AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 13, 1997
REGISTRATION NO. 333-_______
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------
ORION NETWORK SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 52-2008654
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
2440 RESEARCH BOULEVARD
SUITE 400
ROCKVILLE, MARYLAND 20850
(301) 258-8101
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
--------------------
RICHARD H. SHAY, ESQ.
ORION NETWORK SYSTEMS, INC.
2440 RESEARCH BOULEVARD
SUITE 400
ROCKVILLE, MARYLAND 20850
(301) 258-8101
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
--------------------
COPY TO:
STEVEN M. KAUFMAN, ESQ.
HOGAN & HARTSON L.L.P.
555 THIRTEENTH STREET, N.W.
WASHINGTON, D.C. 20004
(202) 637-5600
--------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As
soon as practicable after this Registration Statement becomes effective.
If the only securities being registered on this form are being
offered pursuant to dividend or interest reinvestment plans, please check the
following box. |_|
--------------------
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, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box. |X|
--------------------
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act of 1933, please check
the following box and list the Securities Act of 1933 registration statement
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 of 1933, check the following box and list the
Securities Act of 1933 registration statement number of the earlier effective
registration statement for the same offering. |_|
--------------------
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. |_|
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
===============================================================================================================
Proposed maximum Proposed maximum
Title of each class of Amount to be offering price per aggregate offering Amount of
rsecurities to be registered registered (1) (2) (1) registration fee (1)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value
$.01 per share 5,052,202 $16.8125 $84,940,146.12 $25,740
===============================================================================================================
</TABLE>
(1) Estimated pursuant to Rule 457(c) solely for purposes of calculating the
amount of the registration fee, based on the average of the high and low prices
of the Common Stock, as reported on the Nasdaq National Market on November 11,
1997.
(2) Pursuant to Rule 416, there also are being registered an indeterminate
number of shares of the Common Stock, which may become issuable pursuant to the
antidilution provisions of the underlying convertible securities.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE>
PROSPECTUS
5,052,202 SHARES
ORION NETWORK SYSTEMS, INC.
COMMON STOCK
This Prospectus relates to the offer and sale from time to time by
certain holders (the "Selling Stockholders") of up to 5,052,202 shares (the
"Offered Shares") of common stock, par value $.01 per share ("Common Stock"), of
Orion Network Systems, Inc. ("Orion" or the "Company"). Certain of the Offered
Shares (4,030,627 shares) are issuable to certain of the Selling Stockholders
upon conversion of shares of the Company's Series C 6% Cumulative Redeemable
Convertible Preferred Stock (the "Series C Preferred Stock") received by such
Selling Stockholders in exchange for their limited partnership interests in the
Company's subsidiary, International Private Satellite Partners, L.P. ("Orion
Atlantic"), or as dividends on the Series C Preferred Stock (241,835 shares). Of
the remaining 779,740 Offered Shares, (i) 65,455 shares were acquired by or are
issuable to one of the Selling Stockholders in connection with the issuance by
the Company of Common Stock on August 1, 1997 and proposed issuance on February
1, 1998, as interest payments on $10 million of the Company's convertible junior
subordinated debentures (the "Debentures") and (ii) 714,285 shares are issuable
to the same Selling Stockholder upon conversion of shares of the Debentures held
by such Selling Stockholder. This Prospectus also relates to such indeterminate
number of shares of the Common Stock which may become issuable to the Selling
Stockholders pursuant to the antidilution provisions of the Series C Preferred
Stock and Debentures. The registration of the Offered Shares does not
necessarily mean that the Selling Stockholders will convert any of the Series C
Preferred Stock or Debentures or offer or sell any of the Offered Shares. The
Company is registering the Offered Shares as required under the terms of
registration rights agreements between the Company and the Selling Stockholders.
The Company will receive no part of the proceeds from sales of the Offered
Shares. See "Selling Stockholders" and "Plan of Distribution."
The Common Stock is traded on the Nasdaq National Market under the symbol
"ONSI." On November 11, 1997, the last reported sale price of the Common Stock
on the Nasdaq National Market was $16.875 per share.
SEE "RISK FACTORS" BEGINNING ON PAGE 8 OF THIS PROSPECTUS FOR CERTAIN
FACTORS RELATING TO AN INVESTMENT IN THE COMMON STOCK.
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.
The Selling Stockholders may from time to time offer and sell all or a
portion of the Offered Shares in transactions on the Nasdaq National Market, in
the over-the-counter market, on any other national securities exchange on which
the Common Stock is listed or traded, in negotiated transactions or otherwise,
at prices then prevailing or related to the then-current market price or at
negotiated prices. The Offered Shares may be sold directly or through agents or
broker-dealers
<PAGE>
acting as principal or agent, or in block trades or pursuant to a distribution
by one or more underwriters on a firm commitment or best-efforts basis. To the
extent required, the names of any agents or broker-dealers and applicable
commissions or discounts and any other required information with respect to any
particular offer will be set forth in this Prospectus under the caption "Plan of
Distribution" or an accompanying supplement to this Prospectus (a "Prospectus
Supplement"). Each of the Selling Stockholders reserves the right to accept or
reject, in whole or in part, any proposed purchase of the Offered Shares to be
made directly or through agents. The Selling Stockholders and any agents or
broker-dealers participating in the distribution of the Offered Shares may be
deemed to be "underwriters" within the meaning of the Securities Act of 1933, as
amended (the "Securities Act"), and any profit on the sale of Offered Shares by
the Selling Stockholders and any commissions received by any such agents or
broker-dealers may be deemed to be underwriting commissions or discounts under
the Securities Act.
-----------------------------------
The date of this Prospectus is November 13, 1997.
2
<PAGE>
TABLE OF CONTENTS
The Company............................................................... 3
Risk Factors.............................................................. 8
Use of Proceeds...........................................................17
Selling Stockholders......................................................17
Plan of Distribution......................................................19
Experts...................................................................20
Legal Matters.............................................................21
Available Information.....................................................21
Incorporation of Certain Documents By Reference...........................22
Forward-Looking Statements ...............................................23
THE COMPANY
Orion is a rapidly growing provider of satellite-based communications
services, focused primarily on (i) private communications network services, (ii)
Internet services and (iii) video distribution and other satellite transmission
services. Orion provides multinational corporations with private communications
networks designed to carry high speed data, fax, video teleconferencing, voice
and other specialized services. The Orion satellite's ubiquitous coverage
reaches all locations within its footprint, enabling the delivery of high speed
data to customers in emerging markets and remote locations which lack the
necessary infrastructure to support these services. The Company also offers high
speed Internet access and transmission services to companies outside the United
States seeking to avoid "last mile" terrestrial connections and to bypass
congested regional Internet network routes. In addition, Orion provides
satellite capacity for video distribution, satellite news gathering and other
satellite services primarily to broadcasters, news organizations and
telecommunications service providers. The Company provides its services directly
to customer premises using very small aperture terminals ("VSATs").
The Company commenced operations of Orion 1, a high power Ku-band
satellite, in January 1995. As of September 30, 1997, Orion serviced 282
customers through 635 sites in service. As of September 30, 1997, Orion's
contract backlog was $254.1 million (including $89 million for one pre-launch
customer on Orion 3). Substantially all of Orion's current contracts with
customers are denominated in U.S. dollars. For the nine months ended September
30, 1997, the Company generated revenues of $54.5 million and had a loss from
operations, net loss, net cash used in operating activities and EBITDA (as
defined below) of $30.5 million, $78.2 million, $17.8 million and $5.3 million,
respectively. For the year ended December 31, 1996, the Company generated
revenues of $41.8 million and had a loss from operations, net loss, net cash
used in operating activities and EBITDA of $36.4 million, $27.2 million, $21.8
million and $0.6 million, respectively. "EBITDA" represents earnings before
minority interests, interest income, interest expense, other expense (income),
income taxes, depreciation and amortization. EBITDA is commonly used in the
communications industry to analyze companies on the basis of operating
performance, leverage and liquidity. EBITDA is not intended to represent cash
flows from operating, investing or financing activities as determined in
accordance with GAAP. EBITDA is not a measurement under GAAP and may not be
comparable to other similarly titled measures of other companies.
The Company believes that demand for satellite-based communications
services will continue to grow due to (i) the expansion of businesses beyond the
limits of wide bandwidth terrestrial infrastructure, (ii) accelerating demand
for high speed data services, (iii) growing demand for Internet and intranet
services, especially outside the United States, (iv) increased size and scope of
television programming distribution, (v) worldwide deregulation of
telecommunications markets and (vi) continuing technological advancements.
Satellites are able to provide reliable, high bandwidth
3
<PAGE>
services anywhere in their coverage areas, and the Company believes that it is
well positioned to satisfy market demand for these services.
The Company launched Orion 1, a high power satellite with 34 Ku-band
transponders, in November 1994. Orion 1 provides coverage of 34 European
countries, much of the United States and parts of Canada, Mexico and North
Africa. Through arrangements with local ground operators, Orion currently has
the ability to deliver network services to and among points in 27 European
countries, portions of the United States and a limited number of Latin American
countries.
In July 1996, the Company signed a contract with Matra Marconi Space UK
Limited ("Matra Marconi Space"), which was amended and restated in January 1997,
for the construction and launch of Orion 2, its second satellite, and in
February 1997 commenced construction of that satellite. Orion 2, which will be a
high power satellite with 30 Ku-band transponders, 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, currently the area of
strongest demand for the Company's services. The Company recently commenced
selling services in certain areas of Latin America. Orion 2 is scheduled to be
launched in the second quarter of 1999.
In January 1997, the Company entered into a satellite procurement
contract with Hughes Space and Communications International, Inc. for the
construction and launch of Orion 3, construction of which was commenced in
December 1996. Orion 3, which will be a high power satellite with 33 Ku-band
transponders and 10 C-Band transponders, 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 distribute 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 a $89 million lease for eight of Orion 3's transponders. Orion 3 is
scheduled to be launched in the fourth quarter of 1998.
In the aggregate, the footprints of Orion 1, Orion 2 and Orion 3 will
cover over 85% of the world's population.
The Company's principal executive offices are located at 2440 Research
Boulevard, Rockville, Maryland 20850, and its telephone number is (301)
258-8101.
PENDING ACQUISITION OF THE COMPANY BY LORAL
ON OCTOBER 7, 1997, ORION, LORAL SPACE & COMMUNICATIONS LTD. ("LORAL")
AND LORAL SATELLITE CORPORATION, A WHOLLY OWNED SUBSIDIARY OF LORAL ("MERGER
SUB"), ENTERED INTO AN AGREEMENT AND PLAN OF MERGER (THE "MERGER AGREEMENT"),
PURSUANT TO WHICH MERGER SUB WILL MERGE WITH AND INTO THE COMPANY, WITH THE
COMPANY BEING THE SURVIVING CORPORATION AND THEREBY BECOMING A WHOLLY OWNED
SUBSIDIARY OF LORAL (THE "MERGER").
THE MERGER AGREEMENT PROVIDES THAT (I) EACH SHARE OF COMMON STOCK,
EXCLUDING TREASURY SHARES AND SHARES OWNED BY LORAL OR ITS SUBSIDIARIES, WILL BE
CONVERTED INTO AND EXCHANGED FOR THE RIGHT TO RECEIVE THE NUMBER OF FULLY PAID
AND NONASSESSABLE SHARES OF COMMON STOCK, PAR VALUE $.01 PER SHARE, OF LORAL
("LORAL COMMON STOCK") EQUAL TO THE EXCHANGE RATIO (AS DESCRIBED BELOW), (II)
EACH SHARE OF THE COMPANY'S SERIES A 8% CUMULATIVE REDEEMABLE CONVERTIBLE
PREFERRED STOCK (THE "SERIES A PREFERRED STOCK"), SERIES B 8% CUMULATIVE
REDEEMABLE CONVERTIBLE PREFERRED STOCK (THE "SERIES B PREFERRED STOCK" AND
TOGETHER WITH THE SERIES A PREFERRED STOCK, THE "SENIOR PREFERRED STOCK") AND
SERIES C PREFERRED STOCK (THE SERIES C PREFERRED STOCK AND SENIOR PREFERRED
STOCK ARE HEREINAFTER REFERRED TO AS THE "SENIOR PREFERRED STOCK") WILL BE
CONVERTED INTO AND
4
<PAGE>
EXCHANGED FOR THE RIGHT TO RECEIVE THE NUMBER OF FULLY PAID AND NONASSESSABLE
SHARES OF LORAL COMMON STOCK EQUAL TO THE EXCHANGE RATIO MULTIPLIED BY THE
NUMBER OF SHARES OF COMMON STOCK INTO WHICH SUCH SHARE OF PREFERRED STOCK WAS
CONVERTIBLE IMMEDIATELY PRIOR TO THE EFFECTIVE TIME OF THE MERGER, (III) EACH
OUTSTANDING STOCK OPTION TO PURCHASE SHARES OF COMMON STOCK WILL BE CONVERTED
INTO AN OPTION TO ACQUIRE THE NUMBER OF SHARES OF LORAL COMMON STOCK EQUAL TO
THE EXCHANGE RATIO MULTIPLIED BY THE NUMBER OF SHARES OF COMMON STOCK FOR WHICH
SUCH OPTION WAS EXERCISABLE, AND (IV) EACH OUTSTANDING WARRANT TO PURCHASE
SHARES OF COMMON STOCK WILL BE CONVERTED INTO A WARRANT TO ACQUIRE THE NUMBER OF
SHARES OF COMMON STOCK EQUAL TO THE EXCHANGE RATIO MULTIPLIED BY THE NUMBER OF
SHARES OF COMPANY COMMON STOCK FOR WHICH SUCH WARRANT WAS EXERCISABLE.
PURSUANT TO THE TERMS OF THE MERGER AGREEMENT, THE EXCHANGE RATIO IS
DETERMINED AS FOLLOWS:
(i) IF THE AVERAGE OF THE VOLUME-WEIGHTED AVERAGE TRADING PRICES OF LORAL
COMMON STOCK FOR THE TWENTY CONSECUTIVE TRADING DAYS ON WHICH TRADING OF LORAL
COMMON STOCK OCCURS ENDING THE TENTH TRADING DAY IMMEDIATELY PRIOR TO THE
CLOSING DATE FOR THE MERGER (THE "DETERMINATION PRICE") IS LESS THAN $24.458 BUT
GREATER THAN $16.305, THE EXCHANGE RATIO IS THE QUOTIENT OBTAINED BY DIVIDING
$17.50 BY THE DETERMINATION PRICE,
(ii) IF THE DETERMINATION PRICE IS EQUAL TO OR GREATER THAN $24.458, THE
EXCHANGE RATIO IS 0.71553 AND
(iii) IF THE DETERMINATION PRICE IS EQUAL TO OR LESS THAN $16.305, THE
EXCHANGE RATIO IS 1.07329.
THE MERGER IS SUBJECT TO A NUMBER OF CONDITIONS, INCLUDING APPROVAL BY
ORION'S STOCKHOLDERS, APPROVAL BY THE FEDERAL COMMUNICATIONS COMMISSION AND
OTHER REGULATORY APPROVALS. ALTHOUGH NOT A CONDITION OF THE MERGER, ORION
INTENDS TO SEEK AN INTERNAL REVENUE SERVICE RULING AS TO ELIGIBILITY FOR A
TAX-FREE EXCHANGE.
IN CONNECTION WITH THE MERGER AGREEMENT, CERTAIN PRINCIPAL STOCKHOLDERS
OF ORION AND MEMBERS OF ORION'S MANAGEMENT HAVE AGREED TO VOTE IN FAVOR OF THE
MERGER AND HAVE GRANTED TO THE LORAL THE RIGHT TO PURCHASE THEIR SECURITIES IN
ORION FOR A PRICE EQUAL TO THE MERGER CONSIDERATION UNDER CERTAIN CIRCUMSTANCES.
THE COMPANY EXPECTS THE MERGER TO BE CONSUMMATED BY THE FIRST QUARTER OF 1998.
THE FOREGOING DESCRIPTIONS OF THE MERGER AGREEMENT AND PRINCIPAL
STOCKHOLDER AGREEMENT WITH LORAL DO NOT PURPORT TO BE COMPLETE. THE MERGER
AGREEMENT AND PRINCIPAL STOCKHOLDER AGREEMENT HAVE BEEN FILED AS EXHIBITS 2.1
AND 2.2, RESPECTIVELY, TO COMPANY'S CURRENT REPORT ON FORM 8-K DATED OCTOBER 9,
1997, AND ARE INCORPORATED HEREIN BY REFERENCE.
OTHER RECENT DEVELOPMENTS
PRE-CONSTRUCTION LEASE ON ORION 3
Orion has entered into a contract with DACOM Corp., a Korean
communications company ("DACOM"), under which DACOM will, subject to certain
conditions, lease eight dedicated transponders on Orion 3 for 13 years, in
return for approximately $89 million, payable over a period from December 1996
through seven months following the lease commencement date for the transponders
(which is scheduled to occur by January 1999). Payments are subject to refund
unless Orion 3 commences commercial operation by June 30, 1999.
5
<PAGE>
ACQUISITION OF TELPORT EUROPE GMBH
On March 26, 1997, Orion acquired Teleport Europe GmbH (whose name was
subsequently changed to Orion Network Systems-Europe GmbH) ("Orion Europe"), a
German communications company specializing in private satellite networks for
voice and data services. Orion purchased the shares of Orion Europe held by two
German companies, Vebacom GmbH and RWE Telliance AG, now known as o.tel.o., for
$8.9 million. Orion Europe's 1996 revenues were approximately $14 million. The
acquisition expanded Orion's customer base by approximately 55 customers,
including some of Germany's leading multinational corporations, and added over
200 network service sites (exclusive of broadcast service sites). In addition,
Orion acquired Orion Europe's licenses and operating agreements to provide
satellite network services in 40 countries, including 17 countries in which
Orion previously did not provide service.
JANUARY 1997 TRANSACTIONS
In January 1997, Orion consummated a series of transactions that are
described briefly below, including the Exchange, the January Merger, the Bond
Offering and the Debentures Offering (each as defined below), the acquisition of
the remaining minority interest in a subsidiary and certain uses of proceeds of
the offerings (collectively, the "January 1997 Transactions"), all as described
more fully in Note 9 to the Consolidated Financial Statements incorporated
herein by reference from the Company's Annual Report on Form 10-K for the year
ended December 31, 1996 and amendment thereto on Form 10-K/A dated June 25, 1997
(together, the "1996 Form 10-K").
THE EXCHANGE. On January 31, 1997, the Company acquired all of the
limited partnership interests which it did not already own in the Company's
operating subsidiary, Orion Atlantic, that owns the Orion 1 satellite.
Specifically, pursuant to a Section 351 Exchange Agreement and Plan of
Conversion (the "Exchange Agreement"), the Company acquired the Orion Atlantic
limited partnership interests and other rights relating thereto held by British
Aerospace Communications, Inc., COM DEV Satellite Communications Limited,
Kingston, Communications International Limited, Lockheed Martin Commercial
Launch Services, Inc., MCN Sat US, Inc., an affiliate of Matra Hachette, and
Trans-Atlantic Satellite, Inc., an affiliate of Nissho Iwai Corp. (collectively,
the "Exchanging Partners"). The Exchanging Partners exchanged (the "Exchange")
their Orion Atlantic limited partnership interests for 123,172 shares of the
Company's Series C Preferred Stock. In addition, the Company acquired certain
rights held by certain of the Exchanging Partners to receive repayment of
various advances (aggregating approximately $41.6 million at January 31, 1997).
The 123,172 shares of Series C Preferred Stock issued in the Exchange are
convertible into approximately 7 million shares of the Company's Common Stock.
As a result of the Exchange, certain of the Exchanging Partners became principal
stockholders of the Company.
THE JANUARY MERGER. The Exchange was conducted on a tax-free basis by
means of the January Merger (defined below) that was consummated on January 31,
1997. Pursuant to the Exchange Agreement, Orion Oldco Services, Inc., formerly
known as Orion Network Systems, Inc. ("Old Orion"), formed the Company as a new
Delaware corporation with a certificate of incorporation, bylaws and capital
structure substantially identical in all material respects with those of Old
Orion. Also pursuant to the Exchange Agreement, the Company formed a wholly
owned subsidiary, Orion Merger Company, Inc. ("Orion Merger Subsidiary").
Pursuant to an Agreement and Plan of Merger, Orion Merger Subsidiary was merged
with and into Old Orion, and Old Orion became a wholly owned subsidiary of the
Company (the "January Merger"). On January 31, 1997, the effective time of the
January Merger, all of the stockholders of Old Orion received stock in the
Company with substantially identical rights to the Old Orion stock they held
prior to the effective time of the January Merger. Following the January Merger,
the Company changed its name from Orion Newco Services, Inc. to Orion Network
Systems, Inc. and the Company's wholly owned subsidiary, Orion Network Systems,
Inc., changed its name to Orion Oldco Services, Inc.
6
<PAGE>
BOND OFFERING AND DEBENTURES OFFERING. On January 31, 1997, the Company
completed the $710 million Bond Offering composed of 445,000 Senior Note Units,
each of which consists of one 11 1/4% Senior Note due 2007 (a "Senior Note") and
one Senior Note Warrant to purchase 0.8463 shares of Common Stock, and 484,000
Senior Discount Note Units, each of which consists of one 12 1/2% Senior
Discount Note due 2007 (a "Senior Discount Note," and together with the Senior
Notes, the "Notes") and one Warrant to purchase 0.6628 shares of Common Stock.
Interest on the Senior Notes is payable semi-annually in cash on January 15 and
July 15 of each year, commencing July 15, 1997. The Senior Discount Notes do not
pay cash interest prior to January 15, 2002. Thereafter, cash interest will be
payable semi-annually on January 15 and July 15 of each year, commencing July
15, 2002.
On January 31, 1997, the Company also completed the sale of $60 million
of its Debentures to two investors, British Aerospace Holdings, Inc. ("British
Aerospace") and Matra Marconi Space. British Aerospace purchased $50 million of
the Debentures and Matra Marconi Space purchased $10 million of the Debentures
(collectively, the "Debentures Offering").
The Company used a portion of the net proceeds of the Bond Offering and
Debentures Offering primarily to repay the Orion 1 credit facility and to
pre-fund the first three years of interest payments on the Senior Notes. The
Company plans to use the balance of such net proceeds primarily to build and
launch Orion 2 and Orion 3.
7
<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 Common Stock, which involves a high degree of risk. Statements contained in
this Prospectus and in the documents incorporated herein by reference 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 within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act. 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 the
forward-looking statements. There can be no assurance that Orion's expectations
regarding any of these matters will be fulfilled. The forward-looking statements
are made as of the date of this Prospectus, and the Company assumes no
obligation to update the forward-looking statements or to update the reasons why
actual results could differ from those projected in such forward-looking
statements.
ACQUISITION: NO ASSURANCE THAT LORAL ACQUISITION WILL BE CONSUMMATED
The consummation of the Merger is subject to a number of conditions,
including approval of the Merger Agreement by the Company's stockholders,
approval by the Federal Communications Commission, expiration of early
termination of the waiting period under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, accuracy of representations and warranties and
compliance with covenants set forth in the Merger Agreement. It is presently
anticipated that each of the conditions to the Merger would have to be satisfied
to consummate the Merger. There can be no assurance that Orion will obtain all
necessary approvals and satisfy all other conditions to the Merger. See "The
Company--Pending Acquisition of the Company by Loral."
LIMITED OPERATIONS; HISTORY OF LOSSES, 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 net
losses of approximately $26.9 million and $27.2 million during 1995 and 1996,
respectively. On a pro forma basis, giving effect to the January 1997
Transactions, the Company would have had a net loss of $145.7 million and $133.6
million for 1995 and 1996, respectively. The increase in net loss on a pro forma
basis is associated with the depreciation on the step up in the basis of the
Orion 1 satellite and the amortization of excess cost over fair value resulting
from the acquisition of the Exchanging Partners' partnership interests in Orion
Atlantic in the Exchange, the net increase to interest expense as a result of
the January 1997 Transactions, and the elimination of minority interest as a
result of the Exchange. See Note 9 to the Consolidated Financial Statements of
the Company included in the Company's 1996 Form 10-K. Orion also had a net loss
of $78.2 million during the nine months ended September 30, 1997. The
implementation of Orion's business plan regarding Orion 2 and Orion 3 requires
substantial capital for the construction, launch, insurance, financing and
start-up costs of those satellites. A substantial portion of these costs has
been financed with indebtedness, which will substantially increase interest
costs. The Company's negative cash flow (after payments for capital expenditures
and interest) has been substantial and net losses and negative cash flows (after
payments for capital expenditures and interest) are expected to increase over
the next few years.
8
<PAGE>
CAPITAL INTENSIVE BUSINESS; NEED FOR ADDITIONAL CAPITAL
Based upon its current expectations for growth, the Company anticipates
it will have substantial funding requirements over the next three years to fund
the costs of Orion 2 and Orion 3, the purchase of VSATs, other capital
expenditures and other capital needs. The Company has pre-funded the first three
years of interest payments on the Senior Notes out of the net proceeds of the
Bond Offering.
The in-orbit delivered costs of the Orion 2 and Orion 3 satellites are
expected to aggregate approximately $540 million. In addition to the
approximately $85 million incurred through the third quarter of 1997, Orion will
need to make payments of approximately $17 million, $350 million and $50 million
in the remainder of 1997, 1998 and 1999, respectively. These amounts include the
Company's estimate regarding the cost of launch insurance based on discussions
with potential insurers, although the Company has not received any commitment to
provide insurance. The contracts for Orion 2 and Orion 3 provide firm fixed
prices for the construction and launch of those satellites and provide for
penalties in event of late delivery by the manufacturer; however, the Company's
actual payments could be substantially higher due to any change orders for the
satellites, insurance rates, delays and other factors.
The Company anticipates that its existing cash balances and payments
under the DACOM contract will be sufficient to meet substantially all of its
capital requirements for the delivery in orbit of Orion 2 and Orion 3. In
connection with the Bond Offering, the Company segregated $273 million of the
net proceeds to make payments for additional satellites and certain related
costs (or to pay interest and principal on the Notes). The Company can also
apply to such uses a portion of its working capital of $109.2 million at
September 30, 1997. However, there can be no assurance that cost increases for
Orion 2 and/or Orion 3 due to change orders, insurance rates or construction
delays, among other factors, may not increase the Company's capital requirements
or that the Company's growth may not vary from its expectations, resulting in
changes in its cash requirements or expected cash position.
The balance of the Company's funding requirements are dependent upon its
growth and cash flow from operations. The Company cannot predict whether its
existing resources and cash flows will be adequate to cover its future cash
needs. If existing resources and cash flows are not sufficient to cover the
Company's future cash needs, the Company will need to raise additional
financing. The Company does not have a revolving credit facility or other source
of readily available capital. Sources of additional capital may include public
or private debt, equity financings or strategic investments. To the extent that
the Company seeks to raise additional debt financing, the Notes indentures limit
the amount of such additional debt the Company may incur and prohibit the
Company from using Orion 1, Orion 2 or Orion 3 as collateral for indebtedness
for money borrowed. Moreover, the Company's ability to raise public equity
financing may be limited by the registration rights it has granted to certain
investors. See "-- Potential Adverse Effect of Shares Eligible for Future Sale."
If the Company requires additional financing and is unable to obtain financing
from outside sources in the amounts and at the times needed, there would be a
material adverse effect on the Company and the value of the Common Stock.
The foregoing estimates of capital needs do not include any amounts for
other possible financing requirements. The Company may from time to time enter
into joint ventures and make acquisitions of complementary businesses and is
often engaged in discussions or negotiations with regard to such potential joint
ventures and acquisitions. Such joint ventures or acquisitions would need to be
financed, which would increase the Company's need for additional capital. In
addition, Orion intends to replace Orion 1 at the end of its useful life
(expected to be in October 2005). Such replacement likely will require
additional financing if the cash flow from Orion's operations is not sufficient
to fund a replacement satellite.
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SUBSTANTIAL LEVERAGE; SECURED INDEBTEDNESS
As of September 30, 1997, Orion had approximately $790.6 million of
long-term indebtedness, and was highly leveraged. The accretion of original
issue discount on the Senior Discount Notes will substantially increase Orion's
liabilities. The Company has deposited approximately $134 million in a pledged
account to pre-fund the first six scheduled payments of interest on the Senior
Notes. However, the Company will need to service the cash interest expense on a
very substantial amount of indebtedness (including the Notes) with cash
generated by its operations. For the nine months ended September 30, 1997, the
Company had EBITDA of $5.3 million and interest expense of $62.3 million,
respectively.
The level of the Company's indebtedness could have important consequences
to holders of Common Stock, including the following: (i) the ability of the
Company to obtain any necessary financing in the future for capital
expenditures, working capital, debt service requirements or other purposes may
be limited; (ii) a substantial portion of the Company's cash flow from
operations, if any, must be dedicated to the payment of principal of and
interest on its indebtedness and other obligations and will not be available for
use in the Company's business; (iii) the Company's level of indebtedness could
limit its flexibility in planning for, or reacting to changes in, its business;
(iv) the Company will be more highly leveraged than some of its competitors,
which may place it at a competitive disadvantage; and (v) the Company's high
degree of indebtedness will make it more vulnerable to a default and the
consequences thereof (such as bankruptcy workout) in the event of a downturn in
its business.
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. A Delta II launch vehicle exploded on
January 17, 1997.
Orion may have to change launch vehicles and could be subject to delays
and higher costs of launch insurance if, for example, one of its selected
vehicles experiences a launch failure with respect to another satellite. In such
event, delays in the launch of one of Orion's satellites could result from the
manufacturer's need to investigate the reasons for the failure of the launch
vehicle and address any design or manufacturing concerns that are identified. It
is not possible to predict the duration of any such potential delays. With
respect to the risk of launch failure of Orion's satellites, Orion has an option
to purchase an additional satellite (which may be used as a replacement
satellite) to be delivered in orbit, in the case of Orion 3, within 12, 15 or 19
months (at Orion's election) after it exercises the option, or, in the case of
Orion 2, within 21 1/4 months after it exercises the option. Therefore, an
unsuccessful launch of Orion 2 or Orion 3 would involve a delay in revenues for
at least one year, and perhaps substantially longer. Any loss or delay of
revenue from any of the Company's satellites would have a material adverse
effect on the Company and the value of 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
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in a temporary service interruption, lasting approximately two hours. Full
service to all affected customers was restored using redundant equipment on the
satellite. These transponders currently generate a majority of Orion's revenues.
Orion believes, based on the data received to date by Orion from its own
investigations and from the manufacturer, and based upon advice from Orion's
independent engineering consultant, Telesat Canada, that because the redundant
component is functioning fully in accordance with specifications and the
performance record of similar components is strong, the anomalous behavior is
unlikely to affect the expected performance of the satellite over its useful
life. Furthermore, there has been no further effect on Orion's ability to
provide services to customers. However, in the event that the currently
operating component fails, Orion 1 would experience a significant loss of usable
capacity. In such event, while Orion would be entitled to insurance proceeds of
approximately $47 million and could lease replacement capacity and function as a
reseller with respect to such capacity (at substantially reduced gross margins),
the loss of capacity would have a material adverse effect on the Company and the
value of the Common Stock.
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 and the value of the
Common Stock. Although Orion has obtained a commitment from insurance
underwriters to provide launch insurance for the construction, launch and
insurance costs of Orion 2 and Orion 3, Orion has not yet received insurance
policies. There can be no assurance that the terms and exclusions in the actual
insurance policies will be favorable to the Company.
Limited Life of Satellites. While Orion 1 is expected to have an orbital
life of approximately 10.7 years (through October 2005), and Orion 2 and Orion 3
are expected to have orbital lives of approximately 13 years and 15 years,
respectively, there can be no assurance as to the actual longevity of the
satellites. A number of factors will affect the useful life of each satellite,
including the rate of fuel consumption in achieving correct orbital placement
during launch, the quality of its construction and the durability of its
component parts. There is a significant possibility that one or more
transponders on a satellite may cease to function in accordance with
specifications during its estimated useful life and there is no assurance that
service could be restored through redundant transponders. In addition, while
Orion plans to replace each satellite at the end of its useful life, there can
be no assurance that the required financing and regulatory approvals to do so
will be available.
LAUNCH OF ORION 2 AND ORION 3 SUBJECT TO SIGNIFICANT UNCERTAINTIES
Cost Uncertainties. Based on the current designs of and current
construction schedules for Orion 2 and Orion 3, the total costs of Orion 2 and
Orion 3, including construction, launch, launch insurance, financing costs and
start-up expenses, are presently estimated to be approximately $265 million and
$275 million, respectively. These costs may increase as a result of changes that
may occur during the construction of the satellites or if the cost of insurance
exceeds the Company's expectations. There can be no assurance that the actual
costs of these satellites will not be materially greater than these estimates.
To the extent that actual costs are materially greater than expected, completion
of Orion 2 and Orion 3 will likely require substantial additional financing.
Failure to raise such financing would have a material adverse effect on Orion
and the value of the Common Stock.
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 receive certain
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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. Although the Orion 2
satellite contract and the Orion 3 satellite contract are fixed-price contracts
with firm schedules for construction, delivery and launch, there can be no
assurance that increases in costs due to change orders or delay will not occur.
There can be no assurance that the launch of Orion 2 or Orion 3 will take place
as scheduled. Delays in launching satellites are quite common, and a significant
delay in the delivery or launch of Orion 2 or Orion 3 would have a material
adverse effect on Orion's marketing plan for such satellites, its ability to
generate revenue and service its indebtedness and the value of the 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 2
and Orion 3 prior to completion of the required consultation with the
International Telecommunications Satellite Organization ("INTELSAT") and the
European regional satellite facilities consortium ("EUTELSAT") (in the case of
Orion 2), receipt of final authority from the U.S. Federal Communications
Commission (the "FCC") (in the case of Orion 2) and completion of the
International Telecommunication Union ("ITU") coordination process. Failure to
obtain one or more necessary approvals in a timely manner would likely have a
material adverse effect on the Company. See "Approvals Needed; Regulation of
Industry" below.
RISKS RELATING TO POTENTIAL LACK OF MARKET ACCEPTANCE AND DEMAND; GROUND
OPERATIONS
Orion's success will depend in part on the continued growth in demand for
international private network services, which to date have not been a primary
focus of satellite companies, and on Orion's ability to market such services
effectively. Marketing will be critical to Orion's success. However, Orion has
limited experience in marketing, having commenced full commercial operations
only in 1995. Orion's marketing program until recently consisted of direct sales
using a U.S.-based sales force, and indirect sales channels, including
Exchanging Partner sales representatives, for sales in Europe. During 1996,
certain of Orion's indirect sales channels in Europe did not meet expectations,
and Orion has supplemented its sales in Europe by significantly increasing its
direct sales capabilities in Europe, particularly with respect to sales of
private network services, through expansion of its sales force and acquisitions
such as the purchase of Orion Europe in March 1997. However, there can be no
assurance that this effort will be successful. Sales of Orion's services
generally involve a long-term, complex sales process, and new contract bookings
will vary from quarter to quarter. In addition, as an early provider of
international network services using VSATs, Orion is subject to the
uncertainties associated with the development of new services, including
uncertainties regarding customer interest in and acceptance of higher data speed
communications, the need to develop and convince customers of the attractiveness
of new applications, and customer acceptance of the ability of Orion (as a new
market entrant) to provide service. In addition, Orion's operations will
continue to depend significantly on Orion's ability to provide ground operations
for private network services using ground operators throughout the footprint of
Orion's satellites. In the event that its network of ground operators is not
maintained and expanded or fails to perform as expected, Orion's ability to
offer private network services will be impaired.
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.
Furthermore, the Company may from time to time enter into joint ventures and
acquire complementary businesses and is often engaged in discussions or
negotiations with regard to such potential joint ventures and acquisitions. Such
joint ventures and acquired businesses, such as Orion Europe, would need to be
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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 and the
value of the 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 companies similar to Impsat, in
providing private network communications services. Many of these competitors
have significant competitive advantages, including long-standing customer
relationships, close ties with regulatory authorities, control over connections
to local telephone lines and the ability to subsidize competitive services with
revenues from services they provide as a dominant or monopoly carrier, and are
substantially larger than Orion and have financial resources, experience,
marketing capabilities and name recognition that are substantially greater than
those of Orion. The Company believes that competition in emerging markets,
particularly with respect to private network services, will intensify as
dominant and monopoly long distance providers adapt to a competitive environment
and large carriers increase their presence in these markets. The Company also
believes that competition in more developed markets will intensify as large
carriers consolidate, enhance their international alliances and increase their
focus on private network services. For example, the possible merger involving
MCI. The ability of Orion to compete with these organizations will depend in
part on Orion's ability to price its services at a significant discount to
terrestrial service providers, its level of customer support and service, and
the technical advantages of its systems.
The services provided by the Company have been subject to decreasing
prices over recent years and this pricing pressure is expected to continue (and
may accelerate) for the foreseeable future. Orion will need to increase its
volume of sales in order to compensate for such price reductions. Orion believes
that customers will increase the data speeds in their communications networks to
support new applications, and that such upgrading of customer networks will lead
to increased revenues that will mitigate the effect of price reductions.
However, there can be no assurance that this will occur. In addition, a large
portion of satellite capacity globally is currently used for video distribution.
As an increasing portion of satellite capacity is used for providing private
network services, prices for these services may decline. Compressed digital
video ("CDV"), which substantially increases transmission capacity per channel,
is beginning to be used for video distribution. As CDV becomes more prevalent,
the supply of effective video capacity could increase significantly, which could
result in lower prices.
The Company is aware of a substantial number of new satellites that are
in construction or in the planning stages. Most of these satellites will cover
areas within the footprint of Orion 1 and/or the proposed footprints of Orion 2
and Orion 3. As these new satellites (other than replacement satellites not
significantly larger than the ones they replace) commence operations, they will
substantially increase the capacity available for the provision of services that
compete with the Company's services. After a satellite has been successfully
delivered in orbit, the variable cost of transmitting additional data via the
satellite is limited. Accordingly, absent a corresponding increase in demand,
this new capacity can be expected to result in significant additional price
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reductions. Continued price reductions could have a material adverse effect on
Orion and the value of the Common Stock.
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 and the Republic of the Marshall
Islands to Orion.
Additional Regulatory Approvals Needed. The launch and operation of Orion
2 and Orion 3 will require a number of additional regulatory approvals,
including the following: (i) approvals of the FCC (in the case of Orion 2); (ii)
completion of successful consultations with INTELSAT and, in the case of Orion
2, with EUTELSAT; (iii) satellite "landing" rights in countries that are not
INTELSAT signatories or that require additional approvals to provide satellite
or VSAT services; and (iv) other regulatory approvals. Obtaining the necessary
licenses and approvals involves significant time and expense, and receipt of
such licenses and approvals cannot be assured. Although the FCC has
conditionally authorized the construction, launch and operation of Orion 2
(subject to completion of an INTELSAT consultation and required showing of
ability to finance the construction, launch and operation for one year of the
satellite, which requirements generally must be satisfied for final FCC
authorization of all FCC satellite licenses), and Orion will apply for certain
other approvals for Orion 2 and Orion 3, the FCC authorization for Orion 2 has
not become final (since Orion has not yet satisfied the conditions) and most of
the other requisite approvals have not yet been obtained. Failure to obtain such
approvals would have a material adverse effect on Orion and the value of the
Common Stock. In addition, Orion is required to obtain approvals from numerous
national and local authorities in the ordinary course of its business in
connection with most arrangements for the provision of services. Within Orion
1's footprint, many of such approvals generally have not been difficult for
Orion to obtain in a timely manner, but 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 new licenses
obtained) at the expiration of the license term, there can be no assurance of
renewal. In addition, Orion will need to comply with the national laws of each
country in which it provides services. Laws with respect to satellite services
are currently unclear in certain jurisdictions, particularly within the Orion 3
footprint. In certain of these jurisdictions, satellite services may only be
provided via domestic satellites. The Company believes that certain of these
restrictions may change and that it can structure its operations to comply with
the remaining restrictions. However, there can be no assurance in this regard.
ITU Coordination Process. An international treaty to which the United
States and the Republic of the Marshall Islands (through which the Company has
applied for the Orion 3 orbital slot) are parties requires ITU coordination of
satellite orbital slots. Various non-U.S. governments or telecommunications
authorities have commenced coordination procedures pursuant to ITU regulations
for proposed satellites at orbital locations and in frequency bands that are in
close proximity to those proposed for Orion 2 and Orion 3. Existing satellites
and any proposed satellites that are launched prior to Orion 2 and Orion 3 will
effectively have priority over Orion's satellites. Orion's proposed use for
Orion 2 and Orion 3 conflicts to some extent with the use or proposed use of
certain existing or proposed satellites. While Orion believes that it can
successfully coordinate the use of the orbital locations and frequency bands
proposed for Orion 2 and Orion 3, there can be no assurance that coordination
will be achieved. The Company has commenced construction of Orion 2 and Orion 3
prior to completion of ITU coordination and there can be no assurance that ITU
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coordination will be completed. In the event that successful coordination cannot
be achieved, Orion may have to modify the satellite design for Orion 2 or Orion
3 in order to minimize the extent of any potential interference with other
proposed satellites using those orbital locations or frequency bands. Any such
modifications could increase the cost or delay the launch of the satellites (if
significant changes to the satellite are required) and may result in limitations
on the use of one or more transponders on Orion 2 or Orion 3, which could affect
the amount of revenue realized from such transponders. If interference occurs
with satellites that are in close proximity to Orion 2 or Orion 3, or with
satellites that are subsequently launched into locations in close proximity
before completion of ITU coordination procedures, such interference would have
an adverse effect on the proposed use of the satellites and on Orion's business
and financial performance. Orion cannot predict the extent of any adverse effect
on Orion from any such occurrences.
UNCERTAINTIES RELATING TO BACKLOG
The Company's current backlog consists of a mix of large and small
contracts for private communications networks and transmission capacity for
video and other satellite transmission services with a variety of customers.
Although many of the Company's customers, especially customers under large and
long-term contracts, are large corporations with substantial financial
resources, other contracts are with companies that may be subject to business or
financial risks affecting their credit worthiness. If customers are unable or
unwilling to make required payments, the Company may be required to reduce its
backlog figures (which would result in a reduction in future revenues of the
Company), and such reductions could be substantial. In 1996, the Company had to
remove from its backlog significant contracts with customers. Orion presently
anticipates that approximately $18 million of its $254.1 million in backlog (as
of September 30, 1997) will be realized during the remainder of 1997. The
Company's contracts commence and terminate on fixed dates. If the Company is
delayed in commencing service or does not provide the required service under any
particular contract, as it has occasionally done in the past, it may not be able
to recognize all the revenue it initially includes in backlog under that
contract. In addition, the current backlog contains some contracts for the
useful life of Orion 1; if the useful life of Orion 1 is shorter than expected,
some portion of backlog may not be realized unless services satisfactory to the
customer can be provided over another satellite.
TECHNOLOGICAL CHANGES
Although Orion believes that Orion 1 does employ, and Orion 2 and Orion 3
will employ, advanced technologies, the telecommunications industry continues to
experience substantial technological changes. The Company believes that there
are numerous telecommunications companies that are seeking ways to improve the
data transmission capacity of the existing terrestrial infrastructure. Any
significant improvement of such capacity, particularly with respect to copper
wire, would have a material adverse effect on Orion. There can be no assurance
that other changes will not adversely affect the prospects or proposed
operations or expenses of Orion.
RISKS OF CONDUCTING INTERNATIONAL BUSINESS
The Company's international service contracts are generally denominated
in U.S. dollars and those of its Orion Europe subsidiary are generally
denominated in Deutsche Marks. 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 the U.S. dollar relative
to other currencies could have an adverse effect on the Company and the value of
the Common Stock. 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.
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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.
CONTROL OF ORION BY PRINCIPAL STOCKHOLDERS
Executive officers, directors and their affiliates own beneficially
approximately 8.0 million shares or approximately 43% of Orion's outstanding
voting stock (12 million shares or approximately 46% of the voting stock
outstanding on a fully diluted basis). As a result of their stock ownership and,
in the case of stockholders with representation on the Board of Directors, the
incumbency of directors affiliated with them, such stockholders are and will
continue to be in a position to elect the Board of Directors and thereby control
the affairs and management of Orion.
RISKS RELATING TO SENIOR PREFERRED STOCK
At September 30, 1997, the Company has outstanding approximately $16.9
million (including accrued dividends) of Orion Series A Preferred Stock and
approximately $5.1 million (including accrued dividends) of Orion Series B
Preferred Stock. Although the holders of the Senior Preferred Stock have agreed
not to exercise any such mandatory redemption or repurchase rights while the
Notes or the Debentures are outstanding, such holders have the right to require
Orion to repurchase the shares of Common Stock received as a result of
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). 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.
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 Company's
preferred stock is outstanding, subject to certain limited exceptions. In
addition, the Notes indentures effectively prohibit the payment of cash
dividends on the Common Stock for the foreseeable future.
POTENTIAL ADVERSE EFFECT OF SHARES ELIGIBLE FOR FUTURE SALE
There are approximately 28.4 million shares of Common Stock outstanding
on a fully diluted basis. Orion's current stockholders (other than the
Exchanging Partners, British Aerospace and Matra Marconi Space) hold
approximately 15.7 million of these shares, all of which are 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 (approximately 35% of which also are subject to
restrictions on transfer under the Principal Stockholder Agreement with Loral).
The shares held by affiliates are expected to be eligible for sale pursuant to
Rule 144 under the Securities Act. The Exchanging Partners, as owners of the
Series C Preferred Stock received in January 1997, and British Aerospace and
Matra Marconi Space, as owners of the Debentures, beneficially own the remaining
11.4 million of such shares of Common
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Stock which will be issuable upon conversion of such securities. Apart from the
5,052,202 Offered Shares which will be freely tradeable once sold pursuant to
the Registration Statement of which this Prospectus is a part, the remaining
6,579,199 shares of Common Stock issuable upon conversion of the Series C
Preferred Stock or the Debentures are deemed to be "restricted securities" as
that term is defined in Rule 144. Although the Company is required to file
certain additional shelf registration statements for the remaining shares of
Common Stock issuable upon conversion of the Series C Preferred Stock and the
Debentures, the Principal Stockholder Agreement with Loral presently restricts
their transfer. 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 would have on the market price of such securities. Nevertheless, the
foregoing could adversely affect the market prices of the Common Stock and the
ability of the Company to raise equity financing.
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. In addition, any change
of control of Orion is subject to the prior approval of the FCC.
USE OF PROCEEDS
All of the Offered Shares are being sold by the Selling
Stockholders. All proceeds from the sale of the Offered Shares will be for the
account of the Selling Stockholders. See "Selling Stockholders" and "Plan of
Distribution." The Company will not receive any of the proceeds from sales of
the Offered Shares. The Company will incur certain expenses in connection with
the offering. Such expenses are estimated to be approximately $55,740. If the
Company is required to update this Prospectus, it may incur additional expenses
in excess of the amount estimated above.
SELLING STOCKHOLDERS
Certain of the Offered Shares (4,030,627 shares) are issuable to certain
of the Selling Stockholders upon conversion of shares of the Company's Series C
Preferred Stock received by such Selling Stockholders in exchange for their
limited partnership interests in the Company's subsidiary, Orion Atlantic, or as
dividends on the Series C Preferred Stock (241,835 shares). Of the remaining
779,740 Offered Shares, (i) 65,455 shares were acquired by or are issuable to
one of the Selling Stockholders in connection with the issuance by the Company
of Common Stock on August 1, 1997 and proposed issuance on February 1, 1998, as
interest payments on $10 million of the Company's Debentures and (ii) 714,285
shares are issuable to the same Selling Stockholder upon conversion of shares of
the Debentures held by such Selling Stockholder. This Prospectus also relates to
such indeterminate number of shares of the Common Stock which may become
issuable to the Selling Stockholders pursuant to the antidilution provisions of
the Series C Preferred Stock and Debentures. The Offered Shares represent
approximately 17.8% of the total shares of Common Stock outstanding as of
September 30, 1997 (assuming (i) the conversion as of such date of all Series C
Preferred Stock or Debentures held by each such Selling Stockholder and (ii) the
receipt of shares of Common Stock as dividends on the Series C Preferred Stock
or as interest on the Debentures to which such Selling
17
<PAGE>
Stockholders are entitled to through February 1, 1998). The registration of the
Offered Shares does not necessarily mean that the Selling Stockholders will
convert any of the Series C Preferred Stock or Debentures or offer or sell any
of the Offered Shares. The Company may amend or supplement this Prospectus from
time to time to disclose the names, relationships to the Company and holdings of
Common Stock of additional Selling Stockholders (each of which will be a
"Holder" under the Registration Rights Agreements described below) or to update
the disclosure set forth herein.
The following table sets forth, as of September 30, 1997, the name of
each Selling Stockholder and the number of shares of Common Stock which each
such Selling Stockholder owned as of such date (assuming (i) the conversion as
of such date of all Series C Preferred Stock or Debentures held by each such
Selling Stockholder and (ii) the receipt of shares of Common Stock as dividends
on the Series C Preferred Stock or as interest on the Debentures to which such
Selling Stockholders are entitled to through February 1, 1998). The table also
sets forth the number of shares of Common Stock owned by each Selling
Stockholder that may be offered for sale from time to time by this Prospectus
and the number of shares of Common Stock to be held by each such Selling
Stockholder, assuming the sale of all of the Offered Shares.
<TABLE>
<CAPTION>
TOTAL NUMBERS PERCENTAGE TOTAL NUMBER PERCENTAGE OF
OF SHARES OF SHARES OF SHARES SHARES
BENEFICIALLY BENEFICIALLY BENEFICIALLY BENEFICIALLY
OWED AS OF OWNED AS OF NUMBER OF OWNED OWNED
THE DATE THE DATE SHARES ASSUMING THE ASSUMING THE
NAME OF SELLING OF THIS OF THIS OFFERED SALE OF ALL THE SALE OF ALL THE
STOCKHOLDER PROSPECTUS (1) PROSPECTUS (1) HEREBY (1) OFFERED SHARES OFFERED SHARES
----------- --------------- -------------- ------------ --------------- ---------------
<S> <C> <C> <C> <C> <C>
COM DEV Satellite 597,807 2.1% 579,425 18,282 *
Communications Limited
Kingston 679,308 2.4% 679,308 -- *
Communications
International Limited
Lockheed Martin 1,436,054 5.0% 1,196,285 239,769 *
Commercial Launch
Services, Inc.
MCN Sat US, Inc. 966,780 3.4% 966,780 -- *
Matra Marconi Space UK 779,740 2.7% 779,740 -- *
Limited
Trans-Atlantic Satellite, 850,664 3.0% 850,664 -- *
Inc.
TOTAL 5,310,353 18.7% 5,052,202 258,051 *
--------- ---------- -------
* Less than 1%
</TABLE>
(1) Amount shown assumes (i) conversion of 100% of the Series C Preferred Stock
held by each Selling Stockholder at a price of $17.50 per share of Common Stock,
(ii) receipt of approximately 3.4285 shares of Common Stock per share of Series
C Preferred Stock as dividends on the Series C Preferred Stock, (iii) conversion
of 100% of the Debentures held by a certain Selling Stockholder at a conversion
rate of 71.42857 shares of Common Stock for each $1,000 principal amount of
Debentures, and (iv) receipt of 65,455 shares of Common Stock as interest on the
Debentures. The number of shares of Common Stock issuable upon conversion of the
Series C Preferred Stock is 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
relating to the Series C Preferred Stock), initially $17.50, subject to
adjustment, 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 the
Series C Preferred Stock to be converted. The number of shares of Common Stock
issuable upon conversion of the Debentures is equal to the sum of (a) the number
of shares of Common Stock computed by dividing the principal amount of the
Debentures to be converted by $1,000, and dividing the result by the applicable
Conversion Rate (as such term is used in the debenture purchase agreement
relating to the Debentures), initially 71.42857, subject to adjustment, plus (b)
the number of shares of Common Stock that would be payable if all accrued but
unpaid interest was paid on the shares of the Debentures to be converted.
Certain of the Selling Stockholders are former limited partners of the
Company's subsidiary Orion Atlantic. See "The Company--Recent
Developments--January 1997 Transactions--The
18
<PAGE>
Exchange." The Company is or was a party to numerous agreements with one or more
of the Selling Stockholders who are former limited partners, most of which were
entered into in December 1991, and many of which terminated in connection with
the Exchange. Another Selling Stockholder, Matra Marconi Space, is the present
parent company of the prime contractor for Orion 1, and is the manufacturer
under the Orion 2 satellite contract for the construction of Orion 2. Another
Selling Stockholder, MCN Sat US, Inc. ("Matra"), is a subsidiary of Matra
Hachette that is one of the parent companies of Matra Marconi Space. One of the
Selling Stockholders, Kingston Communications International Limited, serves as a
ground operations representative in the United Kingdom; an affiliate of Matra
serves as a ground operations representative in France. The Selling Stockholders
and the Company are also party to the registration rights agreements described
below under "Plan of Distribution."
PLAN OF DISTRIBUTION
Any of the Selling Stockholders named herein may from time to time, in
one or more transactions, sell all or a portion of the Offered Shares on the
Nasdaq National Market, in the over-the-counter market, on any other national
securities exchange on which the Common Stock is listed or traded, in negotiated
transactions, in underwritten transactions or otherwise, at prices then
prevailing or related to the then current market price or at negotiated prices.
The decision to convert the Series C Preferred Stock or Debentures into shares
of Common Stock or to sell any Offered Shares is within the sole discretion of
the holders thereof. There can be no assurance that any of the Series C
Preferred Stock or Debentures will be converted or any of the Offered Shares
will be sold by the Selling Stockholders. The offering price of the Offered
Shares from time to time will be determined by the Selling Stockholders and, at
the time of such determination, may be higher or lower than the market price of
the Common Stock on the Nasdaq National Market.
The Offered Shares may be sold directly or through broker-dealers acting
as principal or agent, or pursuant to a distribution by one or more underwriters
on a firm commitment or best-efforts basis. The methods by which the Offered
Shares may be sold include, but are not limited to, the following: (i) a block
trade in which the broker-dealer so engaged will attempt to sell the Offered
Shares as agent but may position and resell a portion of the block as principal
to facilitate the transaction; (ii) purchases by a broker-dealer as principal
and resale by such broker-dealer for its account pursuant to this Prospectus;
(iii) ordinary brokerage transactions and transactions in which the broker
solicits purchasers; (iv) an exchange distribution in accordance with the rules
of the Nasdaq Stock Market; (v) privately negotiated transactions; and (vi)
underwritten transactions. In connection with an underwritten offering,
underwriters or agents may receive compensation in the form of discounts,
concessions or commissions from a Selling Stockholder or from purchasers of
Offered Shares for whom they may act as agents, and underwriters may sell
Offered Shares to or through dealers, and such dealers may receive compensation
in the form of discounts, concessions or commissions from the underwriters
and/or commissions from the purchasers for whom they may act as agents. The
Selling Stockholders may also sell the Offered Shares in accordance with Rule
144 under the Securities Act. This Prospectus may be amended and supplemented
from time to time to describe a specific plan of distribution.
From time to time, the Selling Stockholders may engage in short sales,
short sales against the box, puts and calls and other transactions in securities
of the Company or derivatives thereof, and may sell and deliver the shares in
connection therewith. From time to time, the Selling Stockholders may pledge
their Offered Shares pursuant to the margin provisions of their respective
customer agreements with their respective brokers or otherwise. Upon a default
by a Selling Stockholder, the brokers or pledgees may offer and sell the pledged
shares of Common Stock from time to time.
19
<PAGE>
Under agreements that may be entered into by the Company, underwriters,
dealers and agents who participate in the distribution of Offered Shares may be
entitled to indemnification by the Company against certain liabilities,
including liabilities under the Securities Act, or to contribution with respect
to payments which such underwriters, dealers or agents may be required to make
in respect thereof. The Selling Stockholders and any underwriters, dealers or
agents participating in the distribution of the Offered Shares may be deemed to
be "underwriters" within the meaning of the Securities Act, and any profit on
the sale of the Offered Shares by the Selling Stockholders and any commissions
received by an such broker-dealers may be deemed to be underwriting commissions
under the Securities Act.
When a Selling Stockholder elects to make a particular offer of Offered
Shares, a Prospectus Supplement, if required, will be distributed which will
identify any underwriters, dealers or agents and any discounts, commissions and
other terms constituting compensation from such Selling Stockholder and any
other required information.
Under the registration rights agreements relating to the Offered Shares
issuable in connection with the Series C Preferred Stock and the Debentures (the
"Registration Rights Agreements"), the Company is required to maintain the
effectiveness of the registration statement to which this Prospectus relates
until January 31, 2002 (or such shorter period which will terminate when all of
the Offered Shares have been sold). Under the terms of the Registration Rights
Agreements and subject to the occurrence of certain events set forth therein
(each a "Suspension Event"), the Company may determine that this Prospectus will
not be usable by the Selling Stockholders for so long as a Suspension Event or
its effect is continuing (but in no event to exceed 90 consecutive days). The
Registration Rights Agreements also provide that, subject to certain conditions
and limitations set forth therein, the Company may require the Selling
Stockholders to refrain from any public sale or distribution of the Offered
Shares issued in connection with the Series C Preferred Stock or Debentures or
any securities convertible into the Company's Common Stock as may be required by
the underwriters of Common Stock of the Company.
In order to comply with the securities laws of certain states, if
applicable, the Offered Shares may be sold only through registered or licensed
brokers or dealers. In addition, in certain states, the Offered Shares may not
be sold unless they have been registered or qualified for sale in such state or
an exemption from such registration or qualification requirement is available
and is complied with.
Pursuant to the Registration Rights Agreements, the Company has agreed to
pay all costs and expenses incurred in connection with the registration under
the Securities Act of the Offered Shares, including, without limitation, all
registration and filing fees, printing expenses, fees and disbursements of
counsel and accountants for the Company, the fees and disbursements of one legal
counsel to the Selling Stockholders and underwriter's fees and expenses, but
excluding underwriting discounts and commissions and transfer taxes, if any,
attributable to the sale of the Offered Shares. Such expenses are estimated to
be approximately $55,740. If the Company is required to update this Prospectus,
it may incur additional expenses in excess of the amount estimated above.
Pursuant to the Registration Rights Agreements, the Company has agreed to
indemnify each of the Selling Stockholders and their respective officers,
directors and trustees and each person who controls (within the meaning of the
Securities Act) such Selling Stockholder against certain losses, claims,
damages, liabilities, costs and expenses arising under the securities laws in
connection with this offering. Each of the Selling Stockholders has agreed to
indemnify the Company, its officers and directors and each person who controls
(within the meaning of the Securities Act) the Company against any losses,
claims, damages, liabilities, costs and expenses arising under the securities
laws in connection with this offering with respect to written information
furnished to the Company by such Selling Stockholder.
20
<PAGE>
EXPERTS
The consolidated financial statements of Orion Network Systems, Inc. at
December 31, 1996 and 1995, and for each of the three years in the period ended
December 31, 1996, appearing in the Orion Network Systems, Inc. Annual Report
(Form 10-K and amendment thereto on Form 10-K/A) for the year ended December 31,
1996 have been audited by Ernst & Young LLP, independent auditors, as set forth
in their report thereon included therein and incorporated herein by reference.
Such consolidated financial statements are incorporated herein by reference in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
LEGAL MATTERS
Certain legal matters in connection with the Common Stock offered hereby
are being passed upon for the Company by Hogan & Hartson L.L.P., Washington,
D.C., counsel for the Company.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Exchange
Act, and, in accordance therewith, files reports and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information can be inspected at the Public Reference
Section maintained by the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549 and the following regional offices of the Commission: 500
West Madison Street, Suite 1400, Chicago, Illinois 60661-2511 and Seven World
Trade Center, 13th Floor, New York, New York 10048. Copies of such material can
be obtained from the Public Reference Section of the Commission, 450 Fifth
Street, N.W., 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. In addition, the Company's Common Stock is listed on the
Nasdaq National Market (Symbol: ONSI), and such reports, proxy statements and
other information concerning the Company also can be inspected at the offices of
Nasdaq Operations, 1735 K Street, N.W., Washington, D.C. 20006.
The Company has filed with the Commission a registration statement on
Form S-3 (the "Registration Statement"), of which this Prospectus is a part,
under the Securities Act, with respect to the Common Stock offered hereby. This
Prospectus does not contain all of the information set forth in the Registration
Statement, certain portions of which have been omitted as permitted by the rules
and regulations of the Commission. Statements contained in this Prospectus as to
the contents of any contract or other documents are not necessarily complete,
and in each instance, reference is made to the copy of such contract or
documents filed as an exhibit to the Registration Statement, each such statement
being qualified in all respects by such reference and the exhibits and schedules
thereto. For further information regarding the Company and the Common Stock,
reference is hereby made to the Registration Statement and such exhibits and
schedules which may be obtained from the Commission at its principal office in
Washington, D.C. upon payment of the fees prescribed by the Commission.
No person has been authorized to given any information or make any
representations not 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 by any underwriter, dealer or agent. This Prospectus does not constitute an
offer to sell or a solicitation of an offer to buy any of the Common Stock
offered hereby in any jurisdiction to any person to whom it is unlawful to make
such offer or solicitation in such jurisdiction. This Prospectus does not
constitute an offer to sell or a solicitation to buy any securities other than
those to which it relates. Neither the delivery of this Prospectus nor any sale
of or offer to sell the Common Stock offered
21
<PAGE>
hereby shall, under any circumstances, create an implication that there has been
no change in the affairs of the Company since the date hereof or that the
information herein is correct as of any time subsequent to its date.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The documents listed below have been filed by the Company (File No.
000-22085) under the Exchange Act with the Commission and are incorporated
herein by reference:
1. The Company's Current Report on Form 8-K dated October 9, 1997,
reporting the execution of the Merger Agreement.
2. The Company's Annual Report on Form 10-K for the year ended December 31,
1996 and amendment thereto on Form 10-K/A dated June 25, 1997.
3. The Company's Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1997 and June 30, 1997.
4. The Company's definitive proxy statement on Schedule 14A filed with the
Commission on April 22, 1997, with respect to the Company's annual
meeting of stockholders held on May 22, 1997.
5. The Company's Current Report on Form 8-K dated February 14, 1997,
reporting consummation of the Exchange, and Current Report on Form 8-K
dated March 26, 1997, reporting consummation of the acquisition of Orion
Europe.
6. The description of the Company's Common Stock contained in the Company's
Registration Statement on Form 8-B filed with the Commission on January
31, 1997, pursuant to Section 12(g) of the Exchange Act, including any
amendments or reports filed for the purpose of updating such
description.
All documents filed subsequent to the date of this Prospectus pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act and prior to termination
of the offering of the Common Stock to which this Prospectus relates shall be
deemed to be incorporated by reference in this Prospectus and shall be part
hereof from the date of filing of such document.
Any statement contained herein or in a document incorporated or deemed to
be incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that it is modified or superseded
by a statement contained (i) in this Prospectus (i.e. where a statement herein
modifies or supersedes a statement in a previously filed document incorporated
or deemed to be incorporated by reference herein), (ii) in any accompanying
Prospectus Supplement relating to a specific offering of Common Stock or (iii)
in any other subsequently filed document that is also incorporated or deemed to
be incorporated by reference herein. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus or any accompanying Prospectus Supplement.
Subject to the foregoing, all information appearing in this Prospectus and each
accompanying Prospectus Supplement is qualified in its entirety by the
information appearing in the documents incorporated by reference.
The Company will provide upon written or oral request without charge to
each person to whom a copy of this Prospectus is delivered, including beneficial
owners, a copy of any or all of the documents incorporated herein by reference
(other than exhibits to such documents, unless such exhibits are specifically
incorporated by reference in such documents). Written requests for such
22
<PAGE>
copies should be addressed to Richard H. Shay, Esq., the Company's General
Counsel, at 2440 Research Boulevard, Rockville, Maryland 20850, telephone number
(301) 258-8101.
FORWARD-LOOKING STATEMENTS
Information set forth in this Prospectus, including under the
caption "Risk Factors," and incorporated by reference herein 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 operating losses
and net cash flow deficits; Orion's belief and the judgments of its independent
engineering consultant, Telesat Canada, regarding the expected performance of
the Orion 1 satellite over its useful life, and the effect of such performance
on Orion's business; Orion's expectations regarding the period for construction
and launch of Orion 2 and Orion 3; Orion's belief that it can overcome
uncertainties relating to Orion 2 and Orion 3; Orion's expectations regarding
receipt of regulatory approvals, coordination of orbital slots and avoidance of
possible interference; Orion's beliefs regarding existing and future regulatory
requirements, its ability to comply with such requirements and the effect of
such requirements on its business; Orion's 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 dividend on the Common Stock in
the foreseeable future; Orion's belief that any liability that might be incurred
by Orion upon the resolution of certain existing or future legal proceedings not
having a material adverse effect on the consolidated financial condition or
results of operations of Orion; and the adoption of new accounting releases not
being material to its financial condition or results of operations.
Orion cautions that the above statements are further qualified by
important factors that could cause Orion's actual results to differ materially
from those in the forward-looking statements. Such factors include, without
limitation, 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; 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."
23
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses in connection with
the issuance and distribution of the securities being registered hereby, other
than underwriting discounts and commissions. All amounts except the SEC
Registration Fee are estimated.
SEC Registration Fee $ 25,740
Blue Sky Fees and Expenses 3,000
Accounting Fees and Expenses 15,000
Legal Fees and Expenses 10,000
Printing and Engraving Expenses 2,000
---------
Total $ 55,740
=========
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
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.
The Company has agreed to indemnify each of the Selling Stockholders and
their respective officers, directors and trustees and each person who controls
(within the meaning of the Securities Act) such Selling Stockholder against
certain losses, claims, damages, liabilities, costs and expenses arising under
the securities laws in connection with this offering. Each of the Selling
Stockholders has agreed to indemnify the Company, its officers and directors and
each person who controls (within the meaning of the Securities Act) the Company
against any losses, claims, damages, liabilities, costs
II-1
<PAGE>
and expenses arising under the securities laws in connection with this offering
with respect to written information furnished to the Company by such Selling
Stockholder.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------- -------------------
<S> <C>
3.1 Restated Certificate of Incorporation of Orion Network Systems, Inc.
(Incorporated by reference to exhibit number 3.1 in Registration
Statement on Form 8-B filed with the Commission on January 31, 1997).
3.2 Amended and Restated Bylaws of Orion Network Systems, Inc.
(Incorporated by reference to exhibit number 3.2 in Registration
Statement on Form 8-B filed with the Commission on January 31, 1997).
3.3 Certificate of Amendment of Certificate of Incorporation of Orion
Network Systems, Inc. (Incorporated by reference to exhibit number
3.1 in Registration Statement No. 333-32457 on Form S-8).
4.1 Form of Common Stock Certificate of Orion. (Incorporated by
reference to exhibit number 4.5 in Registration Statement No.
333-19795 on Form S-4).
5.1 Opinion of Hogan & Hartson L.L.P.
21.1 List of subsidiaries of Orion Network Systems, Inc. (Incorporated
by reference to exhibit number 21.1 in Registration Statement No.
333-32457 on Form S-8).
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Hogan & Hartson L.L.P. (included in the legal opinion
filed as Exhibit 5.1 hereto).
24.1 Power of Attorney (included on signature page).
</TABLE>
(B) FINANCIAL STATEMENT SCHEDULES.
Schedules have been omitted because the information required to be set
forth therein is not applicable or is shown in the items incorporated herein by
reference.
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
II-2
<PAGE>
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or
the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high
end of the estimated maximum offering range may be reflected
in the form of prospectus filed with the Commission pursuant
to Rule 424(b) if, in the aggregate, the changes in volume
and price represent no more than a 20 percent change in the
maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective
registration statement; and
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration
statement or any material change to such information in this
registration statement;
provided, however, that subparagraphs (i) and (ii) above do not apply if the
registration statement is on Form S-3, Form S-8 or Form F-3, and the information
required to be included in a post-effective amendment by those paragraphs is
contained in periodic reports filed with or furnished to the Commission by the
registrant pursuant to Section 13 or Section 15(d) of the Securities Exchange
Act of 1934 that are incorporated by reference in this registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered herein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
The undersigned registrant further undertakes that:
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 a form of
Prospectus filed by 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.
For the purposes of determining any liability under the Securities Act of
1933, each filing of the registrant's annual report pursuant to Section 13(a) or
Section 15(d) of the Securities Exchange Act of 1934 that is incorporated by
reference in this registration statement shall be deemed to be a new
registration statement relating to the Common Stock offered therein, and the
offering of such Common Stock 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
registrant pursuant to the foregoing provisions, or otherwise, the registrant
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 is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant 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 registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to
II-3
<PAGE>
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-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and 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 4th day of
November, 1997.
ORION NETWORK SYSTEMS, 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 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
sign any and all registration statements relating to the registration of
additional shares of Common Stock issuable (i) upon conversion of the Company's
Series C 6% Cumulative Redeemable Convertible Preferred Stock (the "Series C
Preferred Stock"), (ii) as dividends on the Series C Preferred Stock, (iii) upon
conversion of shares of the Company's convertible junior subordinated debentures
(the "Debentures"), or (iv) as interest payments on the Debentures (which
registration statements may constitute amendments to this Registration
Statement) pursuant to the Securities Act of 1933, as amended, 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 Chief Executive November 4, 1997
- -------------------------------- Officer and Director
W. Neil Bauer, President (Principal Executive Officer)
/s/ David J. Frear Chief Financial November 4, 1997
- -------------------------------- Officer and Treasurer
David J. Frear, Vice President (Principal Financial Officer
and Principal Accounting Officer)
II-5
<PAGE>
/s/ Gustave M. Hauser Director November 4, 1997
- --------------------------------
Gustave M. Hauser, Chairman
/s/ John V. Saeman Director November 4, 1997
- --------------------------------
John V. Saeman
/s/ John G. Puente Director November 4, 1997
- --------------------------------
John G. Puente
/s/ Richard J. Brekka Director November 4, 1997
- --------------------------------
Richard J. Brekka
/s/ Warren B. French, Jr. Director November 4, 1997
- --------------------------------
Warren B. French, Jr.
/s/ Sidney S. Kahn Director November 4, 1997
- --------------------------------
Sidney S. Kahn
Director _______ __, 1997
- --------------------------------
W. Anthony Rice
/s/ Robert M. Van Degna Director November 4, 1997
- --------------------------------
Robert M. Van Degna
/s/ Barry Horowitz Director November 4, 1997
- --------------------------------
Barry Horowitz
II-6
EXHIBIT 5.1
November 13, 1997
Board of Directors
Orion Network Systems, Inc.
2440 Research Boulevard
Suite 400
Rockville, Maryland 20850
Ladies and Gentlemen:
We are acting as counsel to Orion Network Systems, Inc., a Delaware
corporation (the "Company"), in connection with the registration statement on
Form S-3 (the "Registration Statement") filed with the Securities and Exchange
Commission relating to the proposed public offering of up to 5,052,202 shares
(the "Offered Shares") of the Company's common stock, $.01 par value (the
"Common Stock"), all of which Offered Shares may be sold by the Selling
Stockholders identified in the Registration Statement from time to time as set
forth in the prospectus which forms a part of the Registration Statement (the
"Prospectus") and as to be set forth in one or more supplements to the
Prospectus. The Offered Shares consist of (i) 4,030,627 shares of Common Stock
(the "Series C Conversion Shares") issuable upon conversion of Series C 6%
Cumulative Redeemable Convertible Stock of the Company (the "Series C Preferred
Stock"), (ii) 241,835 shares of Common Stock (the "Series C Dividend Shares")
issuable in payment of dividends on Series C Preferred Stock, (iii) 779,740
shares of Common Stock (the "Debenture Conversion Shares") issuable upon
conversion of certain convertible junior subordinated debentures of the Company
(the "Debentures"), and (iv) 65,455 shares of Common Stock (the "Debenture
Interest Shares") issuable in payment of interest on the Debentures.
This opinion letter is furnished to you at your request to enable you
to fulfill the requirements of Item 601(b)(5) of Regulation S-K, 17 C.F.R. ss.
229.601(b)(5), in connection with the Registration Statement.
For purposes of this opinion letter, we have examined copies of the
following documents:
<PAGE>
Board of Directors
Orion Network Systems, Inc.
November 13, 1997
Page 2
1. An executed copy of the Registration Statement.
2. An executed copy of the Debenture Purchase Agreement, dated as
of January 13, 1997, as amended as of January 31, 1997, among
the Company, British Aerospace Holdings, Inc. and Matra Marconi
Space UK Limited (the "Debenture Purchase Agreement").
3. The Certificate of Designations for the Series C Preferred
Stock, as certified by the Secretary of State of the State of
Delaware on November 3, 1997 and by the Assistant Secretary of
the Company on the date hereof as then being complete, accurate
and in effect (the "Certificate of Designations").
4. The Restated Certificate of Incorporation of the Company, as
certified by the Secretary of State of the State of Delaware on
November 3, 1997 and by the Assistant Secretary of the Company
on the date hereof as then being complete, accurate and in
effect (the "Certificate of Incorporation").
5. The Amended and Restated Bylaws of the Company, as certified by
the Assistant Secretary of the Company on the date hereof as
being complete, accurate and in effect (the "Bylaws").
6. Resolutions of the Board of Directors of the Company adopted on
October 31, 1997, as certified by the Assistant Secretary of the
Company on the date hereof as then being complete, accurate and
in effect, relating to the filing of the Registration Statement
and related matters (the "Authorizing Resolutions").
In our examination of the aforesaid documents, we have assumed the
genuineness of all signatures, the legal capacity of natural persons, the
authenticity, accuracy and completeness of all documents submitted to us, and
the conformity with the original documents of all documents submitted to us as
certified, telecopied, photostatic, or reproduced copies. This opinion letter is
given, and all statements herein are made, in the context of the foregoing.
<PAGE>
Board of Directors
Orion Network Systems, Inc.
November 13, 1997
Page 3
This opinion letter is based as to matters of law solely on the
General Corporation Law of the State of Delaware (the "DGCL"). We express no
opinion herein as to any other laws, statutes, regulations or ordinances.
Based upon, subject to and limited by the foregoing, we are of the
opinion that:
(i) when Series C Conversion Shares are issued and delivered upon
conversion of Series C Preferred Stock in accordance with the Certificate of
Designations and the Authorizing Resolutions, such Series C Conversion Shares
will be validly issued, fully paid and non-assessable.
(ii) when Series C Dividend Shares are issued and delivered in
payment of validly declared dividends on Series C Preferred Stock in accordance
with the Certificate of Designations, with the Authorizing Resolutions and with
additional appropriate resolutions duly adopted by the Board of Directors of the
Company authorizing and declaring such dividends and the payment thereof, such
Series C Dividend Shares will be validly issued, fully paid and non-assessable.
(iii) when the Debentures Conversion Shares are issued and delivered
upon conversion of Debentures in accordance with the terms of the Debenture
Purchase Agreement and the Debentures and with the Authorizing Resolutions, such
Debentures Conversion Shares will be validly issued, fully paid and
non-assessable.
(iv) when Debenture Interest Shares are issued and delivered in
payment of interest on the Debentures in accordance with the terms of the
Debenture Purchase Agreement and the Debentures and with the Authorizing
Resolutions, such Debenture Interest Shares will be validly issued, fully paid
and non-assessable.
We assume no obligation to advise you of any changes in the foregoing
subsequent to the delivery of this opinion letter. This opinion letter has been
prepared solely for your use in connection with the filing of the Registration
Statement on the date of this opinion letter and should not be quoted in whole
or in part or otherwise be referred to, nor filed with or furnished to any
governmental agency or other person or entity, without the prior written consent
of this firm.
<PAGE>
Board of Directors
Orion Network Systems, Inc.
November 13, 1997
Page 4
We hereby consent to the filing of this opinion letter as Exhibit 5.1
to the Registration Statement and to the reference to this firm under the
caption "Validity of the Securities" in the prospectus constituting a part of
the Registration Statement. In giving this consent, we do not thereby admit that
we are an "expert" within the meaning of the Securities Act of 1933, as amended.
Very truly yours,
HOGAN & HARTSON L.L.P.
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-3 No. 333-xxxxx) and related Prospectus of Orion
Network Systems, Inc. for the registration of 5,052,202 shares of its common
stock and to the incorporation by reference therein of our report dated March 7,
1997, with respect to the consolidated financial statements of Orion Network
Systems, Inc. (a Delaware corporation that is now known as Orion Oldco Services,
Inc.) included in its Annual Report (Form 10-K and amendment thereto on Form
10-K/A) for the year ended December 31, 1996, filed with the Securities and
Exchange Commission.
ERNST & YOUNG LLP
Washington, D.C.
November 11, 1997
