-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LRdT9pqq3EArdw/Oo1KUwZblwD3OrjBSPtwOYMJDe9GoUARsQJ+IP80GW2HGeQgM 5rgDkhNBmVJk2gNpr45yJA== 0001005150-97-000618.txt : 19970814 0001005150-97-000618.hdr.sgml : 19970814 ACCESSION NUMBER: 0001005150-97-000618 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970813 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: ORION NETWORK SYSTEMS INC/NEW/ CENTRAL INDEX KEY: 0001029850 STANDARD INDUSTRIAL CLASSIFICATION: RADIO & TV BROADCASTING & COMMUNICATIONS EQUIPMENT [3663] IRS NUMBER: 522008654 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-22085 FILM NUMBER: 97659447 BUSINESS ADDRESS: STREET 1: 2440 RESEARCH BLVD SUITE 400 CITY: ROCKVILLE STATE: MD ZIP: 20850 BUSINESS PHONE: 3012588101 MAIL ADDRESS: STREET 1: 2440 RESEARCH BLVD STREET 2: SUITE 400 CITY: ROCKVILLE STATE: MD ZIP: 20850 FORMER COMPANY: FORMER CONFORMED NAME: ORION NEWCO SERVICES INC DATE OF NAME CHANGE: 19961231 10-Q 1 FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997 Commission file number 000-22085 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 No.) Identification) 2440 Research Boulevard, Suite 400, Rockville, Maryland 20850 (Address of principal executive offices) (Zip Code) (301) 258-8101 - -------------------------------------------------------------------------------- (Registrant's telephone number including area code) Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No __ Indicate the number of shares outstanding of each of the issuer's classes of Common Stock, as of the latest practicable date. Class Outstanding at June 30, 1997 - ------------------------------------- ---------------------------------- Common Stock, $.01 par value 11,175,076 shares INDEX ORION NETWORK SYSTEMS, INC.
Page ---- PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Condensed Consolidated Balance Sheets---June 30, 1997 and December 31, 1996................... 3 Condensed Consolidated Statements of Operations --- three and six months ended June 30, 1997 and 1996......................................................................... 5 Condensed Consolidated Statements of Changes in Stockholders' Deficit --- Year ended December 31, 1996 and six months ended June 30, 1997........................................... 6 Condensed Consolidated Statements of Cash Flows --- six months ended June 30, 1997 and 1996......................................................................... 7 Notes to Condensed Consolidated Financial Statements........................................... 9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.................................................................................. 14 PART II. OTHER INFORMATION Item 1. Legal Proceedings.............................................................................. 20 Item 2. Changes in Securities.......................................................................... 20 Item 3. Defaults upon Senior Securities................................................................ 20 Item 4. Submission of Matters to a Vote of Security Holders........................................... 21 Item 5. Other Information.............................................................................. 22 Item 6. Exhibits and Reports on Form 8-K............................................................... 22 Signatures.............................................................................................. 23
2 PART I. FINANCIAL INFORMATION ITEM I. FINANCIAL STATEMENTS ORION NETWORK SYSTEMS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, DECEMBER 31, 1997 1996 ------------- -------------- (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 74,949,499 $ 42,187,807 Restricted cash, including accrued interest of approximately $3.9 million 47,837,500 -- Accounts receivable 10,034,827 6,473,316 Prepaid expenses and other current assets 8,967,778 3,583,403 ------------- -------------- Total current assets 141,789,604 52,244,526 Restricted and segregated cash 357,496,908 -- Property and equipment at cost: Land 73,911 73,911 Telecommunications equipment 37,392,719 25,342,528 Furniture and computer equipment 7,141,554 4,849,711 Satellite and related equipment 322,163,571 321,247,346 ------------- -------------- 366,771,755 351,513,496 Less: accumulated depreciation (54,728,373) (68,224,957) Satellite construction in progress 54,841,426 4,560,844 ------------- -------------- Net property and equipment 366,884,808 287,849,383 Deferred financing costs, net 23,681,080 12,918,233 Goodwill and other assets, net 29,065,170 5,252,302 ------------- -------------- TOTAL ASSETS $ 918,917,570 $ 358,264,444 ============= ==============
See Notes to Condensed Consolidated Financial Statements. 3 ORION NETWORK SYSTEMS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
JUNE 30, DECEMBER 31, 1997 1996 ------------- -------------- (Unaudited) LIABILITIES AND STOCKHOLDERS' DEFICIT Current liabilities: Accounts payable $ 4,466,898 $ 6,411,028 Accrued liabilities 10,502,103 7,653,208 Other current liabilities 7,121,326 5,406,072 Interest payable 20,862,822 8,583,882 Current portion of long-term debt 9,132,048 34,975,060 ------------- -------------- Total current liabilities 52,085,197 63,029,250 Long-term debt 782,388,564 218,236,839 Other liabilities 12,644,704 46,348,291 Limited Partners' interest in Orion Atlantic -- 10,130,058 Minority interest in other consolidated entities 66,361 54,008 Redeemable preferred stock: Series A 8% Cumulative Redeemable Convertible Preferred Stock, $.01 par value, 15,000 shares authorized; 13,861 and 13,871 shares issued and outstanding, plus accrued dividends 16,640,288 16,097,880 Series B 8% Cumulative Redeemable Convertible Preferred Stock, $.01 par value, 5,000 shares authorized; 4,298 shares issued and outstanding, plus accrued dividends 4,976,406 4,804,486 Series C 6% Cumulative Redeemable Convertible Preferred Stock, $.01 par value, 150,000 shares authorized; 123,172 and 0 shares issued and outstanding, plus accrued dividends 94,348,046 -- Stockholders' deficit: Common stock, $.01 par value, 40,000,000 shares authorized; 11,175,076 and 10,985,150 shares outstanding 114,443 112,447 Capital in excess of par value 98,490,809 86,932,391 Treasury stock, 269,274 and 259,515 shares (91,490) -- Foreign currency translation (563,105) -- Accumulated deficit (142,182,653) (87,481,206) ------------- -------------- Total stockholders' deficit (44,231,996) (436,368) ------------- -------------- TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 918,917,570 $ 358,264,444 ============= ==============
See Notes to Condensed Consolidated Financial Statements. 4 ORION NETWORK SYSTEMS, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, --------------------------------- --------------------------------- 1997 1996 1997 1996 ------------ ------------ ------------ ------------ (Unaudited) (Unaudited) (Unaudited) (Unaudited) Revenue $ 16,687,105 $ 10,122,511 $ 36,920,174 $ 17,768,918 Operating expenses: Direct 3,339,999 1,402,138 8,732,019 2,485,769 Sales and marketing 4,435,131 2,856,414 8,561,508 5,039,257 Engineering and technical services 2,745,521 2,085,312 5,403,091 4,190,222 General and administrative 4,951,979 4,088,126 9,759,883 7,597,870 Depreciation and amortization 12,129,745 8,653,165 23,696,324 17,573,777 ------------ ------------ ------------ ------------ Total operating expenses 27,602,375 19,085,155 56,152,825 36,886,895 ------------ ------------ ------------ ------------ Loss from operations (10,915,270) (8,962,644) (19,232,651) (19,117,977) Other expense (income): Interest income (8,717,404) (622,495) (12,130,484) (1,311,217) Interest expense 22,389,048 6,330,993 39,959,679 13,829,772 Other 159,214 (34,296) 573,231 (14,488) ------------ ------------ ------------ ------------ Total other expense (income) 13,830,858 5,674,202 28,402,426 12,504,067 ------------ ------------ ------------ ------------ Loss before extraordinary loss on extinguishment of debt, minority interest and preacquisition loss of acquired subsidiary (24,746,128) (14,636,846) (47,635,077) (31,622,044) Extraordinary loss on extinguishment of debt -- -- (15,763,220) -- Limited Partners' and minority interest in the net loss of Orion Atlantic and other consolidated entities 739 7,877,201 12,042,978 17,611,062 Preacquisition loss of acquired subsidiary -- -- 626,246 -- ------------ ------------ ------------ ------------ Net loss (24,745,389) (6,759,645) (50,729,073) (14,010,982) Preferred stock dividend and accretion, net of forfeitures 2,312,007 360,930 3,972,374 740,412 ------------ ------------ ------------ ------------ Net loss attributable to common stockholders $(27,057,396) $ (7,120,575) $(54,701,447) $(14,751,394) ============ ============ ============ ============ Net loss per common share $ (2.42) $ (0.65) $ (4.90) $ (1.35) ============ ============ ============ ============ Weighted average common shares outstanding 11,169,950 10,951,784 11,164,754 10,932,458 ============ ============ ============ ============ See Notes to Condensed Consolidated Financial Statements
5 ORION NETWORK SYSTEMS, INC. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
COMMON STOCK --------------------------- CAPITAL IN FOREIGN TOTAL NUMBER EXCESS OF ACCUMULATED TREASURY CURRENCY STOCKHOLDERS' OF SHARES AMOUNT PAR VALUE DEFICIT STOCK TRANSLATION EQUITY(DEFICIT) ------------ --------- ----------- -------------- ----------- ------------ ------------------ Balance at December 31, 1995 11,115,965 $ 111,160 $85,485,613 $ (58,916,131) $ 0 $ 0 $ 26,680,642 Conversion of preferred stock to common stock 91,071 911 804,034 -- -- -- 804,945 Issuance of stock warrants -- -- 300,000 -- -- -- 300,000 Exercise of stock options and warrants 37,629 376 342,744 -- -- -- 343,120 Preferred stock dividend, net of forfeitures -- -- -- (1,369,665) -- -- (1,369,665) Net loss for 1996 -- -- -- (27,195,410) -- -- (27,195,410) ------------ -------- ------------------------------------- ------------ ----------------- Balance at December 31, 1996 11,244,665 112,447 86,932,391 (87,481,206) 0 0 (436,368) Issuance of common stock 11,286 113 142,317 -- -- -- 142,430 Conversion of preferred stock to common stock 1,176 12 9,988 -- -- -- 10,000 Issuance of common stock for the purchase of APSC 85,715 857 1,199,143 -- -- -- 1,200,000 Issuance of warrants relating to Senior Notes and Senior Discount Notes, net -- -- 9,082,262 -- -- -- 9,082,262 Exercise of stock options and warrants 101,508 1,014 1,124,708 -- -- -- 1,125,722 Preferred stock dividend and accretion, net of forfeitures -- -- -- (3,972,374) -- -- (3,972,374) Foreign currency translation -- -- -- -- -- (563,105) (563,105) Purchase of treasury stock -- -- -- -- (91,490) -- (91,490) Net loss for the six months ended June 30, 1997 -- -- -- (50,729,073) -- -- (50,729,073) ------------ --------- ----------- -------------- ----------- ------------ ------------------ Balance at June 30, 1997 (unaudited) 11,444,350(1) $ 114,443 $98,490,809 $(142,182,653) $ (91,490) $ (563,105) $ (44,231,996) ============ ========= =========== ============== =========== ============ ==================
See Notes to Consolidated Financial Statements. (1) Includes 269,274 treasury shares of which 259,515 are carried at no cost. 6 ORION NETWORK SYSTEMS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, --------------------------------------- 1997 1996 ------------- ------------- OPERATING ACTIVITIES (Unaudited) (Unaudited) Net loss $ (50,729,073) $ (14,010,982) Adjustments to reconcile net loss to net cash used in operating activities: Extraordinary loss on extinguishment of debt 15,763,220 -- Amortization and depreciation 23,696,324 17,573,777 Amortization of deferred financing costs 1,177,549 1,065,294 Provision for bad debts 500,000 449,999 Satellite incentives and accrued interest 1,315,433 1,144,508 Capitalized interest (2,454,183) -- Accretion of interest on Senior Discount Notes 13,822,760 -- Accrued interest on restricted funds (3,956,969) -- Accrued interest on Debentures 2,187,500 -- Limited Partners' and minority interest in Orion Atlantic and other consolidated entities (12,042,977) (17,611,039) Gain on sale of assets -- (27,369) Changes in operating assets and liabilities: Accounts receivable (654,744) (389,227) Prepaid expenses and other current assets (4,398,357) (3,068,598) Other assets (2,674,879) 158,903 Accounts payable and accrued liabilities (2,299,481) (4,929,754) Other current liabilities 1,120,897 3,309,244 Interest payable 12,271,586 (1,176,745) ------------- ------------- Net cash used in operating activities (7,355,394) (17,511,989) INVESTING ACTIVITIES Capital expenditures (8,954,510) (7,625,166) Restricted cash (401,377,439) -- Satellite construction costs (47,826,399) -- Purchase of Teleport Europe, net of cash acquired (8,374,845) -- FCC license costs (179,129) (26,325) ------------- ------------- Net cash used in investing activities (466,712,322) (7,651,491) FINANCING ACTIVITIES Limited Partners' capital contributions -- 18,044,446 Expenditures on debt and equity financing costs (26,065,789) -- Proceeds from issuance of common stock and subscriptions, net of issuance costs 1,125,722 148,886 Treasury stock (91,490) -- Proceeds from issuance of Debentures 60,000,000 -- Proceeds from issuance of Senior Notes 445,000,000 -- Proceeds from issuance of Senior Discount Notes 265,397,000 -- Repayment of senior note payable to banks (207,714,842) (10,794,487) Termination of interest cap agreements (5,287,827) -- Payment of satellite incentive obligations (15,697,271) -- Repayment of notes payable (7,624,384) (2,081,754) Other (2,211,711) 7,779,247 ------------- ------------- Net cash provided by financing activities 506,829,408 13,096,338 Net increase (decrease) in cash and cash equivalents 32,761,692 (12,067,142) Cash and cash equivalents at beginning of period 42,187,807 55,111,585 ------------- ------------- Cash and cash equivalents at end of period $ 74,949,499 $ 43,044,443 ============= =============
7 ORION NETWORK SYSTEMS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
SIX MONTHS ENDED JUNE 30, -------------------------------------------- 1997 1996 -------------------- -------------------- (Unaudited) (Unaudited) Transactions not providing or requiring cash: Property and equipment financed by capital leases $ 18,600 $ -- ==================== ==================== Accrued preferred stock dividend and accretion, net of forfeitures $ 3,972,374 $ 740,412 ==================== ==================== Conversion of preferred stock to common stock $ 10,000 $ 745,667 ==================== ==================== Issuance of common stock for employees retirement (401K) $ 142,430 $ -- ==================== ==================== Issuance of common stock and warrants $ 10,282,262 $ -- ==================== ==================== Issuance of preferred stock $ 94,000,000 $ -- ==================== ==================== Acquisition of Teleport Europe, net of cash acquired: Working capital deficit, net of cash acquired $ 683,567 $ -- Property and equipment (9,346,584) -- Goodwill (100,512) -- Other assets (88,928) -- Non-current liabilities 477,612 -- -------------------- -------------------- Net cash used to acquire Teleport Europe $(8,374,845) $ -- ==================== ==================== Interest paid during the period, net of amounts capitalized $10,775,797 $ 2,479,835 ==================== ====================
See Notes to Condensed Consolidated Financial Statements. 8 ORION NETWORK SYSTEMS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NOTE A. BASIS OF PRESENTATION GENERAL The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for fair presentation have been included. Operating results for the three and six months ended June 30, 1997 are not necessarily indicative of the results that may be expected for the year ending December 31, 1997. The balance sheet at December 31, 1996 has been derived from the audited financial statements that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. For further information, refer to the consolidated financial statements and footnotes thereto included in the 1996 Orion Network Systems, Inc. Annual Report on Form 10-K (and amendment thereto on Form 10-K/A). RECENT DEVELOPMENTS In January 1997, Orion consummated a series of transactions that are described below. ACQUISITION OF ORION ATLANTIC LIMITED PARTNERSHIP INTERESTS IN THE EXCHANGE On January 31, 1997, the Company acquired all of the limited partnership interests which it did not already own in the Company's operating subsidiary, Orion Atlantic, that owns the Orion 1 satellite. Specifically, the Company acquired the Orion Atlantic limited partnership interests and other rights relating thereto held by British Aerospace Communications, Inc., COM DEV Satellite Communications Limited, Kingston Communications International Limited, Lockheed Martin Commercial Launch Services, Inc., MCN Sat US, Inc., an affiliate of Matra Hachette, and Trans-Atlantic Satellite, Inc., an affiliate of Nissho Iwai Corp. (collectively, the "Exchanging Partners"). Pursuant to a Section 351 Exchange Agreement and Plan of Conversion (the "Exchange Agreement"), the Exchanging Partners exchanged (the "Exchange"), their Orion Atlantic limited partnership interests for 123,172 shares of a newly created class of the Company's Series C 6% Cumulative Convertible Redeemable Preferred Stock (the "Series C Preferred Stock"). In addition, the Company acquired certain rights held by certain of the Exchanging Partners' to receive repayment of various advances (aggregating approximately $41.4 million at December 31, 1996). The 123,172 shares of Series C Preferred Stock issued in the Exchange are convertible into approximately 7 million shares of the Company's Common Stock. As a result of the Exchange, certain of the Exchanging Partners became principal stockholders of the Company. The exchange is described in greater detail under the caption "The Merger, the Exchange and the Debenture Investments" in the Company's Registration Statement on Form S-4 (Registration No. 333-19795). The Exchange and the acquisition by the Company of the only outstanding minority interest in the Company's subsidiary Asia Pacific Space and Communications, Ltd. from British Aerospace Satellite Investments, Inc. on January 8, 1997 (in exchange for approximately 86,000 shares of the Company's Common Stock) results in the Company owning 100% of Orion Atlantic and its other significant subsidiaries and, therefore, a greatly simplified corporate structure. 9 ORION NETWORK SYSTEMS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NOTE A. BASIS OF PRESENTATION (CONTINUED) THE MERGER The Exchange was conducted on a tax-free basis by means of a Merger (defined below) that was consummated on January 31, 1997. Pursuant to the Exchange Agreement, Orion Oldco Services, Inc., formerly known as Orion Network Systems, Inc. ("Old Orion"), formed the Company as a new Delaware corporation with a certificate of incorporation, bylaws and capital structure substantially identical in all material respects with those of Old Orion. Also pursuant to the Exchange Agreement, the Company formed a wholly owned subsidiary, Orion Merger Company, Inc. ("Orion Merger Subsidiary"). Pursuant to an Agreement and Plan of Merger, Orion Merger Subsidiary was merged with and into Old Orion, and Old Orion became a wholly owned subsidiary of the Company (the "Merger"). On January 31, 1997, the effective time of the merger, all of the stockholders of Old Orion received stock in the Company with substantially identical rights to the Old Orion stock they held prior to the effective time of the Merger. Following the Merger, the Company changed its name from Orion Newco Services, Inc. to Orion Network Systems, Inc. and the Company's wholly owned subsidiary Orion Network Systems, Inc. changed its name to Orion Oldco Services, Inc. The Exchange and Merger are describe in greater detail under the caption "The Merger, the Exchange and Debenture Investments" in the Company's Registration Statement on Form S-4 (Registration No. 333-19795). The Company is the successor issuer to Old Orion and filed a Registration Statement on Form 8-B with the Securities and Exchange Commission on January 31, 1997, to register all the issued and outstanding shares of Common Stock and preferred stock of the Company. The Company is considered the successor to Old Orion for purposes of the NASDAQ National Market and the Company's Common Stock is quoted on the NASDAQ National Market under the trading symbol "ONSI". FINANCINGS On January 31, 1997, the Company completed a $710 million bond offering (the "Bond Offering") comprised of approximately $445 million of Senior Note Units, each of which consists of one 11.25% Senior Note due 2007 (a "Senior Note") and one Warrant to purchase 0.8463 shares of Common Stock, par value $.01 per share ("Common Stock") of the Company (a "Senior Note Warrant"), and approximately $265.4 million of Senior Discount Note Units, each of which consists of one 12.5% Senior Discount Note due 2007 (a "Senior Discount Note," and together with the Senior Notes, the "Notes") and one Warrant to purchase 0.6628 shares of Common Stock of the Company (a "Senior Discount Note Warrant, and together with Senior Note Warrants, the "Warrants"). Interest on the Senior Notes will be payable semi-annually in cash on January 15 and July 15 of each year, with the first payment made on July 15, 1997. The Senior Discount Notes will not pay cash interest prior to January 15, 2002. Thereafter, cash interest will accrue until maturity at an annual rate of 12.5% payable semi-annually on January 15 and July 15 of each year, commencing July 15, 2002. The exercise price for the Warrants will be $.01 per share of Common Stock of the Company. The shares of Common Stock of the Company initially issuable upon exercise of the Warrants represent approximately 2.62% of the outstanding Common Stock of the Company on a fully diluted basis as of January 31, 1997. The Bond Offering was underwritten by Morgan Stanley & Co. Incorporated and Merrill Lynch & Co. The foregoing description of the Notes is qualified in its entirety by the description of such Notes in the Indentures and notes documents, copies of which have been filed as exhibits to the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 31, 1997. 10 ORION NETWORK SYSTEMS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NOTE A. BASIS OF PRESENTATION (CONTINUED) FINANCINGS (CONTINUED) In addition, on January 31, 1997, the Company also completed the sale of $60 million of its convertible junior subordinated debentures (the "Debentures") to two investors, British Aerospace Holdings, Inc. ("British Aerospace") and Matra Marconi Space UK Limited ("Matra Marconi Space"). British Aerospace purchased $50 million of the Debentures and Matra Marconi Space purchased $10 million of the Debentures (collectively, the "Debentures Offering", and together with the Bond Offering, the "Financings"). The Debentures will mature in 2012, and will bear interest at a rate of 8.75% per annum to be paid semi-annually in arrears solely in Common Stock of the company. The debentures are subordinated to all other indebtedness of the Company, including the Notes. The net proceeds of the Bond Offering and Debentures Offering were used by the Company to repay the Orion 1 credit facility, pre-fund the first three years of interest payments on certain of the Notes, and will be used to build and launch two additional satellites, Orion 2 and Orion 3. The extraordinary loss on extinguishment of debt of $15.8 million for the six months ended June 30, 1997 is the result of expensing unamortized deferred financing costs associated with the Orion 1 credit facility which was refinanced with the proceeds from the Bond offering and termination of a interest rate cap agreement. ACQUISITION OF TELEPORT EUROPE GMBH On March 26, 1997, Orion acquired German-based Teleport Europe GmbH ("Teleport Europe"), a communications company specializing in private satellite networks for voice and data services for $8.9 million. The Company has consolidated the operations of Teleport Europe for the six months ended June 30, 1997, retroactively to January 1, 1997. The effect of this consolidation on operations prior to acquisition was to increase consolidated revenues by approximately $4.1 million, increase total operating expenses by approximately $4.0 million and other expenses by approximately $0.7 million. The pre-acquisition loss of Teleport Europe of $0.6 million has been deducted from the consolidated statement of operations for the six months ended June 30, 1997. BUSINESS AND OWNERSHIP Orion Network Systems, Inc. is a holding company with no assets or operations other than its investments in its subsidiaries. Through the operations of the following subsidiaries ("Subsidiary Guarantors"), the Company's principal business is the provision of satellite-based communications services: Name Jurisdiction of organization or Incorporation ------------------------------------------- ---------------------------------------------- Asia Pacific Space and Communications, Ltd. Delaware International Private Satellite Partners, L.P. Delaware Orion Network Systems - Asia Pacific, Inc. (formerly Orion Asia Pacific Corporation) Delaware Orion Network Systems - Europe, Inc. (formerly Orion Atlantic Europe, Inc.) Delaware
11 ORION NETWORK SYSTEMS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NOTE A. BASIS OF PRESENTATION (CONTINUED) BUSINESS AND OWNERSHIP (CONTINUED)
Name Jurisdiction of organization or Incorporation --------------------------------- --------------------------------------------------- OrionNet Finance Corporation Delaware OrionNet, Inc. Delaware Orion Network Services, Inc. (formerly Orion Satellite Corporation) Delaware Teleport Europe GmbH Federal Republic of Germany
Each of the Subsidiary Guarantors is a wholly (100%) owned subsidiary of the Company. The Subsidiary Guarantors comprise all of the direct and indirect subsidiaries of the Company (other than inconsequential subsidiaries). Separate financial statements of the Subsidiary Guarantors are not presented because (a) such Subsidiary Guarantors have jointly and severally guaranteed the Notes on a full and unconditional basis, (b) the aggregate assets, liabilities, earnings and equity of the Subsidiary Guarantors are substantially equivalent to the assets, liabilities, earnings and equity of the Company on a consolidated basis, and (c) management has determined that such information is not material to investors. NOTE B. LONG-TERM DEBT Long-term debt consists of the following: JUNE 30, DECEMBER 31, ------------- ----------- 1997 1996 Senior notes ($445.0 million, net of unamortized discount of $5.2 million) $ 439,825,447 $ -- Senior discount notes ($265.4 million, plus interest accretion of approximately $13.8 million, net of unamortized discount of $4.4 million) 274,812,039 -- Convertible debentures 59,750,000 -- Senior notes payable - banks -- 207,714,842 Notes payable - TT&C Facility 6,504,785 6,956,624 Satellite incentive obligations 7,991,908 22,373,746 Notes payable - STET -- 5,550,000 Notes payable - limited partners -- 8,050,000 Other 2,636,433 2,566,687 ------------- ----------- Total long-term debt 791,520,612 253,211,899 Less: current portion 9,132,048 34,975,060 ------------- ----------- Long-term debt less current portion $ 782,388,564 $218,236,839 ============= =========== 12 ORION NETWORK SYSTEMS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NOTE C. REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY During the six months ended June 30, 1997, certain preferred stockholders exercised their right to convert 10 shares of preferred stock into 1,176 shares of Common Stock at prices ranging from $8.50 to $10.20 per share. NOTE D. COMMITMENTS AND CONTINGENCIES In October 1995, Skydata Corporation ("Skydata"), a former contractor, filed suit against Orion Atlantic, Orion Satellite Corporation and Orion, in the United States District Court for the Middle District of Florida, claiming that certain Orion Atlantic operations using frame relay switches infringe on a Skydata patent. Skydata's suit sought damages in excess of $10 million and asked that any damages assessed be trebled. On December 11, 1995, the Orion parties filed a motion to dismiss the lawsuit on the grounds of lack of jurisdiction and violation of a mandatory arbitration agreement. In addition, on December 19, 1995, the Orion parties filed a Demand for Arbitration against Skydata with the American Arbitration Association in Atlanta, Georgia, requesting damages in excess of $100,000 for breach of contract and declarations, among other things, that Orion and Orion Atlantic own a royalty-free license to the patent, that the patent is invalid and unenforceable and that Orion and Orion Atlantic have not infringed on the patent. On March 5, 1996, the court granted the Company's motion to dismiss the lawsuit on the basis that Skydata's claims are subject to arbitration. Skydata appealed the dismissal to the Untied States Court of Appeals for the Federal Circuit. Skydata also filed a counterclaim in the Arbitration proceedings asserting a claim for $2 million damages as a result of the conduct of Orion and its affiliates. On May 15, 1996, the arbitrator granted the Orion parties' request for an initial hearing on claims relating to the Orion parties' rights to the patent, including the co-ownership claim and other contractual claims. On November 9, 1996, Orion and Skydata executed a letter with respect to the settlement in full of the pending litigation and arbitration. On August 12, 1997, the parties entered into a formal settlement. As part of the settlement, the parties released all claims by either side relating in any way to the patent and/or the pending litigation and arbitration. In addition, Skydata granted Orion (and its affiliates) an unrestricted, world-wide paid-up license to make, have made, use or sell products or methods under the patent and all other corresponding continuation and reissue patents. Orion is to pay Skydata $437,000 over a period of two years as part of the settlement. While Orion is party to regulatory proceedings incident to its business, there are no material legal proceedings pending or, to the knowledge of management, threatened against Orion or its subsidiaries. 13 ORION NETWORK SYSTEMS, INC. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL Orion Network System, Inc.'s ("Orion" or the "Company") principal business is the provision of satellite communications for private communications networks and video distribution and other satellite transmission services. From its inception in 1982 through January 20, 1995, when Orion 1 commenced commercial operations, Orion was a development stage enterprise. Prior to January 1995, Orion's efforts were devoted primarily to monitoring the construction, launch and in-orbit testing of Orion 1, product development, marketing and sales of interim private communications network services, raising financing and planning Orion 2 and Orion 3. Through January 31, 1997, Orion Satellite Corporation was the sole general partner in Orion Atlantic, L.P. ("Orion Atlantic") and had a 41 2/3% equity interest in Orion Atlantic. As a result of Orion's control of Orion Atlantic during 1996, Orion's consolidated financial statements include the accounts of Orion Atlantic. All of Orion Atlantic's revenues and expenses are included in Orion's consolidated financial statements, with appropriate adjustment to reflect the interests of the Limited Partners in Orion Atlantic's losses prior to the Exchange (as described in Note A to the Condensed Consolidated Financial Statements). The assets and liabilities reported in the consolidated balance sheet at December 31, 1996 primarily pertain to Orion Atlantic. Orion's consolidated financial statements also include the accounts of all other subsidiaries of Orion. See Note A to the Condensed Consolidated Financial Statements for a discussion of recent developments. All subsidiaries of Orion ("Subsidiary Guarantors"), other than inconsequential subsidiaries, have unconditionally guaranteed the Notes (as defined below) on a joint and several basis. No restrictions exist on the ability of Subsidiary Guarantors to pay dividends or make other distributions to Orion, except to the extent provided by law generally (e.g., adequate capital to pay dividends under state corporate laws). ORION 2 AND ORION 3 COMMENCEMENT OF CONSTRUCTION Orion 2 and Orion 3 Construction Contracts. Orion commenced construction of Orion 2 in February 1997 under a satellite procurement contract with Matra Marconi Space. Orion commenced construction of Orion 3 in December 1996 under a satellite procurement contract with Hughes Space and Communications International, Inc. 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 transponders (which is scheduled to occur by January 1999). Payments are subject to refund unless Orion 3 commences commercial operation by June 30, 1999. OVERVIEW Orion's revenues are principally generated under three to five year contracts for delivery of communications services. Such revenues are derived principally from recurring monthly fees from its customers, although many contracts include initial non-recurring installation and other fees. These non-recurring fees generally are structured to cover the Company's actual costs of installation of the customer's site-based equipment. The revenues from each contract vary, depending upon the type of service, amount of capacity, data handling ability of the network, the number of very small aperture terminals ("VSATs") (which generally are owned by Orion), value-added services and other factors. Depending on the complexity of the services to be provided to a customer, the period between the date of signature of a contract and the commencement of actual services (and receipt of fees) typically ranges from 30 days to six months. Substantially all of Orion's contracts are denominated in U.S. dollars, although some contracts are denominated in pounds sterling, deutschemarks, Austrian shillings or French francs. Orion begins to record revenues under its contracts upon service commencement to the customer. 14 ORION NETWORK SYSTEMS, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) The services provided by Orion have been subject to decreasing prices over recent years and this pricing pressure is expected to continue (and may accelerate) for the foreseeable future, particularly if, as expected, capacity continues to increase. Orion will need to increase its volume of sales in order to compensate for such price reductions. Orion believes that customers will increase the data speeds in their communications networks to support new applications, and that such upgrading of customer networks will lead to increased revenues that will mitigate the effect of price reductions. However, there can be no assurance that this will occur. Orion expects to continue to incur net losses and negative cash flow (after payments for capital expenditures and interest) for the foreseeable future. Orion's direct cost of services includes principally (i) costs relating to the installation, maintenance and licensing of VSAT earth stations at its customers' premises; (ii) satellite lease payments for transponder capacity (generally for services outside of the Orion 1 footprint); and (iii) associated miscellaneous expenses. Sales and marketing expenses consist of salaries, sales commissions (including commissions to third party sales representatives), travel and promotion expenses. The Company has recently commenced a significant expansion of its marketing program and expects to continue this expansion through 1997. Due to the complexity of the Company's services, and the continued expansion of sales personnel, sales and marketing expense is expected to continue to increase significantly during 1997. Engineering and technical expenses, consisting principally of personnel costs and travel, relate to tracking, telemetry and command ("TT&C"), network monitoring, network design and similar activities. The Company constructed its TT&C facilities to control two satellites. As a result, the Company anticipates a slight increase in costs with Orion 2 and a more substantial increase in costs with Orion 3, which will require separate TT&C facilities. General and administrative expenses consist of in-orbit insurance premiums, personnel costs other than for sales, marketing and engineering, professional services, and occupancy costs. These costs will increase generally as the Company's operations expand. Specifically, in-orbit insurance costs will increase significantly following the launches of Orion 2 and Orion 3. Depreciation and amortization expenses result mainly from the depreciation of the Orion 1 satellite, VSATs and the related equipment to service the expansion of the private network communication services business as well as the amortization of goodwill and will increase substantially after the launch of Orion 2 and Orion 3. Interest income is primarily the result of interest earned on the proceeds form Orion's private and public financings. Interest costs have increased substantially as a result of the bond offering completed January 31, 1997. Orion's costs (other than sales commissions) generally do not vary substantially with the amount of revenue from Orion 1 satellite. RESULTS OF OPERATIONS Three and Six Month Periods Ended June 30, 1997 Compared to the Three and Six Month Periods Ended June 30, 1996. Consolidation of Teleport Europe GmbH. On March 26, 1997, Orion acquired German-based Teleport Europe GmbH ("Teleport Europe"), a communications company specializing in private satellite networks for voice and data services. The Company has consolidated the operations of Teleport Europe for the six months ended June 30, 1997, retroactively to January 1, 1997. The effect of this consolidation on operations prior to acquisition was to increase consolidated revenues by approximately $4.1 million, increase total operating expenses by approximately $4.0 million and other expenses by approximately $0.7 million. The preacquisition loss of Teleport Europe of $0.6 million has been deducted from the consolidated statement of operations for the six months ended June 30, 1997. Revenue and bookings. Total revenue for the three and six months ended June 30, 1997 was $16.7 and $36.9 million, compared to $10.1 and $17.8 million for the same periods in 1996, an increase of 65% and 107%, respectively. Revenues from private communications network services were $7.8 and $15.7 million for the second quarter and year to date and $4.0 and $6.9 million for the comparable periods in 1996, as the number of customer sites in service increased approximately 148%. Revenues from video communications services and transponder capacity leasing were $8.7 and $16.9 million for the second quarter and year to date compared to $6.1 and $10.6 15 ORION NETWORK SYSTEMS, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) million for the comparable periods in 1996. Revenues for the six months ended June 30, 1997, included $4.3 million of equipment sales of which $3.8 million was associated with a sales type lease to an existing customer. At June 30, 1997, Orion had a customer contract backlog (representing future revenues under contract) of approximately $253.8 million compared to $132.1 million at June 30, 1996. Revenue from customer contract backlog is typically earned over contract terms of three to five years. OPERATING EXPENSES Direct expenses. Direct expenses for the three and six months ended June 30, 1997 were $3.3 million and $8.7 million as compared to $1.4 million and $2.5 million for the same periods in 1996. The increase of $1.9 million or 136% for the three months ended June 30, 1997 is attributable to additional leased space segment costs outside the Orion 1 footprint. The increase of $6.2 million, or approximately 248%, for the six months ended June 30, 1997, were primarily attributable to the cost of equipment associated with a sales-type equipment lease to an existing customer, leased space segment, site maintenance and other operational costs associated with the increased sites in service for the period. Sales and marketing expenses. Sales and marketing expenses were $4.4 million and $8.6 million respectively, for the three and six months ended June 30, 1997, as compared to $2.9 million and $5.0 million for the same periods in 1996. The increase of $1.5 million or 52% and $3.6 million or 72% for the three and six months ended June 30, 1997, are related to additional sales personnel and commissions, consulting and advertising associated with the growth in private communications network service business. Engineering and technical services expenses. Engineering and technical services expenses were $2.7 million and $5.4 million for the three and six months ended June 30, 1997, as compared to $2.1 million and $4.2 million for the comparable periods in 1996. The increase of $0.6 million or 29% and $1.2 million or 29%, respectively for the three and six months ended June 30, 1997 is related to additional engineering and technical staff associated with the Teleport Europe acquisition. General and administrative expenses. General and administrative expenses were $5.0 million and $9.8 million for the three and six months ended June 30, 1997, compared to $4.1 million and $7.6 million for the same periods in 1996. The increase of $0.9 or 22% and $2.2 million or 29% for the three and six months ended June 30, 1997, was primarily due to additional administrative staff associated with the Teleport Europe acquisition, outside services and other expenses. Depreciation and amortization. Depreciation and amortization expense for the three and six months ended June 30, 1997 was $12.1 million and $23.7 million, an increase of $3.4 million or 39%, and $6.1 million or 35% respectively, over the same periods in 1996. The increase is primarily a result from depreciation on the step up in basis on the Orion 1 satellite, the amortization of excess cost over fair value of net assets acquired from the acquisition of the Limited Partner's interest in Orion Atlantic and depreciation of ground equipment to service the expansion of the private network communication services business. Interest. Interest income was $8.7 million and $12.1 million for the three and six months ended June 30, 1997, compared to $0.6 million and $1.3 million, an increase of $8.1 million or 1,350% and $10.8 million or 831% for the same periods in 1996. The increase in interest income during the first six months of 1997 is primarily a result of interest earned on the proceeds from the Company's public Bond Offering in January 1997. Interest expense, net of capitalized interest, was $22.4 million and $40.0 million for the three and six months ended June 30, 1997, and $6.3 million and $13.8 million for the comparable periods in 1996. The increase in interest expense of $26.2 million in 16 ORION NETWORK SYSTEMS, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) the first six months of 1997 is attributable to additional interest resulting from the completion of the Company's financings in January 1997 (See Note A to the Condensed Consolidated Financial Statements). Extraordinary loss on extinguishment of debt. The extraordinary loss on extinguishment of debt of $15.8 million for the six months ended June 30, 1997 is the result of expensing unamortized deferred financing costs of the Orion 1 credit facility which was refinanced with the proceeds from the Company's recent Bond Offering and termination of an interest rate cap agreement. Net loss. The Company incurred net losses of $24.7 million and $50.7 million, $7.1 million and $14.8 million for the three and six months ended June 30, 1997 and 1996, respectively, after deduction of the limited partners' and minority interests' share in the Company's losses of $0 million and $12 million, $7.9 million and $17.6 million, respectively, and elimination of the preacquisition loss of Teleport Europe of $.6 million from the consolidated statement of operations for the six months ended June 30, 1997. LIQUIDITY AND CAPITAL RESOURCES PRIOR FUNDING. Orion has required significant capital for operating and investing activities in the development of its business, and will continue to need to expend significant additional capital in the future to develop fully its global satellite communications system. The Company's funding for its operations through January 1997 had been provided primarily by the sale of equity securities, including the completion of its initial public offering in August 1995 which generated proceeds to the Company of approximately $52 million (net of underwriting discounts), bank loans, vendor financing, lease arrangements and short-term loans from its investors. Funding for the construction and launch of the Orion 1 satellite and related facilities was fully committed through $90 million of equity from the limited partners of Orion Atlantic, an aggregate of $251 million under a secured bank credit facility and approximately $11 million under other debt facilities, dedicated primarily to the construction of the TT&C facility, which is being used to control Orion 1. The Orion 1 credit facility was refinanced in January 1997 with the proceeds from the Bond Offering and concurrently with the Bond Offering, Orion acquired all of the limited partnership interests (which it did not already own) in Orion Atlantic in exchange for 123,172 shares of Series C Convertible Preferred Stock representing approximately 7 million underlying shares of Common Stock. EXISTING CAPITAL RESOURCES. The net proceeds of the January 1997 Bond Offering to the Company were approximately $684 million, and the net proceeds of the Debentures Offering were approximately $59 million. Of the Bond Offering proceeds, approximately $223 million was used for repayment of the Orion 1 credit facility (including payment of accrued interest and hedge breakage costs), approximately $24 million was used to make certain initial payments for the Orion 2 satellite contract, approximately $13 million was used to pay accrued satellite incentive fees under the Orion 1 satellite contract and approximately $4 million was used to pay amounts owing to STET, a former limited partner of Orion Atlantic. As of June 30, 1997, the Company had cash and cash equivalents of $75 million and restricted and segregated cash of $405 million, including $267 million which was segregated by the Company to be used to make payments for additional satellites and certain related costs. The restricted and segregated cash included plus $134 million plus accrued interest of $3.9 million placed in a pledged account (to pre-fund the first six interest payments on the senior notes). EXISTING INDEBTEDNESS NOTES. In the Bond Offering, Orion issued approximately $445 million of 11.25% Senior Notes due 2007 and approximately $484 million principal amount at maturity ($265.4 million initial accreted value) of 12.5% Senior Discount Notes due 2007. Interest on the Senior Notes is payable semi-annually in cash on January 15 and July 15 of each year, commencing July 15, 1997. The Senior Discount Notes do not accrue cash interest prior to January 15, 2002. Thereafter, cash interest will accrue until maturity at an annual rate of 12.5% payable semi-annually on January 15 and July 15 of each year, commencing July 15, 2002. 17 ORION NETWORK SYSTEMS, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) The Notes have the benefit of guarantees issued by each of the material subsidiaries of the Company. The Senior Notes initially are secured by the securities purchased with the $134 million held in a pledged account until the Company makes the first six scheduled interest payments on the Senior Notes and thereafter the Senior Notes will be unsecured. The Senior Discount Notes are unsecured. The Notes are redeemable, at the Company's option, in whole or in part, at any time on or after January 15, 2002 at specified redemption prices. In the event of a change in control (as defined in the indentures relating to the Notes), the Company will be obligated to make an offer to purchase all outstanding Notes at a purchase price equal to 101% of their principal or accreted value, plus accrued and unpaid interest thereon to the repurchase date. The indebtedness evidenced by the Notes ranks pari passu in right of payment with all existing and future unsubordinated indebtedness of the Company and the guarantors, respectively, and senior in right of payment to all existing and future subordinated indebtedness of the Company and the guarantors. The indentures relating to the Notes (the "Indentures") contain certain covenants which, among other things, restrict distributions to stockholders of the Company, the repurchase of equity interests in the Company and the making of certain other investments and restricted payments, the incurrence of additional indebtedness by the Company and its restricted subsidiaries, the creation of certain liens, certain asset sales, transactions with affiliates and related parties, and mergers consolidations. The foregoing description of the notes is qualified in its entirety by the terms of such Notes contained in the Indentures and Notes documents. DEBENTURES. In January 1997, the Company also completed the sale of $60 million of its Debentures to British Aerospace ($50 million) and Matra Marconi Space ($10 million). The Debentures will mature in 2012, and will bear interest at a rate of 8.75% per annum to be paid semi-annually in arrears solely in Common Stock of the Company at prices of between $10.21 and $14.00 per share, depending on the average trading prices of the Common Stock during the applicable measurement period. The Debentures (and accrued but unpaid interest) may be converted in whole or in part into Common Stock at any time at an initial conversion rate of $14.00 per share, as adjusted for stock splits or other recapitalizations, certain dividends or issuances of stock to all stockholders, issuances of stock (or certain rights to acquire stock) at a price per share below $14.00 and other events. Orion may at any time (except during 90 days after a change in control) redeem all or part (but not less than 25% on any one occasion) of the Debentures for cash consideration determined by multiplying the number of shares of Common Stock issuable upon conversion of the Debentures by the greater of (i) the average price of the Common Stock over the 20 trading days preceding the redemption or (ii) $17.50 per share. Alternatively, Orion, in its sole discretion, may effect the sale through a public or private offering, of the Common Stock underlying the Debentures or received as payment of dividends on, the Debentures. In such event, the holders of the Debentures will be entitled to receive a price per share equal to the greater of (a) at least 95% of the average closing price of the Common Stock over the preceding 20 trading days or (b) $17.50 per share. From and after the time when less than $50 million of Notes remain outstanding, in the event of a change of control of Orion (defined as the acquisition by any stockholder of a majority of the voting securities of Orion), either Orion or any holder of the Debentures may, within 90 days after such change of control, require the sale of the Debentures, as converted into Common Stock, to Orion for a purchase price equal to the greater of (a) the price payable in an optional redemption (as described above) and (b) the price paid to holders of Common Stock in the change of control transaction. The Indentures for the Notes contain a covenant which will effectively prohibit Orion from honoring such right. The Debentures are subordinated to all other indebtedness of the Company, including the Notes. The Debentures contain minimal covenants and events of default so long as $50 million or more of the Notes remain outstanding, but a more extensive set of covenants and events of default will apply after less than $50 million of Notes are outstanding. 18 ORION NETWORK SYSTEMS, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) OTHER INDEBTEDNESS AND OTHER OBLIGATIONS. At June 30, 1997, the Company had outstanding indebtedness of approximately $6.5 million under a seven year term loan provided by General Electric Capital Corporation ("GECC") for the TT&C facility and various assets relating thereto. Additionally, at June 30, 1997 the Company had obligations of approximately $8.0 payable to the manufacturer of Orion 1 through 2007. Current Funding Requirements. Based upon its current expectations for growth, the Company anticipates it will have substantial funding requirements over the next three years to fund the costs of Orion 2 and Orion 3, the purchase of VSATs, other capital expenditures and other capital needs. Interest charges on the Senior Notes over the next three years are fully provided for by restricted cash. The in-orbit delivered costs of the Orion 2 and Orion 3 satellites are expected to aggregate approximately $500 million. In addition to the $48 million incurred through the second quarter of 1997, Orion will need to make payments of approximately $50 million, $350 million and $50 million in 1997, 1998 and 1999, respectively. These amounts include the Company's estimate regarding the cost of launch insurance, although the Company has not had material discussions with potential insurers and has not received any commitment to provide insurance. The contracts for Orion 2 and Orion 3 provide firm fixed prices for the construction and launch of those satellites and provides for penalties in the event of late delivery by the manufacturer, however, the Company's actual payments could be substantially higher due to any change orders for the satellites, insurance rates, delays and other factors. The Company anticipates that its existing cash balances and payments under the DACOM contract will be sufficient to meet substantially all of its capital requirements for the delivery in orbit of Orion 2 and Orion 3. In connection with the Bond Offering, the Company segregated $273 million of the net proceeds to make payments for additional satellites and certain related costs (or to pay interest and principal on the Notes). The Company also can use a portion of its working capital for such costs if it chooses to do so. The Company had working capital of $89.7 million at June 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 vary from its expectations resulting in changes in its cash requirements or expected cash. The balance of the Company's funding requirements are dependent upon its growth and cash flow from operations. The Company cannot predict whether its existing resources and cash flows will be adequate to cover its future cash needs. If existing resources and cash flows are not sufficient to cover the Company's future cash needs, the Company will need to raise additional financing. The Company does not have a revolving credit facility or other source of readily available capital. Sources of additional capital may include public or private debt, equity financings or strategic investments. To the extent that the Company seeks to raise additional debt financing, the Indentures limit the amount of such additional debt (under a variety of provisions contained in such Indentures) and prohibit the Company from using Orion 1, Orion 2 or Orion 3 as collateral for indebtedness for money borrowed. If the Company requires additional financing and is unable to obtain such financing from outside sources in the amounts and at the times needed, there would be a material adverse effect on the Company. EFFECTIVE OF RECENTLY ISSUED FINANCIAL ACCOUNTING STANDARDS In February 1997, the Financial Accounting Standards Board issued Statement No. 128, Earnings per Share, which is required to be adopted on December 31, 1997. At that time, the Company will be required to change the method currently used to compute earnings per share and to restate all prior periods. Under the new requirements for calculating primary earnings per share, the dilutive effect of stock options will be excluded. The impact of Statement No. 128 on the calculation of primary or fully diluted earnings per share for these quarters is not expected to be material. 19 ORION NETWORK SYSTEMS, INC. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS In October 1995, Skydata Corporation ("Skydata"), a former contractor, filed suit against Orion Atlantic Orion Satellite Corporation and Orion, in the United States District Court for the Middle District of Florida, claiming that certain Orion Atlantic operations using frame relay switches infringe a Skydata patent. Skydata's suit sought damages in excess of $10 million asked that any damages assessed be trebled. On December 11, 1995, the Orion parties filed a motion to dismiss the lawsuit on the grounds of lack of jurisdiction and violation of a mandatory arbitration agreement. In addition, on December 19, 1995, the Orion parties filed a Demand for Arbitration against Skydata with the American Arbitration Association in Atlanta, Georgia, requesting damages in excess of $100,000 for breach of contract and declarations, among other things, that Orion and Orion Atlantic own a royalty-free license to the patent, that the patent is invalid and unenforceable and that Orion and Orion Atlantic have not infringed on the patent. On March 5, 1996, the court granted the Company's motion to dismiss the lawsuit on the basis that Skydata's claims are subject to arbitration. Skydata appealed the dismissal to the United States Court of Appeals for the Federal Circuit. Skydata also filed a counterclaim in the arbitration proceedings asserting a claim for $2 million damages as a result of the conduct of Orion and its affiliates. On May 15, 1996, the arbitrator granted the Orion parties' request for an initial hearing on claims relating to the Orion parties' rights to the patent, including the co-ownership claim and other contractual claims. On November 9, 1996, Orion and Skydata executed a letter with respect to the settlement in full of the pending litigation and arbitration. On August 12, 1997, the parties entered into a formal settlement. As part of the settlement, the parties released all claims by either side relating in any way to the patent and/or the pending litigation and arbitration. In addition, Skydata granted Orion (and its affiliates) an unrestricted, world-wide paid-up license to make, have made, use or sell products or methods under the patent and all other corresponding continuation and reissue patents. Orion is to pay Skydata $437,000 over a period of two years as part of the settlement. ITEM 2. CHANGES IN SECURITIES None. ITEM 3. DEFAULTS UPON SENIOR SECURITIES None. 20 ORION NETWORK SYSTEMS, INC. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS (a) The 1997 Annual Meeting of Stockholders of the Company was held on May 22, 1997. (b) Not applicable. (c) The results of the voting at the Annual Meeting of Stockholders was as follows: (1)Election of Directors: Nominee Term Expires For Against - ---------------------- -------------------- ------------------- -------------- Richard J. Brekka 2000 18,464,203 136,506 Warren B. French, Jr. 2000 18,464,203 136,506 W. Anthony Rice 2000 18,464,203 136,506 (2) Adoption of Employee Stock Purchase Plan: For: 15,280,148 Against: 52,766 Abstain: 941,464 (3) Adoption of 1997 Stock Option Plan: For: 14,705,441 Against: 594,059 Abstain: 950,875 (4) Approval of the Restated Certification of Incorporation of Orion Oldco Services, Inc. For: 14,956,147 Against: 25,878 Abstain: 160,162 (5) Approval of Puente Stock Option Agreement: For: 14,956,147 Against: 178,426 Abstain: 1,008,602 (6) Approval of Hauser Stock Option Agreement: For: 14,895,202 Against: 238,221 Abstain: 1,009,952 (7) Ratification of Selection of Independent Auditors: For: 18,588,996 Against: 11,301 Abstain: 100,412 21 ORION NETWORK SYSTEMS, INC. ITEM 5. OTHER INFORMATION None. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a. Exhibits required by Item 601 of Regulation S-K: 10.1 Amendment No. 1 to the Joint Investment Agreement, effective as of July __, 1997, by and between Orion Asia Pacific Corp. and Dacom Corp. 11.1 Statement regarding: Computation of Net Loss Per Common Share 27 Financial Data Schedule a. Reports on Form S-K during the six months ended June 30, 1997. The Company filed a Current Report on Form 8-K dated March 14, 1997. Reporting cosummation of the Exchange. The Company also filed a Current Report on Form 8-K dated March 26, 1997, reporting consummation of the acquisition of Teleport Europe. 22 ORION NETWORK SYSTEMS, INC. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ORION NETWORK SYSTEMS, INC. -------------------------------------- (Registrant) Date: August 13, 1997 /s/ W. Neil Bauer -------------------------------------- W. Neil Bauer, President Chief Executive Officer and Director (Principal Executive Officer) Date: August 13, 1997 /s/ David J. Frear -------------------------------------- David J. Frear, Vice President Chief Financial Officer and Treasurer (Principal Financial Officer and Principal Accounting Officer) 23 EX-10.1 2 EXHIBIT 10.1 COMMERCIAL-IN-CONFIDENCE AMENDMENT NO. 1 TO THE JOINT INVESTMENT AGREEMENT BETWEEN ORION ASIA PACIFIC CORP. AND DACOM CORP. This Amendment No. 1 to the Joint Investment Agreement (the "Amendment") effective as of July ___, 1997, by and between Orion Asia Pacific Corp., a corporation organized and existing under the laws of Delaware, U.S.A. ("Orion") and DACOM CORP., a corporation organized and existing under the laws of the Republic of Korea ("DACOM"). W I T N E S S E T H: WHEREAS, the Parties have entered into a Joint Investment Agreement dated November 11, 1996 (the "Agreement"), for Orion's provision to DACOM of a payload on Orion 3 consisting of eight (8) 36 Mhz Ku-band transponders and three (3) spare transponders which will cover the Korean Peninsula; and WHEREAS, a satellite manufacturing contract for Orion 3 has been executed between Orion and Hughes Space and Communications International, Inc. (the "Satellite Manufacturer") on January 15, 1997 (the "Manufacturing Contract") which contract provides for certain specifications for the DTH Payload that are different from those set forth in Exhibit B of the Joint Investment Agreement dated November 11, 1996; and WHEREAS, the Parties desire to enter into an amendment to the Joint Investment Agreement to reconcile differences between the existing Exhibit B (Issue 2.2) of the Joint Investment Agreement and the proposed Exhibit B (Issue 3.0) resulting from the Manufacturing Contract; NOW, THEREFORE, in consideration of the foregoing and intending to be legally bound, the Parties hereto agree to amend the Agreement as follows: 1. Unless otherwise defined herein, all capitalized terms used herein shall have the meanings given those terms in the Agreement. 2. Article 1, Definitions. The following definitions are hereby deleted in their entirety and replaced with the following: o "Acceptance Test Plan" means the plan for testing the Transponders and Spare Transponders, both prior to launch and in-orbit, in the form and substance set forth (or to be set forth) in (a) the Integrated Test Plan which is attached hereto as Exhibit F, and (b) the detailed test procedures for the In-Orbit Test Plan (part of the Integrated Test Plan) which will be developed, within approximately four (4) months prior to launch of Orion 3-- the objective of the In-Orbit Test Plan will be to verify ground test results and the In-Orbit Test Plan procedures will be consistent with customary and reasonable practice within the satellite industry. In connection with the development of the In-Orbit Test procedures, Orion and DACOM will work closely to coordinate input to the Satellite Manufacturer. o "Launch Failure" means the failure of Orion 3 within 180 days after launch or the time prescribed within the insurance contract to be procured by Orion, whichever occurs first (i) to reach its assigned orbital location, or (ii) to have at least _____ ____________ of the transponders meeting their respective technical specifications, or (iii) to have sufficient stationkeeping fuel to achieve its required orbital performance for a minimum of ________________ of the Orion 3 fifteen (15) year life (in-orbit maneuver life specified in the Manufacturing Contract) upon reaching its assigned orbital location, or (iv) to otherwise be commercially usable as a result of destruction or damage incurred during launch; The following definition is hereby be added to this Article: o "DTH Service" shall have the meaning of a single multiplexed carrier for digital broadcasting service with equipment and operated in a manner consistent with industry standards and optimized to be received by individual subscribers via dish antenna no larger than ______________________ in diameter. 3. Section 6.1(b), Notice of Transponder Failure. This Section is hereby deleted in its entirety and replaced with the following: Each Party shall notify the other Party as soon as reasonably possible upon learning of the commencement of any event which, with the passage of time, could result in a Transponder Failure and of the relevant facts known to it concerning such event. For purposes of determining whether a Transponder Failure has occurred, the point when a Transponder fails to meet its Technical Specification shall be deemed to have commenced upon receipt by Orion of written notification thereof from DACOM, sent via telefax (with answerback being deemed evidence of receipt by Orion), subject to Orion's verification that the Transponder is not performing pursuant to the Technical Specifications in any material respect. The event which, with the passage of time, could result in a Transponder Failure shall be deemed to have ended, and the Transponder shall be deemed to have been restored, upon receipt by DACOM, of written notification from Orion, sent via telefax (with answerback being deemed evidence of receipt by DACOM), that such Transponder has resumed performance in accordance with the Technical Specifications in all material respects or that a Spare Transponder has been made available to DACOM. For purposes of this Article only, notice as required under this provision shall be sent to the following: FOR DACOM: ----------------------------------- Tel:------------------------------- Fax:------------------------------- FOR ORION: ----------------------------------- Tel:------------------------------- Fax:------------------------------- 4. Section 6.1(c), Restoration. The following is hereby added to the end of this Section: Additionally, DACOM agrees to fully cooperate with Orion's reasonable requests to test the Transponders in the event of a Transponder Failure. DACOM understands that such testing may require Orion to divert certain traffic on the Transponders. Orion shall conduct such testing in a way and during periods in which there will be no or little impact to DACOM or its customers. Orion shall consult with DACOM, consistent with the requirements necessitating the testing, regarding the need, if any, to interrupt the service on the Transponders. Orion shall give DACOM as much advance notice as practicable of the need to interrupt any service on the Transponders. 5. Section 11.2 is hereby deleted and replaced with the following: EXCEPT AS SPECIFICALLY SET FORTH IN ARTICLE 17 HEREOF, ORION MAKES NO REPRESENTATIONS OR WARRANTIES, WHETHER EXPRESS OR IMPLIED AS TO THE CONDITION OF ORION 3 OR THE TRANSPONDERS OR SPARE TRANSPONDERS. ALL SUCH WARRANTIES ARE HEREBY EXPRESSLY DISCLAIMED. DACOM ACKNOWLEDGES THAT ORION MAKES NO WARRANTIES BEYOND THOSE SPECIFICALLY SET FORTH HEREIN, AND THAT THERE IS NO IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE ASSOCIATED WITH ORION 3 OR THE TRANSPONDERS OR SPARE TRANSPONDERS. DACOM SHALL INDEMNIFY ORION AND HOLD ORION HARMLESS FROM ANY CLAIMS MADE UNDER ANY WARRANTY OTHER THAN THOSE SPECIFICALLY SET FORTH HEREIN OR REPRESENTATIONS BY DACOM TO ANY THIRD PARTY AS TO ORION 3 OR THE TRANSPONDERS. 6. The following is hereby added to the end of Section 13.1: Orion shall keep DACOM informed in writing on a periodic basis of any relevant information regarding the frequency coordination issues. 7. The following is hereby added as a separate paragraph at the end of Article 7: Given DACOM's DTH Service objective, Orion hereby agrees, during the Term, not to reduce the EIRP performance of the DACOM payload below the Technical Specifications contained in Exhibit B (Issue 4.0) for any frequency coordination purpose without DACOM's prior written consent, which consent, having due regard for the DTH Service intended for use by DACOM, shall not be unreasonably withheld. In the event Orion violates the foregoing with respect to Transponders which have not been retained by DACOM pursuant to Section 17.7, DACOM shall be entitled to the following: (a) Injunctive relief; and/or (b) Actual damages, as determined by a court of competent jurisdiction, in an amount not to exceed US$71,314 ____________________________________ multiplied by the number of months remaining in the Term for each Transponder suffering from a reduction to the EIRP performance (the "Capped Amount"). In this case, as long as the actual damages determined by the court and paid by Orion to DACOM are less than the Capped Amount, DACOM is entitled to keep utilizing the Transponder for any commercial purpose, and if the actual damages determined by the court are the Capped Amount, upon payment of such damages by Orion, DACOM shall have no further right to use the Transponders. 8. The following is hereby added as Article 17 hereto: ARTICLE 17. _______________________ WARRANTY 17.1 _________________ Warranty. Subject to the provisions of this Article 17, Orion hereby warrants to DACOM the following: (a) During the Warranty Period (as defined below), ____________________, there will be no Degradation (as defined below) ______________________ (as defined below); and (b) During the Warranty Period, _________________, there will be no increase in Degradation ___________________________________ contained in the original Agreement dated November 11, 1996 to that resulting from this Amendment (collectively the "Warranty"). The above Warranty shall not apply to (a)----------------------------- _______________________________; (b) ___________________; and/or (c) any Successor Satellite Orion chooses to launch, unless the Parties mutually agree in writing. (c) For purposes of this Article 17 the following definitions shall apply: i. ___________________________. ii. ___________________________. iii. Warranty Period: the period of time beginning November 11, 1996 and ending at the end of the second Additional Test completed pursuant to Article 17.7. or 5 months after the Commencement Date, whichever is earlier. (d) Limitation of Breach Claims. DACOM's remedies for breach of the Warranty under this Article 17 shall be limited to the procedures set forth in this Section 17 for Additional Tests and Arbitration (if the facts are disputed); under no circumstances shall DACOM have the right to make a subsequent Warranty claim during the Warranty Period or thereafter. 17.2 FREQUENCY COORDINATION TESTING. (a) During In-Orbit Testing and after consultation and coordination with DACOM, Orion shall analyze the Transponders for interference by conducting a spectrum analyzer test in accordance with Exhibit G (the "Test"); DACOM may, at its discretion, have the opportunity to have a representative attend such Test. The data resulting from the Test shall be provided to DACOM within 7 days following completion of the Test for informational purposes only and shall have no evidentiary use in any resulting Arbitration. (b) DACOM may, at its discretion, during the Warranty Period, conduct tests, including a ______________ as defined in Exhibit G, to determine the existence of Degradation ___________________ in breach of the Warranty. Orion shall be given notice and afforded the opportunity to attend such tests. In the event DACOM chooses to perform such _____________, the results of the test shall be for informational purposes only and shall not be binding on the Parties nor shall such test have any evidentiary use in any resulting arbitration. (c) During the Warranty Period, DACOM shall provide to Orion, no later than ten days following the end of each calendar month, a report setting forth the details of any outages or other matters adversely affecting the performance of the Transponders experienced by DACOM during the reporting period. Orion will consult with DACOM if, during the Warranty Period, there are matters affecting the performance of the Transponders. 17.3 NOTICE FOR ADDITIONAL Tests. DACOM may submit a written request ("Notice for Additional Tests") on two separate occasions during the Warranty Period for the performance of the additional tests , as outlined in Exhibit G ("Additional Tests"). The Notice of Additional Tests for the second Additional Tests shall be submitted to Orion no later than a time which permits the completion of the Additional Tests within the Warranty Period. 17.4 ADDITIONAL TESTS. (a) Within a reasonable time after receipt of the Notice for Additional Tests, the Additional Tests shall be performed by DACOM for a period of 15 days per Additional Tests in cooperation with Orion (who shall be permitted to witness such Additional Tests) using DACOM's planned MCPC video transmission. (b) During the period of Additional Tests or any resulting Arbitration, DACOM shall be permitted to use the Transponders not subject to Additional Tests or said Arbitration and shall be permitted to use the Transponders subject to Additional Tests or said Arbitration to the extent said Additional Tests or Arbitration are not affected by such use of the Transponder. 17.5 NOTICES. The following additional notice provisions are applicable to this Article 17: (a) NOTICE OF BREACH OF ____________ WARRANTY. DACOM may, within 5 days after completion of the second Additional Test, submit to Orion a written statement providing sufficient facts to reasonably demonstrate there is Degradation ______________ in violation of the Warranty under Article 17 (the "Notice of Breach"). Included as part of the Notice of Breach shall be the results of any and all tests conducted pursuant to paragraph 17.2(b) or 17.4, and DACOM shall respond to reasonable requests from Orion for additional information intended to establish the existence of a factual basis for a claim of breach of the Warranty. (b) DEGRADATION NOTICE. If, within 2 days after receipt of the Notice of Breach, DACOM and Orion agree there is a breach of Warranty in violation of Article 17, Orion shall send to DACOM notification indicating their agreement ("Degradation Notice"). Thereafter, the rights and remedies of Orion and DACOM shall be as set forth in Section 17.7. (c) NOTICE OF DISPUTE. If, within 2 days after receipt of the Notice of Breach, Orion and DACOM do not agree that the results of the Additional Tests and other facts presented by DACOM clearly establish a breach of the Warranty under Article 17, Orion shall issue to DACOM a Notice of Dispute. (d) NOTICE OF ARBITRATION. If, within 2 days after receipt of the Notice of Dispute, and DACOM desires to pursue its remedies herein, DACOM shall notify Orion and the designated Arbitrators (the "Arbitration Notice"), and the matter shall thereupon be resolved in accordance with Section 17.6, Dispute Resolution. 17.6 DISPUTE RESOLUTION. In lieu of Section 16.6, Orion and DACOM agree that disputes arising under this Article 17 shall be settled definitively by using an expedited, independent arbitration proceeding (the "Arbitration Proceeding"). The Arbitration Proceeding shall be conducted by three (3) arbitrators (the "Arbitration Panel") who shall utilize, for guidance only, the rules set forth in the Rules of Conciliation and Arbitration of the International Chamber of Commerce (ICC). In order to expedite the Arbitration Proceeding, each Party shall designate one arbitrator 90 days prior to Launch and notify the other in writing of its selection. At least 30 days prior to launch, the arbitrators appointed by the Parties shall designate the third arbitrator in writing. Each arbitrator shall be knowledgeable of and experienced with the communications satellite's design/manufacturing or operations industries. The Parties agree that the issue to be decided by the Arbitration Panel is whether the facts presented to the Arbitration Panel establish, by clear and convincing evidence, that Degradation has occurred such as to constitute a breach of the Warranty. In conducting the Arbitration Proceeding, the Parties will provide any written, recorded, or other documentary evidence (the "Evidence") within 3 days of the Arbitration Notice, and the Arbitration Panel will review and consider the Evidence. Within 10 days after the Arbitration Notice, the Arbitration Panel shall convene a hearing (not to exceed 5 days in duration), during which each side shall have up to two days (8 hours per each day) to present its case and, furthermore, each side shall have one half day (4 hours) to cross-examine witnesses for the other side. Following the hearing, the Parties shall brief the Arbitration Panel on any issues requested by the Panel. Said briefs to be due within 7 days from the completion of the hearing. The Arbitration Panel shall render its decision within 7 days of submission of the briefs (there shall be no reply briefs). The decision of the Arbitration Panel shall determine whether there has been a Degradation in breach of the Warranty and the resulting remedy (in accordance with the provisions of Section 17.7); the Arbitration Panel shall not be required to render an opinion specifying the reasoning for its decision. The decision of the Arbitration Panel shall be in writing and shall determine (i) whether there has been Degradation in breach of the Warranty; (ii) a reasonable period of time for Orion to cure the Degradation but no later than the last day of the Curing Period (as defined below); and (iii) the appropriate remedy as set forth in Section 17.7 (subject to DACOM's election to continue to use the _________ Transponders) in the event Orion fails to cure the Degradation with the time period set forth in (ii) above. The Arbitration Proceeding shall take place in Vancouver, British Columbia, Canada. The applicable law shall be the substantive and procedural laws of the State of New York. All arbitration shall be in the English language. The arbitration award shall be final and binding upon the Parties and judgment may be entered thereon, upon the application of either Party, by any court of competent jurisdiction. Each Party shall bear the cost of preparing and presenting its case, and the cost of the arbitration (including fees and expenses of the arbitrators) shall be shared equally by the Parties. 17.7 REMEDY FOR BREACH OF WARRANTY. In the event the Parties agree, pursuant to Section 17.5(b) or the Arbitration Panel decides, pursuant to Section 17.6 there is Degradation to one or more of the Transponders as a result of ____________________________, in breach of the Warranty, then Orion shall have an opportunity to cure the Degradation up to the last day of the Curing Period (defined as the period of time beginning with the Commencement Date and ending 6 months thereafter) or such time as determined by the Arbitration Panel pursuant to Section 17.6. If such Degradation is not cured within the Curing Period, DACOM shall be entitled, as its sole remedy and in lieu of the remedies set forth in Section 2.3, to the following: (i) If three (3) or fewer Transponders suffer Degradation caused by ___________________________________________________ as of the last day of the Curing Period, DACOM shall be entitled either (a) to a refund of US$11,125,000 per __________________ with no further right to use such ______________; or (b) to retain the rights to use such __________________ with no reduction to the Joint Investment Amount. Such election by DACOM must be made no later than 5 days following the final decision of the Arbitration Panel or, where the Parties agree there is a breach of the Warranty, within 5 days following the issuance of the Degradation Notice under Section 17.5(b). (ii) If more than three (3) Transponders suffer Degradation caused by ______________________________ as of the last day of the Curing Period , DACOM shall be entitled, as its sole and exclusive remedy, either (a) to retain the rights to use such _____________________ with no reduction to the Joint Investment Amount; or (b) to a refund of all amounts previously paid to Orion by DACOM pursuant to Sections 5.2(a) - (d), in which case, the Agreement shall terminate and DACOM shall have no further rights hereunder. Such election by DACOM must be made no later than 5 days following the final decision of the Arbitration Panel or, where the Parties agree there is a breach of the Warranty, within 5 days following the issuance of the Degradation Notice under Section 17.5(b). 9. Exhibit B, Issue 2.2, Technical Specifications of the Agreement are hereby deleted in their entirety and replaced with the attached Exhibit B, Issue 4.0, dated June 23, 1997. 10. The attached Exhibit F, HS601HP, Integrated Test Plan, has been agreed to by the Parties and is hereby incorporated into the Agreement as the Acceptance Test Plan. 11. The attached Exhibit G shall be incorporated into the Agreement as the Frequency Coordination Test Plan. 12. Notwithstanding Sections 5.2(b) and 5.6(a), the Parties acknowledge that neither the posting of the Letter of Credit due ___________ nor the ________________ payment due _____________ have been made. The Parties hereby agree there is no default for failure to meet the aforesaid requirements, and there is no right to interest on any such amounts. DACOM shall post the letter of credit and pay ________________ by __ days following the date of execution, by both Parties, of this Amendment. In the event the aforementioned payment is not made as required under this provision, Orion shall be entitled to collect interest beginning on the 16th day after execution of this Amendment and in accordance with the terms of Section 5.5 of the Agreement. 13. Section 16.9, Confidentiality. The following is hereby added to the beginning of this Section: --------------- The Parties hereby acknowledge that during the Term of the Joint Investment Agreement, it may be necessary for DACOM to disclose Confidential Information to Permitted Users for purposes of this Agreement. At such time as DACOM desires to make such disclosure, it shall request, in writing, approval from Orion, with such request identifying the Permitted User and the Confidential Information DACOM seeks to disclose. Orion shall respond promptly in writing to this request acknowledging its approval (which shall not be unreasonably withheld) or its disapproval, in which case Orion shall provide the reasons for its disapproval. 14. Orion is currently working with the Satellite Manufacturer to amend the Manufacturing Contract such that the technical specification for the DTH Payload contained in Exhibit B, Appendix A will be substantially identical to Exhibit B, as adopted hereby. Orion shall notify DACOM within 15 days of the effective date of this Amendment if the Manufacturing Contract has not been so amended. 15. Section 16.1, Further Assurances. This Section is hereby deleted and replaced by the following: DACOM and Orion shall take all appropriate action and execute all documents, instruments or conveyances of any kind which may be necessary or advisable to carry out any of the provisions hereof and to consummate the transactions contemplated hereby. Orion hereby agrees that (i) the Korean National Flag and DACOM's logo shall be affixed or marked on the Orion 3 launching vehicle conspicuous from the observation decks; (ii) the name of Orion 3 in Korea shall be Orion 3/DACOM, and such name may be used in documents and marketing materials distributed in Korea; (iii) through the Term, DACOM shall have the exclusive right to use the Transponders for DTH Service in Korea, and Orion will not provide comparable transponders on Orion 3 to any other entity for the purpose of providing DTH Service in Korea; however, in the event any of the Transponders are ____________________ returned to Orion pursuant to Section 17.6, Orion may, in its sole discretion, provide such returned Interfered Transponders or any other returned Transponders to any party for the purpose of providing direct to home television service in Korea; (iv) Orion shall inform DACOM of any matters related to the construction, launch and financing of Orion 3 that would have a material adverse effect on DACOM's rights to the Transponders and Spare Transponders hereunder or delay of launch of Orion 3; and (v) Orion shall delivery to DACOM Orion's form of warrant containing the terms set forth in the letter attached hereto as Exhibit E. 16. Section 10.1(a)(i), Launch Delay; Launch Failure; Loss of Orbital Position. This Section is hereby deleted and replaced by the following: Subject to clause (ii) below, if Orion 3 is not launched by May 31, 1999, or if the Commencement Date is delayed beyond June 30, 1999, or if there is a Launch Failure and DACOM does not timely exercise its option to acquire the right to use transponders on a Replacement Satellite pursuant to Section 2.3 (or if such Replacement Satellite option is not made available to DACOM by Orion), or if the orbital position in which Orion 3 is located is not within the range of 136 degrees EL to 142 degrees EL, or in the event of a catastrophic failure (i.e., destruction of the satellite) or other event which would clearly result in a Launch Failure; 17. Exhibit C, Form Letter of Credit is hereby deleted in its entirety and replaced with the attached revised Exhibit C. 18. Orion and DACOM have participated jointly in the negotiation and drafting of this Amendment. If an ambiguity or question of intent or interpretation arises, this Amendment shall be construed as if drafted jointly by both Parties and no presumption or burden of proof shall arise favoring or disfavoring either Party because of the authorship of any of the provisions of this Amendment. Any reference to any law shall be deemed also to refer to all rules, regulations, orders or decrees promulgated thereunder, unless the context requires otherwise. The word "including" shall mean including without limitation. Each representation, warranty and covenant contained herein shall have independent significance. If either Party breaches in any respect any representation, warranty, covenant, or other obligation contained herein or created hereby, the fact that there exists another representation, warranty, covenant, or obligation relating to the same subject matter (regardless of the relative levels of specificity) which has not been breached shall not detract from or mitigate the consequences of such breach. The Exhibits specified in this Amendment are incorporated herein by reference and made a part hereof. Except as amended herein, the Agreement and any prior amendments thereto, shall remain in full force and effect in all respects, including but not limited to price, delivery, schedule, and performance. IN WITNESS WHEREOF, the Parties have each duly executed this Amendment No. 1 as of the day and year first written above. ORION ASIA PACIFIC CORP. DACOM CORP. By: By: -------------------------- -------------------------------- W. Neil Bauer Kim, Young Chul Chief Executive Officer Senior Executive Vice President Date: Date: ------------------------ ------------------------------ COMMERCIAL - IN - CONFIDENCE Exhibit B ORION ASIA PACIFIC TECHNICAL SPECIFICATION FOR DACOM DTH PAYLOAD REVISION B Issue: 4.0 Revised: June 23, 1997 Signed: Date: On behalf of Orion Network Systems, Inc. Signed: Date: On behalf of DACOM Corporation COMMERCIAL - IN - CONFIDENCE Exhibit B Revision History 1/11/97 Rev - 2/12/97 Rev A Pages: 3,4,6,11 6/23/97 Rev B Exhibit C Form Letter of Credit [Irrevocable Standby Letter of Credit to be issued by DACOM CORP.'s bank to ORION ASIA PACIFIC CORP.] IRREVOCABLE STANDBY LETTER OF CREDIT Issuance Date: Credit Number: Dear Sirs: 1. [Name of issuing Bank] (the "Bank") hereby establishes, in your favor, at the request and for the account of DACOM CORP., the Bank's IRREVOCABLE STANDBY LETTER OF CREDIT NO. ____ (this "Letter of Credit"), in an amount not to exceed United States Dollars (________USD) (such amount, as it may be reduced from time to time in accordance with Section 3 hereof, being called the "Maximum Drawing Amount"). This Letter of Credit is being issued pursuant to the Joint Investment Agreement dated as of November 11, 1996 (the "Agreement") and the subsequent amendments thereto between DACOM CORP. and ORION ASIA PACIFIC CORP. This Letter of Credit is effective immediately and will expire at 4:00 p.m., New York time, on the earlier of (a) the date (the "Surrender Date") upon which ORION ASIA PACIFIC CORP. presents to the Bank a certificate in the form of Annex A hereto or (b) ___________ (the "Expiry Date") (the earlier of the Surrender Date or the Expiry Date being referred to herein as the "Termination Date"). 2. The Bank hereby irrevocably authorizes ORION ASIA PACIFIC CORP. to draw on the Bank, in accordance with the terms and conditions hereinafter set forth, an amount not in excess of the Maximum Drawing Amount on the date of such drawing (the "Date of Drawing"). 3. The Maximum Drawing Amount shall be modified from time to time as follows: (a) upon payment by the Bank of a drawing hereunder, the Maximum Drawing Amount applicable to each Date of Drawing subsequent to such payment shall be automatically reduced by an amount equal to the amount of the drawing so paid. 4. Funds under this Letter of Credit are available to ORION ASIA PACIFIC CORP. against presentation of a draft of ORION ASIA PACIFIC CORP. in the form of Annex B hereto and a certificate signed by ORION ASIA PACIFIC CORP. in a form of Annex C hereto. Each such draft and certificate shall be dated the date of presentation and shall be presented at the Bank's office at [address in New York, U.S.A.] (Telecopier No. ). The Bank agrees that, so long as this Letter of Credit is in effect, it will maintain an office in, or an arrangement reasonably satisfactory to ORION ASIA PACIFIC CORP. with a paying bank having an office in the United States where such presentation may be made. The aforesaid drafts and certificates shall have all blanks appropriately completed, shall be signed by a person purporting to be an authorized representative of ORION ASIA PACIFIC CORP., and shall be either in the form of a letter or a communication by telecopier delivered to the Bank. Any communication by telecopier pursuant to which a drawing is made hereunder shall be promptly confirmed to the Bank in writing. However, the Bank shall have no responsibility or liability for ORION ASIA PACIFIC CORP.'s failure to confirm any drawing made by telecopier in writing or for any discrepancies that may exist between the documents delivered by telecopier and ORION ASIA PACIFIC CORP.'s written confirmation of same. 5. The Bank hereby agrees that all drafts drawn under the terms of this Letter of Credit will be duly honored by the Bank upon delivery, or transmission by telecopier (promptly confirmed in writing),m of the draft and the certificate as specified in Section 2 and if presented (by such delivery or transmission) at our aforesaid office on or before 4:00 p.m. New York time, on the Termination Date. If a drawing is made by ORION ASIA PACIFIC CORP. hereunder at or prior to 11:00 a.m., New York time, on a Business Day (as hereinafter defined), and provided that such draft and certificate presented in connection therewith conform to the terms and conditions hereof, payment shall be made of the amount specified in immediately available funds not later than 4:00 p.m., New York time, on the same Business Date. If a drawing is made by ORION ASIA PACIFIC CORP. hereunder after 11:00 a.m., New York time, and provided that such draft and certificate presented in connection therewith confirm to the terms and conditions hereof, payment shall be made of the amount specified in immediately available funds not later than 1:00 p.m., New York time, on the next Succeeding Business Date. Payment under this Letter of Credit shall be by wire transfer of immediately available funds to the account specified in the draft. As used in this Letter of Credit, "Business Day" shall mean any day, other than a Saturday, Sunday or other day on which commercial banks in New York, United States are authorized by law to close. 6. Upon receipt of a draft and certificate which are not in conformity with terms and conditions of this Letter of Credit, the Bank will promptly (and in any event within one Business Day of such receipt) notify ORION ASIA PACIFIC CORP. of such nonconformity and the reason therefor. 7. Multiple drawings may be made hereunder. 8. Only ORION ASIA PACIFIC CORP. may make drawings under this Letter of credit. Upon payments as provided in Section 5 of the amount specified in a draft hereunder, the Bank shall be fully discharged of its obligation under this Letter of Credit with respect to such draft. 9. Should the Expiry Date be a date prior to the time in which payments covered by this Letter of Credit could potentially be due from DACOM CORP. under the Agreement, then at least 30 days prior to the Expiry Date, this Letter of Credit shall be replaced with a substitute Letter of Credit in an amount equal to the Maximum Drawing Amount. If it is not so replaced, then ORION ASIA PACIFIC CORP. may draw upon this Letter of Credit in full. 10. To the extent not inconsistent with the express terms hereof, this Letter of Credit shall be governed by the Uniform Customs and Practice for Documentary Credits (1993 revision) International Chamber of Commerce Publication No. 500. Communications with respect to this Letter of Credit shall be in writing or shall be transmitted by telecopier (promptly confirmed in writing) and shall be addressed to the Bank at [address in New York, U.S.A.] and shall specifically refer to the number of this Letter of Credit. 11. Any drawing under this Letter of Credit will be paid from the general funds of the Bank and not directly or indirectly from funds or collateral deposited with or for the account of the Bank by or on behalf of DACOM CORP., or pledged with or for the account of the Bank will seek reimbursement for payments made pursuant to a drawing under this Letter of Credit only after such payments have been made. 12. This Letter of Credit sets forth in full the Bank's undertaking, and such undertaking shall not in anyway be modified, amended, amplified or limited by reference to any document, instrument or agreement referred to herein, except only Annexes A, B, and C, and the notices referred to herein; and any such reference shall not be deemed to incorporate herein by reference any document, instrument, or agreement except as set forth above. Very truly yours, [ISSUING BANK] By: [Where ORION ASIA PACIFIC CORP. DRAWS] ANNEX C CERTIFICATE FOR DRAWING The undersigned, a duly authorized representative of ORION ASIA PACIFIC CORP., as a beneficiary under that certain IRREVOCABLE STANDBY LETTER OF CREDIT No. ________, dated [the Date of Issuance], established by [Issuing Bank] (the "Bank") (the "Letter of Credit"), hereby certifies as follows: A payment(s) in the amount of US$_____ required to be made to ORION AISA PACIFIC CORP. by DACOM CORP. pursuant to the Agreement is overdue. [1. Notwithstanding the first sentence of Section 9 of the Letter of Credit, the Letter of Credit, which covers a payment in the amount of US$__________ payable in the future by DACOM CORP. to ORION ASIA PACIFIC CORP., has not been replaced with a substitute Letter of Credit.] 2. The aggregate amount of the accompanying draft does not exceed the Maximum Drawing Amount. Capitalized Terms used herein and not otherwise defined herein shall have the meaning given to them in the Letter of Credit. IN WITNESS WHEREOF, each of the undersigned has executed this Certificate as of [Date]. ORION ASIA PACIFIC CORP. By: [Name and title of Authorized Representative of ORION ASIA PACIFIC CORP.] [Irrevocable Standby Letter of Credit to be issued by ORION ASIA PACIFIC CORP.'s bank to DACOM CORP.] IRREVOCABLE STANDBY LETTER OF CREDIT Issuance Date: Credit Number: Dear Sirs: 1. [Name of issuing Bank] (the "Bank") hereby establishes, in your favor, at the request and for the account of ORION ASIA PACIFIC CORP., the Bank's IRREVOCABLE STANDBY LETTER OF CREDIT NO. ____ (this "Letter of Credit"), in an amount not to exceed United States Dollars (________USD) (such amount, as it may be reduced from time to time in accordance with Section 3 hereof, being called the "Maximum Drawing Amount"). This Letter of Credit is being issued pursuant to the Joint Investment Agreement dated as of November 11, 1996 (the "Agreement") and the subsequent amendments thereto between DACOM CORP. and ORION ASIA PACIFIC CORP. This Letter of Credit is effective immediately UPON RECEIPT BY THE [Name of bank] of a payment in the amount of the Maximum Drawing Amount for further credit to the account of ORION ASIA PACIFIC CORP. (Account No. _________) and will expire at 4:00 p.m., Seoul time, on the earlier of (a) the date (the "Surrender Date") upon which DACOM CORP. presents to the Bank a certificate in the form of Annex A hereto or (b) 31 August 1999 (the "Expiry Date") (the earlier of the Surrender Date or the Expiry Date being referred to herein as the "Termination Date"). 2. The Bank hereby irrevocably authorizes DACOM CORP. to draw on the Bank, in accordance with the terms and conditions hereinafter set forth, an amount not in excess of the Maximum Drawing Amount on the date of such drawing (the "Date of Drawing"). 3. The Maximum Drawing Amount shall be modified from time to time as follows: (a) upon payment by the Bank of a drawing hereunder, the Maximum Drawing Amount applicable to each Date of Drawing subsequent to such payment shall be automatically reduced by an amount equal to the amount of the drawing so paid. 4. Funds under this Letter of Credit are available to DACOM CORP. against presentation of a draft of DACOM CORP. in the form of Annex B hereto and a certificate signed by DACOM CORP. in a form of Annex C hereto. Each such draft and certificate shall be dated the date of presentation and shall be presented at the Bank's office at [address in Seoul, Korea] (Telecopier No. ). The Bank agrees that, so long as this Letter of Credit is in effect, it will maintain an office in, or an arrangement reasonably satisfactory to DACOM CORP. with a paying bank having an office in Korea where such presentation may be made. The aforesaid drafts and certificates shall have all blanks appropriately completed, shall be signed by a person purporting to be an authorized representative of DACOM CORP., and shall be either in the form of a letter or a communication by telecopier delivered to the Bank. Any communication by telecopier pursuant to which a drawing is made hereunder shall be promptly confirmed to the Bank in writing. However, the Bank shall have no responsibility or liability for DACOM CORP.'s failure to confirm any drawing made by telecopier in writing or for any discrepancies that may exist between the documents delivered by telecopier and DACOM CORP.'s written confirmation of same. 5. The Bank hereby agrees that all drafts drawn under the terms of this Letter of Credit will be duly honored by the Bank upon delivery, or transmission by telecopier (promptly confirmed in writing),m of the draft and the certificate as specified in Section 2 and if presented (by such delivery or transmission) at our aforesaid office on or before 4:00 p.m. Seoul time, on the Termination Date. If a drawing is made by DACOM CORP. hereunder at or prior to 11:00 a.m., Seoul time, on a Business Day (as hereinafter defined), and provided that such draft and certificate presented in connection therewith conform to the terms and conditions hereof, payment shall be made of the amount specified in immediately available funds not later than 4:00 p.m., Seoul time, on the same Business Date. If a drawing is made by DACOM CORP. hereunder after 11:00 a.m., Seoul time, and provided that such draft and certificate presented in connection therewith confirm to the terms and conditions hereof, payment shall be made of the amount specified in immediately available funds not later than 1:00 p.m., Seoul time, on the next Succeeding Business Date. If a drawing is made by DACOM CORP. hereunder on a Business Day but which day is a Saturday or Sunday, New York, U.S.A. time or other day on which commercial banks in New York, U.S.A. are authorized by law to close and provided that such draft and certificate presented in connection therewith conform to the terms and conditions hereof, payment shall be made of the amount specified in immediately available funds not later than 10:00 a.m., Seoul time, on a day after the next succeeding Business Day. Payment under this Letter of Credit shall be by wire transfer of immediately available funds to the account specified in the draft. As used in this Letter of Credit, "Business Day" shall mean any day, other than a Saturday, Sunday or other day on which commercial banks in Seoul, Korea are authorized by law to close. 6. Upon receipt of a draft and certificate which are not in conformity with terms and conditions of this Letter of Credit, the Bank will promptly (and in any event within one Business Day of such receipt) notify DACOM CORP. of such nonconformity and the reason therefor. 7. Multiple drawings may be made hereunder. 8. Only DACOM CORP. may make drawings under this Letter of credit. Upon payments as provided in Section 5 of the amount specified in a draft hereunder, the Bank shall be fully discharged of its obligation under this Letter of Credit with respect to such draft. 9. Should the Expiry Date be a date prior to the time in which refunds covered by this Letter of Credit could potentially be due from ORION ASIA PACIFIC CORP. under the Agreement, then at least 30 days prior to the Expiry Date, this Letter of Credit shall be replaced with a substitute Letter of Credit in an amount equal to the Maximum Drawing Amount. If it is not so replaced, then DACOM CORP. may draw upon this Letter of Credit in full. 10. To the extent not inconsistent with the express terms hereof, this Letter of Credit shall be governed by the Uniform Customs and Practice for Documentary Credits (1993 revision) International Chamber of Commerce Publication No. 500. Communications with respect to this Letter of Credit shall be in writing or shall be transmitted by telecopier (promptly confirmed in writing) and shall be addressed to the Bank at [address in Seoul, Korea] and shall specifically refer to the number of this Letter of Credit. 11. Any drawing under this Letter of Credit will be paid from the general funds of the Bank and not directly or indirectly from funds or collateral deposited with or for the account of the Bank by or on behalf of ORION ASIA PACIFIC CORP., or pledged with or for the account of the Bank will seek reimbursement for payments made pursuant to a drawing under this Letter of Credit only after such payments have been made. 12. This Letter of Credit sets forth in full the Bank's undertaking, and such undertaking shall not in anyway be modified, amended, amplified or limited by reference to any document, instrument or agreement referred to herein, except only Annexes A, B, and C, and the notices referred to herein; and any such reference shall not be deemed to incorporate herein by reference any document, instrument, or agreement except as set forth above. Very truly yours, [ISSUING BANK] By: ANNEX A [UNCHANGED] ANNEX B [UNCHANGED] [Where DACOM CORP. DRAWS] ANNEX C CERTIFICATE FOR DRAWING The undersigned, a duly authorized representative of DACOM CORP., as a beneficiary under that certain IRREVOCABLE STANDBY LETTER OF CREDIT No. ________, dated [the Date of Issuance], established by [Issuing Bank] (the "Bank") (the "Letter of Credit"), hereby certifies as follows: 1. A refund(s) in the amount of US$_____ required to be made to DACOM CORP. by ORION ASIA PACIFIC CORP. pursuant to the Agreement is overdue. [1. Notwithstanding the first sentence of Section 9 of the Letter of Credit, the Letter of Credit, which covers a payment in the amount of US$__________ potentially payable in the future by ORION ASIA PACIFIC CORP. to DACOM CORP., has not been replaced with a substitute Letter of Credit.] 2. The aggregate amount of the accompanying draft does not exceed the Maximum Drawing Amount. Capitalized Terms used herein and not otherwise defined herein shall have the meaning given to them in the Letter of Credit. IN WITNESS WHEREOF, each of the undersigned has executed this Certificate as of [Date]. DACOM CORP. By: [Name and title of Authorized Representative of DACOM CORP.] COMMERCIAL - IN - CONFIDENCE Exhibit F Acceptance Test Plan. HUGHES HS601 HP -XXX - -------------------------------------------------------------------------------- ORION - -------------------------------------------------------------------------------- INTEGRATED TEST PLAN AUGUST 1996 ---------------- Approved by HSC ------------------ Approved by ORION HUGHES PROPRIETARY This document contains proprietary information, and except with written permission of Hughes Space and Communications Company, such information shall not be published, or disclosed to others, or used for any purpose and the document shall not be duplicated in whole or in part. Copyright 1996 Hughes Space and Communications Company Unpublished Work LIST OF FIGURES
Page A-1 HS601 HP Integration and Test Documentation .......................................................... iii 1-1 Top Level Acceptance Spacecraft Test Flow............................................................. 1-3 1-2 HS601 HP Acceptance Spacecraft Integration and Test Flow Details...................................... 1-4
LIST OF TABLES
Page 3.1.1 HS601 HP Product Line Heritage / Qualification Matrix ............................................... 3-3 3.2 Unit Thermal Cycle and Thermal Vacuum Cycle Requirements .............................................. 3-6 4. Subsystem and System Test Matrices .................................................................... 4-2 4.1 Mechanical .......................................................................... 4-2 4.2 Electrical Power Subsystem........................................................... 4-4 4.3 Attitude Control Subsystem........................................................... 4-6 4.4 Liquid Propulsion Subsystem (LPS) ................................................... 4-8 4.5 Xenon Ion Propulsion Subsystem (XIPS)................................................ 4-10 4.6 T&C Subsystem Digital Equipment ..................................................... 4-12 4.7 T&C Subsystem RF Hardware ........................................................... 4-13 4.8 Communications Subsystem............................................................. 4-14 5.2 In Orbit Test (JOT) Matrices........................................................................... 5-2 5.2.1 Electrical Power Subsystem ........................................................ 5-2 5.2.2 Attitude Control Subsystem......................................................... 5-3 5.2.3 Communications Subsystem .......................................................... 5-4 5.2.4 Telemetry and Command Subsystem.................................................... 5-5
TABLE OF CONTENTS
Page ACRONYMS AND ABBREVIATIONS.................................................................... NOT NUMBERED FOREWORD .........................................................................................i A. Integrated Test Plan (ITP) and HS601 HP Integration and Test Documentation..................... ii B. HS601 HP Product Line Test Philosophy.......................................................... iv C. Program-Specific Information for the _____________________ Spacecraft......................... vi 1. INTRODUCTION........................................................................................... 1-1 1.1 Plan Scope ................................................................................... 1-2 1.2 Test Program Flow............................................................................. 1-2 1.3 Plan Content.................................................................................. 1-2 1.4 Customer Participation ....................................................................... 1-2 2. TEST PROVISIONS........................................................................................ 2-1 2.1 HS601 HP Product Line Test Philosophy......................................................... 2-2 2.2 Test Requirements............................................................................. 2-2 2.2.1 Development Testing................................................................ 2-3 2.2.2 Qualification Testing ............................................................. 2-3 2.2.3 Acceptance Testing ................................................................ 2-4 2.2.4 Life Testing....................................................................... 2-4 2.3 Test Phase Descriptions....................................................................... 2-5 2.3.1 Unit Level......................................................................... 2-5 2.3.2 Subsystem Level ................................................................... 2-7 2.3.3 System Level ...................................................................... 2-9 2.3.4 In Orbit Testing (IOT)............................................................. 2-14 3. UNIT/EQUIPMENT LEVEL TESTING .......................................................................... 3-1 3.1 Unit/Equipment Heritage I Qualification/Heritage.............................................. 3-2 3.1.1 HS601 HP Product Line Heritage / Qualification Matrix ............................. 3-3 3.2 Unit Thermal Cycle and Thermal Vacuum Cycle Requirements ..................................... 3-6 3.3 Life Testing ................................................................................. 3-9 4. SUBSYSTEM AND SYSTEM LEVEL ACCEPTANCE TESTING ......................................................... 4-1 4. Test Matrices ................................................................................. 4-2 4.1 Mechanical .......................................................................... 4-2 4.2 Electrical Power Subsystem........................................................... 4-4 4.3 Attitude Control Subsystem........................................................... 4-6 4.4 Liquid Propulsion Subsystem (LPS) ................................................... 4-8 4.5 Xenon ion Propulsion Subsystem (XIPS)................................................ 4-10 4.6 T&C Subsystem Digital Equipment ..................................................... 4-12 4.7 T&C Subsystem RF Hardware ........................................................... 4-13 4.8 Communications Subsystem............................................................. 4-14 5. IN ORBIT TESTING (IOT)................................................................................. 5-1 5.1 Overview...................................................................................... 5-2 5.2 Tests......................................................................................... 5-2 5.2.1 Electrical Power Subsystem ........................................................ 5-2 5.2.2 Attitude Control Subsystem......................................................... 5-3 5.2.3 Communications Subsystem........................................................... 5-4 5.2.4 Telemetry and Command Subsystem.................................................... 5-5
COMMERCIAL - IN - CONFIDENCE Exhibit G Interference Tests. EX-11.1 3 EXHIBIT 11.1 Exhibit 11.1 --- Statement Re: Computation of Net Loss Per Common Share
Three months ended Six months ended -------------------------------- --------------------------------- 1997 1996 1997 1996 --------------- --------------- ---------------- --------------- Average shares outstanding 11,169,950 10,951,784 11,164,754 10,932,458 Net loss attributable to common stockholders (27,057,396) (7,120,575) (54,701,447) (14,751,394) Net loss per common share ($2.42) ($0.65) ($4.90) ($1.35)
EX-27 4 FDS --
5 1,000 US Dollar 6-MOS DEC-31-1996 JAN-01-1997 JUN-30-1997 1 74,949 0 10,034 353 0 141,790 366,772 (54,728) 918,918 45,069 0 0 115,965 114 (44,346) 918,918 4,322 36,920 1,788 56,153 28,402 500 27,829 (50,729) 0 (50,729) 0 15,763 0 (50,729) (4.90) (4.90)
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