,
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the long-term AFR is % and the mid-term AFR is % (based on semi-annual
compounding). The appropriate AFR depends upon the weighted average maturity of
the Senior Discount Notes. Under Sections 163(e) and 163(i) of the Code, a C
corporation that is an issuer of debt obligations subject to the AHYDO rules may
not deduct any portion of OID on the obligations until such portion is actually
paid. A debt obligation is generally subject to the AHYDO rules if (i) its
maturity date is more than five years from the date of issue, (ii) its yield to
maturity equals or exceeds the sum of the AFR plus five percentage points, and
(iii) it bears "significant OID." A debt obligation will bear significant OID
for this purpose if, as of the close of any accrual period ending more than five
years after issuance, the total amount of income includable by a holder with
respect to the debt instrument exceeds the sum of (i) the total amount of
"interest" paid under the obligation before the close of such accrual period and
(ii) the product of the issue price of the debt instrument and its yield to
maturity. In addition, if the Senior Discount Notes are AHYDOs, and if the yield
to maturity of the Senior Discount Notes exceeds the sum of the AFR plus six
percentage points, then a portion of the OID on the Senior Discount Notes, equal
to the product of the total OID on the Senior Discount Notes times the ratio of
(a) the excess of the yield to maturity over the sum of the AFR plus six
percentage points to (b) the yield to maturity, will not be deductible by the
Company and will be treated for some purposes as dividends to the U.S. Holders
of the Senior Discount Notes (to the extent that such amounts would have been
treated as dividends to the U.S. Holders of the Senior Discount Notes if they
had been distributions with respect to the Company's stock). Amounts treated as
dividends will be nondeductible by the Company, and may qualify for the dividend
received deduction for corporate U.S. Holders, but will be treated as OID and
not as dividends for withholding tax purposes. The Company cannot determine
whether the Senior Discount Notes will be AHYDOs until their issue price is
determined by sale to investors pursuant to this offering.
The Warrants
Upon the exercise of a Warrant, a U.S. Holder will not recognize gain
or loss (except to the extent of cash, if any, received in lieu of the issuance
of fractional shares of Common Stock) and will have a tax basis in the Common
Stock acquired pursuant to such exercise equal to such U.S. Holder's tax basis
in the Warrant (which, in the case of an initial holder, will equal the portion
of the issue price of the Unit properly allocable to the Warrant, as described
above) plus the exercise price of the Warrant. The holding period for such
Common Stock so acquired will commence on the day after the date of exercise of
the Warrant. If any cash is received in lieu of fractional shares of Common
Stock, the U.S. Holder will recognize gain or loss the amount and character of
which will be determined as if such U.S. Holder had received such fractional
shares and then immediately sold them for cash. Similarly, upon the sale of
Common Stock received upon exercise of a Warrant, a U.S. Holder will recognize
capital gain or loss equal to the difference between the amount realized upon
the sale and such U.S. Holder's tax basis in the Common Stock. Such capital gain
or loss will be long-term if, at the time of sale or exchange, the Common Stock
was held for more than one year. Distributions made with respect to the Common
Stock will constitute dividends to the extent paid out of current or accumulated
earnings and profits of the Company as determined for U.S. federal income tax
purposes. To the extent that a distribution exceeds the earnings and profits of
the Company, it will be treated as a nontaxable return of capital to the extent
of the U.S. Holder's adjusted tax basis in the Common Stock. Holders should
consult with their own tax advisors with respect to the particular federal,
state, local and foreign tax consequences to them of the ownership of Warrants
or Common Stock.
The sale of a Warrant will result in the recognition of capital gain or
loss to the U.S. Holder in an amount equal to the difference between the amount
realized and such U.S. Holder's tax basis in the Warrant (which, in the case of
an initial holder, will equal the portion of the issue price of the Unit
properly allocable to the Warrant, as described above). Such capital gain or
loss will be long term if, at the time of sale or exchange, the Warrant was held
for more than one year. It is unclear whether the repurchase of a Warrant by the
Company would be treated as a sale or exchange. If it were not so treated, any
gain or loss to a holder on such repurchase would be treated as ordinary income
or loss.
If a Warrant expires unexercised, a U.S. Holder will recognize a
capital loss equal to such U.S. Holder's tax basis in the Warrant. Such capital
loss will be long-term if, at the time of the expiration, the Warrant was held
for more than one year.
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Under Section 305 of the Code, adjustments to the exercise price or
conversion ratio of the Warrants which occur under certain circumstances, or the
failure to make such adjustments, may result in the receipt of taxable
constructive dividends by a U.S. Holder (subject to a possible dividends
received deduction in the case of corporate U.S. Holders) to the extent of the
Company's current or accumulated earnings and profits, regardless of whether
there is a distribution of cash or property.
Non-U.S. Holders
The Notes
Subject to the discussion of "backup" withholding below, payments of
principal, if any, and interest (including OID) by the Company or its agent (in
its capacity as such) to any holder who is a beneficial owner of a Note but is
not a U.S. Holder will not be subject to U.S. federal withholding tax provided,
in the case of interest (including OID) that (i) such holder does not actually
or constructively own 10% or more of the total combined voting power of all
classes of stock of the Company entitled to vote, (ii) such holder is not a
controlled foreign corporation for U.S. tax purposes that is related to the
Company through stock ownership, and (iii) either (A) the beneficial owner of
the Note certified to the Company or its agent, under penalties of perjury, that
he is not a U.S. Holder and provides his name and address or (B) a securities
clearing organization, bank or other financial institution that holds customers
securities in the ordinary course of its trade or business (a "financial
institution") certified to the Company or its agent, under penalties of perjury,
that the certification described in clause (A) hereof has been received from the
beneficial owner by it or by another financial institution acting for the
beneficial owner. A holder of a Note who is not a U.S. Holder, and who does not
meet the requirements of the preceding sentence, would generally be subject to
U.S. federal withholding tax at a flat rate of 30% (or a lower applicable treaty
rate) on payments of interest (including OID) on the Notes.
If a holder of a Note who is not a U.S. Holder is engaged in a trade or
business in the United States and interest (including OID) on the Note is
effectively connected with the conduct of such trade or business, such holder,
although exempt from U.S. federal withholding tax as discussed in the preceding
paragraph (or by reason of the delivery of properly completed Form 4224), will
be subject to U.S. federal income tax on such interest (including OID) and on
any gain realized on the sale, exchange or other dispositions of a Note in the
same manner as if it were a U.S. Holder. In addition, if such Non-U.S. Holder is
a foreign corporation, it may be subject to a branch profits tax equal to 30% of
its effectively connected earnings and profits for that taxable year, unless it
qualifies for a lower rate under an applicable income tax treaty.
Subject to the discussion of "backup" withholding below, any capital
gain realized upon the sale, exchange or retirement of a Note by a holder who is
not a U.S. Holder will not be subject to U.S. federal income or withholding
taxes unless (i) such gain is effectively connected with a U.S. trade or
business of the holder, or (ii) in the case of an individual, such holder is
present in the United States for 183 days or more in the taxable year of the
retirement or disposition and certain other conditions are met.
Notes held by an individual who is neither a citizen nor a resident of
the United States for U.S. federal income tax purposes at the time of such
individual's death will not be subject to U.S. federal estate tax, provided that
the income from the Notes was not or would not have been effectively connected
with a U.S. trade or business of such individual and that such individual
qualified for the exemption from U.S. federal withholding tax (without regard to
the certification requirements) that is described above.
The Warrants
The following discussion addresses the tax consequences to a holder of
a Warrant who is not a U.S. Holder of the ownership, disposition, exercise or
lapse of the Warrants.
For the tax basis of a Warrant and the tax basis and holding period of
a share of stock acquired by the exercise of a Warrant, see "-- The Units" and
"-- The Warrants," above. Subject to the conditions discussed with respect to
gain realized with respect to the Notes under "Tax Consequences to Non-U.S.
Holders" above, and to the
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discussion contained in "FIRPTA Treatment of Non-U.S. Holders" below, a holder
of a Warrant who is not a U.S. Holder will not be subject to U.S. federal income
tax on gain realized on the sale of a Warrant. Further, no gain or loss will be
recognized by a holder of a Warrant who is not a U.S. Holder for U.S. federal
income tax purposes upon the exercise of a Warrant.
FIRPTA Treatment of Non-U.S. Holders
Under the Foreign Investment in Real Property Tax Act of 1980, as
amended ("FIRPTA"), foreign persons generally are subject to U.S. federal income
tax on capital gain realized on the disposition of any interest (other than
solely as a creditor) in a corporation that is a United States real property
holding corporation (a "USRPHC"). For this purpose, a foreign person is defined
as any holder who is a foreign corporation (other than certain foreign
corporations that elect to be treated as domestic corporations), a non-resident
alien individual, a non-resident fiduciary of a foreign estate or trust, or a
foreign partnership. Under FIRPTA, a corporation is a USRPHC if the fair market
value of the United States real property interests held by the corporation is 50
percent or more of the aggregate fair market value of certain assets of the
corporation.
The Company does not currently believe that it is a USRPHC. Thus, a
foreign person that holds Warrants, or shares of the Common Stock of the Company
acquired pursuant to the exercise of such Warrants, generally will not be
subject to the U.S. federal income tax on a sale or other disposition of the
Warrants or shares of Common Stock. Even if a corporation meets the test for a
USRPHC, a foreign person would generally not be subject to tax, or withholding
in respect to such tax, on gain from a sale or other disposition of such
corporation's stock solely by reason of the corporation's USRPHC status if the
stock is regularly traded on an established securities market ("regularly
traded") during the calendar year in which such sale or disposition occurs,
provided that such holder does not own, actually or constructively, stock with a
fair market value in excess of 5 percent of the fair market value of all such
stock outstanding at any time during the shorter of the five-year period
preceding such disposition or the holder's holding period. The Company believes
that the Common Stock will be treated as regularly traded.
Backup Withholding and Information Reporting
The "backup" withholding and information reporting requirements may
apply to certain payments of principal and interest (including OID) on a Note
and to certain payments of proceeds of the sale or retirement of a Note. The
Company, its agent, a broker, the Trustee or any paying agent, as the case may
be, will be required to withhold tax from any payment that is subject to backup
withholding at a rate of 31% of such payment if the holder fails to furnish his
taxpayer identification number (social security number or employer
identification number), to certify that such holder is not subject to backup
withholding, or to otherwise comply with the applicable requirements of the
backup withholding rules. Certain holders (including, among others, all
corporations) are not subject to the backup withholding and reporting
requirements.
Under current Treasury Regulations, backup withholding and information
reporting will not apply to payments made by the Company or any agent thereof
(in its capacity as such) to a holder of a Note who has provided the required
certification under penalties of perjury that it is not a U.S. Holder as set
forth in clause (iii) in the first paragraph under "Non-U.S. Holders" or has
otherwise established an exemption (provided that neither the Company nor such
agent has actual knowledge that the holder is a U.S. Holder or that the
conditions of any other exemption are not in fact satisfied).
Payments of the proceeds from the sale by a holder who is not a U.S.
Holder of a Note made to or through a foreign office of a broker will not be
subject to U.S. information reporting or backup withholding, except that if the
broker is a U.S. person, a controlled foreign corporation for U.S. tax purposes
or a foreign person 50% or more of whose gross income is effectively connected
with a United States trade or business for a specified three-year period, U.S.
information reporting may apply to such payments. Payments of the proceeds from
the sale of a Note to or through the United States office of a broker is subject
to U.S. information reporting and backup withholding unless the holder or
beneficial owner certifies as to its non-U.S. status or otherwise establishes an
exemption from U.S. information reporting and backup withholding.
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Any amounts withheld under the backup withholding rules from a payment
to a holder may be claimed as a credit against such holder's United States
federal income tax liability.
The Company is required to furnish certain information to the IRS, and
will furnish annually to record holders of Notes, information with respect to
interest and OID accruing during the calendar year. The OID information will be
based upon the adjusted issue price of the debt instrument as if the holder were
the original holder of the debt instrument. No assurance can be given that the
IRS will not challenge the accuracy of the reported information. Moreover, if a
holder uses an allocation of the issue price of a Unit between the Note and the
Warrant comprising the Unit that is different from that used by the Company, the
computation of OID with respect to such holder's Note may differ from that
reported by the Company to the IRS and to such holder. Subsequent holders who
purchase Notes for an amount other than the adjusted issue price and/or on a
date other than the last day of an accrual period will be required to determine
for themselves the amount of OID, if any, they are required to include in gross
income for U.S. federal income tax purposes.
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DESCRIPTION OF CERTAIN INDEBTEDNESS
The following is a description of certain other indebtedness
of the Company that will be outstanding following the Transactions. The Company
will need substantial additional capital to fund the construction, launch and
launch insurance of Orion 2 and Orion 3, as well as for other purposes. See
"Risk Factors -- Need for Substantial Additional Capital" and "Management's
Discussion and Analysis of Financial Condition and Results of Operation --
Liquidity and Capital Resources."
The British Aerospace and Matra Marconi Space Investments
Under an agreement between Orion and British Aerospace, $50
million of Junior Subordinated Debentures are to be purchased by British
Aerospace in the British Aerospace Investment. The Junior Subordinated
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
(payable even during any event of default on the Notes) solely in Orion common
stock at a price of $14 per share. The Junior Subordinated Debentures (and
accrued but unpaid interest) may be converted in whole or in part into Common
Stock at any time at an initial conversion rate of $14 per share, as adjusted
for stock splits or other recapitalizations and certain dividends or issuances
of stock to all stockholders.
British Aerospace has agreed that Orion may at any time
(except during 90 days after a change in control) redeem all or part (but not
less than 25% on any one occasion) of the Junior Subordinated Debentures for
consideration consisting of the number of shares of Common Stock issuable upon
conversion of the Junior Subordinated Debentures multiplied by the greater of
(i) the average closing price of the Common Stock over the preceding 20 trading
days or (ii) $17.50 per share. Alternatively, Orion may arrange for the
disposition of the Common Stock received upon the conversion of the Junior
Subordinated Debentures (or the Junior Subordinated Debentures themselves) in an
underwritten public offering, subject to British Aerospace being guaranteed the
greater of (a) 95% of the average closing price of the Common Stock over the
preceding 20 trading days or (b) $17.50 per share. British Aerospace will have
the right to demand one underwritten public offering of the shares of Common
Stock received upon conversion of the Junior Subordinated Debentures and include
such shares in other Orion public offerings.
The Junior Subordinated Debentures will be subordinated to all
other indebtedness of the Company, including the Notes. The Trustee will have
the right to vote the proxy of the Junior Subordinated Debenture holders with
respect to any plan of reorganization. The Junior Subordinated Debentures will
contain only limited covenants so long as $50 million or more of the Notes
remain outstanding, but a more extensive set of covenants will apply after less
than $50 million of Notes are outstanding. From and after the time when less
than $50 million of Notes remain outstanding, in the event of a change of
control of Orion (any stockholder becoming the owner of 51% or more of the
voting rights or designating a majority of the Board of Directors), either Orion
or British Aerospace may, within 90 days after such change of control, force the
sale of the Junior Subordinated Debentures, as converted into Common Stock, to
Orion for the same purchase price as in the event of redemption.
The purchase of the Junior Subordinated Debentures is
conditioned upon the following: (i) completion of the Exchange; (ii) termination
of all of British Aerospace's obligations under the Orion 1 Credit Facility
Support; (iii) net proceeds to Orion from the Offering of at least $225 million;
(iv) Orion's payment to British Aerospace of its costs and expenses; and (v)
acquisition by Orion of all of British Aerospace's interest in Orion Asia
Pacific in exchange for approximately 86,000 shares of Common Stock.
Under the Orion 1 Satellite Contract, the contractor 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 will pay $13
million in satellite incentives following completion of the Offering of which
$10 million will be re-invested in Orion by Matra Marconi Space (or an
affiliate) in Junior Subordinated Debentures.
The Debenture Investments are a condition to the closing of
the Offering.
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TT&C Financing
In November 1993, Orion Atlantic entered into a financing
arrangement with GECC to finance the TT&C facility (the "TT&C Financing"). The
TT&C Financing consists of a note payable in installments through June 2002. At
September 30, 1996, the Company had outstanding principal indebtedness of
approximately $7.2 million under the TT&C Financing facility. The interest rate
is 7.42% plus an index rate tied to yields on certain U.S. Treasury securities.
The interest rate at September 30, 1996 was 13.49%. The TT&C Financing is
secured by the TT&C facility, the Satellite Control System Contract and Orion
Atlantic's leasehold interest in the TT&C facility land. See Note 4 of Notes to
Consolidated Financial Statements.
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DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of Orion 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.
The following summary description of the capital stock of
Orion is qualified in its entirety by reference to the Certificate of
Incorporation and Bylaws of Orion. A copy of the Certificate of Incorporation
and Bylaws are exhibits to the Registration Statement of which this Prospectus
is a part.
Common Stock
Common Stock Outstanding. As of December 15, 1996, there were
10,974,121 shares of Common Stock outstanding, held by 349 stockholders of
record.
Dividends. Subject to preferences that may then be applicable
to any then outstanding preferred stock, holders of 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 dividends upon its
Common Stock and does not plan to pay any dividends on such stock for the
foreseeable future. The Indentures contain covenants that restrict Orion's
ability to pay dividends.
Voting Rights. Each holder of Common Stock is entitled to one
vote per share of Common Stock held by such holder on all matters to be voted
upon by the stockholders of Orion. Holders of shares of Common Stock are not
entitled to cumulative voting rights.
Staggered Terms of Directors. Under the provisions of Orion'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 believes that a
staggered Board of Directors is in the best interests of Orion and its
stockholders, such requirement may have the effect of protecting management in
retaining its position and discouraging potential acquirers.
Liquidation Rights. All shares of Common Stock have equal
rights, on a share for share basis, to receive pro rata the net assets of Orion
upon liquidation or dissolution after payments to creditors and any holders of
preferred stock, if any, then issued and outstanding. There are no redemption or
sinking fund provisions applicable to the Common Stock. All outstanding shares
of Common Stock are fully paid and non-assessable.
Preferred Stock
Orion'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, 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 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.
Senior Preferred Stock
Preemptive Rights. The holders of Senior Preferred Stock have
a contractual "preemptive" right to purchase a pro rata portion of any equity
securities sold by Orion 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.
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Dividends and Conversion. Dividends on the Senior Preferred
Stock accrue at 8% per annum, and are payable as and when declared by the Board.
The Senior Preferred Stock is convertible into Common Stock at initial prices of
$8.50 and $10.20 per share, respectively, subject to anti-dilution adjustments
in the case of recapitalizations or issuances of Common Stock below the
conversion price. Future issuances of Common Stock below the conversion price
could significantly increase the percentage of Orion's equity owned by the
holders of the Senior Preferred Stock. Upon conversion of the Senior Preferred
Stock, any accrued and unpaid dividends on the Senior Preferred Stock will be
waived.
Liquidation Rights. The 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 Senior Preferred Stock are
entitled to vote with holders of Series C Preferred Stock and the Common Stock,
together as a single class on an as-if-converted basis.
Put Rights. The holders of Senior Preferred Stock have the
right to sell the Common Stock received upon the conversion thereof to Orion
upon, among other things, certain mergers, changes of control or sales of
substantially all the assets of Orion 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 Common Stock is in a form other than cash, Orion 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 Senior Preferred Stock (and any 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 commencing
in June 1999 at the fair market value of their shares (in the case of Common
Stock) or the liquidation value, including accrued and unpaid dividends (in the
case of 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%
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 Common Stock outstanding) of the Common Stock issuable upon
conversion of the Senior Preferred Stock included in any sales by those
principal stockholders which involve more than 5% of the Common Stock then
outstanding.
Termination of Certain Rights Upon Qualified Public Offering.
The rights of the holders of the 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 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 Common Stock with gross proceeds to Orion 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 Senior Preferred Stock impose certain covenants on Orion. The covenants
include limitations on payment of dividends, redemption of junior securities
such as Common Stock, certain issuances of senior securities (except when the
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
Senior Preferred Stock, not to exceed an annual dividend of 14%, and could give
the holders of the Senior Preferred Stock certain rights to sell such stock to
Orion if the non-compliance is material or (in certain cases) continues after
certain cure periods. The Indentures contain a covenant which will effectively
prohibit such sale to Orion. Orion has the right to redeem the Senior Preferred
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Stock (subject to limitations contained in the Indentures) at its liquidation
value (plus accrued and unpaid dividends) by paying holders of Senior Preferred
Stock that amount and activating certain warrants (issued concurrently with the
Senior Preferred Stock) to purchase Common Stock at the conversion price of such
Senior Preferred Stock. These warrants do not become exercisable unless Orion
exercises its right to repurchase the Senior Preferred Stock.
Orion's Right to Force Conversion of Senior Preferred Stock.
Orion may require conversion of the Senior Preferred Stock (resulting in the
cancellation of accrued but unpaid dividends) if it meets certain public float
requirements, the holders of Senior Preferred Stock are not subject to any
agreements restricting the sale of Common Stock received on conversion and the
closing trading price of the Common Stock for thirty of the forty-five trading
days preceding notice of the required conversion has been above (i) $21.24 (if
Orion makes the conversion election prior to June 17, 1997) and (ii) $25.50 (if
Orion makes the conversion election after June 17, 1997).
Series C Preferred Stock
Dividends. Subject to the preferential rights of Series A
Preferred Stock and Series B Preferred Stock ranking senior to the Series C
Preferred Stock, the record holders of 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, as defined below) in Common Stock. Dividends accrue
on a daily basis commencing on the date of issuance of each share of Series C
Preferred Stock at the simple interest rate of 6% per annum. The number of
shares of Common Stock distributable in a dividend on each share of Series C
Preferred Stock is calculated based on the market price of such stock. All
preferred stock issued after the Closing Date is required to be subordinated to
the Series C Preferred Stock.
Liquidation rights. Subject to the liquidation rights for
Series A Preferred Stock and Series B Preferred Stock, in the event of any
liquidation, dissolution or winding up of Orion (a "Liquidation"), each holder
of Series C Preferred Stock is entitled to be paid, before any distribution or
payment is made upon the Common Stock or any other series or class of stock of
Orion ranking junior to the 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 Series C Preferred Stock held by such holder,
or (b) the amount which would be distributed with respect to the shares of
Common Stock into which such shares of Series C Preferred Stock are convertible
(assuming conversion of all outstanding Series C Preferred Stock) immediately
prior to the record date for such distribution on an as-converted basis.
Voting rights. The holders of the Series C Preferred Stock are
entitled to notice of all stockholders meetings in accordance with Orion's
bylaws, and except as otherwise required by law, the holders of the Series C
Preferred Stock are entitled to vote on all matters submitted to the
stockholders for a vote together with the holders of Common Stock and the
holders of Senior Preferred Stock, voting together as a single class, on an
as-converted basis.
Redemption. Orion will redeem all of the Series C Preferred
Stock in 2022. Additionally, at any time after the second anniversary of the
date of the issuance of the 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, Orion, at its option and to the extent it has funds
legally sufficient therefor and is permitted to do so by the Indentures, may
redeem the shares of 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).
Conversion to Common Stock. Holders of Series C Preferred
Stock have the right, at any time after the issuance thereof, to convert all or
a portion of such shares 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 shares of 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), which initially is $17.50, subject to
adjustment, plus (b) the number
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of shares of Common Stock that would be payable if all accrued but unpaid
dividends were declared and paid on the shares of Series C Preferred Stock to be
converted.
Mandatory Conversion to Common Stock. If the closing price of
the Common Stock over 20 of any 30 consecutive trading days is greater than or
equal to the conversion price of $17.50 (subject to adjustment), Orion may
require, by written notice to all holders of Series C Preferred Stock, the
conversion of all of the outstanding Series C 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 shares of 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) 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 shares of Series C
Preferred Stock to be converted. If Orion requires the mandatory conversion of
the Series C Preferred Stock within two years from the Closing Date, then the
number of shares of Common Stock into which the shares of Series C Preferred
Stock are converted is increased by the number of shares of Common Stock that
would be payable as dividends on the Series C Preferred Stock over six months;
provided, however, that at least one year of dividends is paid.
Warrants and Options
As of December 15, 1996, there were warrants and options
outstanding to purchase an aggregate of 1,193,721 shares of 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 Series A Preferred Stock 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 Common Stock at a price based upon when the option is exercised within a
range from $10.20 to $17.00 per share of Common Stock). The holders of Senior
Preferred Stock also hold certain warrants to purchase Common Stock at the
conversion price of such Senior Preferred Stock. These warrants do not become
exercisable unless Orion exercises its right to repurchase the 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
Series A Preferred Stock and Series B Preferred Stock; SS/L.
Certain holders of Series A Preferred Stock and Series B Preferred Stock and
SS/L (an existing stockholder) are entitled to include their shares of Common
Stock in a registered offering of securities by Orion (a "piggy-back"
registration). If Orion proposes to register any shares of its 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 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 Common Stock from such offering. Orion 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 piggy-back registrations.
The holders of Series A Preferred Stock and Series B Preferred
Stock have certain "demand" rights to require Orion to register the securities
held by them, subject to certain conditions. Orion 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. Pursuant to the Registration Rights
Agreement to be entered into between Orion and the Limited Partners, Orion will
grant certain registration rights to the Limited Partners, as summarized below.
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o Shelf Registration Rights. Orion 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 Series C Preferred Stock (the "Lockup Period"),
cause to be filed a "shelf" registration statement of Orion (the "Initial Shelf
Registration Statement") which covers the registration of any and all the
Eligible Registrable Securities each holder elects to include in the Initial
Shelf Registration Statement. "Eligible Registrable Securities" means the
Affected Shares (as defined below -- see "Shares Eligible for Future Sale")
issuable to the Limited Partners pursuant to the Exchange Agreement, up to the
25% Limit (as defined below -- see "Shares Eligible for Future Sale").
o Subsequent Shelf Registration Rights. Orion will be
obligated to file additional shelf registration statements providing for the
registration of the Eligible Registrable Securities which have not been
registered previously.
o Demand Registration of Underwritten Offerings. At any time
following the expiration of the Lockup Period, one or more of the holders of the
Series C Preferred Stock may request that Orion 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.
o Piggy-back Registration Rights. If at any time following the
expiration of the Lockup Period, Orion proposes to effect a registration of the
Orion 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 will, subject to certain
provisions described in the Registration Rights Agreement, include in such
registration all Eligible Registrable Securities with respect to which Orion has
received written requests for inclusion therein. Orion will pay any and all
Registration Expenses (as such term is used in the Registration Rights
Agreement) incident to the filing of each Piggy-back Registration statement or
otherwise incident to the performance of or compliance by Orion with the
provisions of the Registration Rights Agreement relating to a Piggy-back
Registration.
Junior Subordinated Debentures. The shares of Common Stock
issuable upon conversion of the Junior Subordinated Debentures (and up to 86,505
shares of Common Stock held by British Aerospace) will have the following
registration rights:
o Shelf Registration Rights. Orion will prepare and, as soon
as practicable (but no later than 60 days after) the date of issuance of the
Junior Subordinated Debentures, cause to be filed a "shelf" registration
statement of Orion which covers the registration of any and all shares of Common
Stock issuable upon conversion of the Junior Subordinated Debentures each holder
elects to include in such shelf registration statement. If not all shares of
Common Stock issuable upon conversion of the Junior Subordinated Debentures are
registered in the initial shelf registration statement, Orion will be obligated
to file additional shelf registration statement(s) to register such unregistered
shares.
o Demand Registration of Underwritten Offerings. Any one or
more holders of the Junior Subordinated Debentures may request that Orion effect
a registration under the Securities Act of all shares the Common Stock issuable
upon conversion of the Junior Subordinated Debentures in an Underwritten
Offering. The Company will not be obligated to effect more than one Underwritten
Offering in any 12 month period. Orion will pay any and all Registration
Expenses (as defined in the relevant registration rights agreement) incident to
the filing of each registration statement for an Underwritten Offering that
exceeds $25 million.
o Piggy-back Registration Rights. If Orion proposes to effect
a registration of the Orion 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
will, subject to certain provisions described in the Registration Rights
Agreement, include in such registration all shares the Common Stock issuable
upon conversion of the Junior Subordinated Debentures with respect to which
Orion has received written requests for inclusion
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therein. Orion will pay any and all Registration Expenses (as such term is used
in the Registration Rights Agreement) incident to the filing of each Piggy-back
registration statement or otherwise incident to the performance of or compliance
by Orion with the provisions of the registration rights agreement relating to a
Piggy-back Registration.
Such registration rights may hinder efforts by Orion to
arrange future financings of Orion and may have an adverse effect on the market
price of the Common Stock. See "Shares Eligible for Future Sale."
Certain Anti-Takeover Effects
Orion'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's Board of Directors and in the policies
formulated by the Board of Directors, and to discourage an unsolicited takeover
of Orion if the Board of Directors determines that such a takeover is not in the
best interest of Orion and its stockholders. However, these provisions could
have the effect of discouraging certain attempts to acquire Orion or remove
incumbent management even if some or a majority of Orion'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 Common Stock
held by stockholders.
Orion is subject to Section 203 of the Delaware Code ("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 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 has not made such an election and, therefore, Section 203
may have an anti-takeover effect with respect to Orion.
Under the Communications Act, if Orion 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 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's Certificate of
Incorporation empowers the Board of Directors of Orion to redeem any of Orion'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 "Business -- Regulation" and "Risk Factors -- Approvals Needed;
Regulation of Industry."
Orion's Certificate of Incorporation contains a provision (the
"Fair Price Provision") that requires the approval of the holders of a majority
of Orion'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's
voting stock (an "Interested Stockholder"), except in cases 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 Common Stock must receive a
value equal to the highest price paid by the Interested Stockholder for 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's Board of Directors believes that the Fair Price
Provision will help assure that all of Orion'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.
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Orion'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 above any of three thresholds (20%, 33%, or 50%) to send a disclosure
statement to Orion and the other stockholders. The Acquiring Stockholder must
receive the approval of the holders of a majority of the other shares of Orion
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,
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
on the approval of a majority of the pre-existing disinterested stockholders.
Orion'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
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 entitled to vote. Orion is not obligated to
hold more than one 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'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.
Orion's Certificate of Incorporation and Bylaws provide that
the Board of Directors of Orion 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'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 Common Stock is quoted on the Nasdaq National Market under
the trading symbol "ONSI."
Transfer Agent
The transfer agent and registrar for the Common Stock is Fleet
National Bank.
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SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Merger and Exchange, the Company will
have approximately 25.9 million shares of Common Stock outstanding on a fully
diluted basis. Approximately 14.5 million of these shares will initially be held
by the Company'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 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.
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 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 Common Stock (approximately 259,000 shares
outstanding immediately after the Transactions) or (ii) the average weekly
trading volume in the 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 the Company at any time during the 90 days preceding a
sale, and who has beneficially owned the shares proposed to be sold for at least
three years, would be entitled to sell such shares under Rule 144(k) without
regard to the requirements described above.
The Limited Partners, including British Aerospace (which could
acquire additional shares upon conversion of the British Aerospace Debenture)
will own the remaining 11.4 million shares after the Transactions, all of which
will be deemed to be "restricted securities" as that term is defined in Rule
144, promulgated under the Securities Act. Moreover, each Exchanging Partner
will enter into a Transfer Restriction Agreement regarding the transfer of the
shares of Common Stock issuable upon conversion of the Series C Preferred Stock.
Pursuant to the applicable Transfer Restriction Agreement, each Exchanging
Partner may not transfer any shares of Common Stock issued upon conversion of
shares of Series C Preferred Stock or as dividends on such Series C Preferred
Stock ("Affected Shares") without the prior written consent of the Company until
the expiration of the Lockup Period (other than certain transfers within the
corporate group). 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 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 , or (iv) 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 under the Securities Act (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 clauses (i),
(ii), or (iii) above, the transferee shall execute and deliver to the Company 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
fifth anniversary of the Closing Date.
The Limited Partners and holders of the Junior Subordinated
Debentures will be granted certain shelf, demand and "piggy-back" registration
rights with respect to the Series C Preferred Stock to be received by them in
the Exchange or such Junior Subordinated Debentures, respectively, and the
Common Stock issuable as dividends thereon or interest with respect thereto. See
"Description of Capital Stock -- Registration Rights."
No predictions can be made as to the effect, if any, that
sales of Common Stock or the availability of additional shares of Common Stock
for sale by the Limited Partners would have on the market price of such
securities prevailing from time to time or on the ability of the Company to
raise additional equity financing. Nevertheless, the foregoing could adversely
affect prevailing market prices. See "Principal Stockholders."
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UNDERWRITERS
Subject to the terms and conditions of the Underwriting Agreement (the
"Underwriting Agreement") among the Company, Morgan Stanley & Co. Incorporated
and Merrill Lynch, Pierce, Fenner & Smith Incorporated (together, the
"Underwriters"), each of the Underwriters has severally agreed to purchase the
number of Units set forth opposite its name below:
Number of Units
---------------
Morgan Stanley & Co..........................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated....................
---------------
Total............................
===============
Under the terms and conditions of the Underwriting Agreement, the
Underwriters are committed to take and pay for all of the Units, if any are
taken.
The Underwriters propose to offer the Units in part directly to
purchasers at the initial public offering price set forth on the cover page of
this Prospectus and in part to certain securities dealers at such price less a
concession not in excess of $ and $ with respect to Senior Notes Units and
Senior Discount Notes Units, respectively. The Underwriters may allow, and such
dealers may reallow, a concession not in excess of $ and $ with respect to the
Senior Notes Units and Senior Discount Notes Units, respectively to certain
brokers and dealers. After the initial offering, the offering price and other
selling terms may from time to time be varied by the Underwriters.
There is no public market for the Units and the Company does not intend
to apply for listing of the Units, Notes or Warrants on any securities exchange
or for quotation through the Nasdaq National Market. The Company has been
advised by the Underwriters that they intend to make a market in the Units,
Notes and Warrants, but are not obligated to do so and may discontinue market
making at any time without notice. Accordingly, no assurance can be given as to
the liquidity of the trading market for the Units, Notes or Warrants.
The Company and the several Underwriters have agreed to indemnify each
other against certain liabilities, including liabilities under the Securities
Act.
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FORWARD LOOKING STATEMENTS
Information set forth in this Prospectus under the captions
"Risk Factors," "Management's Discussion and Analysis of Financial Condition and
Results of Operations," "Selected Consolidated Financial and Operational Data"
and under other captions contains various "forward looking statements" within
the meaning of Section 27A of the Securities Act, and Section 21E of the
Exchange Act, which 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 projections regarding
the continuation of net losses; 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 intention not to pay any dividends on the Common Stock in
the foreseeable future; Orion's belief that any liability that might be incurred
by Orion upon the resolution of certain existing or future legal proceedings not
having a material adverse effect on the consolidated financial condition or
results of operations of Orion; and the adoption of new accounting releases not
being material to its financial condition or results of operations.
Orion cautions that the above statements are further qualified
by important factors that could cause Orion's actual operating results to differ
materially from those in the forward looking statements. Such factors include,
without limitation, those set forth in this Prospectus under "Risk Factors" and
the following: no assurances regarding the business plan; Orion's history of
losses and expectation of future losses; the substantial financial risks and
financing requirements; substantial leverage and limits on Orion's ability to
raise additional funds; 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, current or future regulation of the
telecommunications industry; no assurances regarding technological changes;
risks of conducting international business; dependence of Orion on key
personnel; control of Orion by principal stockholders; risks relating to senior
preferred stock; limits on paying dividends on Orion common stock; and
anti-takeover and other provisions of the certificate of incorporation. See
"Risk Factors."
VALIDITY OF THE NOTES
The validity of the Notes offered hereby is being passed upon
for the Company by Hogan & Hartson L.L.P., Washington, D.C. and for the
Underwriters by Shearman & Sterling, New York, New York. Certain
communications-related legal matters will be passed upon for the Company by
Verner, Liipfert, Bernard, McPherson and Hand Chartered, 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, appearing in 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.
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ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") under the Securities Act, a Registration Statement on Form S-1 (of
which this Prospectus is a part) (the "Registration Statement") with respect to
the securities offered hereby. This Prospectus does not contain all of the
information set forth in the Registration Statement and in the exhibits and
schedules thereto. For further information with respect to the Company,
reference is made to the Registration Statement and to the exhibits and
schedules thereto.
Statements contained in this Prospectus as to the contents of any
contract or other document filed as an exhibit to the Registration Statement are
not necessarily complete and, in each instance, reference is made to the copy of
such contract or document filed as an exhibit to the Registration Statement,
each such statement being qualified in all respects by such reference. Copies of
the Registration Statement, including all exhibits and schedules thereto, may be
inspected without charge at the Public Reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and copies of such
material can be obtained from the Public Reference Section of the Commission,
Washington, D.C. 20549, upon payment of prescribed rates or in certain cases by
accessing the Commission's World Wide Web site at http://www.sec.gov.
The Common Stock of Orion is registered under the Securities Exchange
Act of 1934, as amended (the "Exchange Act") and in accordance therewith Orion
will file reports and other information with the SEC. In addition, under the
Indentures, the Company will be required to furnish to the Trustee and to
registered holders of the Notes audited annual financial statements, unaudited
quarterly consolidated financial reports and certain other reports. The Common
Stock of the Company is quoted on the Nasdaq National Market under the symbol
"ONSI," and such reports and other information concerning the Company can also
be inspected at the offices of Nasdaq Operations, 1735 K Street, N.W.,
Washington, D.C. 20006.
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APPRAISAL
APPRAISAL OF
Orion Network Systems, Inc.
______ has prepared an appraisal estimating the Fair Market Value of
the Orion 1 satellite to be $_____ million as of September 30, 1996 (the
"Valuation Date"). ______ defines the Fair Market Value, as of the Valuation
Date, as the price that would be paid by a purchaser and accepted by a seller of
the satellite, neither under compulsion to buy or sell, respectively, for
delivery of the satellite on its Valuation Date.
The appraised value of the asset as of September 30, 1996 assumes that
Orion 1 will continue to be operational, and that Orion 1's performance will be
consistent with the assumptions provided by management. Because events and
circumstances frequently do not occur as expected and for the reasons described
in the Company's prospectus relating to the issuance of Units compromised of
Senior Notes Due 2007 and Warrants and Units compromised of Senior Discount
Notes Due 2007 and Warrants, there will usually be differences between projected
and actual results, and those differences may be material. Therefore, no
assurance may be given that the appraised value of the assets will be achieved
and reliance should not be placed on such appraised value. Please refer to
________ Appraisal Memorandum for Orion 1 (the "______ Memorandum"), which is
incorporated herein by reference and a copy of which may be obtained from the
Company at no charge, for other material assumptions, information,
qualifications and limitations upon liability related to ________ appraisal.
This letter is qualified in its entirety by reference to the ______ Memorandum.
In addition to determining the Fair Market Value of Orion 1, ______
calculated replacement cost as a measure of Fair Market Value. However, we
rejected replacement cost because, in ________ experience in-orbit satellite
systems and related assets have typically had Fair Market Values substantially
in excess of replacement cost.
New York, New York -------------------------
As of , 1996
A-1
<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, 551,870 5,189,598 5,808,568
1996)
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 53,873,332
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) 62,519,074 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 $ (7,886,071) $ (8,591,318) $ (28,244,185) $ (20,944,731) $(20,813,572)
============= ============= ============== ============= ============
stockholders
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>
<TABLE>
<CAPTION>
ORION NETWORK SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Common Stock
---------------------------
Capital in Total Total
Number of Excess of Accumulated Stockholders'
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>
<TABLE>
<CAPTION>
ORION NETWORK SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
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 equivalent (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.
F-7
<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)
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
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.
F-8
<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)
2. Summary of Significant Accounting Policies (Continued)
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>
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 1,106,285
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>
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
F-9
<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)
2. Summary of Significant Account Policies (Continued)
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 determined at the date such payments are deemed probable of being paid,
generally at the time satellite launch insurance expires and commercial in orbit
insurance becomes effective ($14.8 million relating to Orion 1). 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 $8,589,062, $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.
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 $3,535,052, $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
===========
F-10
<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)
2. Summary of Significant Account Policies (Continued)
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.
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 1,237
(2,040)
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.
F-11
<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)
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(degree) W.L. and 47(degree) 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.
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.
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 satisfactory. 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, effective
July 1, 1995, 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.
F-12
<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)
3. Orion Atlantic (Continued)
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
=============== ================
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.
F-13
<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)
3. Orion Atlantic (Continued)
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.
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.
F-14
<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)
4. Commitments and Contingencies (Continued)
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.
Future minimum lease payments are as follows:
1996 $ 774,357
1997 793,716
1998 887,138
1999 907,477
----------
$3,362,688
==========
F-15
<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)
5. Long-Term Debt
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31,
----------------------------------------
1994 1995
----------------- -----------------
<S> <C> <C>
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
================= =================
</TABLE>
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, 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 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.
F-16
<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)
5. Long-Term Debt (Continued)
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. Also included in satellite
incentive obligations are $4.1 million relating to accruals prior to July 1,
1995 and $1.1 million of interest accretion during the period July 1, 1995 to
December 31, 1995.
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-17
<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)
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 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 ("SSL") pursuant to a stock purchase agreement (the
"Agreement").
F-18
<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)
6. Redeemable Preferred Stock and Stockholders' Equity (Continued)
In May 1994, 19,424 shares of common stock were issued at $10.20 per share
to new and existing shareholders.
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.
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.
F-19
<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)
6. Redeemable Preferred Stock and Stockholders' Equity (Continued)
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.
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.
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.
F-20
<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)
9. Condensed Financial Information of Orion
Condensed Balance Sheets of Orion Network Systems, Inc.
<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-21
<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)
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>
- -----------
(1) 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.
F-22
<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)
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>
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 Orion 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
Space and Communications, Ltd ("APSC") 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.
F-23
<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)
11. Subsequent events (unaudited) (Continued)
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 $ representing Units consisting of Senior Notes, due 2007 and
warrants to purchase common stock, and an aggregate of $ representing units
consisting of $ 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 Junior Subordinated Convertible
Debentures, respectively. Such debentures are expected to bear interest at 8.75%
payable semiannually in Orion common stock (valued at $14 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 Investment; 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 the OAP Minority Interest Acquisition.
In November 1996, Orion entered into a contract with DACOM Corp., 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 May
1999). Prior to launch, payments will be held in escrow and are subject to
refund if the leased transponders are not launched and in service by May 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 Orion would be entitled to retain all deposited funds. Prior to
launch, payments will be held in escrow and are subject to refund if the leased
transponders are not launched and in service by May 1999. 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 (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.
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-24
<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 the parent company of
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............................ ComDev 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, Com Dev,
Kingston Communications, Lockheed Martin
CLS, Matra Hachette and Nissho Iwai.
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.
G-1
<PAGE>
Lockheed Martin CLS................ Lockheed Martin Commercial Launch
Services, Inc., a Limited Partner and a
subsidiary of Martin Marietta
Technologies, Inc., a Lockheed Martin
company. Lockheed Martin CLS acquired the
assets of General Dynamics Commercial
Launch Services through a transfer of
assets from Martin Marietta Corporation,
which in turn acquired these and other
assets (including the Atlas family of
launch vehicles) from General Dynamics
Corporation in 1994. Lockheed Martin CLS
is a commercial launch services provider
and provided launch services to Orion as
the launch subcontractor under the Orion
1 Satellite Contract. Lockheed Martin CLS
became a Limited Partner by acquiring the
limited partnership interest of General
Dynamics CLS in the 1994 transaction
described above.
Matra Hachette..................... Matra Hachette, an aerospace, defense,
industrial and media company and part of
the Lagardere Groupe of France, and the
parent company of MCN Sat U.S., Inc., a
Limited Partner. Matra Hachette is one of
the parent companies of Matra Marconi
Space, which is the parent company of
Space Systems, the prime contractor for
Orion 1, and the manufacturer under the
Orion 2 Satellite Contract.
Nissho Iwai Corp................... Nissho Iwai Corporation, is a trading
company in Japan, and the parent company
of Trans-Atlantic Satellite, Inc., a
Limited Partner.
Orion.............................. (1) the combined operations of Orion
Network Systems, Inc., a Delaware
corporation, and its subsidiaries
(collectively, the "Operating Company"),
prior to the date of the merger of a
newly formed subsidiary ("Merger Sub") of
Orion Newco Services, Inc., a recently
formed Delaware corporation ("Orion
Newco") into the Operating Company (the
"Merger") and (2) Orion and its
subsidiaries, including the Operating
Company, after the Merger.
Orion 1 Credit Facility............ A facility of up to $251 million of
senior debt provided to finance Orion 1,
which will be repaid with proceeds of the
Offering.
Orion Asia Pacific................. Asia Pacific Space and Communications,
Ltd., a Delaware corporation. Orion
acquired 83% of the stock of such company
in December 1992, and is in the process
of acquiring the remaining 17%, which is
held by British Aerospace, in exchange
for approximately 86,000 shares of Common
Stock in the OAP Acquisition.
G-2
<PAGE>
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
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.
G-3
<PAGE>
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 U.K. 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
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 Space Systems and the Company
understands that 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-4
<PAGE>
Orion 3 Satellite Contract......... The proposed spacecraft purchase
agreement between Orion Asia Pacific
Corporation, 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).
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 from, and the frequency
conversion, amplification and
transmission to, earth of communication
signals.
TT&C facility...................... 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(degree) West longitude over the
Atlantic Ocean.
G-5
<PAGE>
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-6
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. Other Expenses of Issuance and Distribution.
The following table sets forth the various expenses to be paid by the
Registrant in connection with the sale and distribution of the securities being
registered hereby, other than underwriting discounts and commissions. All
amounts are estimated except the Securities and Exchange Commission registration
fee and the National Association of Securities Dealers, Inc. filing and listing
fees.
Securities and Exchange Commission registration fee.......... $97,577
National Association of Securities Dealers, Inc. filing fee.. $ *
Blue sky fees and expenses (including fees of counsel)....... *
Printing and engraving expenses.............................. *
Fees and expenses of counsel for the Company................. *
Accounting fees and expenses................................. *
Appraisal fees and expenses.................................. *
Transfer agent and registrar fees............................ *
Miscellaneous................................................ *
Total.............................................. $ *
===
- ------------
* To be filed by amendment.
ITEM 14. Indemnification of Directors and Officers.
Orion. Orion'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.
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, 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 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 circumstances of
the case, such person is fairly and reasonably entitled to indemnity.
Old ONSI. Old ONSI'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 Old ONSI and its stockholders. This provision in the
Certificate of Incorporation does not eliminate the duty of care, and in
appropriate circumstances
II-1
<PAGE>
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 Old
ONSI'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.
Old ONSI's Certificate of Incorporation also provides that, except as
expressly prohibited by law, Old ONSI 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 Old ONSI (or is or was serving at the request of Old ONSI
as a director, officer, employee or agent 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.
OrionSat. OrionSat'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 OrionSat 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 provides that OrionSat'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.
OrionSat's Bylaws provide that, except as expressly prohibited by law,
OrionSat 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, officer, employee
or agent of OrionSat (or is or was serving any other enterprise at the request
of OrionSat), 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.
OrionNet Finance Corporation. OrionNet Finance Corporation'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 OrionNet Finance
Corporation 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 provides that OrionNet Finance Corporation'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.
OrionNet Finance Corporation's Bylaws provide that, except as expressly
prohibited by law, OrionNet Finance Corporation 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, officer, employee or agent of OrionNet Finance Corporation
(or is or was serving any other enterprise at the request of OrionNet Finance
Corporation), against expenses, liabilities and losses (including attorney's
fees),
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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.
Asia Pacific Space and Communications, Ltd. ("APSC"). APSC's Certificate of
Incorporation provides that the personal liability of its directors shall be
eliminated to the fullest extent provided by Section 7 of Subsection (b) of
Section 102 of the Delaware Code. This paragraph allows for the elimination of
all personal liability, provided that liability shall not be eliminated or
limited (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 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. 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.
APSC's Certificate of Incorporation also provides that APSC shall indemnify
its directors, officers, employees and agents to the fullest extent permitted by
Section 145 of the Delaware Code, as the same exists or may hereafter be
amended. Section 145 currently covers 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
APSC, 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 APSC 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.
Orion Asia Pacific. Orion Asia Pacific'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 Orion Asia Pacific 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 provides that Orion Asia
Pacific'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.
Orion Asia Pacific's Bylaws provide that, except as expressly prohibited by
law, Orion Asia Pacific 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,
officer, employee or agent of Orion Asia Pacific (or is or was serving any other
enterprise at the request of Orion Asia Pacific), 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.
OrionNet. OrionNet'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 OrionNet 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 provides that OrionNet's directors would remain subject to
liability for monetary damages (i) for any breach of their
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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.
OrionNet's Bylaws provide that, except as expressly prohibited by law,
OrionNet 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, officer, employee
or agent of OrionNet (or is or was serving any other enterprise at the request
of OrionNet), 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.
Orion Atlantic Europe, Inc. Orion Atlantic Europe, Inc.'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 Orion Atlantic
Europe, Inc. 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 provides that Orion Atlantic Europe, Inc.'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.
Orion Atlantic Europe, Inc.'s Certificate of Incorporation also provides
that, except as expressly prohibited by law, Orion Atlantic Europe, Inc. 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 Atlantic Europe,
Inc. (or is or was serving at the request of Orion Atlantic Europe, Inc. 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.
Section 145 of the Delaware Code 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.
International Private Satellite Partners, L.P. ("IPSP"). The Third Amended
and Restated Agreement of Limited Partnership of International Private Satellite
Partners, L.P. (the "IPSP Partnership Agreement") provides that neither the
general partner (OrionSat) nor any of its affiliates , nor any of their
respective partners, officers, directors, employees or agents, shall be liable
to IPSP or its limited partners for any losses
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sustained or liabilities incurred as a result of any act or omission, so long as
such conduct does not constitute bad faith, fraud, gross negligence, willful
misconduct or breach of any fiduciary duty.
The IPSP Partnership Agreement also provides that, except as expressly
prohibited by law, IPSP shall indemnify OrionSat, its affiliates and their
respective partners, officers, directors, employees and agents from any and all
expenses, liabilities and losses (including attorney's fees), judgments, fines
and amounts paid or to be paid in settlement arising from any claims, demands,
actions, suits or proceedings, arising out of or incidental to the business or
activities relating to IPSP.
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 Orion pursuant to the foregoing provision or
otherwise, Orion has been advised that, in the opinion of the 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.
Orion 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 15. Recent Sales of Unregistered Securities.
During the past three years, Orion (which completed an initial public
offering in August 1995) issued the following unregistered securities, adjusted
to reflect a 1.00-for-1.36 reverse stock split effected in July 1995. No
underwriting discounts or commissions were paid in connection with any of such
transactions, although a fee of $250,000 was paid to Salomon Brothers Inc for
serving as a financial advisor to Orion in connection with Orion's 1994 private
placement. There was no public offering in such transactions, and the
transactions were exempt from the registration requirements of the Securities
Act by reason of Sections 4(2) and 3(b) thereof, and Regulation D promulgated
thereunder. In each instance, the shares of Common Stock, shares of Preferred
Stock or warrants of Orion were issued to a limited group of purchasers, each of
which had access to and/or was furnished information concerning Orion. The
purchasers acquired the securities for investment only and not with a view to
the distribution thereof, and each of the certificates representing the shares
of Common Stock and Preferred Stock of Orion issued to such purchasers was
stamped with a legend restricting the transfer of the shares of Common Stock and
Preferred Stock representing thereby.
Common Stock
In December 1993, Orion issued an aggregate of 178,097 shares of Common
Stock as part of a private placement of its 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 purchasers to receive the
benefit of any lower price at which Common Stock subsequently was issued in the
private placement or to receive any other security subsequently issued in the
private placement. In June 1994, when Orion issued shares of Common Stock as
part of the private placement of its 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
Common Stock in December 1993. In addition, after Orion issued Series A
Preferred Stock (along with warrants and options to make an additional
investment) to CIBC, Fleet and Chisholm in June 1994, the Directors and
affiliates of Directors who purchased Common Stock in December 1993 each
exercised his or its right to receive Series A Preferred Stock (along with
warrants and options to make an
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additional investment) in exchange for the Common Stock previously acquired, and
Orion issued an aggregate of $3,000,000 of Series A Preferred Stock to such
persons and entities.
In May 1994, Orion entered into an agreement with SS/L whereby SS/L agreed
to purchase 588,235 shares of Common Stock for an aggregate purchase price of
$5,000,000. The agreement with SS/L includes a possible sale, under certain
circumstances, of an additional 588,235 shares of Common Stock for an aggregate
purchase price of $5,000,000. SS/L has the right to require the Company to
repurchase the 588,235 shares from SS/L if Orion selects a company other than
SS/L as the prime contractor in a contract for construction of a satellite to
serve the Asia Pacific region. SS/L has the right, during the three year period
after the sale of the initial shares of Common Stock, to receive more shares of
Common Stock; under certain circumstances, if Orion issues Common Stock or a
security convertible into or exchangeable for Common Stock for a price of less
than $8.50 per share.
In June 1994, Orion issued an aggregate of 174,844 shares of Common Stock
as part of a private placement of its Common Stock to a limited number of
institutions and other investors at a purchase price of $8.50 per share. The
terms of such issuance permitted the purchasers to receive the benefit of any
lower price at which Common Stock subsequently was issued in the private
placement or to receive any other security subsequently issued in the private
placement. When Orion issued Series A Preferred Stock (along with warrants and
options to make an additional investment) to CIBC, Fleet and Chisholm in June
1994, the institutions and other investors who purchased Common Stock in June
1994 each exercised his, her or its right to receive Series A 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
$3,000,000 of Series A Preferred Stock to such persons and entities.
In March 1995 (but pursuant to a contract signed in January 1994) Orion
issued an aggregate of 2,941 shares of Common Stock to a recruiting firm as
compensation for work performed for Orion.
Preferred Stock
In June 1994, CIBC, Fleet and Chisholm purchased $11.5 million in Series A
8% Cumulative Redeemable Convertible Preferred Stock, which shares are
convertible into shares of Common Stock at an exercise price of $8.50 per share.
See "Description of Capital Stock -- Preferred Stock." CIBC, Fleet, and Chisholm
also were granted the right to invest an additional $3.8 million in similar
preferred stock, except that such similar preferred stock would be convertible
at any time into Common Stock at a price within a range from $10.20 to $17.00
per share of Common Stock based upon when the option is exercised and certain
other factors. CIBC, Fleet, and Chisholm also were granted a contractual
"preemptive" right to purchase a pro rata portion of any equity securities sold
by Orion 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, and existing rights to acquire equity securities. CIBC,
Fleet and Chisholm also were granted certain warrants (issued concurrently with
the Series A Preferred Stock) to purchase Common Stock at the conversion price
of such Series A Preferred Stock. These warrants do not become exercisable
unless Orion exercise its right to repurchase the Series A Preferred Stock at
the liquidation value (plus accrued and unpaid dividends). In connection with
the transaction, CIBC and Fleet each were granted the right to elect one member
of Orion's Board of Directors.
After Orion issued Series A Preferred Stock (along with warrants and
options to make an additional investment) to CIBC, Fleet and Chisholm 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 his, her or its right to receive Series A
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 $3.0 million of Series A Preferred Stock to such persons
and entities.
In June 1995, CIBC and certain Directors and affiliates of Directors who
purchased Series A Preferred Stock in June 1994 purchased approximately $4.2
million in Series B Preferred Stock of Orion. This purchase was pursuant to an
option granted in June 1994 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 into Common Stock at a price within a range from $10.20 to $17.00 per
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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 discussed above, except that the Series
B Preferred Stock is convertible into Common Stock at an initial price of $10.20
per share, subject to certain anti-dilution adjustments, and purchase of Series
B Preferred Stock did not result in the purchasers receiving any rights to
purchase additional preferred stock. The purchasers of the Series B Preferred
Stock also were granted certain warrants (issued concurrently with the Preferred
Stock) to purchase Common Stock at the conversion price of such Series B
Preferred Stock. These warrants do not become exercisable unless Orion exercises
its right to repurchase the Series B Preferred Stock at the liquidation value
(plus accrued and unpaid dividends).
Warrants
In May 1994, in connection with the sale of Common Stock to SS/L discussed
under "Common Stock" above, Orion granted an option to SS/L to purchase 588,235
shares of Common Stock at a price of $8.50 per share prior to January 1, 1995,
which option has expired.
In June 1994, in connection with the sale of Series A Preferred Stock
discussed under "Preferred Stock" above, Orion granted an option to the holders
of Series A Preferred Stock to invest an additional $4.8 million in similar
preferred stock (except that such similar preferred stock would be convertible
at any time into Common Stock at a price based upon when the option is exercised
within a range from $10.20 to $17.00 per share of Common Stock). The purchase of
Series B Preferred Stock in June 1995 represented an exercise of the right to
invest approximately $4.5 million of this amount. Orion also granted the holders
of Preferred Stock certain warrants to purchase Common Stock at the conversion
price of such Preferred Stock. These warrants do not become exercisable unless
Orion exercises its right to repurchase the Preferred Stock at the liquidation
value (plus accrued and unpaid dividends).
In December 1996, Orion issued 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 (6) month period beginning six (6) months after the commencement date, as
defined in the Joint Investment Agreement, and ending one (1) year after the
commencement date and will terminate at that time or at any time the Joint
Investment Agreement between DACOM and Orion is terminated.
ITEM 16. Exhibits and Financial Statement Schedules.
(a) Exhibits.
Exhibit
Number Description
- ------ -----------
1.1 Form of Underwriting Agreement*
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.)
3.5 Certificate of Incorporation of Orion Satellite Corporation*
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<PAGE>
3.6 Bylaws of Orion Satellite Corporation*
3.7 Certificate of Limited Partnership of International Private
Satellite Partners, L.P.*
3.8 Form of Third Amended and Restated Agreement of Limited Partnership
of International Private Satellite Partners, L.P.*
3.9 Certificate of Incorporation of OrionNet, Inc.*
3.10 Bylaws of OrionNet, Inc.*
3.11 Certificate of Incorporation of Orion Asia Pacific Corporation*
3.12 Bylaws of Orion Asia Pacific Corporation*
3.13 Certificate of Incorporation OrionNet Finance Corporation*
3.14 Bylaws of OrionNet Finance Corporation*
3.15 Certificate of Incorporation of Asia Pacific Space and
Communications, Ltd.*
3.16 Bylaws of Asia Pacific Space and Communications, Ltd.*
3.17 Certificate of Incorporation of Orion Atlantic Europe, Inc.*
3.18 Bylaws of Orion Atlantic Europe, Inc.*
4.1 Form of Senior Note Indenture and Form of Note included therein*
4.2 Form of Senior Discount Note Indenture and Form of Note included
therein*
4.3 Form of Pledge Agreement*
4.4 Form of Security Agreement*
4.5 Form of Warrant Agreement, dated as of _________, 1997, by and
between Orion and _________________, and Form of Warrant included
therein*
4.6 Forms of Warrant issued by Orion. (Incorporated by reference to
exhibit number 4.1 in Registration Statement No. 33-80518 on Form
S-1 of Orion Network Systems, Inc.)
4.7 Forms of Warrant issued by Orion to holders of Preferred Stock.
(Incorporated by reference to exhibit number 4.2 in Registration
Statement No. 33-80518 on Form S-1 of Orion Network Systems, Inc.)
4.8 Forms of Certificates of Designation of Series A 8% Cumulative
Redeemable Convertible Preferred Stock, Series B 8% Cumulative
Redeemable Convertible Preferred Stock and Series C 6% Cumulative
Redeemable Convertible Preferred Stock.*
4.9 Forms of Series A Preferred Stock and Series B Preferred Stock
Certificates of Orion.*
4.10 Form of Common Stock Certificate of Orion.*
4.11 Form of Warrant issued to DACOM Corp.*
4.12 Note Purchase Agreement with British Aerospace*
4.13 Note Purchase Agreement with Matra Marconi Space*
5.1 Opinion of Hogan & Hartson L.L.P.*
8.1 Opinion of Hogan & Hartson L.L.P. with respect to certain tax
matters*
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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, 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 Consulting 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 10.28 in Registration Statement No.
33-80518 on Form S-1 of Orion Network Systems, Inc.)
10.6 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.)
10.7 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.)
10.8 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.)
10.9 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.)
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10.10 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.)
10.11 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.)
10.12 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.)
10.13 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.)
10.14 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.)
10.15 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.)
10.16 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.)
10.17 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.)
10.18 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.)
10.19 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.)
II-10
<PAGE>
10.20 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.]*
10.21 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.)
10.22 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.)
10.23 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.)
10.24 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.)
10.25 Release of Continuing Guaranty, dated as of December 29, 1994, of
the Company. (Incorporated by reference to exhibit number 10.46 in
Registration Statement No. 33-80518 on Form S-1 of Orion Network
Systems, Inc.)
10.26 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.)
10.27 Continuing Guarantee, dated as of December 29, 1994, of the Company.
(Incorporated by reference to exhibit number 10.48 in Registration
Statement No. 33-80518 on Form S-1 of Orion Network Systems, Inc.)
10.28 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.)
10.29 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.)
10.30 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.)
10.31 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.)
10.32 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.)
II-11
<PAGE>
10.33 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.)
10.34 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.)
10.35 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.)
10.36 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.)
10.37 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.)
10.38 Option Agreement, dated December 10, 1996, by and between Orion
Atlantic and Matra Marconi Space. [CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED FOR PORTIONS OF THESE DOCUMENTS.]*
10.39 Memorandum of Agreement for the Procurement of Orion 2 Spacecraft,
dated December 19, 1996, by and between Orion Atlantic and Matra
Marconi Space. [CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR
PORTIONS OF THESE DOCUMENTS.]*
10.40 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.]*
10.41 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.]*
10.42 Orion Network Systems, Inc. Employee Stock Purchase Plan
(Incorporated by reference to exhibit number 4.4 in Registration
Statement No. 333-_____ on Form S-8 of Orion Network Systems, Inc.)
10.43 Orion Network Systems, Inc. 401(k) Profit Sharing Plan (Incorporated
by reference to exhibit number 4.5 in Registration Statement No.
333-_____ on Form S-8 of Orion Network Systems, Inc.)
10.44 Orion Network Systems, Inc. Non-Employee Director Stock Option Plan*
10.45 Exchange Agreement dated June , 1996 among Orion Network Systems,
Orion Atlantic, OrionSat and the Limited Partners (Incorporated by
reference to exhibit 10 in Current Report on Form 8-K dated December
20, 1996, of Orion Network Systems, Inc.)
10.46 First Amendment to Exchange Agreement dated December ___, 1996 among
Orion Network Systems, Orion Atlantic, OrionSat and the Limited
Partners*
12.1 Statement Regarding Computation of Ratio of Earnings to Fixed
Charges.*
21.1 List of subsidiaries of Orion.*
II-12
<PAGE>
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 ______
24.1 Powers of Attorney (included on the signature pages of the
Registration Statement).
26.1 Form T-1 Statement of Eligibility and Qualification under the Trust
Indenture Act of 1939, as amended of as trustee (Separate Bound)*
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 Valuation for Orion Atlantic as of September 30, 1996, by _________*
- ----------
* To be filed by amendment.
(b) Financial Statements and Schedules:
(1) Financial Statements
The financial statements filed as part of this Registration
Statement are listed in the Index to Financial Statements on page F-1
(2) Schedules
The financial statement schedules of the Company have been
omitted because the information required to be set forth therein is not
applicable or is shown in the Financial Statements or Notes thereto.
ITEM 17. Undertakings.
The undersigned Registrants hereby undertake that:
(1) For purposes of determining any liability under the
Securities Act, the information omitted from the form of prospectus filed as
part of this Registration Statement in reliance upon Rule 430A and contained in
the form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective; and
(2) For the purpose of determining any liability under the
Securities Act, each post-effective amendment that contains a form of prospectus
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.
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors, officers and controlling persons of the Registrants
pursuant to the foregoing provisions, or otherwise, the Registrants have been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrants of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrants will, unless in the opinion of their counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
II-13
<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 31st day of December, 1996.
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, David J. Frear
and Richard H. Shay, 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.
Signature Title Date
--------- ----- ----
/s/W. Neil Bauer
- ----------------------- President and Director December 31, 1996
W. Neil Bauer (Principal Executive Officer)
/s/David J. Frear
- ----------------------- Vice President, Chief Financial December 31, 1996
David J. Frear Officer and Treasurer and Director
(Principal Financial Officer
and Principal Accounting Officer)
/s/Richard H. Shay
- ----------------------- Director December 31, 1996
Richard H. Shay
II-14
<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 31st day of December, 1996.
ORION NETWORK SYSTEMS, 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 John G. Puente, 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.
Signature Title Date
--------- ----- ----
/s/W. Neil Bauer
- ------------------------ President, Chief Executive December 31, 1996
W. Neil Bauer Officer and Director
(Principal Executive Officer)
/s/David J. Frear
- ------------------------ Vice President, Chief Financial December 31, 1996
David J. Frear Officer and Treasurer
(Principal Financial Officer
and Principal Accounting Officer)
/s/Gustave M. Hauser
- ----------------------- Chairman and Director December 31, 1996
Gustave M. Hauser
/s/John V. Saeman
- ----------------------- Director December 31, 1996
John V. Saeman
II-15
<PAGE>
/s/John G. Puente
- ----------------------- Director December 31, 1996
John G. Puente
/s/Richard J. Brekka
- ----------------------- Director December 31, 1996
Richard J. Brekka
/s/Warren B. French, Jr.
- ----------------------- Director December 31, 1996
Warren B. French, Jr.
/s/Sidney S. Kahn
- ----------------------- Director December 31, 1996
Sidney S. Kahn
- ----------------------- Director
W. Anthony Rice
/s/Robert M. Van Degna
- ----------------------- Director December 31, 1996
Robert M. Van Degna
/s/Barry Horowitz
- ----------------------- Director December 31, 1996
Barry Horowitz
II-16
<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 31st day of December, 1996.
ORION SATELLITE CORPORATION
By: /s/W. Neil Bauer
------------------------------
W. Neil Bauer
Chairman and Chief Executive Officer
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
--------------------- Chairman, Chief Executive December 31, 1996
W. Neil Bauer Officer and Director
(Principal Executive Officer)
/s/Douglas Newman
--------------------- President and Director December 31, 1996
Douglas Newman
/s/David J. Frear
--------------------- Vice President, Chief Financial December 31, 1996
David J. Frear Officer and Director
(Principal Financial Officer
and Principal Accounting Officer)
</TABLE>
II-17
<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 31st day of December, 1996.
INTERNATIONAL PRIVATE SATELLITE PARTNERS, L.P.
BY: ORION SATELLITE CORPORATION
By: /s/W. Neil Bauer
-------------------------------------
W. Neil Bauer
Chairman and Chief Executive Officer
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.
Signature Title Date
--------- ----- ----
/s/W. Neil Bauer
- ---------------------- Chairman, Chief Executive December 31, 1996
W. Neil Bauer Officer and Director
(Principal Executive Officer)
/s/Douglas Newman
- ---------------------- President and Director December 31, 1996
Douglas Newman
/s/David J. Frear
- ---------------------- Vice President, Chief Financial December 31, 1996
David J. Frear Officer and Director
(Principal Financial Officer
and Principal Accounting Officer)
II-18
<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 31st day of December, 1996.
ORIONNET, INC.
By: /s/W. Neil Bauer
-----------------------------------
W. Neil Bauer
President and Chief Executive Officer
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.
Signature Title Date
--------- ----- ----
/s/W. Neil Bauer
- ---------------- President, Chief Executive December 31, 1996
W. Neil Bauer Officer and Director
(Principal Executive Officer)
/s/David J. Frear
- ---------------- Vice President, Chief Financial December 31, 1996
David J. Frear Officer and Director
(Principal Financial Officer
and Principal Accounting Officer)
II-19
<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 31st day of December, 1996.
ORION ASIA PACIFIC CORPORATION
By: /s/W. Neil Bauer
-----------------------------------
W. Neil Bauer
President and Chief Executive Officer
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.
Signature Title Date
--------- ----- ----
/s/W. Neil Bauer
- -------------------- President, Chief Executive December 31, 1996
W. Neil Bauer Officer and Director
(Principal Executive Officer)
/s/David J. Frear
- -------------------- Vice President, Chief Financial December 31, 1996
David J. Frear Officer and Treasurer and Director
(Principal Financial Officer
and Principal Accounting Officer)
II-20
<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 31st day of December, 1996.
ASIA PACIFIC SPACE AND COMMUNICATIONS, INC.
By: /s/W. Neil Bauer
------------------------------------
W. Neil Bauer
President and Chief Executive Officer
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.
Signature Title Date
--------- ----- ----
/s/W. Neil Bauer
- ---------------- President, Chief Executive December 31, 1996
W. Neil Bauer Officer and Director
(Principal Executive Officer)
/s/David J. Frear
- --------------- Vice President, Chief Financial December 31, 1996
David J. Frear Officer and Director
(Principal Financial Officer
and Principal Accounting Officer)
II-21
<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 31st day of December, 1996.
ORIONNET FINANCE CORPORATION
By: /s/W. Neil Bauer
--------------------------------------
W. Neil Bauer
President and Chief Executive Officer
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.
Signature Title Date
--------- ----- ----
/s/W. Neil Bauer
- ---------------- President, Chief Executive December 31, 1996
W. Neil Bauer Officer and Director
(Principal Executive Officer)
/s/David J. Frear
- --------------- Vice President, Chief Financial December 31, 1996
David J. Frear Officer and Director
(Principal Financial Officer
and Principal Accounting Officer)
II-22
<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 31st day of December, 1996.
ORION ATLANTIC EUROPE, INC.
By: /s/W.Neil Bauer
-------------------------------
W. Neil Bauer
President and Chief Executive Officer
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.
Signature Title Date
--------- ----- ----
/s/W. Neil Bauer
- ---------------- President, Chief Executive December 31, 1996
W. Neil Bauer Officer and Director
(Principal Executive Officer)
/s/David J. Frear
- --------------- Vice President, Chief Financial December 31, 1996
David J. Frear Officer and Director
(Principal Financial Officer
and Principal Accounting Officer)
II-23
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description Page Number
- ------ ----------- -----------
<S> <C> <C>
1.1 Form of Underwriting Agreement*
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.)
3.5 Certificate of Incorporation of Orion Satellite Corporation*
3.6 Bylaws of Orion Satellite Corporation*
3.7 Certificate of Limited Partnership of International Private
Satellite Partners, L.P.*
3.8 Form of Third Amended and Restated Agreement of Limited Partnership
of International Private Satellite Partners, L.P.*
3.9 Certificate of Incorporation of OrionNet, Inc.*
3.10 Bylaws of OrionNet, Inc.*
3.11 Certificate of Incorporation of Orion Asia Pacific Corporation*
3.12 Bylaws of Orion Asia Pacific Corporation*
3.13 Certificate of Incorporation OrionNet Finance Corporation*
3.14 Bylaws of OrionNet Finance Corporation*
3.15 Certificate of Incorporation of Asia Pacific Space and
Communications, Ltd.*
3.16 Bylaws of Asia Pacific Space and Communications, Ltd.*
3.17 Certificate of Incorporation of Orion Atlantic Europe, Inc.*
<PAGE>
3.18 Bylaws of Orion Atlantic Europe, Inc.*
4.1 Form of Senior Note Indenture and Form of Note included therein*
4.2 Form of Senior Discount Note Indenture and Form of Note included
therein*
4.3 Form of Pledge Agreement*
4.4 Form of Security Agreement*
4.5 Form of Warrant Agreement, dated as of _________, 1997, by and
between Orion and _________________, and Form of Warrant included
therein*
4.6 Forms of Warrant issued by Orion. (Incorporated by reference to
exhibit number 4.1 in Registration Statement No. 33-80518 on Form
S-1 of Orion Network Systems, Inc.)
4.7 Forms of Warrant issued by Orion to holders of Preferred Stock.
(Incorporated by reference to exhibit number 4.2 in Registration
Statement No. 33-80518 on Form S-1 of Orion Network Systems, Inc.)
4.8 Forms of Certificates of Designation of Series A 8% Cumulative
Redeemable Convertible Preferred Stock, Series B 8% Cumulative
Redeemable Convertible Preferred Stock and Series C 6% Cumulative
Redeemable Convertible Preferred Stock.*
4.9 Forms of Series A Preferred Stock and Series B Preferred Stock
Certificates of Orion.*
4.10 Form of Common Stock Certificate of Orion.*
4.11 Form of Warrant issued to DACOM Corp.*
4.12 Note Purchase Agreement with British Aerospace*
4.13 Note Purchase Agreement with Matra Marconi Space*
5.1 Opinion of Hogan & Hartson L.L.P.*
8.1 Opinion of Hogan & Hartson 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
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, 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.]*
<PAGE>
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 Consulting 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 10.28 in Registration Statement No.
33-80518 on Form S-1 of Orion Network Systems, Inc.)
10.6 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.)
10.7 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.)
10.8 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.)
10.9 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.)
10.10 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.)
10.11 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.)
10.12 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.)
<PAGE>
10.13 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.)
10.14 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.)
10.15 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.)
10.16 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.)
10.17 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.)
10.18 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.)
10.19 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.)
10.20 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.]*
10.21 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.)
<PAGE>
10.22 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.)
10.23 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.)
10.24 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.)
10.25 Release of Continuing Guaranty, dated as of December 29, 1994, of
the Company. (Incorporated by reference to exhibit number 10.46 in
Registration Statement No. 33-80518 on Form S-1 of Orion Network
Systems, Inc.)
10.26 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.)
10.27 Continuing Guarantee, dated as of December 29, 1994, of the Company.
(Incorporated by reference to exhibit number 10.48 in Registration
Statement No. 33-80518 on Form S-1 of Orion Network Systems, Inc.)
10.28 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.)
10.29 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.)
10.30 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.)
10.31 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.)
10.32 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.)
<PAGE>
10.33 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.)
10.34 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.)
10.35 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.)
10.36 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.)
10.37 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.)
10.38 Option Agreement, dated December 10, 1996, by and between Orion
Atlantic and Matra Marconi Space.[CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED FOR PORTIONS OF THESE DOCUMENTS.]*
10.39 Memorandum of Agreement for the Procurement of Orion 2 Spacecraft,
dated December 19, 1996, by and between Orion Atlantic and Matra
Marconi Space. [CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR
PORTIONS OF THESE DOCUMENTS.]*
10.40 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.]*
10.41 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.]*
10.42 Orion Network Systems, Inc. Employee Stock Purchase Plan
(Incorporated by reference to exhibit number 4.4 in Registration
Statement No. 333-_____ on Form S-8 of Orion Network Systems, Inc.)
10.43 Orion Network Systems, Inc. 401(k) Profit Sharing Plan (Incorporated
by reference to exhibit number 4.5 in Registration Statement No.
333-_____ on Form S-8 of Orion Network Systems, Inc.)
10.44 Orion Network Systems, Inc. Non-Employee Director Stock Option Plan*
10.45 Exchange Agreement dated June , 1996 among Orion Network Systems,
Orion Atlantic, OrionSat and the Limited Partners (Incorporated by
reference to exhibit 10 in Current Report on Form 8-K dated December
20, 1996, of Orion Network Systems, Inc.)
10.46 First Amendment to Exchange Agreement dated December ___, 1996 among
Orion Network Systems, Orion Atlantic, OrionSat and the Limited
Partners*
12.1 Statement Regarding Computation of Ratio of Earnings to Fixed
Charges.*
21.1 List of subsidiaries of Orion.*
<PAGE>
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 _______________
24.1 Powers of Attorney (included on the signature pages of the
Registration Statement).
26.1 Form T-1 Statement of Eligibility and Qualification under the Trust
Indenture Act of 1939, as amended of as trustee (Separate Bound)*
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 Valuation for Orion Atlantic as of September 30, 1996, by _________*
</TABLE>
- ----------
* To be filed by amendment.
EXHIBIT 23.1(a)
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated February 9, 1996, in the Registration Statement
(Form S-1 No. 333-_____) and related Prospectus of Orion Newco Services, Inc.,
dated January 2, 1997.
ERNST & YOUNG LLP
Washington, D.C.
December 30, 1996
EXHIBIT 23.3
CONSENT OF
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated September 30, 1996 to the Registration Statement
(Form S-1 No. 333-_____) and related Prospectus of Orion Network Systems, Inc.
dated December __, 1996.
____________________________________
New York, N.Y.
December ___, 1996
