-----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, II0DVIgg6LsXBWDSSa56EWJSi1Mku068RZHxCWZT+TC1ixh8GfXGwZ93oW0e6ZqG loe4biacF+rXHrghjMvgUQ== 0001005150-97-000013.txt : 19970116 0001005150-97-000013.hdr.sgml : 19970116 ACCESSION NUMBER: 0001005150-97-000013 CONFORMED SUBMISSION TYPE: S-4 PUBLIC DOCUMENT COUNT: 24 FILED AS OF DATE: 19970114 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ORION NEWCO SERVICES INC CENTRAL INDEX KEY: 0001029850 STANDARD INDUSTRIAL CLASSIFICATION: RADIO & TV BROADCASTING & COMMUNICATIONS EQUIPMENT [3663] STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-19795 FILM NUMBER: 97505960 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 S-4 1 FORM S-4 As filed with the Securities and Exchange Commission on January 14, 1997 Registration No. 333-________ ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------- FORM S-4 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 --------------- ORION NEWCO SERVICES, INC. (Exact name of registrant as specified in its charter)
Delaware 4899 52-2008654 (State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer incorporation or organization) Classification Code Number) Identification Number)
--------------- 2440 Research Boulevard Suite 400 Rockville, Maryland 20850 (301) 258-8101 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) --------------- Richard H. Shay, Esq. 2440 Research Boulevard Suite 400 Rockville, Maryland 20850 (301) 258-8101 (Name, address, including zip code, and telephone number, including area code, of agent for service) --------------- Copy to: Steven M. Kaufman, Esq. Hogan & Hartson L.L.P. 555 Thirteenth Street, N.W. Washington, D.C. 20004 (202) 637-5600 --------------- Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective. If the only securities being registered on this Form are being offered in connection with the formation of a holding company, check the following box. [ ] --------------- CALCULATION OF REGISTRATION FEE
==================================================================================================================================== Proposed maximum Title of each class of Amount to Proposed maximum aggregate offering Amount of securities to be registered be registered (1) offering price per Share price(2) registration fee (3) ----------------------------------------------------------------------------------------------------------------------------------- Common Stock, $.01 par value 11,097,758 shares Not applicable $160,917,491 $48,762 - ------------------------------------------------------------------------------------------------------------------------------------ Series A Preferred Stock 13,871 shares Not applicable $ 15,820,460 $ 4,794 - ------------------------------------------------------------------------------------------------------------------------------------ Series B Preferred Stock 4,298 shares Not applicable $ 4,718,526 $ 1,430 ====================================================================================================================================
(1) This Registration Statement relates to securities of the registrant issuable to holders of common stock and preferred stock of Orion Network Systems, Inc., a Delaware corporation ("Orion" ), in the proposed merger of a wholly-owned subsidiary of Registrant with and into Orion.(the "Merger"). (2) Pursuant to Rule 457(f), the registration fee was computed on the basis of (i) the market value of Orion common stock to be exchanged in the Merger, computed in accordance with Rule 457(c) on the basis of the average of the high and low prices per share of such stock as reported by the Nasdaq National Market System on January 9, 1997 and (ii) the book value of the Series A Preferred Stock and Series B Preferred Stock as of September 30, 1996 computed in accordance with Rule 457(f)(2) (3) Of the $54,996 total registration fee, $29,346 has been previously paid in connection with a Schedule 14A filed by Orion on November 27, 1996. THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. ================================================================================ ORION NETWORK SYSTEMS, INC. 2440 RESEARCH BOULEVARD, SUITE 400 ROCKVILLE, MARYLAND 20850 January 15, 1997 Dear Stockholder: You are cordially invited to attend a special meeting of stockholders (the "Special Meeting") of Orion Network Systems, Inc. ("Orion" or the "Company"), to be held on Thursday, January 30, 1997 at 9:00 a.m., local time, at 2440 Research Boulevard, Suite 400, Rockville, Maryland. As described in the accompanying Proxy Statement/Prospectus, at the Special Meeting, Orion stockholders will be asked to consider and act upon the following proposals: (1) Ratification of the Agreement and Plan of Merger (the "Merger Agreement"), dated as of January 8, 1997, among Orion, Orion Newco Services, Inc., a newly formed Delaware corporation with no significant assets or liabilities and a wholly owned subsidiary of Orion ("Orion Newco"), and Orion Merger Company, Inc., a newly formed Delaware corporation and a wholly owned subsidiary of Orion Newco ("Orion Merger Subsidiary"), and the transactions contemplated thereby. (2) Approval and adoption of the Section 351 Exchange Agreement and Plan of Conversion (the "Exchange Agreement"), dated as of June 1996, as amended, among Orion, Orion Satellite Corporation, a Delaware corporation ("OrionSat") that is a wholly owned subsidiary of Orion and the sole general partner of International Private Satellite Partners, L.P., a Delaware limited partnership ("Orion Atlantic"), and each of the existing limited partners of Orion Atlantic other than Orion (the "Exchanging Partners," and together with Orion, the "Limited Partners") and the transactions contemplated thereby. (3) Approval of the transactions (the "Debenture Investments") contemplated by the Debenture Purchase Agreement (the "Debenture Agreement"), dated as of January 13, 1997, among Orion, Orion Newco and each of British Aerospace Holdings, Inc. (collectively, with British Aerospace Public Limited Company and its affiliates, "British Aerospace") and Matra Marconi Space UK Limited ("Matra Marconi Space"). The refinancing of $210 million of existing indebtedness of Orion Atlantic to release the existing commitments of the Limited Partners and their affiliates supporting such indebtedness is a condition to the Merger, the Exchange and the Debenture Investments, as discussed below. Merger. Pursuant to the Merger Agreement, Orion Merger Subsidiary will be merged with and into Orion in a tax-free reorganization (the "Merger"). Orion will be the surviving corporation in the Merger and will become a wholly owned subsidiary of Orion Newco. In the Merger, each share of Orion's common stock, par value $.01 per share (the "Orion Common Stock"), Orion's Series A 8% Cumulative Redeemable Convertible Preferred Stock (the "Orion Series A Preferred Stock") and Series B 8% Cumulative Redeemable Convertible Preferred Stock (the "Orion Series B Preferred Stock," and together with the Orion Series A Preferred Stock, the "Orion Senior Preferred Stock") will be converted, without any action on the part of the holder thereof, into the right to receive one share of Orion Newco's common stock, par value $.01 per share (the "Orion Newco Common Stock"), Orion Newco's Series A 8% Cumulative Redeemable Convertible Preferred Stock (the "Orion Newco Series A Preferred Stock") and Orion Newco's Series B 8% Cumulative Redeemable Convertible Preferred Stock (the "Orion Newco Series B Preferred Stock," and together with the Orion Newco Series A Preferred Stock, the "Orion Newco Senior Preferred Stock"), respectively. It is expected that approximately 10,974,121 shares of Orion Newco Common Stock, 13,871 shares of Orion Newco Series A Preferred Stock and 4,298 shares of Orion Newco Series B Preferred Stock will be issued to the stockholders of Orion in the Merger in exchange for their shares of Orion Common Stock, Orion Series A Preferred Stock and Orion Series B Preferred Stock, respectively. Such shares of Orion Newco Series A Preferred Stock and Orion Newco Series B Preferred Stock will be convertible as of the issuance date into an aggregate of approximately 2,053,255 shares of Orion Newco Common Stock, or approximately 7.9% of the shares of Orion Newco Common Stock outstanding on a fully diluted basis, assuming a closing of the Merger as of January 30, 1997. Orion Newco will have, after the Merger, a certificate of incorporation, bylaws, management and capital structure (before the issuance of Orion Newco Series C Preferred Stock described below) substantially identical in all material respects to those of Orion. As a result of the Merger, (i) Orion Newco will become a public holding company owning all of the capital stock of Orion, which will continue its business and operations, and (ii) the stockholders of Orion Newco will have substantially the same securities and rights in Orion Newco that they had in Orion, except that their percentage ownership of Orion Newco will be diluted as a result of the Exchange (as defined below). Approval of the Merger Agreement also will constitute the approval of the specific terms therein and the transactions contemplated thereunder, including the Merger. Prior to voting on the Merger, Orion stockholders should review carefully the Merger Agreement, a copy of which is attached to the accompanying Proxy Statement/Prospectus as Attachment A. Exchange. Pursuant to the Exchange Agreement, Orion has agreed, among other things, to have Orion Newco issue shares of Orion Newco's Series C 6% Cumulative Redeemable Convertible Preferred Stock (the "Orion Newco Series C Preferred Stock") for the Exchanging Partners' limited partnership interests in Orion Atlantic and other rights relating thereto (the "Exchange" and together with the Merger, the "Merger Transactions"). As a result of the Exchange, which will be consummated concurrently with the Merger, Orion Newco will become the owner of all the partnership interests in Orion Atlantic (through Orion Newco and Orion as the sole limited partners and OrionSat as the sole general partner of Orion Atlantic). In addition, Orion Newco will acquire certain rights currently held by the Exchanging Partners, including the Exchanging Partners' rights to receive repayment of various advances (aggregating approximately $37.5 million at September 30, 1996) made to Orion Atlantic. The 121,988 shares of Orion Newco Series C Preferred Stock expected to be issued in the Exchange will be convertible as of the issuance date into approximately 6,970,740 shares of Orion Newco Common Stock, or approximately 27% of the shares of Orion Newco Common Stock outstanding on a fully diluted basis, assuming a closing of the Merger Transactions as of January 30, 1997 (the number of shares could increase if the closing occurs after that date). As a result of the Exchange, certain of the Exchanging Partners will be principal stockholders of Orion Newco. Prior to voting on the Exchange, Orion stockholders should review carefully the Exchange Agreement, a copy of which is attached to the accompanying Proxy Statement/Prospectus as Attachment B. Debenture Investments. Pursuant to the Debenture Agreement, Orion Newco has agreed, among other things, to issue to British Aerospace and Matra Marconi Space $50 million and $10 million, respectively, of convertible junior subordinated debentures (the "Debentures"). The Debentures will mature 15 years following the date of issuance and will bear interest at rate of 8.75% per annum to be paid semi-annually in arrears solely in Orion Newco Common Stock at prices of between $10.21 and $14.00 per share. The Debentures to be issued to British Aerospace and Matra Marconi Space will be convertible as of the issuance date into approximately 3,571,429 and 714,286 shares of Orion Newco Common Stock, respectively, or approximately 13.8% and 2.8% of the shares of Orion Newco Common Stock outstanding on a fully diluted basis, assuming a closing of the Debenture Investments as of January 30, 1997. As a result of the Debenture Investments (and the other transactions, including the Exchange, in which British Aerospace and an affiliate of Matra Marconi Space are acquiring securities of Orion Newco), British Aerospace will be the largest stockholder of Orion Newco on both an actual and a fully diluted basis and Matra Marconi Space will be one of the principal stockholders of Orion Newco. The consummation of the Debenture Investments is a condition to the Exchange. Reasons for Merger Transactions and Debenture Investments. Orion's principal objective for the Merger Transactions is to simplify Orion's organizational structure and improve its access to the capital markets. Orion believes that the Merger Transactions will enable it to: (i) consolidate outside investor ownership at the Orion Newco level, (ii) improve the speed and efficiency of its decision making, (iii) provide Orion Newco with 100% ownership of all of its material subsidiaries, (iv) allow Orion Newco to pursue independently its business plans and financings for all of its satellites, (v) eliminate (in exchange for Orion Newco stock) approximately $37.5 million of obligations Orion Atlantic owes to the Exchanging Partners and (vi) increase Orion's overall market capitalization. Orion's principal reason for the issuance of $50 million of Debentures to British Aerospace is to raise additional capital for initial payments with respect to the Orion 2 satellite, of which approximately $49.4 million of payments are due during 1997. The sale of $10 million of Debentures to Matra Marconi Space will involve a re-investment by Matra Marconi Space of $10 million of the $13 million of satellite incentive payments Matra Marconi Space will receive as manufacturer of the Orion 1 satellite upon consummation of the Notes Offering described below. Access to the capital markets is necessary for Orion to achieve its business plan to construct and launch two additional satellites, Orion 2 (with coverage of Europe, Russia, the eastern United States and Latin America) and Orion 3 (with coverage of the Asia Pacific region). With this plan in mind, Orion and Orion Newco have been pursuing and will continue to pursue the following transactions: (i) Notes Offering: a financing consisting of units of senior notes and common stock warrants (the "Notes Offering") in the amount of approximately $347 million with expected gross proceeds of approximately $275 million, excluding approximately $72 million of overfunding of interest due on such notes. The principal purpose of the Notes Offering is to refinance the indebtedness of Orion Atlantic outstanding under the existing Credit Agreement (together with any related documents and agreements, the "Orion 1 Credit Facility") dated December 6, 1991 among Orion Atlantic, the Banks named therein and Chase Manhattan Bank (National Association), as Agent, and release the existing commitments of the Limited Partners and their affiliates under the Communication Satellite Capacity Agreements, the Contingent Communications Satellite Capacity Agreements and various guarantees or other commitments supporting the Orion 1 Credit Facility. Such release is a condition to the Exchange. (ii) Orion 2 Construction Contract: a satellite procurement contract with Matra Marconi Space for Orion 2, under which the manufacturer is to proceed with construction based upon initial payments of $25 million and further payments through December 1997 limited to approximately $25 million. Orion expects to commence the construction of Orion 2 immediately following completion of the Notes Offering. (iii) Orion 3 Construction Contract: a satellite procurement contract with Hughes Space and Communications International, Inc. for Orion 3, under which the manufacturer is to proceed with construction based upon initial payments through January 31, 1997 of approximately $15 million, with further payments through March 31, 1998 being limited to $35 million, payable in approximately equal quarterly installments. The majority of the amounts due under the contract are payable in the second and third quarters of 1998. Orion commenced construction of Orion 3 in mid-December 1996 under an authorization to proceed, and expects to enter into a definitive satellite contract in January 1997. In addition to the Merger, the Notes Offering and the Debenture Investments, the Exchange is indirectly conditioned on, among other things, the acquisition by Orion of the only outstanding minority interest in Asia Pacific Space and Communications, Ltd. from British Aerospace for approximately 86,000 shares of Orion Common Stock, which has occurred or is in the process of occurring. See information under the captions "Pro Forma Condensed Consolidated Financial Statements" and "The Merger, the Exchange and the Debenture Investments -- Reasons for the Merger Transactions and the Debenture Investments" in the accompanying Proxy Statement/Prospectus. The accompanying Proxy Statement/Prospectus provides a detailed description of the Merger Transactions and the Debenture Investments, including Orion's reasons for entering into the Merger Transactions and the Debenture Investments and the effect of the transactions on Orion and Orion Newco and their stockholders, and of the business and financial condition of Orion and Orion Newco. I urge you to read the accompanying Proxy Statement/Prospectus carefully. The matters to be considered and voted upon at the Special Meeting are of great importance to your investment and the future of Orion. Your Board of Directors has carefully reviewed and considered the terms and conditions of the Merger Transactions and the Debenture Investments and recom- mended unanimously (with the British Aerospace Board representative recusing himself) that stockholders vote for ratification of the Merger Agreement and the transactions contemplated thereby, for approval and adoption of the Exchange Agreement and the transactions contemplated thereby, and for approval of the Debenture Investments. Your Board of Directors also has received the opinion of its financial advisor, Salomon Brothers Inc, to the effect that the consideration to be paid by Orion in connection with the Exchange is fair from a financial point of view to Orion. A copy of that opinion is attached to the accompanying Proxy Statement/Prospectus as Attachment D. Each proposal to be considered at the Special Meeting will be voted upon separately by the Orion stockholders. However, failure by the Orion stockholders to approve the Exchange Agreement will result in termination of the Merger Agreement by Orion, Orion Newco and Orion Merger Subsidiary. The Merger is a condition to the Exchange and is being proposed to enable the Exchange to occur. If the Merger were to cease to be necessary to consummate the Exchange (which is not expected to occur), the Board of Directors would cause Orion to proceed with the Exchange but not the Merger. In such event, Orion (instead of Orion Newco) would issue shares of Series C 6% Cumulative Redeemable Convertible Preferred Stock for the Exchanging Partners' limited partnership interests in Orion Atlantic and other rights relating thereto and Orion (instead of Orion Newco) would issue the Debentures, but all other aspects of these transactions would remain the same. Since the rights of stockholders of Orion Newco will be substantially the same as the rights of stockholders of Orion, Orion believes that consummation of the Exchange would have the same effect on stockholders whether or not the Merger occurs. The Merger and the Exchange are conditions to the Debenture Investments, and waivers of these conditions are not expected to occur. Repayment of the Orion 1 Credit Facility is a condition to the Exchange and the Debenture Investments, and this condition is not expected to be waived. Regardless of your plans for attending in person, it is important that your shares be represented and voted at the Special Meeting. Accordingly, you are requested to complete, sign, date and return the enclosed proxy card in the enclosed postage paid envelope. Signing this proxy will not prevent you from voting in person should you be able to attend the Special Meeting, but will assure that your vote is counted if, for any reason, you are unable to attend. We hope that you can attend the Special Meeting of Stockholders. Your interest and support in the affairs of Orion Network Systems, Inc. are appreciated. Sincerely, W. NEIL BAUER President and Chief Executive Officer Rockville, Maryland January 15, 1997 ORION NETWORK SYSTEMS, INC. 2440 RESEARCH BOULEVARD, SUITE 400 ROCKVILLE, MARYLAND 20850 (301) 258-8101 NOTICE OF SPECIAL MEETING OF STOCKHOLDERS TO BE HELD ON JANUARY 30, 1997 NOTICE IS HEREBY GIVEN that a special meeting of stockholders (the "Special Meeting") of Orion Network Systems, Inc. ("Orion") will be held on Thursday, January 30, 1997 at 9:00 a.m., local time, at 2440 Research Boulevard, Suite 400, Rockville, Maryland, to consider and act upon the following proposals: 1. Ratification of the Agreement and Plan of Merger (the "Merger Agreement"), dated as of January 8, 1997, among Orion, Orion Newco Services, Inc., a newly formed Delaware corporation with no significant assets or liabilities and a wholly owned subsidiary of Orion ("Orion Newco"), and Orion Merger Company, Inc., a newly formed Delaware corporation and a wholly owned subsidiary of Orion Newco ("Orion Merger Subsidiary"), and the transactions contemplated thereby. Pursuant to the Merger Agreement, which was entered into by Orion under Section 251(g) of the Delaware General Corporation Law, Orion Merger Subsidiary will be merged with and into Orion (the "Merger"), Orion will become a wholly owned subsidiary of Orion Newco and each share of Orion capital stock issued and outstanding at the effective time of the Merger will be converted into the right to receive one share of substantially identical Orion Newco capital stock. 2. Approval and adoption of the Section 351 Exchange Agreement and Plan of Conversion (the "Exchange Agreement"), dated as of June 1996, as amended, among Orion, Orion Satellite Corporation, a Delaware corporation that is a wholly owned subsidiary of Orion and the sole general partner of International Private Satellite Partners, L.P., a Delaware limited partnership ("Orion Atlantic"), and each of the existing limited partners of Orion Atlantic other than Orion (the "Exchanging Partners"), and the transactions contemplated thereby. Pursuant to the Exchange Agreement, Orion Newco will issue shares of Orion Newco's Series C 6% Cumulative Redeemable Convertible Preferred Stock for the Exchanging Partners' limited partnership interests in Orion Atlantic and other rights relating thereto (the "Exchange"). 3. Approval of the transactions (the "Debenture Investments") contemplated by the Debenture Purchase Agreement (the "Debenture Agreement"), dated as of January 13, 1997, among Orion, Orion Newco and each of British Aerospace Holdings, Inc. (collectively, with British Aerospace Public Limited Company and its affiliates, "British Aerospace") and Matra Marconi Space UK Limited ("Matra Marconi Space"). Pursuant to the Debenture Agreement, Orion Newco will issue to British Aerospace and Matra Marconi Space $50 million and $10 million, respectively, of convertible junior subordinated debentures, convertible as of the issuance date into approximately 3,571,429 and 714,286 shares of Orion Newco common stock, respectively, assuming a closing of the Debenture Investments as of January 30, 1997. 4. Transaction of such other business as may properly come before the Special Meeting or any adjournments or postponement thereof. The Board of Directors has carefully considered the terms of the Merger Agreement, the Exchange Agreement and the Debenture Agreement and the respective transactions contemplated thereby, and believes that the Merger, the Exchange and the Debenture Investments are in the best interests of Orion and its stockholders. The Board of Directors has unanimously approved (with the British Aerospace Board representative recusing himself) the matters being submitted by Orion for stockholder approval or ratification at the Special Meeting and recommended that stockholders vote FOR ratification of the Merger Agreement and the transactions contemplated thereby, FOR approval and adoption of the Exchange Agreement and the transactions contemplated thereby, and FOR approval of the Debenture Investments. Orion anticipates that all members of the Board of Directors and companies they represent (who held, in the aggregate, approximately 38% of Orion's voting stock outstanding as of September 30, 1996) will enter into written agreements to vote for each of the foregoing proposals to be considered at the Special Meeting. The Board of Directors has fixed the close of business on December 23, 1996 as the record date for the determination of stockholders entitled to notice of and to vote at the Special Meeting. Only holders of Orion common stock and Orion preferred stock of record at the close of business on that date will be entitled to notice of and to vote at the Special Meeting or any adjournment thereof, unless a new record date is fixed for any adjourned meeting. A list of Orion's stockholders entitled to vote at the Special Meeting will be open to the examination of any stockholder for any purposes germane to the Special Meeting during ordinary business hours for a period of ten days before the Special Meeting at Orion's offices. By Order of the Board of Directors RICHARD H. SHAY Secretary Rockville, Maryland January 15, 1997 IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. THEREFORE, WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED PROXY CARD IN THE ENCLOSED ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES. YOU MAY, IF YOU WISH, REVOKE YOUR PROXY AT ANY TIME PRIOR TO THE TIME IT IS VOTED. TABLE OF CONTENTS OF ORION NETWORK SYSTEMS, INC. PROXY STATEMENT/ ORION NEWCO SERVICES, INC. PROSEPCTUS
PAGE ------- AVAILABLE INFORMATION.................................................................... 6 SUMMARY.................................................................................. 7 RISK FACTORS............................................................................. 20 Risks Relating to Merger, Exchange and Debenture Investments............................ 20 Merger, Exchange and Debenture Investments Dependent on Orion 1 Credit Facility Refinancing........................................................................... 20 Certain Terms of Notes Offering Not Yet Determined..................................... 20 Risks in Implementation of Merger, Exchange and Debenture Investments.................. 20 Substantial Change in Ownership of Stock............................................... 21 Risks Relating to Holding Company Structure............................................ 21 Risks Relating to Orion Newco Series C Preferred Stock and Debentures.................. 21 Risks Relating to Orion's Business...................................................... 22 Limited Operations; History of Losses and Negative EBITDA; Expectation of Future Losses................................................................................ 22 Need for Substantial Additional Capital................................................ 22 Substantial Leverage; Secured Indebtedness............................................. 23 Risks of Satellite Loss or Reduced Performance......................................... 23 Launch of Orion 2 and Orion 3 Subject to Significant Uncertainties..................... 25 Risks Relating to Potential Lack of Market Acceptance and Demand; Ground Operations.... 25 Risks Concerning Ability to Manage Growth.............................................. 26 Potential Adverse Effects of Competition............................................... 26 Approvals Needed; Regulation of Industry............................................... 27 Uncertainties Relating to Backlog...................................................... 28 Technological Changes.................................................................. 29 Risks of Conducting International Business............................................. 29 Dependence of Orion on Key Personnel................................................... 29 Risks Relating to Capital Stock ........................................................ 29 Control of Orion Newco by Principal Stockholders....................................... 29 Risks Relating to Orion Senior Preferred Stock......................................... 29 Limitations on Dividends on Orion and Orion Newco Common Stock......................... 30 Potential Adverse Effect of Shares Eligible for Future Sale............................ 30 Anti-Takeover and Other Provisions of the Certificate of Incorporation................. 30 THE SPECIAL MEETING...................................................................... 32 Introduction............................................................................ 32 Voting Rights and Related Matters....................................................... 32 Votes Required.......................................................................... 32 No Dissenters' Rights................................................................... 33 Proxies................................................................................. 33 THE MERGER, THE EXCHANGE AND THE DEBENTURE INVESTMENTS................................... 34 Background of the Merger Transactions and the Debenture Investments..................... 34 Reasons for the Merger Transactions and the Debenture Investments....................... 37 The Merger Agreement.................................................................... 38 The Exchange Agreement.................................................................. 40 Description of the Orion Newco Series C Preferred Stock................................. 46 Registration Rights..................................................................... 48 Certain Transfer Restrictions........................................................... 49 The Debenture Investments............................................................... 50 Corporate Structure After the Transactions.............................................. 53 i PAGE ------- Effect of the Exchange on the Capital Structure of Orion Newco.......................... 54 Recommendation of the Board of Directors of Orion....................................... 54 Opinion of Orion's Financial Advisor.................................................... 54 Approvals............................................................................... 58 Fees and Expenses....................................................................... 58 Certain Federal Income Tax Consequences................................................. 58 Security Ownership of Certain Beneficial Owners Prior to and Following the Transactions. 61 THE RELATED TRANSACTIONS................................................................. 66 The Notes Offering/Orion 1 Credit Facility Refinancing.................................. 66 OAP Acquisition......................................................................... 67 INFORMATION ABOUT ORION NEWCO............................................................ 68 DESCRIPTION OF ORION NEWCO CAPITAL STOCK................................................. 68 Orion Newco Common Stock................................................................ 68 Orion Newco Preferred Stock............................................................. 68 Orion Newco Senior Preferred Stock...................................................... 69 Orion Newco Series C Preferred Stock.................................................... 70 Warrants and Options.................................................................... 70 Registration Rights..................................................................... 71 Certain Anti-Takeover Effects........................................................... 71 Listing................................................................................. 73 Transfer Agent.......................................................................... 73 ORION NEWCO SHARES ELIGIBLE FOR FUTURE SALE.............................................. 73 COMPARATIVE RIGHTS OF ORION STOCKHOLDERS AND ORION NEWCO STOCKHOLDERS.................... 74 INFORMATION ABOUT ORION'S BUSINESS....................................................... 75 Overview................................................................................ 75 The Orion Strategy...................................................................... 77 Industry Overview....................................................................... 78 Data Networking......................................................................... 79 Orion Market Opportunity................................................................ 80 Orion Services.......................................................................... 83 Private Communications Network Services................................................ 83 Internet Backbone and Access Services.................................................. 84 Video Distribution and Other Satellite Transmission Services........................... 85 Customers and Backlog................................................................... 86 SELECTED ORION CUSTOMERS................................................................ 86 Sales and Marketing..................................................................... 88 Network Operations; Local Ground Operators.............................................. 89 Migration Plan for New Markets.......................................................... 90 Implementation of the Orion Satellite System............................................ 90 Orion 1................................................................................ 91 Orion 2................................................................................ 92 Orion 3................................................................................ 94 Orbital Slots........................................................................... 96 Insurance............................................................................... 98 Competition............................................................................. 99 Service Providers...................................................................... 99 Satellite Capacity..................................................................... 99 Terrestrial Capacity................................................................... 101 ii PAGE ------- Regulation.............................................................................. 101 Regulatory Overview.................................................................... 101 Authority to Construct, Launch and Operate Satellites.................................. 102 Consultation with INTELSAT and EUTELSAT................................................ 102 International Telecommunication Union.................................................. 102 United States Regulatory Restrictions.................................................. 103 International Regulation............................................................... 104 Human Resources......................................................................... 104 Legal Proceedings....................................................................... 104 MANAGEMENT OF ORION AND ORION NEWCO...................................................... 106 Directors and Executive Officers........................................................ 106 Background of Directors and Executive Officers.......................................... 106 Committees of the Board of Directors.................................................... 109 Limits on Liability; Indemnification.................................................... 110 Executive Compensation.................................................................. 111 Summary Compensation Table.............................................................. 111 Option Grants in Last Fiscal Year....................................................... 111 Option Exercises in Last Fiscal Year and Year-end Option Values......................... 112 Compensation of Directors............................................................... 112 Employment Agreements and Termination of Employment and Change in Control Arrangements.. 112 Compensation Committee Interlocks and Insider Participation............................. 112 Stock Option Plans...................................................................... 112 Other Stock Options..................................................................... 114 Other Employee Benefit Plans............................................................ 115 PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.................................... 117 SELECTED CONSOLIDATED FINANCIAL AND OPERATIONAL DATA OF ORION............................ 124 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF ORION................................................................................... 126 General................................................................................. 126 Overview................................................................................ 126 Results of Operations................................................................... 127 Liquidity and Capital Resources......................................................... 130 Taxes................................................................................... 132 Effect of Inflation..................................................................... 133 Effect of Recently Issued Financial Accounting Standards................................ 133 PRICE RANGE OF ORION COMMON STOCK AND DIVIDEND POLICY.................................... 134 CERTAIN TRANSACTIONS..................................................................... 135 FORWARD-LOOKING STATEMENTS............................................................... 137 OTHER MATTERS............................................................................ 138 LEGAL MATTERS............................................................................ 138 EXPERTS.................................................................................. 138 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS OF ORION NETWORK SYSTEMS, INC. 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F-1 GLOSSARY................................................................................. G-1 ATTACHMENTS ATTACHMENT A -- AGREEMENT AND PLAN OF MERGER ATTACHMENT B -- SECTION 351 EXCHANGE AGREEMENT AND PLAN OF CONVERSION ATTACHMENT C -- FORM OF CERTIFICATE OF DESIGNATIONS FOR ORION NEWCO SERIES C PREFERRED STOCK ATTACHMENT D -- FAIRNESS OPINION OF SALOMON BROTHERS INC
iii ORION NETWORK SYSTEMS, INC. 2440 RESEARCH BOULEVARD, SUITE 400 ROCKVILLE, MARYLAND 20850 ORION NEWCO SERVICES, INC. 2440 RESEARCH BOULEVARD, SUITE 400 ROCKVILLE, MARYLAND 20850 ORION NETWORK SYSTEMS, INC. PROXY STATEMENT/ ORION NEWCO SERVICES, INC. PROSPECTUS SPECIAL MEETING OF STOCKHOLDERS OF ORION NETWORK SYSTEMS, INC. TO BE HELD ON JANUARY 30, 1997 This Proxy Statement/Prospectus ("Proxy Statement/Prospectus") is furnished to stockholders of Orion Network Systems, Inc. ("Orion" or the "Company") in connection with the solicitation by the Board of Directors of Orion of proxies to be used at a special meeting of stockholders of Orion (the "Special Meeting") and at any adjournments thereof. The Special Meeting will be held on Thursday, January 30, 1997 at 9:00 a.m., local time, at 2440 Research Boulevard, Suite 400, Rockville, Maryland. This Proxy Statement/Prospectus and form of proxy are first being sent or given to stockholders on or about January 15, 1997. At the Special Meeting, Orion stockholders will be asked to consider and act upon the following proposals: (1) Ratification of the Agreement and Plan of Merger (the "Merger Agreement"), dated as of January 8, 1997, among Orion, Orion Newco Services, Inc., a newly formed Delaware corporation with no significant assets or liabilities and a wholly owned subsidiary of Orion ("Orion Newco"), and Orion Merger Company, Inc., a newly formed Delaware corporation and a wholly owned subsidiary of Orion Newco ("Orion Merger Subsidiary"), and the transactions contemplated thereby. (2) Approval and adoption of the Section 351 Exchange Agreement and Plan of Conversion (the "Exchange Agreement"), dated as of June 1996, as amended, among Orion, Orion Satellite Corporation, a Delaware corporation ("OrionSat") that is a wholly owned subsidiary of Orion and the sole general partner of International Private Satellite Partners, L.P., a Delaware limited partnership ("Orion Atlantic"), and each of the existing limited partners of Orion Atlantic other than Orion (the "Exchanging Partners," and together with Orion, the "Limited Partners") and the transactions contemplated thereby. (3) Approval of the transactions (the "Debenture Investments") contemplated by the Debenture Purchase Agreement (the "Debenture Agreement"), dated as of January 13, 1997, among Orion, Orion Newco and each of British Aerospace Holdings, Inc. (collectively, with British Aerospace Public Limited Company and its affiliates, "British Aerospace") and Matra Marconi Space UK Limited ("Matra Marconi Space"). The refinancing of $210 million of existing indebtedness of Orion Atlantic to release the existing commitments of the Limited Partners and their affiliates supporting such indebtedness is a condition to the Merger, the Exchange and the Debenture Investments, as discussed below. Merger. Pursuant to the Merger Agreement, which was entered into under Section 251(g) of the Delaware General Corporation Law, Orion Merger Subsidiary will be merged with and into Orion in a tax-free reorganization (the "Merger"). Orion will be the surviving corporation in the Merger and will become a wholly owned subsidiary of Orion Newco. In the Merger, each share of Orion's common stock, par value $.01 per share (the "Orion Common Stock"), Orion's Series A 8% Cumulative Redeemable Convertible Preferred Stock (the "Orion Series A Preferred Stock") and Series B 8% Cumulative Redeemable Convertible Preferred Stock (the "Orion Series B Preferred Stock," and together with the Orion Series A Preferred Stock, the "Orion Senior Preferred Stock") will be converted, without any action on the part of the holder thereof, into the right to receive one share of Orion Newco's common stock, par value $.01 per share (the "Orion Newco Common Stock"), Orion Newco's Series A 8% Cumulative Redeemable Convertible Preferred Stock (the "Orion Newco Series A Preferred Stock") and Orion Newco's Series B 8% Cumulative Redeemable Convertible Preferred Stock (the "Orion Newco Series B Preferred Stock," and together with the Orion Newco Series A Preferred Stock, the "Orion Newco Senior Preferred Stock"), respectively. It is expected that approximately 10,974,121 shares of Orion Newco Common Stock, 13,871 shares of Orion Newco Series A Preferred Stock and 4,298 shares of Orion Newco Series B Preferred Stock will be issued to the stockholders of Orion in the Merger in exchange for their shares of Orion Common Stock, Orion Series A Preferred Stock and Orion Series B Preferred Stock, respectively. Such shares of Orion Newco Series A Preferred Stock and Orion Newco Series B Preferred Stock will be convertible as of the issuance date into an aggregate of approximately 2,053,255 shares of Orion Newco Common Stock, or approximately 7.9% of the shares of Orion Newco Common Stock outstanding on a fully diluted basis, assuming a closing of the Merger as of January 30, 1997. Orion Newco will have, after the Merger, a certificate of incorporation, bylaws, management and capital structure (before the issuance of Orion Newco Series C Preferred Stock described below) substantially identical in all material respects to those of Orion. As a result of the Merger, (i) Orion Newco will become a public holding company owning all of the capital stock of Orion, which will continue its business and operations, and (ii) the stockholders of Orion Newco will have substantially the same securities and rights in Orion Newco that they had in Orion, except that their percentage ownership of Orion Newco will be diluted as a result of the Exchange (as defined below). Approval of the Merger Agreement also shall constitute the approval of the specific terms therein and the transactions contemplated thereunder, including the Merger. Prior to voting on the Merger, Orion stockholders should review carefully the Merger Agreement, a copy of which is attached to this Proxy Statement/Prospectus as Attachment A. Exchange. Pursuant to the Exchange Agreement, Orion has agreed, among other things, to have Orion Newco issue shares of Orion Newco's Series C 6% Cumulative Redeemable Convertible Preferred Stock (the "Orion Newco Series C Preferred Stock") for the Exchanging Partners' limited partnership interests in Orion Atlantic and other rights relating thereto (the "Exchange" and together with the Merger, the "Merger Transactions"). As a result of the Exchange, which will be consummated concurrently with the Merger, Orion Newco will become the owner of all the partnership interests in Orion Atlantic (through Orion Newco and Orion as the sole limited partners and OrionSat as the sole general partner of Orion Atlantic). In addition, Orion Newco will acquire certain rights currently held by the Exchanging Partners, including the Exchanging Partners' rights to receive repayment of various advances (aggregating approximately $37.5 million at September 30, 1996) made to Orion Atlantic. The approximately 121,988 shares of Orion Newco Series C Preferred Stock expected to be issued in the Exchange will be convertible as of the issuance date into approximately 6,970,740 shares of Orion Newco Common Stock, or approximately 27% of the shares of Orion Newco Common Stock outstanding on a fully diluted basis, assuming a closing of the Merger Transactions as of January 30, 1997 (the number of shares could increase if the closing occurs after that date). As a result of the Exchange, certain of the Exchanging Partners will be principal stockholders of Orion Newco. Prior to voting on the Exchange, Orion stockholders should review carefully the Exchange Agreement, a copy of which is attached to this Proxy Statement/Prospectus as Attachment B. Debenture Investments. Pursuant to the Debenture Agreement, Orion Newco has agreed, among other things, to issue to British Aerospace and Matra Marconi Space $50 million and $10 million, respectively, of convertible junior subordinated debentures (the "Debentures"). The Debentures will mature 15 years following the date of issuance and will bear interest at a rate of 8.75% per annum to be paid semi-annually in arrears solely in Orion Newco Common Stock at prices of between $10.21 and $14.00 per share. The Debentures to be issued to British Aerospace and Matra Marconi Space will be convertible as of the issuance date into approximately 3,571,429 and 714,286 shares of Orion Newco Common Stock, respectively, or approximately 13.8% and 2.8% of the shares of Orion Newco Common Stock outstanding on a fully diluted basis, assuming a closing of the Debenture Investments as of January 30, 1997. As a result of the Debenture Investments (and the other transactions, including the Ex- 2 change, in which British Aerospace and an affiliate of Matra Marconi Space are acquiring securities of Orion Newco), British Aerospace will be the largest stockholder of Orion Newco on both an actual and a fully diluted basis and Matra Marconi Space will be one of the principal stockholders of Orion Newco. The consummation of the Debenture Investments is a condition to the Exchange. Reasons for Merger Transactions and Debenture Investments. Orion's principal objective for the Merger Transactions is to simplify Orion's organizational structure and improve its access to the capital markets. Orion believes that the Merger Transactions will enable it to: (i) consolidate outside investor ownership at the Orion Newco level, (ii) improve the speed and efficiency of its decision making, (iii) provide Orion Newco with 100% ownership of all of its material subsidiaries, (iv) allow Orion Newco to pursue independently its business plans and financings for all of its satellites, (v) eliminate (in exchange for Orion Newco stock) approximately $37.5 million of obligations Orion Atlantic owes to the Exchanging Partners and (vi) increase Orion's overall market capitalization. Orion's principal reason for the issuance of $50 million of Debentures to British Aerospace is to raise additional capital for initial payments with respect to the Orion 2 satellite, of which approximately $49.4 million of payments are due during 1997. The sale of $10 million of Debentures to Matra Marconi Space will involve a re-investment by Matra Marconi Space of $10 million of the $13 million of satellite incentive payments Matra Marconi Space will receive as manufacturer of the Orion 1 satellite upon consummation of the Notes Offering described below. Access to the capital markets is necessary for Orion to achieve its business plan to construct and launch two additional satellites, Orion 2 (with coverage of Europe, Russia, the eastern United States and Latin America) and Orion 3 (with coverage of the Asia Pacific region). With this plan in mind, Orion and Orion Newco have been pursuing and will continue to pursue the following transactions: (i) Notes Offering: a financing consisting of units of senior notes (the "Notes") and common stock warrants (the "Notes Offering") in the amount of approximately $347 million with expected gross proceeds of approximately $275 million, excluding approximately $72 million of overfunding of interest due on such notes. The principal purpose of the Notes Offering is to refinance the indebtedness of Orion Atlantic outstanding under the existing Credit Agreement (together with any related documents and agreements, the "Orion 1 Credit Facility") dated December 6, 1991 among Orion Atlantic, the Banks named therein (the "Banks") and Chase Manhattan Bank (National Association), as Agent ("Chase"), and release the existing commitments of the Limited Partners and their affiliates under the Communication Satellite Capacity Agreements, the Contingent Communications Satellite Capacity Agreements and various guarantees or other commitments supporting the Orion 1 Credit Facility (collectively, the "Orion 1 Credit Facility Support"). Such release is a condition to the Exchange. (ii) Orion 2 Construction Contract: a satellite procurement contract with Matra Marconi Space for Orion 2 (the "Orion 2 Satellite Contract"), under which the manufacturer is to proceed with construction based upon initial payments of $25 million and further payments through December 1997 limited to approximately $25 million. Orion expects to commence the construction of Orion 2 immediately following completion of the Notes Offering. (iii) Orion 3 Construction Contract: a satellite procurement contract with Hughes Space for Orion 3 (the "Orion 3 Satellite Contract"), under which the manufacturer is to proceed with construction based upon initial payments through January 31, 1997 of approximately $15 million, with further payments through March 31, 1998 being limited to $35 million, payable in approximately equal quarterly installments. The majority of the amounts due under the contract are payable in the second and third quarters of 1998. Orion commenced construction of Orion 3 in mid-December 1996 under an authorization to proceed, and expects to enter into a definitive satellite contract in January 1997. In addition to the Merger, the Notes Offering and the Debenture Investments, the Exchange is indirectly conditioned on, among other things, the acquisition by Orion of the only outstanding minority interest in Asia Pacific Space and Communcations, Ltd. ("Orion Asia Pacific") from British Aerospace for approximately 86,000 shares of Orion Newco Common Stock (the "OAP Acquisition"), which has occurred or is in the process of occurring. The pro forma financial information included in this Proxy Statement/Prospectus gives effect to Merger, the Exchange and the Debenture Investments, and the 3 transactions on which they are conditioned (the Merger Transactions and the Debenture Investments collectively with such other tranactions, the "Transactions"), including the Notes Offering, the OAP Acquisition, the application of the net proceeds of the Notes Offering to effect the Orion 1 Credit Refinancing and repayment of amounts owed to STET, a former Limited Partner, and the use of the proceeds of the Debenture Investments to make initial payments on Orion 2 (initial payments on Orion 3 are to be made from cash on hand). See "Pro Forma Condensed Consolidated Financial Statements" and "The Merger, the Exchange and the Debenture Investments -- Reasons for the Merger Transactions and the Debenture Investments" and "The Related Transactions." Each proposal to be considered at the Special Meeting will be voted upon separately by the Orion stockholders. However, failure by the Orion stockholders to approve the Exchange Agreement will result in termination of the Merger Agreement by Orion, Orion Newco and Orion Merger Subsidiary. The Merger is a condition to the Exchange and is being proposed to enable the Exchange to occur. If the Merger were to cease to be necessary to consummate the Exchange (which is not expected to occur), the Board of Directors would cause Orion to proceed with the Exchange but not the Merger. In such event, Orion (instead of Orion Newco) would issue shares of Series C 6% Cumulative Redeemable Convertible Preferred Stock for the Exchanging Partners' limited partnership interests in Orion Atlantic and other rights relating thereto and Orion (instead of Orion Newco) would issue the Debentures, but all other aspects of these transactions would remain the same. Since the rights of stockholders of Orion Newco will be substantially the same as the rights of stockholders of Orion, Orion believes that consummation of the Exchange would have the same effect on stockholders whether or not the Merger occurs. The Merger and the Exchange are conditions to the Debenture Investments, and waivers of these conditions are not expected to occur. Repayment of the Orion 1 Credit Facility is a condition to the Exchange and the Debenture Investments, and this condition is not expected to be waived. This Proxy Statement/Prospectus provides a detailed description of the Merger Transactions and the Debenture Investments, including Orion's reasons for entering into the Merger Transactions and the Debenture Investments and the effect of the Transactions on Orion and Orion Newco and their stockholders, and of the business and financial condition of Orion and Orion Newco. This Proxy Statement/Prospectus also constitutes the prospectus for the shares of Orion Newco Common Stock, Orion Newco Series A Preferred Stock and Orion Newco Series B Preferred Stock under the Securities Act of 1933, as amended (the "Securities Act"). Orion Newco has filed a Registration Statement on Form S-4, of which this Proxy Statement/Prospectus is a part, with the Securities and Exchange Commission (the "Commission") with respect to the registration of such shares. SEE "RISK FACTORS" BEGINNING ON PAGE 20 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY ORION STOCKHOLDERS. 4 THE SECURITIES TO BE ISSUED IN THE MERGER HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THE BOARD OF DIRECTORS OF ORION HAS RECOMMENDED UNANIMOUSLY (WITH THE BRITISH AEROSPACE BOARD REPRESENTATIVE RECUSING HIMSELF) THAT STOCKHOLDERS VOTE FOR RATIFICATION OF THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY, FOR ADOPTION AND APPROVAL OF THE EXCHANGE AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY, AND FOR APPROVAL OF THE DEBENTURE INVESTMENTS, AS DESCRIBED IN THIS PROXY STATEMENT/PROSPECTUS. ORION ANTICIPATES THAT ALL MEMBERS OF ITS BOARD OF DIRECTORS AND COMPANIES THEY REPRESENT (WHO HELD, IN THE AGGREGATE, APPROXIMATELY 38% OF ORION'S VOTING STOCK OUTSTANDING AS OF SEPTEMBER 30, 1996) WILL ENTER INTO WRITTEN AGREEMENTS TO VOTE FOR EACH OF THE FOREGOING PROPOSALS TO BE CONSIDERED AT THE SPECIAL MEETING. The date of this Proxy Statement/Prospectus is January 15, 1997. 5 AVAILABLE INFORMATION Orion is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). In accordance with the Exchange Act, Orion files proxy statements, reports and other information with the Commission. This filed material can be inspected and copied at the public reference facilities maintained by the Commission in Washington, D.C. and at the Regional Offices of the Commission at 7 World Trade Center, Suite 1300, New York, NY 10048, and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such material can be obtained at prescribed rates from the Public Reference Room of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. The Commission maintains a Web site at http://www.sec.gov containing reports, proxy and information statements and other information regarding registrants, including Orion and Orion Newco. The Orion Common Stock is quoted on the Nasdaq National Market under the symbol "ONSI," and such reports, proxy statements and other information concerning Orion and Orion Newco also can be inspected at the offices of Nasdaq Operations, 1735 K Street, N.W., Washington, D.C. 20006. Orion Newco has filed with the Commission a registration statement on Form S-4 (herein, together with all amendments and exhibits, referred to as the "Registration Statement") under the Securities Act with respect to the Orion Newco Common Stock, Orion Newco Series A Preferred Stock and Orion Newco Series B Preferred Stock. This Proxy Statement/Prospectus does not contain all the information set forth in the Registration Statement, certain parts of which are omitted in accordance with the rules and regulations of the Commission. For further information, reference is hereby made to the Registration Statement and the exhibits filed therewith. Statements contained in this Proxy Statement/Prospectus relating to the contents of any contract or other document referred to herein are not necessarily complete, and in each instance reference is made to the copy of such contact or other document filed as an exhibit to the Registration Statement, each such statement being qualified in all respects by such reference. 6 SUMMARY The following is a summary of certain information contained elsewhere in this Proxy Statement/Prospectus and/or the Attachments hereto. Reference is made to, and this Summary is qualified in its entirety by, the more detailed information contained in this Proxy Statement/Prospectus and such Attachments. Except as otherwise indicated, information herein concerning the number of shares of Orion capital stock issued and outstanding prior to completion of the Transactions is as of December 15, 1996. See "Glossary" beginning at page G-1 for definitions of certain defined terms and certain technical terms used in this Proxy Statement/Prospectus. THE MERGER The Merger Agreement..... The Agreement and Plan of Merger (the "Merger Agreement"), dated as of January 8, 1997, among Orion Network Systems, Inc. ("Orion"), Orion Newco Services, Inc. ("Orion Newco") and Orion Merger Company, Inc. ("Orion Merger Subsidiary"), pursuant to which Orion Merger Subsidiary will be merged with and into Orion in a tax-free reorganization, and Orion will become a wholly owned subsidiary of Orion Newco under Section 251(g) of the Delaware General Corporation Law (the "Merger"). See "The Merger, the Exchange and the Debenture Investments -- The Merger Agreement -- Terms of the Merger Agreement." Parties to the Merger..... Orion was organized as a Delaware corporation in 1982. Orion's principal executive offices are located at 2440 Research Boulevard, Suite 400, Rockville, Maryland 20850 and its telephone number is (301) 258-8101. See "Information About Orion's Business." Orion Newco is a Delaware corporation and a wholly owned subsidiary of Orion organized in 1996 by Orion for the purpose of effecting the Merger and the Exchange. Orion Newco's principal executive offices are located at 2440 Research Boulevard, Suite 400, Rockville, Maryland 20850 and its telephone number is (301) 258-8101. After the Merger, the certificate of incorporation, bylaws, management and capital structure (before issuance of the Orion Newco Series C Preferred Stock) of Orion Newco will be substantially identical in all material respects to those of Orion. Orion Newco has no material assets and has not engaged in any activities except in connection with the Merger. See "Information About Orion Newco." Orion Merger Subsidiary is a Delaware corporation and a wholly owned subsidiary of Orion Newco organized in 1996 by Orion for the purpose of effecting the Merger. Orion Merger Subsidiary has no material assets and has not engaged in any activities except in connection with the Merger. See "The Merger, the Exchange and the Debenture Investments-- The Merger Agreement -- Terms of the Merger Agreement." The Merger -- Structure..... Orion Merger Subsidiary will be merged with and into Orion and Orion will become a wholly owned subsidiary of Orion Newco. Each share of Orion Common Stock, Orion Series A Preferred Stock and Orion Series B Preferred Stock outstanding immediately prior to consummation of the Merger will be converted, 7 without any action on the part of the holder thereof, into the right to receive one newly issued share of Orion Newco Common Stock, Orion Newco Series A Preferred Stock and Orion Newco Series B Preferred Stock, respectively. The Merger will become effective upon the filing of the Delaware Merger Certificate (as defined in the Merger Agreement) with the Delaware Secretary of State, which is expected to occur following ratification or approval of the Merger Transactions and the Debenture Investments by the requisite vote of the Orion stockholders and the satisfaction or waiver of the other conditions set forth in the Merger Agreement and the Exchange Agreement. See "The Merger, the Exchange and the Debenture Investments -- The Merger Agreement -- Terms of the Merger Agreement." Conditions to Consummation of the Merger............... The respective obligations of each party to effect the Merger are subject to satisfaction or waiver of certain conditions set forth in the Merger Agreement, including, among others: (i) the ratification of the Merger Agreement by Orion stockholders, (ii) the receipt of all authorizations, consents and approvals of any Governmental Entity (as such term is used in the Merger Agreement) necessary for consummation of the Merger, (iii) the effectiveness of the Registration Statement, (iv) the receipt of an opinion relating to the tax treatment of the Merger, (v) the continued accuracy of the representations and warranties made by each party in the Merger Agreement and (vi) consummation of the Exchange concurrently with the Merger. See "The Merger, the Exchange and the Debenture Investments -- The Merger Agreement -- Conditions to Obligations to Effect the Merger." Board of Directors after the Merger.................... As provided in the Merger Agreement, upon the consummation of the Merger, the Board of Directors of Orion Newco will consist of the current directors of Orion. See "The Merger, the Exchange and the Debenture Investments -- The Merger Agreement -- Terms of the Merger Agreement." Management after the Merger. As provided in the Merger Agreement, upon the consummation of the Merger, the management of Orion Newco will consist of the current members of Orion management. See "The Merger, the Exchange and the Debenture Investments -- The Merger Agreement -- Terms of the Merger Agreement." Accounting Treatment........ The Merger will be accounted for as a reorganization of entities under common control. As a result, the assets and liabilities transferred pursuant to the Merger will be accounted for at historical cost in a manner similar to a pooling of interests. Regulatory Approval......... Orion is aware of no governmental approvals required for consummation of the Merger, other than compliance with federal securities laws and state securities or "Blue Sky" laws. Certain Federal Income Tax Consequences of the Merger................ In the opinion of Ernst & Young LLP, tax advisor to Orion, Orion stockholders whose stock of Orion is converted into the 8 right to receive stock of Orion Newco pursuant to the Merger (the "Transferors") will qualify for tax-free treatment pursuant to Sections 354 and 368 of the Internal Revenue Code of 1986, as amended (the "Code"), assuming certain requirements, such as continuity of interest, are met. Provided the conversion qualifies for tax-free treatment, each Transferor's tax basis in the shares of Orion Newco capital stock it receives will be equal to its tax basis in the Orion stock it transferred to Orion Newco. All Orion stockholders should consult their own tax advisors concerning the tax consequences of the Merger. See "The Merger, the Exchange and the Debenture Investments -- Certain Federal Income Tax Consequences." Consequences of the Merger.. Upon the consummation of the Merger, all shares of Orion Common Stock and Orion Senior Preferred Stock shall no longer be outstanding and shall automatically be retired, and each holder of a certificate representing any shares of Orion Common Stock and Orion Senior Preferred Stock shall cease to have any rights with respect thereto, except the right to receive the shares of Orion Newco Common Stock and Orion Newco Senior Preferred Stock to be issued in exchange therefor. See "The Merger, the Exchange and the Debenture Investments -- The Merger Agreement -- No Exchange of Certificates." Effective upon consummation of the Merger, Orion will be a wholly owned subsidiary of Orion Newco, Orion will change its name to Orion Oldco Services, Inc. and, as soon as practicable thereafter, Orion Newco will change its name to Orion Network Systems, Inc. Orion Newco will be a holding company following consummation of the Merger, Orion will have limited operations, and subsidiaries of Orion, particularly Orion Atlantic (as defined below), will be the principal operating companies within the consolidated group. The structure of Orion Newco after the Merger Transactions is set forth below under the caption "The Merger, the Exchange and the Debenture Investments -- Corporate Structure After the Transactions." THE EXCHANGE The Exchange Agreemen....... The Section 351 Exchange Agreement and Plan of Conversion (the "Exchange Agreement"), dated as of June 1996, as amended, among Orion, Orion Satellite Corporation, a Delaware corporation ("OrionSat") that is a wholly owned subsidiary of Orion and the sole general partner of International Private Satellite Partners, L.P., a Delaware limited partnership ("Orion Atlantic"), and each of the existing limited partners of Orion Atlantic other than Orion (the "Exchanging Partners"). See "The Merger, the Exchange and the Debenture Investments." Parties to the Exchange..... The parties to the Exchange are Orion, Orion Newco, OrionSat and Orion Atlantic (collectively, the "Orion parties") and the Exchanging Partners. See "The Merger, the Exchange and the Debenture Investments -- The Exchange Agreement -- Parties." 9 Structure of the Exchange... Pursuant to the Exchange Agreement, Orion has agreed, among other things, to have Orion Newco issue shares of Orion Newco Series C Preferred Stock for the Exchanging Partners' limited partnership interests in Orion Atlantic and other rights relating thereto. In addition, Orion Newco will acquire certain rights currently held by the Exchanging Partners, including the Exchanging Partners' rights to receive repayment of various advances made to Orion Atlantic aggregating approximately $37.5 million at September 30, 1996. As a result of the Exchange, Orion Newco will become the owner of all the partnership interests in Orion Atlantic (through Orion Newco and Orion as the sole limited partners and OrionSat as the sole general partner of Orion Atlantic). The approximately 121,988 shares of Orion Newco Series C Preferred Stock expected to be issued in the Exchange will be convertible as of the issuance date into approximately 6,970,740 shares of Orion Newco Common Stock, or approximately 27% of the shares of Orion Newco Common Stock outstanding on a fully diluted basis, assuming a closing of the Merger Transactions as of January 30, 1997. If the Merger Transactions close after January 30, 1997, Orion Newco will be obligated to make certain cash refunds of payments made by the Exchanging Partners after that date under various agreements; if Orion Newco does not have sufficient cash to make such refunds, the refunds will be made in shares of Orion Newco Series C Preferred Stock, and the number of shares issued in the Exchange will increase. As a result of the Exchange, certain of the Exchanging Partners will be principal stockholders of Orion Newco. Orion Atlantic will remain in existence and maintain its status as a partnership, with Orion Newco, Orion and OrionSat (a wholly owned subsidiary of Orion) as its partners. The structure of Orion Newco after the Transactions is set forth below under the caption "The Merger, the Exchange and the Debenture Investments -- Corporate Structure After the Transactions." Orion Newco Series C Preferred Stock........... Dividends. Subject to the preferential rights of the Orion Newco Series A Preferred Stock and Orion Newco Series B Preferred Stock, the record holders of Orion Newco Series C Preferred Stock are entitled to receive dividends at the rate of 6% per annum, payable exclusively (except in the event of a liquidation) in Orion Newco Common Stock. The number of shares of Orion Newco Common Stock distributable as a dividend on each share of Orion Newco Series C Preferred Stock is calculated based on the market price of such common stock under a formula set forth in the Certificate of Designations for the Orion Newco Series C Preferred Stock (the "Certificate of Designations"). 10 Liquidation. Each share of Orion Newco Series C Preferred Stock has a liquidation preference of $1,000 per share (plus all accrued and unpaid dividends) over the Orion Newco Common Stock and any series, class or classes of stock ranking junior to the Orion Newco Series C Preferred Stock. Voting Rights. The holders of the Orion Newco Series C Preferred Stock will be entitled to vote on all matters submitted to the stockholders of Orion Newco for a vote together with the holders of Orion Newco Common Stock, Orion Newco Series A Preferred Stock and Orion Newco Series B Preferred Stock, voting together as a single class. Each share of Orion Newco Common Stock will be entitled to one vote per share and each share of Orion Newco Senior Preferred Stock and Orion Newco Series C Preferred Stock (including fractional shares) will be entitled to one vote for each whole share of Orion Newco Common Stock that would be issuable upon conversion of such share of Orion Newco Senior Preferred Stock and Orion Newco Series C Preferred Stock, respectively, at the time the vote is taken. Conversion. The Orion Newco Series C Preferred Stock is convertible into Orion Newco Common Stock, at the option of the holder, at any time after issuance, at a conversion price of $17.50, subject to adjustment. Orion Newco may require, by written notice to all holders of Orion Newco Series C Preferred Stock, the mandatory conversion of all of the outstanding Orion Newco Series C Preferred Stock into Orion Newco Common Stock if the closing price of the Orion Newco Common Stock over 20 of the 30 prior trading days is greater than or equal to the conversion price of $17.50, subject to adjustment. In each case, all accrued and unpaid dividends are payable (in Orion Newco Common Stock) upon conversion. In the case of a mandatory conversion within two years from the initial date of issuance of the Orion Newco Series C Preferred Stock, the number of shares of Orion Newco Common Stock into which the shares of Orion Newco Series C Preferred Stock are converted will be increased by the number of shares of Orion Newco Common Stock that would be payable if Orion Newco were immediately to declare and pay all dividends that in the absence of conversion would have accrued on such shares of Orion Newco Series C Preferred Stock over the six-month period immediately following the date of such mandatory conversion; provided, however, that the total dividends, including any additional amounts in respect of dividends paid as a result of a mandatory conversion, will not be less than the amount of dividends that would have accrued on all outstanding shares of the Orion Newco Series C Preferred Stock for one full year following the date of issuance. 11 Redemption. Orion Newco will be required to redeem all of the Orion Newco Series C Preferred Stock on the 25th anniversary of issuance (2022). The Orion Newco Series C Preferred Stock also is redeemable, in whole or in part, at the option of Orion Newco, at any time after the earlier of the second anniversary of the issuance of the Orion Newco Series C Preferred Stock, or the effective date of a Reorganization (as such term is used in the Certificate of Designations) for an aggregate redemption price of $1,000 per share (plus all accrued and unpaid dividends thereon). See "The Merger, the Exchange and the Debenture Investments -- Description of the Orion Newco Series C Preferred Stock." Conditions to Closing....... Orion and the Exchanging Partners. The closing of the Exchange Agreement is conditioned upon, among other things, the satisfaction or waiver by Orion and the Exchanging Partners of the following conditions: (i) completion of a refinancing of the indebtedness of Orion Atlantic outstanding under the Orion 1 Credit Facility, (ii) the termination of all agreements between or among the Banks and Chase, on the one hand, and one or more of Orion Newco, Orion Atlantic, OrionSat, Orion and the Exchanging Partners and/or their affiliates on the other hand, relating to the Orion 1 Credit Facility or the security or credit support thereof (the "Bank Agreement Termination"), (iii) the termination of all obligations under the Orion 1 Credit Facility Support, (iv) the Option Agreement, dated December 10, 1996, between Orion Atlantic and Matra Marconi Space being in full force and effect, Orion Atlantic not being in default thereunder and Orion Atlantic having made all payments required to be made thereunder through the earlier of the closing date of the Exchange and March 31, 1997, and the Restated Amendment #10, dated December 10, 1996, to the Orion 1 Satellite Contract (as defined below), being in full force and effect, and Orion Atlantic not being in default thereunder, (v) the formation of Orion Newco with a certificate of incorporation, bylaws, capital structure and management substantially identical in all material respects to those of Orion, (vi) procurement of consents needed for the Exchange, (vii) consummation of the Merger prior to or concurrently with the Exchange and (viii) receipt by the Exchanging Partners of an opinion from Ernst & Young LLP, tax advisor to Orion, to the effect that the Merger and the Exchange, taken together, will be a tax-free exchange described in Code Section 351(a). Lockheed Martin CLS. The closing of the Exchange Agreement is conditioned upon the satisfaction or waiver by Lockheed Martin CLS of the condition that Lockheed Martin CLS and Matra Marconi Space enter into a subcontract to the Orion 2 Satellite Contract relating to the launch of Orion 2. Orion Parties. The closing of the Exchange Agreement is conditioned upon the satisfaction or waiver by the Orion parties of the following conditions: (i) the ratification or approval by 12 Orion stockholders of the Merger Transactions, (ii) the amendment and restatement of the Second Amended and Restated Partnership Agreement of Orion Atlantic (the "Partnership Agreement") and (iii) receipt by Orion Newco of approximately $60 million from the Debenture Investments. See "The Merger, the Exchange and the Debenture Investments -- The Exchange Agreement -- Conditions to the Exchange." Satisfaction of Conditions. It is presently anticipated that each of the conditions to the Exchange would have to be satisfied to consummate the Exchange (and therefore the Merger). The Exchanging Partners are not expected to waive any of the conditions to their obligations to consummate the Exchange, and the Orion parties do not intend to waive any of the conditions to their obligations to consummate the Exchange. Accounting Treatment........ The Exchange will be accounted for as an acquisition of minority interest using the purchase method of accounting. As a result, the assets and liabilities of Orion Atlantic will be revalued to fair value to the extent of the Limited Partners' interests acquired as a result of the Exchange. Representations, Warranties, Covenants and Indemnification........... Orion and OrionSat have agreed (and Orion has agreed to bind Orion Newco pursuant to a separate indemnity agreement) to indemnify the Exchanging Partners for certain losses arising out of any claims relating to the Exchange Agreement, subject to certain exceptions, limitations and conditions. See "The Merger, the Exchange and the Debenture Investments -- The Exchange Agreement -- Certain Provisions of the Exchange Agreement." Registration Rights......... The Exchanging Partners will be granted certain shelf, demand and "piggyback" registration rights with respect to the Orion Newco Series C Preferred Stock to be received by them in the Exchange and the Orion Newco Common Stock issuable as dividends thereon or upon the conversion thereof. See "The Merger, the Exchange and the Debenture Investments -- Registration Rights." Transfer Restrictions....... Each of the Exchanging Partners will agree in a Transfer Restriction Agreement, among other things, that it will not transfer any shares of Orion Newco Common Stock issued upon conversion of shares of Orion Newco Series C Preferred Stock or as dividends on Orion Newco Series C Preferred Stock (the "Affected Shares") for 180 days after the issuance of the Orion Newco Series C Preferred Stock without the prior written consent of Orion Newco, unless such a transfer is to an affiliate or does not involve a public distribution or public offering or occurs as the result of certain events set forth in the Transfer Restriction Agreement, and is conducted as provided in the Transfer Restriction Agreement. Also, each of the Exchanging Partners will agree, pursuant to a Transfer Restriction Agreement, not to transfer during any 90-day period Affected Shares 13 that collectively represent more than 25% of the aggregate number of shares of Orion Newco Common Stock issuable upon the conversion of the Orion Newco Series C Preferred Stock received by such Exchanging Partner pursuant to the Exchange Agreement or as dividends on the Orion Newco Series C Preferred Stock, except as provided in the Transfer Restriction Agreement. See "The Merger, the Exchange and the Debenture Investments -- Certain Transfer Restrictions." Closing After January 30, 1997. If the Exchange closes after January 30, 1997, Orion Newco will be obligated to make cash refunds, on or shortly after the closing date, of payments made by the Exchanging Partners after that date under the Orion 1 Credit Facility Support; if Orion Newco does not have sufficient cash to make such refunds, the refunds will be made in shares of Orion Newco Series C Preferred Stock, and the number of shares issued in the Exchange will increase. If the Notes Offering is as large or larger than that presently anticipated by the Company, all payments made by the Exchanging Partners after January 30, 1997 under the Orion 1 Credit Facility Support will be refunded in cash and the number of shares issued in the Exchange will not increase. See "The Merger, the Exchange and the Debenture Investments -- The Exchange Agreement -- Closing After January 30, 1997." REASONS FOR THE MERGER TRANSACTIONS AND THE DEBENTURE INVESTMENTS Principal Reasons for Transactions................ Orion's principal objective for the Merger Transactions is to simplify Orion's organizational structure and improve its access to the capital markets. Orion believes that the Merger Transactions will enable it to: (i) consolidate outside investor ownership at the Orion Newco level, (ii) improve the speed and efficiency of its decision making, (iii) provide Orion Newco with 100% ownership of all of its material subsidiaries, (iv) allow Orion Newco to pursue independently its business plans and financings for all of its satellites, (v) eliminate (in exchange for Orion Newco stock) approximately $37.5 million of obligations Orion Atlantic owes to the Exchanging Partners and (vi) increase Orion's overall market capitalization. Orion's principal reason for the issuance of $50 million of Debentures to British Aerospace is to raise additional capital for initial payments with respect to the Orion 2 satellite, of which approximately $49.4 million of payments are due during 1997. The sale of $10 million of Debentures to Matra Marconi Space will involve a re-investment by Matra Marconi Space of $10 million of the $13 million of satellite incentive payments Matra Marconi Space will receive as the manufacturer of the Orion 1 satellite upon consummation of the Notes Offering. The consummation of the Debenture Investments is a condition to the Exchange. 14 Related Transactions........ Access to the capital markets is necessary for Orion to achieve its business plan to construct and launch two additional satellites, Orion 2 (with coverage of Europe, Russia, the eastern United States and Latin America) and Orion 3 (with coverage of the Asia Pacific region). With this plan in mind, Orion and Orion Newco have been pursuing and will continue to pursue the following transactions: (i) Notes Offering: (i) a Notes Offering in the amount of approximately $347 million with expected gross proceeds of approximately $275 million, excluding approximately $72 million of overfunding of interest due on such notes. The principal purpose of the Notes Offering is to refinance the indebtedness of Orion Atlantic outstanding under the Orion 1 Credit Facility and release the existing commitments of the Limited Partners and their affiliates under the Orion 1 Credit Facility Support. Such release is a condition to the Exchange. (ii) Orion 2 Construction Contract: the Orion 2 Satellite Contract, under which the manufacturer is to proceed with construction based upon initial payments of $25 million and further payments through December 1997 limited to approximately $25 million. Orion expects to commence the construction of Orion 2 immediately following completion of the Notes Offering. (iii) Orion 3 Construction Contract: the Orion 3 Satellite Contract, under which the manufacturer is to proceed with construction based upon initial payments through January 31, 1997 aggregating approximately $15 million, with further payments through March 31, 1998 being limited to $35 million, payable in approximately equal quarterly installments. The majority of the amounts due under the contract are payable in the second and third quarters of 1998. Orion commenced construction of Orion 3 in mid-December 1996 under an authorization to proceed, and expects to enter into a definitive satellite contract in January 1997. In addition to the Merger, the Notes Offering and the Debenture Investments, the Exchange is indirectly conditioned on, among other things, the acquisition by Orion of the only outstanding minority interest in Orion Asia Pacific from British Aerospace for approximately 86,000 shares of Orion Newco Common Stock, which has occurred or is in the process of occurring. The pro forma financial information included in this Proxy Statement/Prospectus gives effect to the Merger, the Exchange and the Debenture Investments and the transactions on which they are conditioned, including the Notes Offering, the OAP Acquisition, the application of the net proceeds of the Notes Offering to effect the Orion 1 Credit Refinancing and repayment of amounts owed to STET, a former Limited Partner, and the use of the proceeds of the Debenture Investments to make initial payments on Orion 2 (initial payments on Orion 3 are to be made from cash on hand). See "Pro Forma Condensed Consolidated Financial Statements," "The Merger, the Exchange and the Debenture Investments -- Reasons for 15 the Merger Transactions and the Debenture Investments" and "The Related Transactions." Each proposal to be considered at the Special Meeting will be voted upon separately by the Orion stockholders. However, failure by the Orion stockholders to approve the Exchange Agreement will result in termination of the Merger Agreement by Orion, Orion Newco and Orion Merger Subsidiary. The Merger is a condition to the Exchange and is being proposed to enable the Exchange to occur. If the Merger were to cease to be necessary to consummate the Exchange (which is not expected to occur), the Board of Directors would cause Orion to proceed with the Exchange but not the Merger. In such event, Orion (instead of Orion Newco) would issue shares of Series C 6% Cumulative Redeemable Convertible Preferred Stock for the Exchanging Partners' limited partnership interests in Orion Atlantic and other rights relating thereto and Orion (instead of Orion Newco) would issue the Debentures, but all other aspects of these transactions would remain the same. Since the rights of stockholders of Orion Newco will be substantially the same as the rights of stockholders of Orion, Orion believes that consummation of the Exchange would have the same effect on stockholders whether or not the Merger occurs. The Merger and the Exchange are conditions to the Debenture Investments, and waivers of these conditions are not expected to occur. Repayment of the Orion 1 Credit Facility is a condition to the Exchange and the Debenture Investments, and this condition is not expected to be waived. SPECIAL MEETING Date, Time, Place of Meeting................... The Special Meeting will be held on Thursday, January 30, 1997 at 9:00 a.m., local time, at 2440 Research Boulevard, Suite 400, Rockville, Maryland. Record Date................. Only Orion stockholders of record at the close of business on December 23, 1996 (the "Record Date") are entitled to notice of and to vote at the Special Meeting or any adjournment thereof, unless a new record date is fixed for any adjourned meeting. See "The Special Meeting -- Voting Rights and Related Matters." Purpose of the Special Meeting................... At the Special Meeting, Orion stockholders will be asked to consider and vote upon (i) ratification of the Merger Agreement and the transactions contemplated thereby, (ii) approval and adoption of the Exchange Agreement and the transactions contemplated thereby and (iii) approval of the Debenture Investments. See "The Special Meeting -- Voting Rights and Related Matters." 16 Quorum...................... The holders of a majority of the votes of the shares of Orion capital stock issued and outstanding and entitled to vote, present in person or represented by proxy, treated as a single class, will be required to constitute a quorum at the Special Meeting. See "The Special Meeting -- Voting Rights and Related Matters." Votes Required.............. The affirmative vote of holders of a majority of the votes of the shares of Orion capital stock that are entitled to vote and that are present in person or represented by proxy at the Special Meeting, treated as a single class, will be required to approve each proposal to be considered at the Special Meeting. Orion anticipates that all members of the Board of Directors and companies they represent (who held, in the aggregate, approximately 38% of Orion's voting stock as of September 30, 1996) will enter into written agreements to vote for each such proposal. Each share of Orion Common Stock will be entitled to one vote per share, and each share of Orion Series A Preferred Stock and Orion Series B Preferred Stock (including fractional shares) will be entitled to one vote for each whole share of Orion Common Stock that would be issuable upon conversion of such share of Orion Series A Preferred Stock and Orion Series B Preferred Stock, respectively. See "The Special Meeting -- Voting Rights and Related Matters" and "-- Votes Required." Dissenters' Rights.......... Orion stockholders have no dissenters' rights in connection with the matters submitted by Orion for stockholder ratification or approval at the Special Meeting. See "The Special Meeting -- No Dissenters' Rights." Revocability of Proxies..... An Orion stockholder giving a proxy in the form accompanying this Proxy Statement/Prospectus has the power to revoke the proxy prior to its exercise. A proxy may be revoked by any stockholder who attends the Special Meeting and gives notice of the stockholder's intention to vote in person, without compliance with any other formalities. In addition, any Orion stockholder may revoke a proxy at any time before it is voted by executing and delivering a later dated proxy or by delivering a written notice to the Secretary of Orion stating that the proxy is revoked. See "The Special Meeting -- Proxies." BOARD RECOMMENDATION........ The Board of Directors has unanimously approved (with the British Aerospace Board representative recusing himself) the terms of the Merger Agreement, the Exchange Agreement and the Debenture Agreement and determined that the Merger, the Exchange and the Debenture Investments are in the best interest of Orion and its stockholders. The Board recommends unanimously (with the British Aerospace Board representative recusing himself) that stockholders vote FOR ratification of the Merger Agreement and the transactions contemplated thereby, FOR approval and adoption of the Exchange Agreement and the transactions contemplated thereby, and FOR approval of the Debenture Investments. 17 SUMMARY CONSOLIDATED FINANCIAL AND OPERATIONAL DATA The following table sets forth summary consolidated financial and operational data of the Company as of and for the years ended December 31, 1994 and 1995 and for the nine months ended September 30, 1995 and 1996. The data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations of Orion," the Pro Forma Condensed Consolidated Financial Statements and the Consolidated Financial Statements of the Company and the related notes included elsewhere in this Proxy Statement/Prospectus. The summary consolidated financial data under the captions "Consolidated Statements of Operations Data" for the years ended December 31, 1994 and 1995, with the exception of the Pro Forma data, were derived from the audited consolidated financial statements of the Company. The summary consolidated financial data as of September 30, 1996, and for the nine months ended September 30, 1995 and 1996, with the exception of the Pro Forma data, are derived from the Company's unaudited consolidated financial statements. The Pro Forma data are not necessarily indicative of the results that would have been achieved, nor are they indicative of the Company's future results.
NINE MONTHS YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30, -------------------------------------- -------------------------------------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) 1995 1996 PRO 1994 1995 PROFORMA(1) 1995 1996 FORMA(1) ----------- ----------- ---------------- ----------- ------------ ------------ Consolidated Statements of Operations Data: Revenues.............................. $ 3,415 $ 22,284 $ 22,284 $ 13,947 $ 30,016 $ 30,016 Interest expense...................... 61 24,738 50,637 17,080 20,229 39,521 Net loss.............................. (7,965) (26,915) (103,156) (19,985) (19,807) (67,263) Net loss per common share............. $ (0.86) $ (3.07) $ (12.01) $ (2.42) $ (1.90) $ (6.46) Shares used in calculating per share data (2).............................. 9,272,166 9,103,505 9,376,719 8,522,067 10,943,287 11,544,626 ----------- ----------- ---------------- ----------- ------------ ------------ Ratio of earnings to fixed charges (3)................................... -- -- -- -- -- -- Other Operating Data: Number of customers................... 34 109 79 167 Capital expenditures.................. $ 51,103 $ 9,060 $ 3,863 $ 10,266 Customer contract backlog (4)......... $ 39,122 $ 120,612 $ 94,890 $ 134,320 $ 123,000 Points of service (5)................. 57 151 124 304 EBITDA (6)............................ $ (14,014) $ (15,427) $ (15,177) $ 134
AS OF SEPTEMBER 30, 1996 ---------------------- PRO ACTUAL FORMA(1) --------- ------------ Consolidated Balance Sheet Data: Cash and cash equivalents............ $ 36,657 $122,339 Restricted cash (7).................. -- 72,000 Total assets......................... 355,977 566,292 Long-term debt (less current portion)............................. 221,781 425,513 Limited Partners' interest in Orion Atlantic (8)......................... 19,961 -- Redeemable preferred stock........... 20,539 114,539 Total stockholders' equity........... 6,891 967 Book value per share................. .63 .09 - ---------- (1) Adjusted to reflect the pro forma effects of the Transactions (see "Pro Forma Condensed Consolidated Financial Statements"), assuming such events occurred, in the case of Consolidated Statements of Operations Data, on January 1, 1995 and, in the case of Consolidated Balance Sheet Data, on September 30, 1996. (2) Computed on the basis described for net loss per common share in Note 2 to the Consolidated Financial Statements. (3) As required by GAAP, net loss is presented before preferred stock dividends and accretion. For the years ended 1994, 1995, 1995 (pro forma) and the nine months ended September 30, 1995, 1996 and 1996 (pro forma), preferred stock dividends and accretion are $.6 million, $1.3 million, $9.8 million, $1.0 million, $1.0 million and $7.3 million, respectively. (4) For purposes of the ratio of earnings to fixed charges, earnings consist of earnings from continuing operations, plus fixed charges, reduced by the amount of unamortized interest capitalized. Fixed charges consist of interest on all indebtedness (including commitment fees and amortization of deferred financing costs) plus the portion of rent expense representing interest (estimated to be one-third of such expense). For the years ended December 31, 1994 and 1995, and the nine months ended September 30, 1995 and 1996, earnings were inadequate to cover fixed charges by $35.2 million, $28.2 million, $21.3 million and $19.8 million, respectively. On a pro forma basis assuming consummation of the Transactions, earnings 18 would not have been sufficient to cover fixed charges by $105.4 million and $70.5 million for the year ended December 31, 1995 and the nine months ended September 30, 1996, respectively. A 0.5% increase in the assumed interest rates on the Notes would result in pro forma deficiencies of earnings to cover fixed charges of approximately $107.1 million for the year ended December 31, 1995 and $71.8 million for the nine months ended September 30, 1996. (5) Backlog represents future revenues under contract. See "Risk Factors -- Risks Relating to Orion's Business -- Uncertainties Relating to Backlog." (6) Points of service includes installed VSATs and additional transmission destinations (such as customer premises) that share a VSAT. (7) "EBITDA" represents earnings before minority interests, interest income, interest expense, other expense (income), income taxes, depreciation and amortization. EBITDA is commonly used in the communications industry to analyze companies on the basis of operating performance, leverage and liquidity. EBITDA is not intended to represent cash flows for the period and should not be considered as an alternative to cash flows from operating, investing or financing activities as determined in accordance with generally accepted accounting principles ("GAAP"). EBITDA is not a measurement under GAAP and may not be comparable to other similarly titled measures of other companies. Other expense (income) includes gains on sale of equipment, less the write-off of costs relating to the 1995 Financing of $3.4 million in the fourth quarter of 1995. (8) Restricted cash represents the estimated $72 million that will be placed in escrow on the closing date of the Notes Offering to pre-fund the payment of the first six scheduled payments of interest on the Senior Notes (as defined below). The actual amount to be placed in escrow and reflected as restricted cash will depend on the interest rates on the Senior Notes and market interest rates on government securities on such closing date. (9) Represents amounts invested by Limited Partners (net of syndication costs related to the investments), adjusted for such Limited Partners' share of net losses. The interests of the Limited Partners will be acquired by the Company in the Exchange. 19 RISK FACTORS An investment in Orion Newco Common Stock pursuant to the Merger involves a high degree of risk. In evaluating the Merger Transactions and the Debenture Investments, Orion stockholders should carefully consider the following factors as well as other matters discussed in this Proxy Statement/Prospectus. Statements contained in this Proxy Statement/Prospectus regarding Orion's expectations with respect to Orion 2 and Orion 3, related financings, future operations and other information, which can be identified by the use of forward-looking terminology, such as "may," "will," "expect," "anticipate," "estimate" or "continue" or the negative thereof or other variations thereon or comparable terminology, are forward-looking statements and depend on a variety of factors, including those set forth in this Risk Factors section. See "Forward-Looking Statements." The discussions set forth below constitute cautionary statements identifying important factors with respect to such forward-looking statements, including certain risks and uncertainties, that could cause actual results to differ materially from those in such forward-looking statements. There can be no assurance that Orion's expectations regarding some or all of these matters will be fulfilled. RISKS RELATING TO MERGER, EXCHANGE AND DEBENTURE INVESTMENTS MERGER, EXCHANGE AND DEBENTURE INVESTMENTS DEPENDENT ON ORION 1 CREDIT FACILITY REFINANCING The Merger, the Exchange and the Debenture Investments are conditioned on consummation of the Orion 1 Credit Facility Refinancing. Although Orion has engaged in discussions with prospective underwriters with respect to the Notes Offering Orion is pursuing to effectuate the Orion 1 Credit Facility Refinancing, there can be no assurance that such financing will be consummated. Orion has been advised by prospective underwriters that the Notes Offering will be conditioned on, among other things, concurrent completion of the Exchange, repayment of the Orion 1 Credit Facility with proceeds of the Notes Offering and consummation of the OAP Acquisition and the Debenture Investments. There can be no assurance that the conditions to closing the Orion 1 Credit Facility Refinancing, and accordingly of the Merger, the Exchange and the Debenture Investments, will be met. CERTAIN TERMS OF NOTES OFFERING NOT YET DETERMINED Completion of the Exchange is conditioned, among other things, upon completion of the Notes Offering. Certain pricing and other terms of the Notes Offering are not known at the present time, including, without limitation, the size of the Notes Offering, the interest rate for the Notes and the amount and terms of the Orion Newco Common Stock warrants to be included in the Notes Offering, and there can be no assurance that the terms of such transactions will be favorable to Orion. In addition, Orion will be subject to a number of restrictions and limitations imposed by the indentures pursuant to which the Notes will be issued (the "Notes Indentures"). The Notes Indentures are expected to contain, among other limitations, covenants which will restrict the ability of the Company and its subsidiaries to: incur additional indebtedness; create liens; engage in sale-leaseback transactions; pay dividends or make distributions in respect of their capital stock; make investments or make certain other restricted payments; sell assets; create restrictions on the ability of restricted subsidiaries to make certain payments; issue or sell stock of restricted subsidiaries; enter into transactions with stockholders or affiliates; and consolidate, merge or sell all or substantially all of their assets. However, these limitations will be subject to a number of important qualifications and exceptions. RISKS IN IMPLEMENTATION OF MERGER, EXCHANGE AND DEBENTURE INVESTMENTS In order to implement the Merger, the Exchange and the Debenture Investments, Orion will need to organize Orion Newco to be substantially identical to Orion, transfer all matters relating to Orion's capital structure to Orion Newco, and merge with a subsidiary of Orion Newco. These transactions may require receipt of a number of approvals or waivers, including waivers of rights of the holders of the Orion Senior Preferred Stock to have their shares repurchased by Orion, consents or waivers under various contracts that may make a merger by Orion an event of default and consents to assignment of various contracts regarding registration rights applicable to Orion capital stock and other matters. There 20 can be no assurance that Orion will obtain all necessary approvals or waivers to implement the Merger, the Exchange and the Debenture Investments, or regarding the effect of failure to obtain such approvals or waivers. It is presently anticipated that each of the conditions to the Exchange would have to be satisfied to consummate the Exchange (and therefore the Merger and the Debenture Investments). The Exchanging Partners are not expected to waive any of the conditions to their obligations to consummate the Exchange, and the Orion parties do not intend to waive any of the conditions to their obligations to consummate the Exchange, including, without limitation, conditions relating to financing, procurement agreements or otherwise. SUBSTANTIAL CHANGE IN OWNERSHIP OF STOCK The beneficial ownership of Orion's Common Stock will change substantially as a result of the Exchange and the Debenture Investments. The Exchange will involve the issuance of Orion Newco Series C Preferred Stock convertible as of the issuance date into approximately 6,970,740 shares of Orion Newco Common Stock, or approximately 27% of the shares of Orion Newco Common Stock outstanding on a fully diluted basis, assuming a closing of the Merger Transactions as of January 30, 1997. The Debenture Investments will involve the issuance of $60 million of Debentures convertible as of the issuance date into approximately 4,285,714 shares of Orion Newco Common Stock, or approximately 16.6% of the shares of Orion Newco Common Stock outstanding on a fully diluted basis, assuming a closing of the Debenture Investments as of January 30, 1997. See "The Merger, the Exchange and the Debenture Investments -- Security Ownership of Certain Beneficial Owners Prior to and Following the Transactions." Although the Company is not aware of any intent by the Exchanging Partners, British Aerospace or Matra Marconi Space to seek to control the management and affairs of the Company, there can be no assurance that they will not seek to do so. In addition, the increase in outstanding capital stock could adversely affect prevailing market prices, as discussed below under the caption "Risks Relating to Capital Stock -- Potential Adverse Effect of Shares Eligible for Future Sale." RISKS RELATING TO HOLDING COMPANY STRUCTURE After the Merger Transactions, the Company will conduct almost all of its operations through its subsidiaries. Accordingly, the primary source of the Company's cash will be dividends and other distributions from its subsidiaries. The subsidiaries' ability to make distributions to the Company will be subject to their having sufficient funds from their operations legally available for payment thereof which are not needed to fund their own operations, obligations or business plans and which are not restricted by agreements with the creditors of these entities. If the Company's subsidiaries are unwilling or unable to make distributions to the Company, the Company's growth may be inhibited. The Company may not be able to obtain debt financing if it cannot compel the subsidiaries to make distributions to service such debt financing or obtain upstream guarantees from its subsidiaries with respect to such financing. RISKS RELATING TO ORION NEWCO SERIES C PREFERRED STOCK AND DEBENTURES The Company expects to issue $122 million in Orion Newco Series C Preferred Stock (assuming a closing of the Merger Transactions as of January 30, 1997) and $60 million of Debentures. Certain rights granted by Orion Newco to holders of the Orion Newco Series C Preferred Stock and the Debentures could adversely affect Orion Newco or the rights of holders of Orion Newco Common Stock. In particular, the holders of Orion Newco Series C Preferred Stock will have dividend rights, a liquidation preference, rights to vote with the Orion Newco Common Stock as a single class, rights to mandatory redemption after 25 years and earlier redemption at the option of Orion Newco, the right to convert such shares into Orion Newco Common Stock and registration rights, as described more fully under the caption "The Merger, the Exchange and the Debenture Investments - -- Description of the Orion Newco Series C Preferred Stock." Holders of the Debentures will have the right to convert the Debentures into Orion Newco Common Stock at $14.00 per share (subject to downward adjustment in certain events) and the right to receive dividends in Orion Newco Common Stock which, in certain circumstances, could be valued at a price which is lower than the market price of such stock at the date of such dividends. See "The Merger, the Exchange and the Debenture Investments -- The Debenture Investments." 21 RISKS RELATING TO ORION'S BUSINESS LIMITED OPERATIONS; HISTORY OF LOSSES AND NEGATIVE EBITDA; EXPECTATION OF FUTURE LOSSES From its inception in 1982 through January 20, 1995, when Orion 1 commenced commercial operations, Orion was a development stage company. Accordingly, Orion has limited experience operating its business. Orion has experienced net losses in each fiscal year since its inception, including a net loss of approximately $26.9 million and negative EBITDA of $15.4 million during 1995, and a net loss of $19.8 million during the nine months ended September 30, 1996. On a pro forma basis, giving effect to the Transactions, the Company would have had a net loss of $103.2 million and $67.3 million for 1995 and the nine months ended September 30, 1996, respectively. The increase in net loss on a pro forma basis is associated with the depreciation on the step up in the basis of the Orion 1 satellite and amortization of excess cost over fair value resulting from the acquisition of the Limited Partners' partnership interests in Orion Atlantic, the net increase to interest expense as a result of the Transactions, and the elimination of minority interest as a result of the Exchange. See Notes to Pro Forma Condensed Consolidated Statements of Operations for the year ended December 31, 1995 and for the nine months ended September 30, 1996. The implementation of Orion's business plan regarding Orion 2 and Orion 3 will require substantial additional capital for the construction, launch, insurance, financing and start-up costs of those satellites. A substantial portion of these costs may be financed with indebtedness, which would substantially increase interest costs. The Company's negative cash flow has been substantial and net losses and negative cash flows (after payments for capital expenditures and interest) are expected to increase over the next few years. NEED FOR SUBSTANTIAL ADDITIONAL CAPITAL The Company will need a substantial amount of capital over the next three years (and possibly thereafter) to fund the costs of Orion 2 and Orion 3, the purchase of VSATs and other capital expenditures and to make various other payments, such as principal and interest payments with respect to the TT&C Financing (as defined below), the Notes and any indebtedness incurred to finance Orion 2 or Orion 3. The Company's cash flows will be inadequate to cover its cash needs and the Company will seek financing from outside sources. Sources of additional capital may include public or private debt or equity financings. The Company is often involved in discussions or negotiations with respect to such potential financings and, because of its substantial capital needs, may consummate any such financings at any time. The Company has commenced construction of Orion 3 and intends to commence construction of Orion 2 immediately after consummation of the Notes Offering, despite the fact that it does not have any commitment from any outside source to provide such financing. If the Company is unable to obtain financing from outside sources in the amounts and at the times needed, it could forfeit payments made on Orion 2 and Orion 3 and its rights to Orion 2 and Orion 3 under the Orion 2 Satellite Contract and Orion 3 Satellite Contract. Such a forfeiture would have a material adverse effect on the Company's ability to make payments on its indebtedness and on the value of the Orion Newco Common Stock. Expected payments prior to launch under the Orion 2 Satellite Contract and Orion 3 Satellite Contract and for launch insurance for Orion 2 and Orion 3 aggregate approximately $500 million. Of this amount, $3 million was paid in the fourth quarter of 1996, and Orion is required to make payments of approximately $90 million, $360 million and $50 million in 1997, 1998 and 1999, respectively. These amounts include the Company's estimate regarding the cost of launch insurance (but not in-orbit insurance, which the Company presently estimates will cost approximately $5 million to $6 million per annum per satellite), which estimate is based upon industry figures but not upon discussions with potential insurers or any commitment to provide insurance. The Company's actual payments could be substantially higher due to any change orders for the satellites, higher than expected insurance rates, delays and other factors. In addition, the Company expects to expend approximately $22 million, $30 million and $34 million on VSATs and other capital expenditures in 1997, 1998 and 1999, respectively. However, there can be no assurance that these amounts will not be substantially higher. The Company believes the costs of VSATs and other capital expenditures can be financed through capital leases or other secured financing arrangements. However, the Company has not engaged in material discussions with potential 22 lenders and there can be no assurance that such financing can be obtained. The Company also expects to incur an aggregate of approximately $40 million of start-up losses and financing costs in connection with Orion 2 and Orion 3. Orion Newco's ability to raise public equity financing may be limited by the registration rights it has granted to certain investors. See "Risks Relating to Capital Stock -Potential Adverse Effect of Shares Eligible for Future Sale" below. Under the Orion 1 Satellite Contract, the contractor is entitled to receive incentive payments based upon the performance of Orion 1 in orbit. These incentive payments could reach an aggregate of approximately $44 million through 2007, if the transponders on Orion 1 continue to operate in accordance with specification during that period. As of September 30, 1996, Orion had obligations with a present value of approximately $21.7 million with respect to incentive payments. Orion will pay $13 million in satellite incentives concurrently with the closing of the Notes Offering, of which $10 million will be re-invested in Orion in the Matra Marconi Investment. Under the Orion 2 Satellite Contract, Orion is obligated to pay $25,000 per day that the satellite is delivered prior to the scheduled delivery date. The foregoing estimates do not include any amounts for other possible financing requirements. The Company may from time to time enter into joint ventures and make acquisitions of complementary businesses and is often engaged in discussions or negotiations with regard to such potential joint ventures and acquisitions. Such joint ventures or acquisitions would need to be financed, which would increase the Company's need for additional capital. In addition, Orion intends to replace Orion 1 at the end of its useful life (expected to be in October 2005). Such replacement likely will require additional financing if the cash flow from Orion's operations is not sufficient to fund a replacement satellite. SUBSTANTIAL LEVERAGE; SECURED INDEBTEDNESS As of September 30, 1996, after giving pro forma effect to the Transactions, Orion would have had approximately $426 million of long-term indebtedness, and will be highly leveraged. The accretion of original issue discount on the Senior Discount Notes (as defined below) will substantially increase Orion's liabilities. The Company also expects to incur substantial additional amounts of indebtedness. The Company will deposit approximately $72 million in escrow to pre-fund the first six scheduled payments of interest on the Senior Notes (as defined below). However, the Company ultimately will need to service the cash interest expense on a very substantial amount of indebtedness with cash generated by its operations. For 1995 and the three and nine months ended September 30, 1996, the Company had EBITDA of $(15.4) million, $1.7 million and $0.1 million and, on a pro forma basis, giving effect to the Transactions, interest costs of $50.6 million and $39.5 million for 1995 and the nine months ended September 30, 1996, respectively. Interest costs will increase substantially if, as expected, the Company incurs additional indebtedness, as described above under the caption "Need for Substantial Additional Capital." The Company does not have a revolving credit facility or other source of readily available capital. The level of the Company's indebtedness could have important consequences to the Company and its stockholders, including the following: (i) the ability of the Company to obtain any necessary financing in the future for capital expenditures, working capital, debt service requirements or other purposes may be limited; (ii) a substantial portion of the Company's cash flow from operations, if any, must be dedicated to the payment of principal of and interest on its indebtedness and other obligations and will not be available for use in the Company's business; (iii) the Company's level of indebtedness could limit its flexibility in planning for, or reacting to changes in, its business; (iv) the Company will be more highly leveraged than some of its competitors, which may place it at a competitive disadvantage; and (v) the Company's high degree of indebtedness will make it more vulnerable to a default and the consequences thereof (such as bankruptcy workout) in the event of a downturn in its business. See "Management's Discussion and Analysis of Financial Condition and Results of Operations of Orion -- Liquidity and Capital Resources -- Current Funding Requirements." RISKS OF SATELLITE LOSS OR REDUCED PERFORMANCE Satellite Loss or Reduced Performance. Satellites are subject to significant risks, including launch failure, damage that impairs commercial performance, failure to achieve correct orbital placement during launch, loss of fuel that reduces satellite life, and satellite in-orbit risks. Although Orion 1 has been 23 successfully launched and is in commercial operation, and although Orion maintains satellite in-orbit insurance on Orion 1, any loss in orbit or reduced performance of Orion 1 would have a material adverse effect on Orion. In addition, no assurance can be given that the launch of Orion 2 or Orion 3 will be successful. Although various sources of data permit differing conclusions, Orion is aware of sources indicating that the historical loss rate for all commercial geosynchronous satellite launches may be as high as 15%. Launch risks vary based upon the launch vehicle used. The Delta III launcher to be used for Orion 3 is new and has no significant launch history. Even though the Delta III is based upon earlier Delta launch vehicles, the new technology used in Delta III could affect its launch success rate. Orion may have to change launch vehicles if, for example, one of its selected vehicles experiences a launch failure with respect to another satellite. Orion intends to order certain long lead time parts in order to reduce the amount of time needed to obtain one replacement satellite. However, an unsuccessful launch of Orion 2 or Orion 3 would involve a delay in revenues for at least one year, and perhaps substantially longer. Any loss or delay of revenue from any of the Company's satellites would have a material adverse effect on its ability to service its indebtedness and the value of the Orion Newco Common Stock. In November 1995, one of Orion 1's components supporting nine transponders of dedicated capacity serving the European portion of the Orion 1 footprint experienced an anomaly that resulted in a temporary service interruption, lasting approximately two hours. Full service to all affected customers was restored using redundant equipment on the satellite. These transponders currently generate a majority of Orion's revenues. Orion believes, based on the data received to date by Orion from its own investigations and from the manufacturer, and based upon advice from Orion's independent engineering consultant, Telesat Canada, that because the redundant component is functioning fully in accordance with specifications and the performance record of similar components is strong, the anomalous behavior is unlikely to affect the expected performance of the satellite over its useful life. Furthermore, there has been no further effect on Orion's ability to provide services to customers. However, in the event that the currently operating component fails, Orion 1 would experience a significant loss of usable capacity. In such event, while Orion would be entitled to insurance proceeds of approximately $47 million and could lease replacement capacity and function as a reseller with respect to such capacity (at substantially reduced gross margins), the loss of capacity would have a material adverse effect on the Company, on its ability to service its indebtedness and the value of the Orion Newco Common Stock. See "Information About Orion's Business -- Implementation of the Orion Satellite System -- Orion 1." At the time of Orion's 1 delivery from its manufacturer, one of the six 36 MHz transponders covering the United States was not performing in accordance with contract specifications based on then-available data. To date, Orion has not used such transponder to provide services under any commercial contract, and there can be no assurance that such transponder will ever be used. Although Orion settled the matter with the manufacturer for a one-time refund of approximately $2.75 million and monthly payments of $7,000, there can be no assurance that such payments adequately compensated Orion for the loss of such transponder. Limited Insurance for Satellite Launch and Operation. The in-orbit insurance of Orion 1 and the launch and in-orbit insurance for Orion 2 and Orion 3 will not protect the Company against business interruption, loss or delay of revenues and similar losses and may not fully reimburse the Company for its expenditures. In addition, such insurance includes or can be expected to include certain contract terms, exclusions, deductibles and material change conditions that are customary in the industry. Accordingly, an unsuccessful launch of Orion 2 or Orion 3 or any significant loss of performance with respect to any of its satellites would have a material adverse effect on Orion, its ability to make payments on its indebtedness and the value of the Orion Newco Common Stock. Although Orion intends to procure insurance for the construction, launch and insurance costs of Orion 2 and Orion 3, Orion has not obtained any commitment from insurance underwriters to provide launch insurance for Orion 2 or Orion 3. There can be no assurance that such insurance will be available or that the price of such insurance or the terms and exclusions in the actual insurance policy will be favorable to the Company. A failure of one of the launch vehicles selected by Orion prior to the launch of Orion 2 or Orion 3 could substantially increase the cost of launch insurance for Orion. See "Information About Orion's Business -- Insurance." 24 Limited Life of Satellites. While Orion 1 is expected to have an orbital life of approximately 10.7 years (through October 2005), and Orion 2 and Orion 3 are expected to have orbital lives of approximately 13 years and 15 years, respectively, there can be no assurance as to the actual longevity of the satellites. A number of factors will affect the useful life of each satellite, including the rate of fuel consumption in achieving correct orbital placement during launch, the quality of its construction and the durability of its component parts. There is a significant possibility that one or more transponders on a satellite may cease to function in accordance with specifications during its estimated useful life and there is no assurance that service could be restored through redundant transponders. In addition, while Orion plans to replace each satellite at the end of its useful life, there can be no assurance that the required financing and regulatory approvals to do so will be available. LAUNCH OF ORION 2 AND ORION 3 SUBJECT TO SIGNIFICANT UNCERTAINTIES Cost Uncertainties. Based on the current designs of and current construction schedules for Orion 2 and Orion 3, the total costs of Orion 2 and Orion 3, including construction, launch, launch insurance, financing costs and start-up expenses, are presently estimated to be approximately $265 million and $275 million, respectively. These costs may increase as a result of changes that may occur during the construction of the satellites or if the cost of insurance exceeds the Company's expectations. See "Information About Orion's Business -- Implementation of the Orion Satellite System." There can be no assurance that the actual costs of these satellites will not be materially greater than these estimates. Substantial Financing Requirements. Completion of Orion 2 and Orion 3 will require substantial additional financing beyond the funds expected to be raised in the Notes Offering and the British Aerospace Investment. Failure to raise such financing would have a material adverse effect on Orion, its ability to make payments on its indebtedness and the value of the Orion Newco Common Stock, as discussed in more detail above under the caption "Need for Substantial Additional Capital." Timing Uncertainties. Orion presently plans to launch Orion 2 in the second quarter of 1999 and plans to launch Orion 3 in the fourth quarter of 1998, based upon the construction and launch schedules set forth in the satellite contracts. To meet these schedules, Orion must raise the financing needed for payments to the satellite manufacturers, receive certain regulatory approvals, finalize the satellite designs and take other necessary steps. Failure to meet the construction and launch schedules could increase the cost of Orion 2 or Orion 3, requiring additional financing, as described above under the caption "Need for Substantial Additional Capital." Although the Orion 2 Satellite Contract and the Orion 3 Satellite Contract are fixed-price contracts with firm schedules for construction, delivery and launch, there can be no assurance that increases in costs due to change orders or delay will not occur. See "Information About Orion's Business -- Implementation of the Orion Satellite System." There can be no assurance that the launch of Orion 2 or Orion 3 will take place as scheduled. Delays in launching satellites are quite common, and a significant delay in the delivery or launch of Orion 2 or Orion 3 also would have a material adverse effect on Orion's marketing plan for such satellites, its ability to generate revenue and service its indebtedness and the value of the Orion Newco Common Stock. Risks of Proceeding With Construction Prior to Obtaining all Regulatory Approvals for Orion 2 and Orion 3. Orion has commenced construction of Orion 3 and will commence construction of Orion 2 prior to completion of the required consultation with INTELSAT, receipt of final authority from the FCC (in the case of Orion 2) and completion of the International Telecommunication Union ("ITU") coordination process. Failure to obtain one more necessary approvals in a timely manner would likely have a material adverse effect on the Company. See "Approvals Needed; Regulation of Industry" below. RISKS RELATING TO POTENTIAL LACK OF MARKET ACCEPTANCE AND DEMAND; GROUND OPERATIONS Orion's success will depend in part on the continued growth in demand for international private network services, which to date have not been a primary focus of satellite companies, and on Orion's ability to market such services effectively. Marketing will be critical to Orion's success. However, Orion has limited experience in marketing, having commenced full commercial operations only in 1995. Ori- 25 on's marketing program until recently consisted of direct sales, using a U.S.-based sales force, and indirect sales channels, including Limited Partner sales representatives, for sales in Europe. During 1996, certain of Orion's indirect sales channels in Europe in 1996 did not meet expectations, and Orion is seeking to supplement its sales in Europe by significantly increasing its direct sales capabilities in Europe, particularly with respect to sales of private network services. However, there can be no assurance that this effort will be successful. Sales of Orion's services generally involve a long-term, complex sales process, and new contract bookings will vary from quarter to quarter. In addition, as an early provider of international network services using VSATs, Orion is subject to the uncertainties associated with the development of new services, including uncertainties regarding customer interest in and acceptance of higher data speed communications, the need to develop and convince customers of the attractiveness of new applications, and customer acceptance of the ability of Orion (as a new market entrant) to provide service. In addition, Orion's operations will continue to depend significantly on Orion's ability to provide ground operations for private network services using ground operators throughout the footprint of Orion's satellites. In the event that its network of ground operators is not maintained and expanded or fails to perform as expected, Orion's ability to offer private network services will be impaired. See "Information About Orion's Business -- Network Operations; Local Ground Operators." RISKS CONCERNING ABILITY TO MANAGE GROWTH The Company's future performance will depend, in part, upon its ability to manage its growth effectively, which will require it to continue to implement and improve its marketing, operating, financial and accounting systems and to expand, train and manage its employee base and manage its relationships with its local ground operators. For example, Orion is in the process of seeking to integrate a significant number of newly hired direct sales personnel, and expects the process to continue as it seeks to increase its sales force during 1997. Furthermore, the Company may from time to time enter into joint ventures and acquire complementary businesses and is often engaged in discussions or negotiations with regard to such potential joint ventures and acquisitions. Such joint ventures and acquired businesses would need to be integrated with the Company, which would place an additional burden on the Company's internal systems and its ability to manage its employees and its relationships with its local ground operators. In addition, the Company's ability to attract new orders is subject to substantial variations from quarter to quarter. If the Company fails either to expand in accordance with its plans or to manage its growth effectively, there could be a material adverse effect on its business, growth, financial condition and results of operations, its ability to service its indebtedness and the value of the Orion Newco Common Stock. POTENTIAL ADVERSE EFFECTS OF COMPETITION The international telecommunications industry is highly competitive. In providing international telecommunications services, Orion competes with established satellite and other transmission facilities providers, including INTELSAT, EUTELSAT, PanAmSat and consortia of major telephone carriers operating undersea fiber optic cables. In addition, Orion competes with certain established telephone carriers, such as AT&T, MCI, Sprint, British Telecom, Cable & Wireless, Deutsche Telekom, France Telecom and Kokusai Denshin Denwa, as well as resellers of satellite capacity, such as Impsat, in providing private network communications services. Many of these competitors have significant competitive advantages, including long-standing customer relationships, close ties with regulatory authorities, control over connections to local telephone lines and the ability to subsidize competitive services with revenues from services they provide as a dominant or monopoly carrier, and are substantially larger than Orion and have financial resources, experience, marketing capabilities and name recognition that are substantially greater than those of Orion. The Company believes that competition in emerging markets, particularly with respect to private network services, will intensify as dominant and monopoly long distance providers adapt to a competitive environment and large carriers increase their presence in these markets. The Company also believes that competition in more developed markets will intensify as large carriers consolidate, enhance their international alliances and increase their focus on private network services. For example, the recently announced merger involving MCI and British Telecom may substantially increase the ability of the resulting businesses to provide trans-Atlantic private network services. 26 The ability of Orion to compete with these organizations will depend in part on Orion's ability to price its services at a significant discount to terrestrial service providers, its level of customer support and service, and the technical advantages of its systems. The services provided by the Company have been subject to decreasing prices over recent years and this pricing pressure is expected to continue (and may accelerate) for the foreseeable future. Orion will need to increase its volume of sales in order to compensate for such price reductions. Orion believes that customers will increase the data speeds in their communications networks to support new applications, and that such upgrading of customer networks will lead to increased revenues that will mitigate the effect of price reductions. However, there can be no assurance that this will occur. In addition, a large portion of satellite capacity globally is currently used for video distribution. As an increasing portion of satellite capacity is used for providing private network services, prices for these services may decline. Compressed digital video ("CDV"), which substantially increases transmission capacity per channel, is beginning to be used for video distribution. As CDV becomes more prevalent, the supply of effective video capacity could increase significantly, which could result in lower prices. The Company is aware of a substantial number of new satellites that are in construction or in the planning stages. Most of these satellites will cover areas within the footprint of Orion 1 and/or the proposed footprints of Orion 2 and Orion 3. As these new satellites (other than replacement satellites not significantly larger than the ones they replace) commence operations, they will substantially increase the capacity available for the provision of services that compete with the Company's services. After a satellite has been successfully delivered in orbit, the variable cost of transmitting additional data via the satellite is limited. Accordingly, absent a corresponding increase in demand, this new capacity can be expected to result in significant additional price reductions. Continued price reductions could have a material adverse effect on Orion's ability to service its indebtedness and on the value of the Orion Newco Common Stock. See "Information About Orion's Business -- Competition." APPROVALS NEEDED; REGULATION OF INDUSTRY Telecommunications Regulatory Policy. Orion is subject to the U.S. Communications Act of 1934, as amended (the "Communications Act"), and regulation by the FCC (and, to a limited extent, by the U.S. Department of Commerce) and by the national and local governments of other countries. The FCC regulates terms and conditions of communications services, including among other things changes in control or assignment of licenses. The business prospects of Orion could be adversely affected by the adoption of new laws, policies or regulations, or changes in the interpretation or application of existing laws, policies or regulations, that modify the present regulatory environment or conditions of the licenses granted by the FCC to Orion. Additional Regulatory Approvals Needed. The launch and operation of Orion 2 and Orion 3 will require a number of additional regulatory approvals, including the following: (i) approvals of the FCC (in the case of Orion 2); (ii) completion of successful consultations with INTELSAT and, in the case of Orion 2, with EUTELSAT; (iii) satellite "landing" rights in countries that are not INTELSAT signatories or that require additional approvals to provide satellite or VSAT services; and (iv) other regulatory approvals. Obtaining the necessary licenses and approvals involves significant time and expense, and receipt of such licenses and approvals cannot be assured. Although the FCC has conditionally authorized the construction, launch and operation of Orion 2 (subject to completion of an INTELSAT consultation and required showing of ability to finance the construction, launch and operation for one year of the satellite, which requirements generally must be satisfied for final FCC authorization of all FCC satellite licenses), and Orion will apply for certain other approvals for Orion 2 and Orion 3, the FCC authorization for Orion 2 has not become final (since Orion has not yet satisfied the conditions) and most of the other requisite approvals have not yet been obtained. Failure to obtain such approvals would have a material adverse effect on Orion and on its ability to service its indebtedness and the value of the Orion Newco Common Stock. In addition, Orion is required to obtain approvals from numerous national and local authorities in the ordinary course of its business in connection with most arrangements for the provision of services. Within Orion 1's footprint, such approvals generally have not been difficult for Orion to obtain in a timely manner, but the failure to obtain particular approvals has 27 delayed, and in the future may delay, the provision of services by Orion. The Orion 1 license from the FCC expires in January 2005. Although Orion has no reason to believe that its licenses will not be renewed (or new licenses obtained) at the expiration of the license term, there can be no assurance of renewal. In addition, Orion will need to comply with the national laws of each country in which itprovides services. Laws with respect to satellite services are currently unclear in certain jurisdictions, particularly within the Orion 3 footprint. In certain of these jurisdictions, satellite services may only be provided via domestic satellites. The Company believes that certain of these restrictions may change and that it can structure its operations to comply with the remaining restrictions. However, there can be no assurance in this regard. See "Information About Orion's Business -- Regulation." ITU Coordination Process. An international treaty to which the U.S. and the Republic of the Marshall Islands (through which the Company has applied for the Orion 3 orbital slot) are parties requires ITU coordination of satellite orbital slots. Various non-U.S. governments or telecommunications authorities have commenced coordination procedures pursuant to ITU regulations for proposed satellites at orbital locations and in frequency bands that are in close proximity to those proposed for Orion 2 and Orion 3. Existing satellites and any proposed satellites that are launched prior to Orion 2 and Orion 3 will effectively have priority over Orion's satellites. Orion's proposed use for Orion 2 and Orion 3 conflicts to some extent with the use or proposed use of certain existing or proposed satellites. While Orion believes that it can successfully coordinate the use of the orbital locations and frequency bands proposed for Orion 2 and Orion 3, there can be no assurance that coordination will be achieved. The Company has commenced construction of Orion 3 and will commence construction of Orion 2 promptly following completion of the Notes Offering, which will be prior to completion of ITU coordination. There can be no assurance that ITU coordination will be completed. In the event that successful coordination cannot be achieved, Orion may have to modify the satellite design for Orion 2 or Orion 3 in order to minimize the extent of any potential interference with other proposed satellites using those orbital locations or frequency bands. Any such modifications could increase the cost or delay the launch of the satellites (if significant changes to the satellite are required) and may result in limitations on the use of one or more transponders on Orion 2 or Orion 3, which could affect the amount of revenue realized from such transponders. If interference occurs with satellites that are in close proximity to Orion 2 or Orion 3, or with satellites that are subsequently launched into locations in close proximity before completion of ITU coordination procedures, such interference would have an adverse effect on the proposed use of the satellites and on Orion's business and financial performance. Orion cannot predict the extent of any adverse effect on Orion from any such occurrences. See "Information About Orion's Business -- Orbital Slots." UNCERTAINTIES RELATING TO BACKLOG The Company's current backlog consists of a mix of large and small contracts for private communications networks and transmission capacity for video and other satellite transmission services with a variety of customers. Although many of the Company's customers, especially customers under large and long-term contracts, are large corporations with substantial financial resources, other contracts are with companies that may be subject to business or financial risks affecting their credit worthiness. If customers are unable or unwilling to make required payments, the Company may be required to reduce its backlog figures (which would result in a reduction in future revenues of the Company), and such reductions could be substantial. In the second quarter of 1996, the Company determined that one large customer under a long-term contract (accounting for backlog of approximately $19.9 million) was not likely to raise the financing to commence its service in the near future, and accordingly the Company no longer considers such contract part of its backlog. Also in the second quarter of 1996, the Company removed from its backlog a contract with a customer (accounting for backlog of approximately $4.5 million) which had ceased paying for the Company's services. In the fourth quarter of 1996, the Company removed $10.4 million from its backlog related to contracts under which customers failed to use the contracted service or failed to make timely payment. Orion presently anticipates that at least $86.4 million of its $123 million in backlog (as of September 30, 1996, after pro forma adjustments for the Exchange) will be realized after 1997. The Company's contracts commence and terminate on fixed dates. If the Company is delayed in commencing service or does not provide the required service under 28 any particular contract, as it has occasionally done in the past, it may not be able to recognize all the revenue it initially includes in backlog under that contract. In addition, the current backlog contains some contracts for the useful life of Orion 1; if the useful life of Orion 1 is shorter than expected, some portion of backlog may not be realized unless services satisfactory to the customer can be provided over another satellite. TECHNOLOGICAL CHANGES Although Orion believes that Orion 1 does employ, and Orion 2 and Orion 3 will employ, advanced technologies, the telecommunications industry continues to experience substantial technological changes. The Company believes that there are numerous telecommunications companies that are seeking ways to improve the data transmission capacity of the existing terrestrial infrastructure. There can be no assurance that such changes will not adversely affect the prospects or proposed operations or expenses of Orion. RISKS OF CONDUCTING INTERNATIONAL BUSINESS The Company's international service contracts are generally denominated in U.S. dollars, but it is possible that the portion of contracts denominated in non-U.S. currencies will increase over time. The vast majority of the Company's costs (including interest and principal of the Notes, other indebtedness and the costs for VSATs, Orion 2 and Orion 3) are denominated in U.S. dollars. Accordingly, an increase in the value of U.S. dollars relative to other currencies could have an adverse effect on the Company. International operations are also subject to certain risks such as changes in domestic and foreign government regulations and telecommunication standards, licensing requirements, tariffs or taxes and other trade barriers and political and economic instability. DEPENDENCE OF ORION ON KEY PERSONNEL Orion's business is dependent on its executive and other officers and other key personnel. Orion presently does not have employment contracts with, or key man life insurance covering, such key officers or other personnel. The loss of key officers or personnel could have an adverse effect on Orion. See "Management of Orion and Orion Newco." RISKS RELATING TO CAPITAL STOCK CONTROL OF ORION NEWCO BY PRINCIPAL STOCKHOLDERS Executive officers, directors and their affiliates are expected to own beneficially approximately 8.1 million shares or approximately 51% of the Orion Newco voting stock that will be outstanding after the Transactions (12.0 million shares or approximately 46%, of the Orion Newco voting stock that will be outstanding after the Transactions on a fully diluted basis), assuming a closing of the Transactions as of January 30, 1997. As a result of their stock ownership and, in the case of stockholders with representation on the Board of Directors, the incumbency of directors affiliated with them, such stockholders are and will continue to be in a position to elect the Board of Directors and thereby control the affairs and management of Orion Newco and Orion. RISKS RELATING TO ORION SENIOR PREFERRED STOCK The Company has outstanding approximately $15.8 million (including accrued dividends) of Orion Series A Preferred Stock and approximately $4.7 million (including accrued dividends) of Orion Series B Preferred Stock. Because the rights of the holders of the Orion Newco Senior Preferred Stock, including mandatory redemption rights, will be substantially identical to the rights of the holders of the Orion Senior Preferred Stock, such rights similarly could adversely affect Orion Newco or the rights of holders of the Orion Newco Common Stock. Although Orion expects the holders of the Orion Senior Preferred Stock to agree not to exercise any such mandatory redemption rights under the Orion Newco Senior Preferred Stock while the Notes or the Debentures are outstanding, such holders have the right to require Orion to 29 repurchase the shares of Orion Common Stock received as a result of conversion of the Orion Senior Preferred Stock upon, among other things, certain mergers, changes of control or sales of substantially all the assets of Orion at the pro rata interest of the holders of such stock in the consideration received or, in the case of certain fundamental changes, fair market value; and, beginning in June 1999, such holders have the right to require Orion to repurchase Orion Senior Preferred Stock (and any Orion Common Stock received upon the conversion thereof) at the fair market value (in the case of Orion Common Stock) or liquidation value, including accrued and unpaid dividends (in the case of Orion Senior Preferred Stock). In addition, the documents relating to the Orion Senior Preferred Stock impose certain covenants on Orion, and failure to comply with those covenants could have an adverse effect on Orion. See "Description of Orion Newco Capital Stock -- Orion Newco Senior Preferred Stock." LIMITATIONS ON DIVIDENDS ON ORION AND ORION NEWCO COMMON STOCK Orion has never paid any cash dividends on its Orion Common Stock and does not anticipate paying (or that Orion Newco would pay) cash dividends in the foreseeable future. Orion is not permitted to pay cash dividends on the Orion Common Stock as long as the Orion Senior Preferred Stock is outstanding, subject to certain limited exceptions. The Notes Indentures and the agreements for the Debenture Investments will effectively prohibit the payment of cash dividends on the Orion Newco Common Stock for the foreseeable future. See "Price Range of Orion Common Stock and Dividend Policy." POTENTIAL ADVERSE EFFECT OF SHARES ELIGIBLE FOR FUTURE SALE Upon completion of the Merger and the Exchange, there will be approximately 25.9 million shares of Orion Newco Common Stock outstanding on a fully diluted basis, assuming a closing of the Merger Transactions as of January 30, 1997. Approximately 14.5 million of these shares will initially be held by the Company's current stockholders and will be freely transferable without restriction or further registration under the Securities Act, other than the 5.5 million shares held by "affiliates" of the Company, as that term is defined under the Securities Act. The shares held by affiliates are expected to be eligible for sale pursuant to Rule 144 under the Securities Act. The Exchanging Partners, as owners of the Orion Newco Series C Preferred Stock, and British Aerospace and Matra Marconi Space, as owners of the Debentures, will own the remaining 11.4 million of such shares of Orion Newco Common Stock, which will be issuable upon conversion of such securities. All of such remaining shares will be deemed to be "restricted securities" as that term is defined in Rule 144. However, the Exchanging Partners, British Aerospace and Matra Marconi Space will be granted certain shelf, demand and "piggyback" registration rights with respect to the Orion Newco Common Stock issuable to them upon conversion, pursuant to which (in the case of the Exchanging Partners) the Company will be required to prepare and cause to be filed, as soon as practicable after 180 days following consummation of the Merger Transactions, a "shelf" registration statement which will cover the registration of certain Eligible Registrable Securities (as defined to include approximately 25% of the Orion Newco Common Stock issuable to the Limited Partners upon conversion). The Company will also be required to file certain additional shelf registration statements for the Exchanging Partners so that they will continue to be able to sell, each quarter, up to 25% of the Orion Newco Common Stock issuable to them upon conversion, on a non-cumulative basis, and certain additional shelf registration statements for British Aerospace and Matra Marconi Space. No predictions can be made as to the effect, if any, that sales of Orion Newco Common Stock or the availability of additional shares of Orion Newco Common Stock for sale by the Exchanging Partners, British Aerospace or Matra Marconi Space would have on the market price of such securities prevailing from time to time. Nevertheless, the foregoing could adversely affect the market prices of the Orion Newco Common Stock and the ability of Orion Newco to raise equity financing. See "Orion Newco Shares Eligible for Future Sale." ANTI-TAKEOVER AND OTHER PROVISIONS OF THE CERTIFICATE OF INCORPORATION Orion's Certificate of Incorporation includes, and Orion Newco's Certificate of Incorporation will include, provisions that may discourage or prevent certain types of transactions involving an actual or potential change in control of Orion or Orion Newco, respectively, including transactions 30 in which the stockholders might otherwise receive a premium for their shares over then current market prices. In addition, the Board of Directors has the authority to fix the rights and preferences of and issue shares of preferred stock, which may have the effect of delaying or preventing a change in control of Orion or Orion Newco without action by the stockholders. The staggered terms of the Company's Board of Directors could also discourage any potential acquirer. The Certificates of Incorporation of Orion and Orion Newco also permit the redemption of stock from stockholders where necessary to protect Orion's regulatory licenses. Orion Newco's Certificate of Incorporation will be substantially identical to Orion's Certificate of Incorporation. See "Description of Orion Newco Capital Stock -- Certain Anti-takeover Effects." In addition, any change of control of Orion or Orion Newco is subject to the prior approval of the FCC. See "Information About Orion's Business -- Regulation -- Unauthorized Transfer of Control." 31 THE SPECIAL MEETING INTRODUCTION This Proxy Statement/Prospectus is being furnished to the stockholders of Orion Network Systems, Inc. in connection with the solicitation by the Board of Directors of Orion of proxies for use at a special meeting of stockholders to be held on Thursday, January 30, 1997 at 9:00 a.m., local time, at 2440 Research Boulevard, Suite 400, Rockville, Maryland. At the Special Meeting, stockholders will be asked to consider and vote upon proposals (i) to ratify the Merger Agreement and the transactions contemplated thereby, including the Merger, (ii) to approve and adopt the Exchange Agreement and the transactions contemplated thereby, including the Exchange, and (iii) to approve the Debenture Investments. See "The Merger, the Exchange and the Debenture Investments." Except for procedural matters incident to the conduct of the Special Meeting, Orion does not know of any matters other than those described in the Notice of Special Meeting that are to come before the Special Meeting. VOTING RIGHTS AND RELATED MATTERS The shares of Orion capital stock which may be voted at the Special Meeting consist of shares of Orion Common Stock and shares of Orion Series A Preferred Stock and Orion Series B Preferred Stock. Each share of Orion Common Stock eligible to vote entitles its holder to one vote on all matters, each share of Orion Series A Preferred Stock eligible to vote entitles its holder to 117 votes on all matters (the number of votes per share determined by dividing the liquidation preference of the Orion Series A Preferred Stock of $1,000 per share by the conversion price of $8.50 per share of Orion Common Stock) and each share of Orion Series B Preferred Stock eligible to vote entitles its holder to 98 votes on all matters (the number of votes per share determined by dividing the liquidation preference of the Orion Series B Preferred Stock of $1,000 per share by the conversion price of $10.20 per share of Orion Common Stock). The close of business on December 23, 1996 has been fixed by the Board of Directors as the record date for determination of stockholders entitled to notice of, and to vote at, the Special Meeting. On the record date, 10,974,121 shares of Orion Common Stock were outstanding and eligible to be voted, 13,871 shares of Orion Series A Preferred Stock were outstanding and eligible to be voted (representing an aggregate of 1,622,907 votes), and 4,298 shares of Orion Series B Preferred Stock were outstanding and eligible to be voted (representing an aggregate of 421,204 votes) at the Special Meeting. The foregoing share vote calculations reflect adjustments arising from the 1-1.36 reverse stock split of the Orion Common Stock effected in July 1995. The holders of a majority of the votes of the shares of Orion capital stock issued and outstanding and entitled to vote, present in person or represented by proxy, treated as a single class, will be required to constitute a quorum at the Special Meeting. Under Delaware law, abstentions and broker non-votes are counted for purposes of determining a quorum. VOTES REQUIRED The affirmative vote of holders of a majority of votes of the shares of Orion capital stock that are entitled to vote and that are present in person or represented by proxy at the Special Meeting, treated as a single class, will be required to approve each proposal to be considered at the Special Meeting. Orion anticipates that all members of the Board of Directors and companies they represent (who held, in the aggregate, approximately 38% of Orion's voting stock as of September 30, 1996) will enter into written agreements to vote for each such proposal. Under Delaware law, abstentions, but not broker non-votes, are counted as shares entitled to vote for purposes of determining whether a proposal has been approved by the necessary number of votes. Abstentions on a proposal will have the effect of a vote against such proposal. The Merger will be effected in accordance with Section 251(g) of the Delaware General Corpora- 32 tion Law, which under certain circumstances permits a Delaware corporation (such as Orion) to reorganize by merging with or intoa wholly owned subsidiary of a holding company (such as Orion Newco) without the requirement that stockholders of such Delaware corporation adopt and approve the Merger Agreement. Accordingly, although the Merger Agreement and the transactions contemplated thereby, including the Merger, are being submitted for ratification by Orion's stockholders at the Special Meeting pursuant to contractual and other requirements, no vote of Orion's stockholders adopting, approving or authorizing the Merger Agreement and such transactions is required under Delaware law. However, the Company does not intend to proceed with Merger without obtaining stockholder ratification. NO DISSENTERS' RIGHTS Orion stockholders are not entitled under Delaware law to appraisal or dissenters' rights in connection with the matters submitted by Orion for stockholder ratification or approval at the Special Meeting. PROXIES A proxy may be revoked by any Orion stockholder who attends the Special Meeting and gives notice of such stockholder's intention to vote in person without compliance with any other formalities. In addition, any stockholder may revoke a proxy at any time before it is voted by executing and delivering a later dated proxy or by delivering a written notice to the Secretary of Orion stating that the proxy is revoked. At the Special Meeting, stockholders' votes cast, either in person or by proxy, will be tabulated by persons appointed by the Board of Directors to act as inspectors of election. The cost of soliciting proxies in the form enclosed herewith will be borne entirely by Orion. In addition to the solicitation of proxies by mails, proxies may be solicited by officers and directors and regular employees of Orion, without additional remuneration, by personal interviews, telephone, telegraph or otherwise. Orion may also utilize the services of its transfer agent, Fleet National Bank, to provide broker search and proxy distribution services at an estimated cost of $2,000. Copies of solicitation material may be furnished to brokers, custodians, nominees and other fiduciaries for forwarding to beneficial owners of shares of Orion Common Stock, and normal handling charges may be paid for such forwarding service. All executed proxies received before the vote will be voted in the manner indicated. EXECUTED BUT UNMARKED PROXIES WILL BE VOTED FOR EACH OF THE PROPOSALS RELATING TO THE MERGER AGREEMENT, THE EXCHANGE AGREEMENT AND THE DEBENTURE INVESTMENTS SUBMITTED TO THE STOCKHOLDERS AT THE SPECIAL MEETING. 33 THE MERGER, THE EXCHANGE AND THE DEBENTURE INVESTMENTS The following discussion summarizes the material aspects of the Merger Transactions, as set forth in the Merger Agreement and the Exchange Agreement, and the Debenture Investments, as set forth in the Debenture Agreement. This discussion is qualified in its entirety by reference to the full text of the Merger Agreement, the Exchange Agreement and the Debenture Agreement, including each of the exhibits thereto, the material provisions of which are described in this Proxy Statement/Prospectus. Copies of the Merger Agreement and the Exchange Agreement are attached hereto as Attachments A and B, respectively, and a copy of the Debenture Agreement has been filed as an exhibit to the Registration Statement of which this Proxy Statement/Prospectus is a part. See "Available Information." BACKGROUND OF THE MERGER TRANSACTIONS AND THE DEBENTURE INVESTMENTS Orion's principal business is the provision of satellite communications for private communications networks, Internet access and video distribution and other satellite transmission services. From its inception in 1982 through January 20, 1995, when Orion 1 commenced commercial operations, Orion was a development stage enterprise. During this period, Orion's efforts were devoted primarily to monitoring the construction, launch and in-orbit testing of Orion 1, product development, marketing and sales of interim private communication network services, raising additional financing for such services, marketing of capacity and planning Orion 2 and Orion 3 and refinancing of Orion 1. Subsequent to the acceptance of Orion Atlantic's first satellite, Orion 1, in January 1995, Orion's efforts have been primarily focused on building customer relationships, marketing and sales of network and satellite services, as well as ongoing planning for the future construction of Orion 2 and Orion 3 and refinancing of Orion 1. The Merger, the Exchange and the Debenture Investments arose out of Orion's plans to refinance Orion Atlantic's existing debt and finance two additional satellites, Orion 2 (with coverage of Europe, Russia, the eastern United States and Latin America) and Orion 3 (with coverage of the Asia Pacific region). In the fall of 1995, Orion Atlantic commenced but ultimately deferred a plan to raise over $290 million of financing for Orion 2, plus $300 million of senior secured notes to repay the existing Orion 1 Credit Facility payments, make certain repayments to the Limited Partners and provide working capital (the "1995 Financing"). After the decision was made to defer the 1995 Financing, Orion's management team began the process of selecting and implementing financing plans that would allow Orion to refinance Orion 1 and to construct, launch and operate Orion 2 and Orion 3. The objectives of the refinancing would be to eliminate the credit support obligations of the Limited Partners, including Orion, under the Orion 1 Credit Facility and to enable the financing of Orion 2 to proceed. Orion believed that this would improve Orion's short-term and long-term growth prospects and maximize Orion's stockholders' equity value. Based on the partnership structure of Orion Atlantic, management worked closely with the Limited Partners to develop an acceptable financing plan. On December 6, 1995, at a meeting of the Policy and Planning Review Committee of Orion Atlantic, Salomon Brothers Inc ("Salomon Brothers") was asked to make a presentation analyzing the 1995 Financing and recommending financing alternatives available to Orion. Salomon Brothers was selected based on its participation in the 1995 Financing and role as lead manager of Orion's initial public offering, and its resulting familiarity with the business and financial condition of Orion. Effective April 10, 1996, Salomon Brothers was engaged as Orion's financial advisor in connection with the Exchange. Salomon Brothers ultimately rendered an opinion to Orion regarding the fairness to Orion from a financial point of view of the consideration to be paid by Orion in the Exchange. See " Opinion of Orion's Financial Advisor" below. Throughout the months of January and February 1996, management explored alternative financing plans. On February 13, 1996, a management team met with representatives of Salomon Brothers in New York City. At that meeting, Salomon Brothers discussed, among other things, the possible mechanics of an exchange for the Limited Partners' partnership interests, and the consideration that would need to be provided to the Limited Partners. On February 23, 1996, management drafted a memorandum that outlined the structural framework of the financing plan that ultimately evolved into the Merger Transactions. In the February 23 memorandum, management reiterated that the prospect of resurrecting the 1995 Financing appeared doubtful. Members of Orion's Finance Committee discussed the February 23, 1996 management memorandum by phone on February 27, 1996. 34 During the month of March 1996, exploration of alternative financing plans continued. On March 15, 1996, certain members of the Finance Committee discussed the valuation of the consideration that would need to be provided to the Limited Partners in exchange for their limited partnership interests in Orion Atlantic. On March 19, 1996, at a meeting of Orion's Finance Committee, members discussed the financing alternatives that would be available to Orion if the exchange of the Limited Partners' partnership interests was not concluded. Based on these discussions, the Finance Committee recommended that management pursue a financing plan that involved an exchange of the Limited Partners' limited partnership interests in Orion Atlantic for Orion stock. The Finance Committee also requested management to prepare a valuation of Orion Atlantic that would be submitted to the Board for approval. Certain members of the Finance Committee conducted a telephone conference call on March 25, 1996, to review progress made, and to analyze the relative merits of the financing plans that had been explored. Participants agreed on the importance of selecting a financing plan that would achieve an improved Orion Atlantic corporate governance structure that allowed for quicker and more flexible decision making. Participants further agreed that this corporate governance structure could be achieved by fully exchanging Orion stock for the Limited Partners' partnership interests. In meetings held on April 9, 1996, management reported to the Finance Committee that it was refining a financing plan that would eliminate the limited partner guarantees and exchange securities of Orion for the Limited Partners' limited partnership interests in Orion Atlantic. Discussions of the terms of the proposed financing plan continued the next day. Discussions of the terms of the proposed financing plan continued further at an April 17, 1996 meeting of the Finance Committee. In an April 18, 1996 memorandum, management provided the Limited Partners with a status report on the new financing plan. Management, in the memorandum, expressed its belief that the new financing plan would satisfy Orion's criteria for a financing plan, refinancing Orion 1 and financing the construction and launch of Orion 2. A meeting of the Finance Committee was held on May 2, 1996, to discuss the new financing plan. Management presented a document summarizing the basic terms and conditions of the security proposed to be issued to the Limited Partners in exchange for their limited partnership interests in Orion Atlantic. Based upon the meeting, the Finance Committee unanimously approved making a proposal to the Limited Partners to exchange their interests in Orion Atlantic for securities of Orion pursuant to the term sheet. On May 3, 1996, management sent the Limited Partners a memorandum containing details of the proposed financing plan. In the May 3, 1996 memorandum, management outlined the terms of the Exchange. As detailed in the memorandum, management informed the Limited Partners that they had been working to select a financing strategy that would allow for the refinancing of the Orion 1 Credit Facility and finance the construction and launch of Orion 2. Management informed the Limited Partners that they had (based on management's evaluation) selected a financing plan. The management plan had a number of elements. Initially, in order to simplify the structure of Orion Atlantic, the Limited Partners' limited partnership interests in Orion Atlantic and certain obligations owed to the Limited Partners by Orion Atlantic would be exchanged for a convertible preferred security of Orion. The security would be convertible into Orion's common stock. In connection with the exchange, Orion would secure additional capital by conducting a convertible debt offering. The simplified Orion Atlantic structure would enhance the marketability of Orion's convertible debt offering. Proceeds of the convertible debt offering would be used to fund an initial down payment for the construction and launch of Orion 2 and a portion of the initial down payment for the construction and launch of Orion 3. Based upon prior discussions with British Aerospace through its representative on the Orion Board of Directors and Finance Committee, Orion proposed that $50 million of the convertible debt offering be purchased by British Aerospace. Vendor financing would supplement the convertible debt offering proceeds, and go towards meeting the capital needed to construct and launch Orion 2 (and, if possible, Orion 3). Concurrently with the convertible debt offering and the arrangement of vendor financing, Orion would conduct a bond offering designed to raise enough capital to refinance the Orion 1 Credit Facility, and provide for working capital. In response to a request by certain Limited Partners, the plan was further refined. In particular, the Company asked Ernst & Young LLP to review the plan from a tax perspective and determine whether 35 a transaction could be structured that would provide the Limited Partners with non-recognition treatment (in whole or in part) in connection with an exchange of their interests in Orion Atlantic for stock. After reviewing management's plan, Ernst & Young LLP advised management that the structure described herein would provide (i) the Exchanging Partners with the opportunity to qualify for nonrecognition treatment under Section 351 of the Code and (ii) the Orion stockholders with similar nonrecognition treatment under either Section 351 or Sections 354 and 368(a) of the Code, subject to certain exceptions summarized below, and provided certain requirements are satisfied. See "Certain Federal Income Tax Consequences" below. Following distribution of the May 3, 1996 memorandum detailing the Merger Transactions to the Limited Partners, management and Orion's counsel proceeded to negotiate the definitive documentation relating to the Merger Transactions. On May 20, 1996, counsel to Orion and the Limited Partners met for a negotiation session, and negotiations continued through approximately the end of June 1996. The terms of the Merger Transactions, including the exchange ratio, were determined as a result of arm's- length negotiations between Orion and its advisors and the Limited Partners and their advisors. One of the conditions to the Merger Transactions was the purchase of $50 million of the convertible debt offering by British Aerospace, and British Aerospace expressed its intent to make such purchase, on the same terms as the portion of the convertible debt offering to be offered to the public. During late June and early July 1996, each of the Exchanging Partners (but not Orion) executed copies of the Exchange Agreement and various exhibits thereto. The executed counterparts were placed into escrow to be delivered to Orion, OrionSat or Orion Newco on the date of the Exchange. During late June and July 1996, Orion worked with its financial advisor, Salomon Brothers, regarding possible bond and convertible note financings. Salomon Brothers informed Orion during July that the zero coupon high yield bond market in the communications sector was experiencing a general downturn and that it would not be advantageous to seek to raise the financing at that time. Based on this advice, the Board decided to defer the bond and convertible note offerings and the Exchange until the market for high yield bonds in the communications sector had improved sufficiently to allow Orion to raise the capital it desired. Between July 1996 and November 1996, Orion management consulted several investment banks to explore a variety of alternative financing methods and potential transactions. In November 1996, Orion selected prospective underwriters for the proposed Notes Offering, and commenced preparations for the Notes Offering. Salomon Brothers rendered to the Board of Directors of Orion, at a Board meeting, its opinion dated December 10, 1996 that, based upon and subject to the various considerations set forth in the opinion, as of December 10, 1996, the consideration to be paid by Orion in connection with the Exchange is fair from a financial point of view to Orion. Management confirmed its view that the Merger Transactions are in the best interests of Orion and its stockholders. Orion's Board of Directors, on December 10, 1996, after careful deliberation (with W. Anthony Rice, a representative of British Aerospace, recusing himself), unanimously approved the Exchange and the Exchange Agreement (which includes effecting the Merger). Salomon Brothers delivered its fairness opinion later that day. In December 1996 and January 1997 Orion and the Exchanging Partners conducted negotiations concerning certain changes to the Exchange Agreement, which were ultimately agreed upon in the First Amendment to the Exchange Agreement. Such changes included agreement by the Exchanging Partners to an extension of the termination date for the Exchange Agreement to April 30, 1997, agreement for the cash refund of payments made by the Exchanging Partners after January 29, 1997 under the Orion 1 Credit Facility Support (to the extent Orion Newco has sufficient funds to make such refund after payment of various agreed items), and substitution of the Debenture Investments for the previously proposed public offering of convertible debt securities. Also in December 1996, Orion and British Aerospace commenced negotiations concerning the terms of the Debenture Investments. Matra Marconi Space agreed to make the Matra Marconi Investment of $10 million on the same terms as the British Aerospace Investment. Orion's Board of Directors, on January 3, 1997 and again on January 8, 1997, (with W. Anthony Rice, a representative of British 36 Aerospace, recusing himself), unanimously approved the Debenture Investments. Effective as of January 13, 1997, Orion and British Aerospace and Matra Marconi Space executed the Debenture Agreement. REASONS FOR THE MERGER TRANSACTIONS AND THE DEBENTURE INVESTMENTS Orion believes that the Merger Transactions will simplify Orion's organizational structure and improve its access to the capital markets. The Transactions will consolidate outside investor ownership at the holding company level, Orion Newco, and leave Orion Newco with 100% ownership of all of its material subsidiaries, including Orion Atlantic. This will promote a streamlined corporate governance structure that will facilitate improved, quicker decision making. By eliminating minority interests in the Orion subsidiaries that hold satellite assets, Orion Newco will be able to pursue independently its business plans and financings for all of its satellites. The Transactions will further simplify Orion's structure by eliminating (in exchange for Orion Newco stock) the obligations Orion Atlantic owes to the Exchanging Partners. As of September 30, 1996, such obligations aggregated approximately $37.5 million. Finally, the increase in outstanding securities as a result of the Merger Transactions is expected to increase Orion's overall market capitalization, which Orion believes will also improve its access to the capital markets. Orion's principal reason for the issuance of $50 million of Debentures to British Aerospace is to raise additional capital for initial payments with respect to Orion 2, of which approximately $49.4 million of payments are due under the Orion 2 Satellite Contract during 1997. The sale of $10 million of Debentures to Matra Marconi Space will involve a re-investment by Matra Marconi Space of $10 million of the $13 million of satellite incentive payments Matra Marconi Space will receive as the Orion 1 manufacturer upon consummation of the Notes Offering. The consummation of the Debenture Investments is a condition to the Exchange. Access to the capital markets is necessary for Orion to achieve its business plan to construct and launch two additional satellites, Orion 2 (with coverage of Europe, Russia, the eastern United States and Latin America) and Orion 3 (with coverage of the Asia Pacific region). With this plan in mind, Orion and Orion Newco have been pursuing and will continue to pursue the following transactions: (i) Notes Offering: the Notes Offering in the amount of approximately $347 million with expected gross proceeds of approximately $275 million, excluding approximately $72 million of overfunding of interest due on such notes (although the amount of such Notes Offering could be smaller or larger, depending upon market conditions). The principal purpose of the Notes Offering is to refinance the Orion 1 Credit Facility and release the existing commitments of the Limited Partners and their affiliates under the Orion 1 Credit Facility Support. Such release is a condition to the Exchange. (ii) Orion 2 Construction Contract: the Orion 2 Satellite Contract with Matra Marconi Space, under which the manufacturer is to proceed with construction based upon initial payments of $25 million and further payments through December 1997 limited to approximately $25 million. Orion expects to commence the construction of Orion 2 immediately following completion of the Notes Offering. (iii) Orion 3 Construction Contract: the Orion 3 Satellite Contract with Hughes Space, under which the manufacturer is to proceed with construction based upon initial payments through January 31, 1997 of approximately $15 million, with further payments through March 31, 1998 being limited to $35 million, payable in approximately equal quarterly installments. The majority of the amounts due under the contract are payable in the second and third quarters of 1998. Orion commenced construction of Orion 3 in mid-December 1996 under an authorization to proceed, and expects to enter into a definitive satellite contract in January 1997. As discussed above under the caption "Background of the Merger Transactions and the Debenture Investments," Orion believes that it would not be able to complete these financings in the absence of the Merger, the Exchange and the Debenture Investments. Orion believes that the construction and launch of Orion 2 and Orion 3 will offer stockholders an opportunity to realize long-term value through the potential appreciation in the value of Orion's stock (as converted into Orion Newco stock) due to the increased revenues anticipated to result from the operation of Orion 2 and Orion 3. 37 Even if stockholders ratify or approve the Merger Transactions and the Debenture Investments, and the other conditions to the Merger Transactions and the Debenture Investments are satisfied, the Orion Board of Directors reserves the right, based on its consideration of market conditions and such other factors as it considers appropriate, to cause Orion not to consummate the Merger Transactions and the Debenture Investments if it determines the Merger Transactions and the Debenture Investments are no longer in the best interests of Orion stockholders. THE MERGER AGREEMENT TERMS OF THE MERGER AGREEMENT Effective as of January 8, 1997, Orion, Orion Newco and Orion Merger Subsidiary entered into the Merger Agreement, pursuant to which Orion Merger Subsidiary will be merged with and into Orion, and Orion will become a wholly owned subsidiary of Orion Newco. At the Effective Time of the Merger (as defined below), each outstanding share of Orion Common Stock and each share of Orion Series A Preferred Stock and Orion Series B Preferred Stock will be converted, without any action on the part of the holder thereof, into the right to receive one share of Orion Newco Common Stock, Orion Newco Series A Preferred Stock and Orion Newco Series B Preferred Stock, respectively. It is expected that approximately 10,974,121 shares of Orion Newco Common Stock, 13,871 shares of Orion Newco Series A Preferred Stock and 4,298 shares of Orion Newco Series B Preferred Stock will be issued to the stockholders of Orion in the Merger in exchange for their shares of Orion Common Stock, Orion Series A Preferred Stock and Orion Series B Preferred Stock, respectively. Such shares of Orion Newco Series A Preferred Stock and Orion Newco Series B Preferred Stock will be convertible as of the issuance date into an aggregate of approximately 2,053,255 shares of Orion Newco Common Stock, or approximately 7.9% of the shares of Orion Newco Common Stock outstanding on a fully diluted basis, assuming a closing of the Merger as of January 30, 1997. The Merger will become effective upon the filing of the Delaware Merger Certificate (as such term is used in the Merger Agreement) with the Delaware Secretary of State, which is expected to occur following ratification or approval of the Merger Transactions and the Debenture Investments by the requisite vote of the Orion stockholders, and satisfaction or waiver of the other conditions set forth in the Merger Agreement and the Exchange Agreement (the "Effective Time of the Merger"). The Merger Agreement provides that Orion Merger Subsidiary will be merged with and into Orion, and that Orion will be the surviving corporation and will become a wholly owned subsidiary of Orion Newco. Following the Merger, the separate existence of Orion Merger Subsidiary will cease. Effective upon consummation of the Merger, Orion will change its name to Orion Oldco Services, Inc. and, as soon as practicable thereafter, Orion Newco will change its name to Orion Network Systems, Inc. The Merger Agreement also provides that the Certificate of Incorporation and Bylaws of Orion in effect immediately prior to the Effective Time of the Merger will be the Certificate of Incorporation (with certain amendments) and Bylaws of the surviving corporation. The officers and directors of the surviving corporation will consist of the current officers and directors of Orion. See "Management of Orion and Orion Newco." At the Effective Time of the Merger, all outstanding stock options, including those under Orion's 1987 Stock Option Plan and Non-Employee Director Stock Option Plan (the "Orion Options"), will be assumed by Orion Newco to the fullest extent permitted by applicable law (such assumed options being referred to herein as "Orion Newco Assumed Options"). Each Orion Newco Assumed Option will be subject to the same terms and conditions that were applicable under the related Orion Option immediately prior to the Effective Time of the Merger. Orion and Orion Newco have agreed to take all corporate and other actions necessary to effectuate the assumption of the Orion Options, and Orion has agreed to use its best efforts prior to the closing of the Merger to obtain any consents from the holders of Orion Options that may be necessary to effectuate such assumption, if required by the terms of the Orion Options. Orion Newco also has agreed to take all corporate and other actions necessary to reserve and make available sufficient shares of Orion Newco Common Stock for issuance upon exercise of the Orion Newco Assumed Options. 38 At the Effective Time of the Merger, Orion Newco will, to the fullest extent permitted by applicable law, assume all of Orion's obligations with respect to each outstanding warrant or other right to purchase shares of Orion Common Stock upon the same terms and conditions that were applicable under such warrant immediately prior to the Effective Time of the Merger. For more information on the specific terms of the Merger Agreement, stockholders are referred to the full text of the Merger Agreement attached to this Proxy Statement/Prospectus as Attachment A. NO EXCHANGE OF CERTIFICATES At the Effective Time of the Merger, by virtue of the Merger and without any action on the part of Orion, Orion Merger Subsidiary, Orion Newco, Orion stockholders or any other person, the shares of Orion Newco capital stock, which the shares of Orion stock respectively will have been converted into the right to receive, will be represented and evidenced by the same stock certificates that previously represented and evidenced the Orion capital stock. CONDITIONS TO OBLIGATIONS TO EFFECT THE MERGER The respective obligations of each party to the Merger Agreement to effect the Merger are subject to the satisfaction of the following conditions at or prior to the closing of the Merger: (i) the ratification of the Merger Agreement and the transactions contemplated thereby by the requisite affirmative vote of the holders of the Orion capital stock and the approval of the Merger Agreement and the transactions contemplated thereby by the requisite affirmative vote of the holder of the outstanding Orion Newco Common Stock and the holder of the outstanding Orion Merger Subsidiary common stock; (ii) the receipt of all authorizations, consents, orders or approvals of, or making of all filings with, any Governmental Entity (as such term is used in the Merger Agreement) necessary for consummation of the Merger; (iii) the effectiveness of the Registration Statement under the Securities Act and the absence of any stop order with respect to the Registration Statement and of any proceedings commenced or threatened by the Commission with respect to this Proxy Statement/Prospectus; (iv) the absence of any temporary restraining order, preliminary or permanent injunction or other order issued by any court of competent jurisdiction or other legal restraint or prohibition preventing consummation of the Merger; (v) the absence of any statute, rule or regulation enacted by any Governmental Entity that would make consummation of the Merger illegal; (vi) the receipt of an opinion from Ernst & Young LLP, tax advisor to Orion, and a determination by the Board of Directors of Orion to the effect that Orion stockholders do not recognize gain or loss for United States federal income tax purposes; (vii) the continued accuracy of the representations and warranties made by each party in the Merger Agreement; and (viii) the consummation of the Exchange concurrently with the Merger. AMENDMENT AND TERMINATION The Merger Agreement may be amended by Orion, Orion Newco and Orion Merger Subsidiary at any time before or after ratification or approval of the Merger by the stockholders of such companies, but after any such stockholder ratification or approval, no amendment may be made which under Section 251(d) of the Delaware General Corporation Law would require the approval (or further approval) of stockholders without obtaining such stockholder approval. 39 The Merger Agreement may be terminated at any time prior to the Effective Time of the Merger, whether before or after ratification or approval, as the case may be, of the Merger Agreement and related matters by the stockholders of Orion, Orion Newco and Orion Merger Subsidiary (i) by mutual consent of all of the parties or (ii) by any party, if any required approval of the stockholders of Orion, Orion Newco or Orion Merger Subsidiary has not been obtained by April 30, 1997. ACCOUNTING TREATMENT The Merger will be accounted for as a reorganization of entities under common control. As a result, the assets and liabilities transferred pursuant to the Merger will be accounted for at a historical cost in a manner similar to a pooling of interests. THE EXCHANGE AGREEMENT PARTIES The Exchange Agreement was entered into by Orion, OrionSat, Orion Atlantic and the Exchanging Partners effective as of June 1996. ORION. Orion is a Delaware corporation, the 100% owner of OrionSat, a limited partner of Orion Atlantic with a 16.66% equity interest, and the holding company of other subsidiaries, including OrionNet, Inc. Orion owns and operates one of the first privately owned international satellite communications networks as well as video distribution and other satellite transmission services. Since its founding in 1982, Orion's efforts have been focused on the design, construction and implementation of a global satellite communications system that meets the expanding telecommunications needs of a multinational business. The consolidated financial statements of Orion include the financial results of Orion Atlantic because of OrionSat's control of Orion Atlantic as its sole general partner. See "Selected Consolidated Financial and Operational Data of Orion." ORIONSAT. OrionSat is a wholly owned subsidiary of Orion and is the sole general partner of Orion Atlantic with a 25% equity interest. ORION ATLANTIC. Orion Atlantic, a Delaware limited partnership, owns and operates the Orion 1 communications satellite. In 1991, Orion and seven of the world's leading telecommunications and aerospace systems companies formed Orion Atlantic to finance the construction, launch and operation of two communication satellites, and to operate a multinational sales and services organization. EXCHANGING PARTNERS. The Exchanging Partners are British Aerospace Communications, Inc. ("BAe"), COM DEV Satellite Communications Limited ("COM DEV"), Kingston Communications International Limited ("Kingston"), Lockheed Martin Commercial Launch Services, Inc. ("Lockheed Martin CLS"), MCN Sat US, Inc. ("Matra"), and Trans-Atlantic Satellite, Inc ("Nissho"). The following sets forth certain information regarding each of the Exchanging Partners: BAe is a subsidiary of British Aerospace Public Limited Company (collectively with its affiliates, "British Aerospace"), which is Europe's leading defense and aerospace company and one of the leading companies in the world defense and aerospace market. COM DEV is a subsidiary of COM DEV, Limited. COM DEV, Limited is also a supplier of value-added satellite communications services, products for wireless personal communications and satellite remote sensing data. Kingston is a subsidiary of Kingston Communications (Hull) plc, the only municipally-owned telephone company in the United Kingdom. Kingston Satellite Services, a joint venture to which Kingston is a party, serves as sales representative and ground operator for Orion Atlantic in the United Kingdom. Lockheed Martin CLS was formerly named Martin Marietta Commercial Launch Services, Inc. Lockheed Martin CLS is a subsidiary of Martin Marietta Technologies, Inc., a Lockheed Martin company. Lockheed Martin CLS acquired the assets of General Dynamics Commercial Launch Services 40 through a transfer of assets from Martin Marietta Corporation, which in turn acquired these and other assets (including the Atlas family of launch vehicles) from General Dynamics Corporation in 1994. Lockheed Martin CLS is a commercial launch services provider and provided launch services to Orion Atlantic as the launch subcontractor. Lockheed Martin CLS became an Exchanging Partner by acquiring the limited partnership interest of General Dynamics CLS in the 1994 transaction described above. Matra is a subsidiary of Matra Hachette ("Matra Hachette"), an aerospace, defense, industrial and media company and part of the Lagardere Group of France. Matra Hachette is a sales representative and ground operator for Orion Atlantic in France. Matra Hachette is one of the parent companies of Matra Marconi Space, which is the present parent company of MMS Space Systems, the prime contractor for Orion 1, and is the manufacturer under the Orion 2 Satellite Contract. Nissho is a subsidiary of Nissho Iwai Corporation, a trading company based in Japan. STRUCTURE OF THE EXCHANGE ORION NEWCO FORMATION. Under the Exchange Agreement, the parties to the Exchange Agreement agreed that Orion would form a new Delaware corporation to be named Orion Newco Services, Inc. which is substantially identical in all material respects to Orion. In particular, Orion Newco would have a certificate of incorporation, bylaws and capital structure substantially identical in all material respects to those of Orion. Orion became the initial stockholder of Orion Newco and owns all shares of Orion Newco Common Stock. Pursuant to the terms of the Exchange Agreement, Orion will take steps necessary to make the management of Orion Newco identical to the management of Orion. Subject to and effective upon the consummation of the Merger, the Orion Newco board of directors will consist of the ten current Orion directors and Orion Newco will change its name to Orion Network Systems, Inc. The Orion Newco management team will consist of the current Orion management team. Pursuant to the Exchange Agreement, Orion will take the steps necessary to adopt, authorize, execute and file (i) a Certificate of Designations, Rights and Preferences of Series A 8% Cumulative Redeemable Convertible Preferred Stock of Orion Newco substantially identical in all material respects to the Orion Series A Preferred Stock and (ii) a Certificate of Designations, Rights and Preferences of Series B 8% Cumulative Redeemable Convertible Preferred Stock of Orion Newco substantially identical in all material respects to the Orion Series B Preferred Stock. ORION NEWCO SERIES C PREFERRED STOCK. Under the Exchange Agreement, the parties agreed that Orion Newco would adopt, authorize, execute and file a Certificate of Designations, Rights and Preferences of Series C 6% Cumulative Redeemable Convertible Preferred Stock establishing the terms and relative rights of preferences of the Orion Newco Series C Preferred Stock. Assuming that the Exchange closes as of January 30, 1997, 121,988 shares of the Orion Newco Series C Preferred Stock would be issued to the Exchanging Partners. If the Exchange closes after January 30, 1997, Orion Newco will be obligated to make certain cash refunds of payments made by the Exchanging Partners after that date under various agreements; if Orion Newco does not have sufficient cash to make such refunds, the refunds will be made in shares of Orion Newco Series C Preferred Stock, and the number of shares issued in the Exchange will increase. See "Closing After January 30, 1997" below. The number of shares of Orion Newco Series C Preferred Stock to be issued to the respective Exchanging Partners, pursuant to the Exchange Agreement, will be adjusted proportionately to reflect any subdivision, stock split, stock dividend, recapitalization, combination or reverse stock split of Orion capital stock or similar transaction by Orion between the date of the Exchange Agreement and the consummation of the Exchange. The Exchanging Partners have agreed to transfer their limited partnership interests in Orion Atlantic, other rights relating thereto and amounts owed to them by Orion Atlantic aggregating approximately $37.5 million at September 30, 1996 to Orion in exchange for such shares of the Orion Newco Series C Preferred Stock. AGREEMENT TO THE MERGER. In the Exchange Agreement, the parties agreed that Orion Newco would form a new Delaware corporation to be named Orion Merger Subsidiary, Inc., and that Orion Newco would be the sole stockholder of Orion Merger Subsidiary. Further, the parties agreed pursuant to the Exchange Agreement that Orion Merger Subsidiary would be merged with and into Orion in a merger in which Orion would be the surviving company and all the assets, rights, property, liabilities and obligations of Orion 41 Merger Subsidiary and Orion would be vested in Orion as the surviving company. Pursuant to Exchange Agreement, Orion agreed to cause all necessary documents to effect the Merger to be prepared. RESULTS OF THE EXCHANGE. As a result of the Exchange, the consolidated Orion group will become the owner of all the partnership interests in Orion Atlantic (through Orion Newco and Orion as the sole limited partners and OrionSat as the sole general partner of Orion Atlantic). In addition, Orion Newco will receive the following rights currently held by the Exchanging Partners with respect to Orion Atlantic: (i) all of the Exchanging Partners' rights and obligations under the Second Amended and Restated Partnership Agreement of International Private Satellite Partners, L.P., as amended and restated simultaneously with the Exchange (the "Partnership Agreement"), including particularly all of their rights to receive distributions and allocations thereunder, but also all other rights they may have as limited partners of Orion Atlantic under applicable law; (ii) all of the rights and obligations held by certain of the Exchanging Partners under the Refund Agreement, dated December 31, 1994, among Orion Atlantic, OrionSat, Orion and the certain of the Exchanging Partners (the "Refund Agreement"), consisting primarily of rights by such Exchanging Partners to receive an aggregate of $26.7 million of refunds thereunder; (iii) all of the rights of COM DEV, Kingston, Lockheed Martin CLS and Matra under the Preferred Participating Unit Agreements, dated as of October 7, 1993, among Orion Atlantic, OrionSat, and each of Orion, COM DEV, Kingston, Lockheed Martin CLS and Matra (the "PPU Agreement"), consisting primarily of rights to receive repayment of $6.6 million advanced thereunder and $4.3 million of interest accrued on such advances; (iv) all of the Exchanging Partners' rights under the Preferred Bidders Agreement, effective as of December, 20, 1991, among Orion Atlantic, OrionSat, Orion and the Exchanging Partners (the "Preferred Bidders Agreement"), consisting of preferred bidder status with respect to procurement contracts entered into by Orion Atlantic; and (v) certain of the Exchanging Partners' rights under other agreements between or among Orion Atlantic and its Limited Partners, which Orion believes are not material to Orion but the acquisition of which will result in termination of contractual obligations that may impose procedural or other burdens on Orion Atlantic. As a result of the Exchange, Orion Newco will transfer to the Exchanging Partners the following numbers of shares of Orion Newco Series C Preferred Stock, assuming a closing as of January 30, 1997 (in each case, which numbers of shares will be increased pursuant to a formula based upon payments by the Exchanging Partners under various agreements if the closing occurs after January 30, 1997, except to the extent that such payments are refunded in cash): EXCHANGING PARTNERS NUMBER OF SHARES ------------------- ---------------- BAe ................ 50,129 COM DEV ............ 9,462 Kingston ........... 11,198 Lockheed Martin CLS................. 19,534 Matra .............. 17,727 Nissho.............. 13,938 The terms of the Orion Newco Series C Preferred Stock are described below under "Description of the Orion Newco Series C Preferred Stock." CONDITIONS TO THE EXCHANGE Orion and the Exchanging Partners. Occurrence of the Exchange is subject, among other things, to satisfaction or waiver by Orion and the Exchanging Partners of the following conditions: (i) Orion Newco, Orion Atlantic, Orion and OrionSat shall have completed the Orion 1 Credit Facility Refinancing. See "The Related Transactions -- The Notes Offering/Orion 1 Credit Facility Refinancing." (ii) Orion Newco, Orion Atlantic, Orion, OrionSat and the Exchanging Partners shall have caused the termination (the "Bank Agreement Termination"), which is expected to occur concurrently with the completion of the Orion 1 Credit Facility Refinancing, of all agreements between or among the Banks and Chase, on the one hand, and one or more of Orion Newco, Orion Atlantic, OrionSat, Orion and the 42 Exchanging Partners and/or their affiliates on the other hand, relating to the Orion 1 Credit Facility or the security or credit support thereof. See "The Related Transactions -- The Notes Offering/Orion 1 Credit Facility Refinancing." (iii) Orion Newco, Orion Atlantic, Orion, OrionSat and the Exchanging Partners shall have caused the termination (the "Capacity Agreement Termination"), which is expected to occur concurrently with the completion of the Orion 1 Credit Facility Refinancing and the Bank Agreement Termination, of all support obligations with respect to the Orion 1 Credit Facility. See "The Related Transactions -- The Notes Offering/Orion 1 Credit Facility Refinancing." (iv) The Option Agreement, dated December 10, 1996, between Orion Atlantic and Matra Marconi Space shall be in full force and effect, Orion Atlantic shall not be in default thereunder and Orion Atlantic shall have made all payments required to be made thereunder through the earlier of the closing date of the Exchange and March 31, 1997, and the Restated Amendment #10, dated December 10, 1996, to the Orion 1 Satellite Contract shall be in full force and effect and Orion Atlantic shall not be in default thereunder. See "Information About Orion's Business -- Implementation of the Orion Satellite System -- Orion 2." (v) Consents needed for the Exchange shall have been obtained. See "Approvals" below. (vi) Orion Newco shall be incorporated with a certificate of incorporation, bylaws, capital structure and management substantially identical in all material respects to those of Orion. (vii) The Merger shall have occurred, or be occurring concurrently with, the Exchange. (viii) The Exchanging Partners shall have received an opinion from Ernst & Young LLP, tax advisor to Orion, in form and substance reasonably satisfactory to the Exchanging Partners, to the effect that the Merger and the Exchange, taken together, will be a tax-free exchange described in Code Section 351(a). Lockheed Martin CLS. In addition to the conditions noted above under the caption "Orion and the Exchanging Partners," Lockheed Martin CLS's obligations under the Exchange Agreement are conditioned upon the satisfaction or waiver by Lockheed Martin CLS of the condition that Lockheed Martin CLS and Matra Marconi Space enter into a subcontract to the Orion 2 Satellite Contract relating to the launch of Orion 2. See "Information About Orion's Business -- Implementation of the Orion Satellite System -- Orion 2." Orion Parties. In addition to the conditions noted above under "Orion and the Exchanging Partners," the Orion parties' obligations under the Exchange Agreement are conditioned upon the following: (i) The approval of the stockholders of Orion of the Merger Agreement and the Exchange Agreement shall have been obtained. (ii) The Partnership Agreement shall have been amended and restated as of the date of the Exchange. (iii) Orion Newco shall have raised approximately $60 million from the Debenture Investments. The Orion 1 Credit Facility Refinancing, Bank Agreement Termination and Capacity Agreement Termination are dependent on successful completion of the Notes Offering, which in turn depends upon market conditions and other factors, and there can be no assurance that the Notes Offering will occur. Orion believes that the conditions relating to the Orion 2 Satellite Contract and other arrangements with Matra Marconi Space have been satisfied, that the conditions relating to the Lockheed Martin CLS subcontract have been satisfied or waived, that the Partnership Agreement amendment has been obtained, that binding commitments to make the Debenture Investments have been entered into, that consents needed for the Exchange have been or will be obtained, that the Orion Newco formation conditions have been satisfied, that the Merger will occur concurrently with the Exchange if ratified by Orion stockholders at the Special Meeting and that all required opinions from Ernst & Young LLP, tax advisor to Orion, have been or will be obtained. 43 CERTAIN PROVISIONS OF THE EXCHANGE AGREEMENT The Exchange Agreement contains a number of representations, warranties and indemnities by Orion and the Exchanging Partners. o Representations and Warranties. Among other things, each of the Exchanging Partners has severally represented and warranted to Orion that: (i) such Exchanging Partner is, and on the date of the Exchange will be, the lawful owner of the limited partnership interest in Orion Atlantic of such Exchanging Partner, (ii) such Exchanging Partner has full right and lawful authority to transfer the limited partnership interest in Orion Atlantic of such Exchanging Partner pursuant to the Exchange Agreement, (iii) the Exchange Agreement constitutes a valid and binding obligation of such Exchanging Partner, enforceable in accordance with its terms, (iv) on the date of the Exchange, Orion will acquire good, valid and marketable title to such Exchanging Partner's limited partnership interests in Orion Atlantic, (v) such Exchanging Partner is an "accredited investor" within the meaning of Rule 501 under the Securities Act, (vi) the Orion Newco Series C Preferred Stock being acquired by such Exchanging Partner pursuant to the Exchange Agreement is for its own account, for investment and not with a view toward distribution within the meaning of the Securities Act (subject to the ability of certain of the Exchanging Partners to transfer a portion of their Orion Newco Series C Preferred Stock to other Exchanging Partners) and (vii) such Exchanging Partner has at the time of execution of the Exchange Agreement, and at the time of the Exchange will have, no present plan or intention to sell or otherwise dispose of the Orion Newco Series C Preferred Stock being acquired under the Exchange Agreement or any Orion Newco Common Stock issuable upon the conversion of such Orion Newco Series C Preferred Stock. Among other things, Orion has represented and warranted to the Exchanging Partners that: (i) Orion is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, has full corporate power and authority to carry on its business as currently conducted, and has the full legal right, capacity, power and authority (corporate or otherwise) to execute and deliver the Exchange Agreement and consummate the transactions contemplated thereby, (ii) the Exchange Agreement constitutes, and the Registration Rights Agreement (as defined below) when executed, will constitute a valid and binding obligation of Orion and Orion Newco, enforceable in accordance with its terms, and that each document to be executed by Orion or Orion Newco pursuant to the Exchange Agreement, when executed and delivered in accordance with the provisions thereof, will be a valid and binding obligation of Orion or Orion Newco, enforceable in accordance with its terms, (iii) upon consummation of the transactions contemplated by the Exchange Agreement at the closing of the Exchange Agreement, the Orion Newco Series C Preferred Stock will be duly and validly issued, fully paid and nonassessable and no personal liability will attach to the ownership thereof, and the Exchanging Partners will acquire the legal, valid and marketable title to the Orion Newco Series C Preferred Stock, (iv) except as set forth in the consolidated audited financial statements of Orion as of December 31, 1995, and for the period ended on such date, or included in certain disclosure materials, there exist no material liabilities (whether contingent or absolute, matured or unmatured, known or unknown) of Orion or any subsidiary of Orion and (v) immediately prior to the date of the Exchange, Orion Newco will have no liabilities (other than de minimis liabilities relating to Orion Newco's formation, any liabilities or obligations relating to the Exchange Agreement and any liabilities for expenses relating to the transactions contemplated by the Exchange Agreement). Orion also has made several representations regarding tax filings and payments, maintenance of account books, litigation, filings with the Commission, transactions with Exchanging Partners and the absence of certain violations. The representations and warranties of the Exchanging Partners and Orion contained in the Exchange Agreement survive the date of the Exchange and any investigation, audit or inspection at any time made by or on behalf of any party thereto. o Covenants. The Exchange Agreement contains a number of covenants whereby Orion and OrionSat, jointly and severally on the one hand, and the Exchanging Partners, severally and not jointly on the other hand, covenant and agree with each other, among other things, that: (i) Orion and OrionSat shall take all measures reasonably necessary or advisable to secure such consents, 44 authorizations and approvals of governmental authorities and of private persons or entities with respect to the transactions contemplated by the Exchange Agreement, and the performance of all other obligations of the parties thereunder, as may be required by any applicable statute or regulation of the United States or any country, state or other jurisdiction or by any agreement of any kind whatsoever to which any of them is a party or by which any of them is bound and which are set forth in a schedule to the Exchange Agreement, (ii) subject to certain provisions of the Exchange Agreement, OrionSat and the Exchanging Partners shall take all measures reasonably necessary or advisable to secure such consents, authorizations and approvals of governmental authorities and of private persons or entities with respect to the transactions contemplated by the Exchange Agreement, and to the performance of all other obligations of such parties thereunder, as may be required by any applicable statute or regulation of the United States or any country, state or other jurisdiction or by any agreement of any kind whatsoever to which any of them is a party or by which any of them is bound (Orion, OrionSat and the Exchanging Partners agreeing to (a) cooperate in the filing of all forms, notifications, reports and information, if any, required or reasonably deemed advisable pursuant to applicable statutes, rules, regulations or orders of any governmental or supragovernmental authority in connection with the transactions contemplated by the Exchange Agreement and (b) use their respective good faith efforts to cause any applicable waiting periods thereunder to expire and any objections to the transactions contemplated by the Exchange Agreement to be withdrawn before the Exchange) and (iii) Orion shall take all measures reasonably necessary or advisable to secure all required consents of the stockholders of Orion (including the consent of holders of Orion Senior Preferred Stock) to the Merger, the Exchange and any related transactions requiring stockholder consent. o Indemnification. In the Exchange Agreement, Orion and OrionSat have agreed jointly and severally (and Orion agrees to bind Orion Newco pursuant to a separate indemnity agreement) to indemnify, defend and hold harmless each of the Exchanging Partners and their respective affiliates, employees, representatives, agents, officers and directors (collectively, the "EP Indemnified Persons") from and after the date of the Exchange against and in respect of all Claims (as defined in the Exchange Agreement) asserted against, resulting to, imposed upon or incurred by any of the EP Indemnified Persons (whether such Claims are by, against or relate to Orion Newco, Orion or OrionSat or any other party, including without limitation, a governmental entity), directly or indirectly, by reason of or resulting from any of the following: (i) any of the matters with respect to which Orion Newco, Orion and OrionSat would be obligated to indemnify the EP Indemnified Persons under certain provisions of the Partnership Agreement or (ii) any Claims asserted by one or more of the Banks or Chase, or their successors or assigns, arising from and after the date of the Exchange under (x) any of the Capacity Agreements or guarantees relating thereto which are terminated on or prior to the date of the Exchange, (y) any agreements or other documents terminated or to be terminated in connection with the Bank Agreement Termination or (z) the Exchange Agreement, in each case excluding any Claims arising from or relating to any breach of any representation of warranty or noncompliance with any condition or other agreement given or made by any EP Indemnified Persons under any of the agreements or documents referred to above in this paragraph or any document furnished by or on behalf of any EP Indemnified Person pursuant thereto. The obligation and liabilities of Orion Newco, Orion and OrionSat with respect to their respective indemnities pursuant to the Exchange Agreement are subject to certain conditions as set forth in the Exchange Agreement. CLOSING OF THE EXCHANGE; AMENDMENT AND TERMINATION OF THE EXCHANGE AGREEMENT If the Merger Agreement is ratified by Orion's stockholders and the other conditions to completion of the Exchange are satisfied, the Exchange is to occur at a time and date proposed by Orion not more than ten days after the satisfaction or waiver of all conditions to completion of the Exchange. No amendment or modification of the Exchange Agreement will be valid or binding unless set forth in writing and duly executed and delivered by the party against whom enforcement of the amendment or modification is sought. The Exchange Agreement may be terminated at any time before the Exchange takes place under various circumstances, principally the failure to meet all of the conditions to completion of the Exchange by a 45 specified date (which is currently April 30, 1997), if either Orion and OrionSat or the Exchanging Partners collectively (as to all Exchanging Partners) or one or more Exchanging Partners (as to such Exchanging Partners only) give written notice of termination to the other parties to the Exchange Agreement; provided, however, that the terminating party is not in breach of any obligations or agreements under the Exchange Agreement that are causing any of the conditions precedent to the Exchange not to be satisfied. In the event the Exchange Agreement is terminated (other than as to less than all the Exchanging Partners), the Exchange Agreement shall become wholly void and of no effect, and the parties shall be released from all future obligations thereunder, subject to certain provisions relating to confidentiality and the payment of expenses which will remain in effect. CLOSING AFTER JANUARY 30, 1997 If the Exchange closes after January 30, 1997, Orion Newco will be obligated to make cash refunds, on or shortly after the closing date, of payments made by the Exchanging Partners after that date under the Orion 1 Credit Facility Support; if Orion Newco does not have sufficient cash to make such refunds, the refunds will be made in shares of Orion Newco Series C Preferred Stock, and the number of shares issued in the Exchange will increase. The determination whether Orion Newco has sufficient cash will be made assuming proceeds of the Notes Offering and the Debenture Investments are applied to the following uses: (i) repayment of the Orion 1 Credit Facility and various other obligations relating thereto, (ii) $49.4 million of initial payments under the Orion 2 Satellite Contract in 1997, (iii) $13 million of incentive payments to Matra Marconi Space with respect to Orion 1, (iv) $3.5 million of payments to STET upon repayment of the Orion 1 Credit Facility, (v) an amount for working capital not to exceed $10 million and (vi) certain other costs and expenses not to exceed $14.3 million. If the amount of gross proceeds of the Notes Offering is as large or larger than that presently anticipated by the Company, all payments made by the Exchanging Partners after January 30, 1997 under the Orion 1 Credit Facility Support will be refunded in cash and the number of shares issued in the Exchange will not increase. ACCOUNTING TREATMENT The Exchange will be accounted for as an acquisition of minority interest using the purchase method of accounting. As a result, the assets and liabilities of Orion Atlantic will be revalued to fair value to the extent of the Limited Partners' interests acquired as a result of the Exchange. DESCRIPTION OF THE ORION NEWCO SERIES C PREFERRED STOCK Pursuant to the Exchange Agreement, Orion has agreed that prior to the date of the Exchange, Orion Newco will have filed a Certificate of Designations, Rights and Preferences of Series C 6% Cumulative Redeemable Convertible Preferred Stock with the State of Delaware (the "Certificate of Designations") establishing the terms and relative rights and preferences of the Orion Newco Series C Preferred Stock. According to the Certificate of Designations, the terms of the Orion Newco Series C Preferred Stock are as follows: Dividends. Subject to the preferential rights of Orion Newco's Series A Preferred Stock and Orion Newco's Series B Preferred Stock ranking senior to the Orion Newco Series C Preferred Stock, the record holders of Orion Newco Series C Preferred Stock will be entitled to receive dividends at the rate of 6% per annum, payable exclusively (except in the event of a Liquidation, as defined below) in Orion Newco Common Stock. Dividends will accrue on a daily basis commencing on the date of issuance of each share of Orion Newco Series C Preferred Stock at the simple interest rate of 6% per annum of the $1,000 per share value thereof. The number of shares of Orion Newco Common Stock distributable in a dividend on each share of Orion Newco Series C Preferred Stock is calculated based on the market price of such stock under a formula provided in the Certificate of Designations. Liquidation rights. Subject to the liquidation rights contained in the Certificate of Designations, Rights and Preferences for the Orion Newco Series A Preferred Stock and the Certificate of Designations, Rights and Preferences for the Orion Newco Series B Preferred Stock, in the event of any liqui- 46 dation, dissolution or winding up of Orion Newco (a "Liquidation"), each holder of Orion Newco Series C Preferred Stock will be entitled to be paid, before any distribution or payment is made upon the Orion Newco Common Stock or any other series or class of stock of Orion Newco ranking junior to the Orion Newco Series C Preferred Stock, an amount in cash equal to the greater of (a) $1,000 per share (plus an amount equal to all accrued and unpaid dividends) of all shares of Orion Newco Series C Preferred Stock held by such holder or (b) the amount which would be distributed with respect to the shares of Orion Newco Common Stock (including fractional shares for purposes of this calculation) into which such shares of Orion Newco Series C Preferred Stock are convertible (assuming conversion of all outstanding Orion Newco Series C Preferred Stock) immediately prior to the record date for such distribution (or, if there is no such record date, then the date as of which the holders of Orion Newco Common Stock entitled to such distribution are determined), and the holders of Orion Newco Series C Preferred Stock shall not be entitled to any further payment. If upon any such Liquidation Orion Newco's assets to be distributed among the holders of the Orion Newco Series C Preferred Stock are insufficient to permit payment to such holders of the aggregate amount which they are entitled to be paid, then the entire assets to be distributed shall be distributed ratably among such holders based upon a value of $1,000 per share (plus all accrued and unpaid dividends) of the Orion Newco Series C Preferred Stock held by each such holder. Voting rights. The holders of the Orion Newco Series C Preferred Stock will be entitled to notice of all stockholders' meetings in accordance with Orion Newco's bylaws, and except as otherwise required by law, the holders of the Orion Newco Series C Preferred Stock will be entitled to vote on all matters submitted to the stockholders for a vote together with the holders of Orion Newco Common Stock and the holders of Orion Newco Senior Preferred Stock, voting together as a single class. Each share of Orion Newco Common Stock will be entitled to one vote per share and each share of the Orion Newco Senior Preferred Stock and Orion Newco Series C Preferred Stock (including fractional shares) will be entitled to one vote for each whole share of Orion Newco Common Stock that would be issuable upon conversion of such share of Orion Newco Senior Preferred Stock and Orion Newco Series C Preferred Stock, respectively, at the time the vote is taken. Redemption. Orion Newco will be required to redeem all of the Orion Newco Series C Preferred Stock on the 25th anniversary of issuance (2022). Additionally, at any time after the second anniversary of the date of the issuance of the Orion Newco Series C Preferred Stock under the Exchange Agreement, or, if prior to such date, immediately prior to the consummation of any consolidation, merger or sale in which the successor entity or purchasing entity is other than Orion Newco, Orion Newco, at its option and to the extent it has funds legally sufficient therefor, may redeem the shares of Orion Newco Series C Preferred Stock then outstanding, in whole or in part, for an aggregate redemption price of $1,000 per share (plus all accrued and unpaid dividends thereon); provided that, in the event of a partial redemption, Orion Newco must redeem the shares of Orion Newco Series C Preferred Stock on a pro rata basis. Optional Conversion to Common Stock. Holders of Orion Newco Series C Preferred Stock will have the right, at any time, to convert all or a portion of such shares into a number of shares of Orion Newco Common Stock equal to the sum of: (a) the number of shares of Orion Newco Common Stock computed by multiplying the number of shares of Orion Newco Series C Preferred Stock to be converted by $1,000, and dividing the result by the applicable Conversion Price (as such term is used in the Certificate of Designations), initially $17.50, subject to adjustment, plus (b) the number of shares of Orion Newco Common Stock that would be payable if all accrued but unpaid dividends were declared and paid on the shares of Orion Newco Series C Preferred Stock to be converted. Mandatory Conversion to Common Stock. If the closing price of the Orion Newco Common Stock over 20 of the 30 prior trading days is greater than or equal to the Conversion Price of $17.50 (subject to adjustment), Orion Newco may require, by written notice to all holders of Orion Newco Series C Preferred Stock, the conversion of all of the outstanding Orion Newco Series C Preferred Stock into a number of shares of Orion Newco Common Stock equal to the sum of: (a) the number of shares of Orion Newco Common Stock computed by multiplying the number of shares of Orion Newco Series C Preferred Stock to be converted by $1,000, and dividing the result by the applicable Conversion Price then in effect, plus (b) the number of shares of Orion Newco Common Stock that would be payable if all 47 accrued but unpaid dividends were declared and paid on the shares of Orion Newco Series C Preferred Stock to be converted. If Orion Newco will require the mandatory conversion of the Orion Newco Series C Preferred Stock within two years from the initial date of issuance of the Orion Newco Series C Preferred Stock, then the number of shares of Orion Newco Common Stock into which the shares of Orion Newco Series C Preferred Stock are converted will be increased by the number of shares of Orion Newco Common Stock that would be payable if Orion Newco were immediately to declare and pay all dividends that in the absence of conversion would have accrued on such shares of Orion Newco Series C Preferred Stock over the six-month period immediately following the date of such mandatory conversion; provided, however, that the total dividends, including any additional amounts in respect of dividends paid as a result of a mandatory conversion, will not be less than the amount of dividends that would have accrued on all outstanding shares of the Orion Newco Series C Preferred Stock during one full year following the date of issuance. For more information regarding the terms of the Orion Newco Series C Preferred Stock, stockholders are referred to the text of the Certificate of Designations, the form of which is attached to this Proxy Statement/Prospectus as Attachment C. REGISTRATION RIGHTS The shares of Orion Newco Series C Preferred Stock are not registered under the Securities Act and are being issued by Orion Newco in reliance on an exemption from registration. Such shares will be deemed "restricted securities" within the meaning of Rule 144 under the Securities Act and may not be sold in the absence of registration under the Securities Act unless an exemption is available. Concurrently with the Exchange, Orion, Orion Newco and the Exchanging Partners will enter into a registration rights agreement (the "Registration Rights Agreement"), which is made in connection with, and conditioned upon the consummation of, among other things, the Merger and the Exchange. Further, pursuant to the Registration Rights Agreement, Orion has agreed to cause Orion Newco to execute and deliver the Registration Rights Agreement or a copy thereof, at which time Orion Newco will become a party to the Registration Rights Agreement and be bound (and have all rights and obligations of Orion) thereunder. In the Registration Rights Agreement, Orion Newco will grant certain registration rights to the Exchanging Partners, as summarized below. Shelf Registration Rights. Pursuant to the Registration Rights Agreement, Orion Newco will prepare and as soon as practicable (but no later than 15 days after) after 180 days have passed from the date of issuance of the Orion Newco Series C Preferred Stock (the "Lockup Period"), a "shelf" registration statement of Orion Newco (the "Initial Shelf Registration Statement") which covers the registration of any and all the Eligible Registrable Securities (as defined below) each holder elects to include in the Initial Shelf Registration Statement. Orion Newco will include in the Initial Shelf Registration Statement all Eligible Registrable Securities, other than Eligible Registrable Securities as to which a holder advises Orion Newco in writing, at least 15 days prior to the expiration of the Lockup Period, that such holder does not wish to have included in the Initial Shelf Registration. Orion Newco will use all reasonable efforts to have the Initial Shelf Registration Statement declared effective by the Commission as soon as practicable after filing. "Eligible Registrable Securities" includes the shares of the Orion Newco Common Stock or other securities issued or issuable upon conversion of the Orion Newco Series C Preferred Stock purchased by the Exchanging Partners pursuant to the Exchange Agreement or issued as dividends or distributions pursuant to the Certificate of Designations that a holder is eligible to sell under the terms of the applicable Transfer Restriction Agreement described below under "Certain Transfer Restrictions" (which constitute 25% of the aggregate number of shares of Orion Newco Common Stock issuable upon conversion of the Orion Newco Series C Preferred Stock received by such Exchanging Partner pursuant to the Exchange Agreement or as dividends on such Orion Newco Series C Preferred Stock). Such securities shall cease to be Eligible Registrable Securities when a registration statement with respect to the registration of such securities shall have been declared effective under the Securities Act and such securities shall have been disposed of pursuant to such registration statement. Under the Registration Rights Agreement, Orion Newco will use all reasonable efforts to cause to be filed, during each successive period of not less than 60 and not more than 90 days (as determined by Orion Newco, having regard principally to coordination of such registration with ongoing business mat- 48 ters and disclosure requirements) following the effectiveness of the Initial Registration Statement which terminates on or before the end of the date five years following the date of the Exchange (each, a "Top-up Period"), an additional shelf registration statement or, at Orion Newco's option, a post-effective amendment to any then-effective shelf registration statement (a "Top-up Shelf Registration Statement") providing for the registration of the shares of the Eligible Registrable Securities that each holder of Orion Newco Series C Preferred Stock elects to include in such Top-up Shelf Registration Statement which have not been registered previously. Orion Newco is required to use all reasonable efforts to have the Top-up Registration Statement declared effective by the Commission as soon as practicable after filing. Demand Registration of Underwritten Offerings. At any time following the expiration of the Lockup Period, one or more of the holders of the Orion Newco Series C Preferred Stock may request that Orion Newco effect a registration under the Securities Act of all of their Eligible Registrable Securities in a sale of securities to an underwriter or underwriters of securities for reoffering to the public (an "Underwritten Offering"). Each such request for registration must involve shares worth at least $17.5 million in market value. Each request for an Underwritten Offering will specify the approximate number of shares of Eligible Registrable Securities requested to be registered and the anticipated per share price range for such offering. Within ten days after receipt of any such request, Orion Newco will give written notice of such requested demand registration to all other holders of the Orion Newco Series C Preferred Stock and, subject to certain restrictions detailed in the Registration Rights Agreement, will include in any such Underwritten Offering all Eligible Registrable Securities with respect to which Orion Newco has received written request for inclusion therein within 15 days after Orion Newco's notice is given. Piggyback Registration Rights. If at any time following the expiration of the Lockup Period, Orion Newco proposes to effect a registration of the Orion Newco Common Stock (whether for its own account or for the account of others) under the Securities Act, other than a shelf or demand registration as described above or a registration of securities in connection with a business acquisition or combination or an employee benefit plan (a "Piggyback Registration"), Orion Newco will give written notice to all holders of its intention to effect such a registration and, subject to certain provisions described in the Registration Rights Agreement, will include in such registration all Eligible Registrable Securities with respect to which Orion Newco has received written requests for inclusion therein within 15 days after the date Orion Newco's notice is given. Orion Newco will pay any and all Registration Expenses (as such term is used in the Registration Rights Agreement) incident to the filing of each such registration statement or otherwise incident to the performance of or compliance by Orion Newco with the provisions of the Registration Rights Agreement relating to a such registration. CERTAIN TRANSFER RESTRICTIONS Each Exchanging Partner will enter into a Transfer Restriction Agreement (each, a "Transfer Restriction Agreement") regarding the transfer of the shares of Orion Newco Common Stock issuable upon conversion of, or as dividends on, the Orion Newco Series C Preferred Stock. Pursuant to the applicable Transfer Restriction Agreement, each Exchanging Partner may not directly or indirectly sell, offer, contract to sell, make any short sale, pledge or otherwise dispose of ("transfer") any shares of Orion Newco Common Stock issued upon conversion of shares of Orion Newco Series C Preferred Stock or as dividends on such Orion Newco Series C Preferred Stock (the "Affected Shares") without the prior written consent of Orion Newco during the Lockup Period, unless such sale or transfer is to an "affiliate" (as such term is defined in Rule 144 under the Securities Act) of the Exchanging Partner and does not involve a public distribution or public offering or unless any transfer is effected (i) pursuant to a tender or exchange offer made by or on behalf of Orion Newco or a third party, (ii) in connection with a merger, consolidation, sale of all or substantially of all of the assets, recapitalization or similar transaction involving Orion Newco or (iii) pursuant to a transaction not involving a public distribution or offering registered under the Securities Act and not made through a broker, dealer or market-maker pursuant to Rule 144 (including a pledge that meets such requirements); provided, however, that prior to any transfer of Affected Shares under clause (iii) above and prior to any transfer of Orion Newco Series C Preferred Stock (other than under the circumstances set forth in clause (i) or (ii) above, the transferee shall execute and deliver to Orion Newco a transfer restriction agreement substantially simi- 49 lar to the Transfer Restriction Agreement the transferor originally entered into and otherwise reasonably satisfactory in form and substance to Orion Newco, in which such transferee agrees to abide by all of the restrictions set forth in the original Transfer Restriction Agreement. Also, pursuant to the applicable Transfer Restriction Agreement, each Exchanging Partner agrees that it will not transfer during any 90-day period Affected Shares that collectively represent more than 25% of the aggregate number of shares of Orion Newco Common Stock issuable upon conversion of the Orion Newco Series C Preferred Stock received by such Exchanging Partner pursuant to the Exchange Agreement or as dividends on such Orion Newco Series C Preferred Stock (the "25% Limit") unless any such transfer is (i) pursuant to an underwritten, public offering pursuant to a registration statement under the Securities Act, (ii) pursuant to a tender or exchange offer made by or on behalf of Orion Newco or a third party, (iii) in connection with a merger, consolidation, sale of all or substantially all of the assets, recapitalization or similar transaction involving Orion Newco or (iv) pursuant to a transaction not involving a public distribution or offering registered under the Securities Act and is not made through a broker, dealer or market-maker pursuant to Rule 144 (including a pledge that meets such requirements); provided, however, that prior to any transfer of Affected Shares under clause (iv) above and prior to any transfer of Orion Newco Series C Preferred Stock other than under the circumstances set forth in clause (i), (ii) or (iii) above, the transferee shall execute and deliver to Orion Newco a transfer restriction agreement substantially similar to the Transfer Restriction Agreement the transferor originally entered into (omitting the Lockup Period provision noted above). The 25% Limit described above will terminate on the date that is five years after the date of issuance of the Orion Newco Series C Preferred Stock under the Exchange Agreement. THE DEBENTURE INVESTMENTS The Debenture Investments will involve the sale of $50 million of convertible junior subordinated debentures (the "Debentures") to British Aerospace (the "British Aerospace Investment") and the sale of $10 million of similar Debentures to Matra Marconi Space (the "Matra Marconi Investment"). Consummation of the Debenture Investments is a condition to the closing of the Notes Offering. Terms of Debentures. Under the Debenture Agreement among Orion Newco, British Aerospace and Matra Marconi Space, the Debentures will mature 15 years following the date of issuance and will bear interest at a rate of 8.75% per annum to be paid semi-annually in arrears, commencing August 1, 1997, solely in Orion Newco Common Stock at prices between $10.21 and $14.00 per share, depending on the average trading prices of the Orion Newco Common Stock during the applicable measurement periods. The Debentures (and accrued but unpaid interest) may be converted in whole or in part into Orion Newco Common Stock at any time at an initial conversion rate of $14.00 per share, as adjusted for stock splits or other recapitalizations, certain dividends or issuances of stock to all stockholders, issuances of stock (or rights to acquire stock) at a price per share below $14.00, and other events. See "Risk Factors -- Risks Relating to Merger, Exchange and Debenture Investments -- Risks Relating to Orion Newco Series C Preferred Stock and Debentures." Orion Newco may at any time (except during 90 days after a change in control) redeem all or part (but not less than 25% on any one occasion) of the Debentures for cash consideration determined by multiplying the number of shares of Orion Newco Common Stock issuable upon conversion of the Debentures by the greater of (i) the average closing price of the Orion Newco Common Stock over the 20 trading days preceding the redemption or (ii) $17.50 per share. Alternatively, Orion Newco has the right to arrange for the disposition of the Orion Newco Common Stock issuable upon the conversion of, or as payment of dividends on, the Debentures in a public or private offering. In such event, the Debenture holders will be entitled to receive a price per share equal to the greater of (a) at least 95% of the average closing price of the Orion Newco Common Stock over the 20 trading days preceding the disposition or (b) $17.50 per share. From and after the time when less than $50 million of Notes remain outstanding, in the event of a change of control of Orion Newco (defined as the acquisition by any stockholder of a majority of the voting securities of Orion Newco), either Orion Newco or any holder of the Debentures may, within 90 days after such change of control, require the sale of the Debentures, as converted into Orion Newco Common Stock, to Orion Newco for a purchase price equal to the greater 50 of (a) the price payable in an optional redemption (as described above) and (b) the price paid to holders of Orion Newco Common Stock in the change of control transaction. The Debentures will be subordinated to all other indebtedness of the Company, including the Notes. The Debentures will contain minimal covenants and events of default so long as $50 million or more of the Notes remain outstanding, but more extensive covenants and events of default will apply after less than $50 million of Notes are outstanding. See "The Related Transactions -- The Notes Offering/Orion 1 Credit Facility Refinancing -- Notes Offering." In connection with the Debenture Investments, Orion Newco has agreed in the Debenture Agreement to certain provisions relating to any mandatory redemption by it of the Debentures, the Orion Newco Series C Preferred Stock or the Orion Newco Common Stock issued to British Aerospace, Matra Marconi Space or their respective affiliates upon conversion of the Debentures or the Orion Newco Series C Preferred Stock or as payment of interest on the Debentures or dividends on the Orion Newco Series C Preferred Stock. Under its Certificate of Incorporation, Orion Newco has the right mandatorily to redeem the capital stock of any stockholder if the ownership of such stock would cause Orion Newco to violate applicable U.S. regulatory restrictions on foreign ownership. Orion Newco has agreed that any such redemption of the foregoing securities owned by British Aerospace, Matra Marconi Space or their respective affiliates will be effected at the price and on the terms applicable to redemptions effected under the terms of the Debentures or the Orion Newco Series C Preferred Stock, as the case may be, which would be more favorable than the price and other terms set forth in the Certificate of Incorporation. Approval of the Debenture Investments by Orion stockholders also will constitute approval of such provisions in the Debenture Agreement. The consummation of the Debenture Investments is conditioned upon the following: (i) completion of the Exchange; (ii) termination of all obligations of British Aerospace, Matra Marconi Space and their respective affiliates under the Orion 1 Credit Facility Support; (iii) receipt by Orion Newco of net proceeds from the Notes Offering of at least $225 million; (iv) Orion Newco's payment to each of British Aerospace and Matra Marconi Space of its costs and expenses; and (v) acquisition by Orion Newco of all of British Aerospace's interest in Orion Asia Pacific in exchange for approximately 86,000 shares of Orion Newco Common Stock. Matra Marconi will apply certain satellite incentive payments owing to it toward the purchase price of the Debentures. Under the Orion 1 Satellite Contract, Matra Marconi, as the Orion 1 manufacturer, is entitled to receive incentive payments based upon the performance of Orion 1 in orbit. As of September 30, 1996, Orion Atlantic had obligations with a present value of $21.7 million with respect to incentive payments. Orion Newco will pay $13 million in satellite incentives following completion of the Notes Offering, of which $10 million will be re-invested in Orion Newco by Matra Marconi Space in Debentures. REGISTRATION RIGHTS. The shares of Orion Newco Common Stock issuable upon conversion of, or as dividends on, the Debentures will have the following registration rights: Orion Newco will be obligated to include in the "shelf" registration statement filed with respect to the Orion Newco Series C Preferred Stock (to be filed approximately six months after such stock is issued) approximately 360,000 shares of Orion Newco Common Stock issued as payment of interest on the Debentures or previously issued to British Aerospace pursuant to a warrant or the OAP Acquisition. Orion Newco also will prepare and, within one year after the date of issuance of the Debentures, cause to be filed a shelf registration statement of Orion Newco which covers the registration of any and all shares of Orion Newco Common Stock issuable upon conversion of the Debentures each holder elects to include in such shelf registration statement. If not all shares of Orion Newco Common Stock issuable upon conversion of the Debentures are registered in the initial shelf registration statement, Orion Newco will be obligated to file additional shelf registration statements to register such unregistered shares. Any one or more holders of the Debentures may request that Orion Newco effect a registration under the Securities Act of all or not less $20 million of shares of Orion Newco Common Stock issuable upon conversion of the Debentures in an underwritten offering. The number of requests is not limited, but the Company will not be obligated to effect more than one underwritten offering in any 12-month 51 period. Orion Newco will pay any and all Registration Expenses (as such term is used in the registration rights agreement) incident to the filing of each registration statement for an underwritten offering. If Orion Newco proposes to effect a registration of the Orion Newco Common Stock (whether for its own account or for the account of others) under the Securities Act, other than a shelf or demand registration as described above or a registration of securities in connection with a business acquisition or combination or an employee benefit plan, Orion Newco will, subject to certain provisions described in the registration rights agreement, include in such registration all shares of Orion Newco Common Stock issuable upon conversion of the Debentures with respect to which Orion Newco has received written requests for inclusion therein. Orion Newco will pay any and all Registration Expenses (as such term is used in the registration rights agreement) incident to the filing of each such registration statement or otherwise incident to the performance of or compliance by Orion Newco with the provisions of the registration rights agreement relating to a such registration. 52 CORPORATE STRUCTURE AFTER THE TRANSACTIONS The following diagram illustrates the effects of the Merger, the Exchange and the other Transactions on the corporate structure of Orion Newco. The ownership figures are on a fully diluted basis. [DIAGRAM] 53 EFFECT OF THE EXCHANGE ON THE CAPITAL STRUCTURE OF ORION NEWCO As a result of the issuance of 121,988 shares of Orion Newco Series C Preferred Stock in the Exchange, which is convertible into approximately 6,970,740 shares of Orion Newco Common Stock, the number of shares of Orion Newco Common Stock outstanding on a fully diluted basis will increase by approximately 78% to approximately 25,860,320 shares. In addition, as a result of the issuance, certain of the Exchanging Partners will be principal stockholders of Orion Newco. See "Security Ownership of Certain Beneficial Owners Prior to and Following the Transactions" below. RECOMMENDATION OF THE BOARD OF DIRECTORS OF ORION The Board of Directors unanimously approved (with the British Aerospace Board representative recusing himself) the terms of the Merger Agreement, the Exchange Agreement and the Debenture Agreement and determined that the Merger, the Exchange and the Debenture Investments are in the best interests of Orion and its stockholders. The Board unanimously recommends (with the British Aerospace Board representative recusing himself) that Orion stockholders vote FOR ratification of the Merger Agreement and the transactions contemplated thereby, FOR approval and adoption of the Exchange Agreement and the transactions contemplated thereby, and FOR approval of the Debenture Investments. The Board believes that the Merger Transactions and the Debenture Investments are in the best interests of Orion stockholders because they will simplify Orion's organizational structure and improve Orion's access to the capital markets. The reasons for the Board's recommendation are discussed more fully under the captions "Background of the Merger Transactions and the Debenture Investments" and "Reasons for the Merger Transactions and the Debenture Investments" above. OPINION OF ORION'S FINANCIAL ADVISOR Salomon Brothers has rendered to the Board of Directors of Orion its written opinion dated December 10, 1996 (the "Salomon Brothers Opinion") that, based upon and subject to the various considerations set forth in the opinion, as of December 10, 1996, the consideration to be paid by Orion in connection with the Exchange was fair from a financial point of view to Orion. No limitations were imposed by the Board of Directors upon Salomon Brothers with respect to the investigations made or the procedures followed by it in rendering its opinion. Salomon Brothers was not requested by the Board of Directors to make any recommendation as to the form or amount of consideration to be paid by Orion pursuant to the Exchange Agreement, which issues were resolved in arm's-length negotiations between Orion and the Exchanging Partners. Salomon Brothers was not asked to express an opinion, and did not express any opinion, with regard to the Notes Offering, the Orion 1 Credit Refinancing, the Debenture Investments, the Orion 2 Satellite Contract, the Orion 3 Satellite Contract or the Merger. THE FULL TEXT OF THE SALOMON BROTHERS OPINION, WHICH SETS FORTH ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON THE REVIEW UNDERTAKEN, IS ATTACHED HERETO AS ATTACHMENT D. STOCKHOLDERS OF ORION ARE URGED TO READ THE OPINION CAREFULLY AND IN ITS ENTIRETY IN CONJUNCTION WITH THIS PROXY STATEMENT/PROSPECTUS. THE SALOMON BROTHERS OPINION ADDRESSES ONLY THE FAIRNESS OF THE CONSIDERATION TO BE PAID IN THE EXCHANGE FROM A FINANCIAL POINT OF VIEW AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY STOCKHOLDER OF ORION AS TO HOW SUCH STOCKHOLDER SHOULD VOTE ON THE MERGER, THE EXCHANGE OR THE DEBENTURE INVESTMENTS. THE SUMMARY OF THE SALOMON BROTHERS OPINION SET FORTH IN THIS PROXY STATEMENT/PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH OPINION. In rendering the Salomon Brothers Opinion, Salomon Brothers reviewed certain publicly available information relating to Orion, as well as certain other information, including financial projections, provided to Salomon Brothers by Orion, discussed the past and current operations and financial condition and prospects of Orion and Orion Atlantic with members of the respective senior managements of such entities and considered such other information, financial studies, analyses, investigations and financial, economic, market and trading criteria which Salomon Brothers deemed relevant. In rendering its opinion, Salomon Brothers assumed and relied upon the accuracy and completeness of the information it reviewed for the purpose of such opinion and did not assume any responsibility for independent verification of any of such information or for any independent evaluation or appraisal of 54 the assets of Orion or Orion Atlantic. With respect to Orion's and Orion Atlantic's financial projections, Salomon Brothers assumed that they had been reasonably prepared on bases reflecting the best currently available estimates and judgments of Orion's or Orion Atlantic's management, as the case may be, as to the future financial performance of their respective businesses, and while Salomon Brothers expressed no opinion with respect to such forecasts or the assumptions on which they were based, Salomon Brothers relied on management's assumption that the Notes Offering, the Orion 1 Credit Refinancing, the Debenture Investments, the Orion 2 Satellite Contract and the Orion 3 Satellite Contract would occur or be executed, each as the case may be, concurrently with the Exchange. Salomon Brothers assumed that the Exchange would qualify as tax-free under Section 351 of the Code. The Salomon Brothers Opinion was necessarily based on economic, market and other conditions as in effect on, and the information made available to Salomon Brothers as of, the date of such opinion and did not address Orion's underlying business decision to effect the Exchange or constitute a recommendation to any holder of Orion Common Stock concerning the Merger, the Exchange or the Debenture Investments. The Salomon Brothers Opinion does not imply any conclusion as to the likely trading range of Orion Newco Common Stock following the consummation of the Exchange, which may vary depending on, among other factors, changes in interest rates, dividend rates, market conditions, general economic conditions and other factors that generally influence the price of securities. The following is a summary of the report (the "Salomon Brothers Report") presented by Salomon Brothers to the Board of Directors of Orion on December 10, 1996, in connection with the rendering of the Salomon Brothers Opinion: Discounted Cash Flow Analysis. Using an unlevered discounted cash flow ("DCF") methodology, Salomon Brothers examined management's 10-year projections for each of Orion 1, Orion 2 and Orion 3. Salomon Brothers' DCF analysis relied on management's assumption that its business plan would be executed, including that the financings contemplated in such business plan would occur as required. Salomon Brothers calculated terminal values for each such satellite at the end of the projection period, assuming its replacement at the end of its usable life, by reference to the average tax-effected earnings before interest, taxes, depreciation and amortization ("EBITDA") for the last five-years of the projection period less the average capital expenditures over the life of a current specification satellite. Salomon Brothers then used a cash flow perpetuity approach and assumed a steady nominal growth rate of 3-5% and a discount rate (equal to Salomon Brothers' estimate of Orion's weighted average cost of capital ("WACC") once Orion's business reaches maturity) of 11.5% to calculate terminal values. For reference, Salomon Brothers then converted these terminal values to implied ranges of EBITDA terminal multiples for Orion 1 of 6.2x to 8.1x, for Orion 2 of 5.7x to 7.5x and for Orion 3 of 5.4x to 7.1x (which were at the low end of the range of terminal multiple estimates used by independent equity research analysts for satellite companies with similar capital spending characteristics). With respect to projected cash flows over the projection period, Salomon Brothers used discount rates of 15% to 20% through to the end of the projection period for Orion 1 and discount rates of 17.5% to 22.5% through to the end of the projection period for Orion 2 and Orion 3. These discount rates were selected primarily based upon ranges cited for satellite companies' WACC in independent equity analyst research reports for publicly traded satellite companies. A higher discount rate was selected for Orion 2 and Orion 3 because these satellites are in an earlier stage of development than Orion 1. Salomon Brothers also analyzed the implied WACCs for a group of publicly traded satellite companies based on their respective capital structures and equity security trading histories. However, due to the limited time period over which these securities were traded, Salomon Brothers concluded that reliance on this analysis was inappropriate. Using its DCF methodology, Salomon Brothers calculated (i) a range of implied values of $127.2 million to $337.2 million for the Exchanging Partners' equity interest in Orion Atlantic and (ii) a range of equity values for each current share of Orion Common Stock of $12.79 to $32.37. Salomon Brothers also analyzed this DCF valuation in the context of the Orion Common Stock price as of December 9, 1996, to determine the relationship between Orion's market capitalization and the theoretical equity value of Orion derived from the DCF analysis described above. This ratio of market capitalization to theoretical equity value ranged from 98.7% (assuming low side DCF value) to 55 39% (assuming high side DCF value). Applying these ratios to Salomon Brothers' DCF value range for Orion Atlantic yielded a value range of $125.5 million to $131.5 million for the Exchanging Partners' 58.3% limited partnership interest in Orion Atlantic. Precedent Transaction Analysis. As part of its analysis, Salomon Brothers reviewed two recent acquisition transactions involving satellite companies: (i) Orion Atlantic's redemption of STET's interest and Orion's subsequent purchase of a new interest from Orion Atlantic and (ii) the acquisition by Hughes Corporation ("Hughes") of PanAmSat. To estimate the value of Orion Atlantic, Salomon Brothers analyzed the redemption of STET's interest and Orion's subsequent purchase of a new interest from Orion Atlantic to derive a range of implied values (i) of Orion Atlantic of $138.1 million to $180.1 million based upon consideration paid by Orion valued at $11.5 million to $15.0 million for STET's 8.33% limited partnership interest and (ii) of the Exchanging Partners' limited partnership interests in Orion Atlantic of $80 million to $104 million at the time of the transaction. If the additional capital, totaling $47 million, invested by the Exchanging Partners since the STET redemption is included in this valuation analysis, the range of implied values of the Exchanging Partners' limited partnership interests in Orion Atlantic increases to $127 million to $151 million. Salomon Brothers also reviewed the Hughes acquisition of PanAmSat and examined the ratio of firm value (i) to latest twelve months ("LTM") and projected 3-year forward revenues, (ii) to LTM and projected 3-year forward EBITDA and (iii) to LTM and projected 3-year forward earnings before interest and taxes ("EBIT"). Based on these ratios and the limited public information available with respect to PanAmSat, Salomon Brothers estimated a range of implied values of the Exchanging Partners' limited partnership interests in Orion Atlantic of $91 million to $420 million. However, in Salomon Brothers' judgment, the PanAmSat transaction was not entirely comparable to the Exchange in most respects, primarily because PanAmSat is a less highly leveraged company than Orion and is not in a similarly early stage of development. Salomon Brothers also reviewed several other recently completed merger and acquisition transactions in the satellite sector, none of which were useful in its analysis. Public Market Trading Analysis. Salomon Brothers also performed an analysis in which it compared certain publicly available historical financial and operating data and market statistics of selected satellite companies (calculated based on closing stock prices as of December 9, 1996, for the publicly traded companies, and assuming the midpoint of the filing range for the then-pending initial public offering for APT Satellite Holdings Limited ("APT Satellite")). The stock market performance of satellite companies varies significantly depending on, among other things, stages of development, geographic location and segments of operation. Accordingly, no company used in the Public Market Trading Analysis was fully comparable to Orion in most material respects. Salomon Brothers selected Echostar Communications Corporation ("Echostar"), APT Satellite and American Mobile Satellite Corporation ("AMSC") as the most comparable to Orion. Although Echostar and AMSC operate in segments that are different from those of Orion, they are each in stages of development similar to that of Orion. Salomon Brothers examined firm value to LTM revenue multiples for Echostar (8.7x), APT Satellite (12.0x) and AMSC (21.0x) and noted that, based on these multiples, (i) the total implied equity value of Orion Atlantic was estimated to range from $120 million to $636 million and (ii) the Exchanging Partners' limited partnership interests in Orion Atlantic were estimated to range in value from $70 million to $371 million. Historical Trading Analysis. As part of its analysis, Salomon Brothers examined the historical stock market performance of Orion in relation to a composite index of common stock of selected satellite companies (consisting of PanAmSat, United States Satellite Broadcasting Company, Inc., Globalstar Telecommunications Limited, AMSC, Echostar, Asia Satellite Telecommunications Holdings Limited and P.T. Pasifik Satellit Nusantara) and the Nasdaq Composite Index and the relationship between price movements thereof over the period from August 1, 1995 to December 6, 1996. Salomon Brothers observed that for the entire period the Orion Common Stock underperformed the index of selected satellite companies and the Nasdaq Composite Index in terms of price appreciation. Salomon Brothers also noted that Orion's historical Common Stock price (and corresponding firm value) could be deconstructed to estimate the amount of value historically attributed by the public equity market to Orion Atlantic, using the simplifying assumption that nominal value was attributed to 56 Orion 3. On this basis, Salomon Brothers concluded that Orion's historical Common Stock price range of $6.75 to $14.75 per share could be interpreted as implying a market valuation for the Exchanging Partners' limited partnership interests in Orion Atlantic of $47.3 million to $219.0 million. Convertible Security Valuation. Using options pricing theory and the discounted present value of probabilistically adjusted dividends, Salomon Brothers arrived at a range of values for the Orion Newco Series C Preferred Stock of $83 million to $106 million. This value was based on a range of assumed prices for Orion Common Stock of $10 to $14 per share at the time of issuance of the Orion Newco Series C Preferred Stock, the Orion Newco Series C Preferred Stock's dividend yield, its conversion price and liquidation value, Orion's share price volatility and the mean expected return on Orion Common Stock, and reflects the unique characteristics of the Orion Newco Series C Preferred Stock which distinguish it from conventional convertible preferred stocks. Several of these parameters required Salomon Brothers to make certain subjective judgments. The preparation of a fairness opinion is not susceptible to partial analysis or summary description. Salomon Brothers believes that its analyses and the summary set forth above must be considered as a whole and that selecting portions of its analyses and the factors considered by it, without considering all such analyses and factors, or of the above summary, without considering all factors and analyses, could create an incomplete view of the processes underlying the analyses set forth in the Salomon Brothers Opinion and the Salomon Brothers Report. Salomon Brothers has not indicated that any of the analyses which it performed had a greater significance than any other. The ranges of valuations resulting from any particular analysis described above should not be taken to be the view of Salomon Brothers of the actual value of Orion and Orion Atlantic. In performing its analyses, Salomon Brothers made numerous assumptions with respect to industry performance, general business, financial, market and economic conditions and other matters, many of which are beyond the control of Orion or Orion Atlantic. The analyses performed by Salomon Brothers are not necessarily indicative of actual values or actual future results, which may be significantly more or less favorable than suggested by such analyses. Such analyses were prepared solely as part of Salomon Brothers' analysis of the fairness to Orion, from a financial point of view, of the consideration to be paid in the Exchange. In addition, analyses relating to value of businesses do not purport to be appraisals or to reflect the prices at which a business actually might be sold, or the prices at which a company might actually be sold, or the prices at which securities might trade at the present time or at any time in the future. Salomon Brothers is an internationally recognized investment banking firm that provides financial services in connection with a wide range of business transactions. As part of its business, Salomon Brothers regularly engages in the valuation of companies and their securities in connection with mergers and acquisitions, negotiated underwritings, competitive biddings, secondary distributions of listed and unlisted securities and private placements and for other purposes. The Board of Directors retained Salomon Brothers based on Salomon Brothers' expertise in the valuation of companies, as well as its familiarity with Orion and other satellite companies. Salomon Brothers, in the ordinary course of its business, may actively trade the securities of Orion for its own account and for the accounts of customers, and, accordingly, may at any time hold a long or short position in such securities. Salomon Brothers may continue to provide investment banking services to Orion Newco in the future. Salomon Brothers has, in the past, and in return for customary fees, rendered certain investment banking and financial advisory services to Orion, including acting as lead underwriter to Orion in connection with its initial public offering of Orion Common Stock in August 1995. Orion paid Salomon Brothers $688,490 in connection with Salomon Brothers' participation in the 1995 Financing. This amount consisted principally of reimbursement of costs incurred by Salomon Brothers. Pursuant to a letter agreement, dated April 10, 1996, between Orion and Salomon Brothers, Orion agreed to pay Salomon Brothers the following fees: (i) $250,000, which was paid upon execution by Orion of such letter agreement; (ii) $500,000, which was paid upon delivery of the Salomon Brothers Opinion to the Board of Directors; and (iii) an additional $1,000,000, payable upon the successful completion of the financing transactions which facilitate consummation of the Exchange and the construction of Orion 2 and Orion 3. In addition, Orion agreed to indemnify and hold harmless Salomon Brothers and its affiliates, their respective directors, officers, agents and employees and each person, if 57 any, controlling Salomon Brothers or any of its affiliates against certain liabilities and expenses, including liabilities under the federal securities laws, incurred in connection with its services. APPROVALS Orion is aware of no governmental approvals required for consummation of the Merger, the Exchange and the Debenture Investments, other than compliance with federal securities laws and state securities or "Blue Sky" laws. The Board of Directors is seeking stockholder ratification of the Merger Agreement and the transactions contemplated thereby, including the Merger, stockholder approval of the Exchange Agreement and the transactions contemplated thereby, including the Exchange, and stockholder approval of the Debenture Investments. See "The Special Meeting -- Voting Rights and Related Matters" and "-- Votes Required." FEES AND EXPENSES In general, whether or not the Merger Transactions are consummated, each party to the Merger Agreement and the Exchange Agreement will bear its own costs and expenses incurred in connection with the Merger Agreement, the Exchange Agreement and the transactions contemplated thereby, except certain expenses incurred in connection with the Salomon Brothers Opinion. Orion or Orion Newco will bear all expenses associated with the Debenture Investments. CERTAIN FEDERAL INCOME TAX CONSEQUENCES Set forth below is a summary of certain federal income tax consequences under the Internal Revenue Code of 1986, as amended (the "Code"), to Orion stockholders (the "Transferors") whose common and preferred stock of Orion ("Orion Stock") is converted into common and preferred stock of Orion Newco ("Orion Newco Stock") pursuant to the Merger. The following summary does not deal with all aspects of federal taxation that might be relevant to particular Transferors, nor does the summary address any foreign, state, local, estate, or gift tax aspects. In addition, the summary addresses only those Transferors who hold their Orion Stock as a capital asset. In view of the individual nature of tax consequences, Transferors are urged to consult with their own tax advisors regarding the specific tax consequences to them of the Merger, including the applicability of federal, state, local and foreign tax laws. On January 6, 1997, Ernst & Young LLP, tax advisor to Orion, rendered an opinion ("Tax Opinion") that the Merger Transferors will have the opportunity to qualify for nonrecognition treatment because the Merger will qualify either as (i) a reorganization pursuant to Section 368(a) of the Code or (ii) an exchange satisfying the requirements of Section 351(a) of the Code, provided certain requirements (discussed below) are met. In rendering its Tax Opinion, Ernst & Young LLP relied upon certain representations made by Orion, which representations Ernst & Young LLP has not independently verified, and the Tax Opinion is further based upon certain limitations summarized below. Moreover, the Tax Opinion is not binding on the Internal Revenue Service ("IRS") nor does it preclude the IRS from adopting a contrary position. The Tax Opinion is based on provisions of the Code, income tax regulations, and administrative rulings and court decisions existing as of the date of the Tax Opinion. All such provisions are subject to change which changes may be retroactive. Ernst & Young LLP is not responsible for notifying Orion or the Merger Transferors of any such change which may occur subsequent to the date of the Tax Opinion. Except as otherwise noted, the summary below assumes that the Merger will qualify either as a reorganization pursuant to Section 368(a) of the Code or as an exchange satisfying the requirements of Section 351(a) of the Code, based upon such Tax Opinion. Subject to the limitations and qualifications referred to herein, the Tax Opinion addresses and is limited to the following federal income tax consequences for the Merger Transferors: (a) Transferors will recognize no gain or loss in connection with the receipt of shares of Orion Newco Stock in exchange for shares of Orion Stock in the Merger. 58 (b) Each Transferor's tax basis in the shares of Orion Newco Stock it receives will be equal to its tax basis in the Orion Stock it transferred to Orion Newco. (c) The holding period for the Merger Transferor's shares of Orion Newco Stock will include the Merger Transferor's holding period in its Orion Stock. Although the summary below addresses certain tax issues in addition to those noted in (a) through (c) above, Ernst & Young LLP's Tax Opinion does not address such additional tax issues. If the Merger does not qualify for tax-free treatment, (a) the Merger Transferors will recognize gain or loss equal to the difference between the fair market value on the date of the Merger of the Orion Newco Stock they receive and their tax basis in the Orion Stock they transfer; (b) the tax basis of the Orion Newco Stock received by each Transferor will equal the fair market value of that stock on the date of the Merger; and (c) the holding period for each share of Orion Newco Stock will begin on the day following the date of the Merger. Even assuming the Merger qualifies as a tax-free reorganization or exchange, holders of Orion preferred stock with dividends in arrears might be treated under Section 305(c) of the Code as recognizing ordinary income (for which a dividend received deduction may be available to certain corporate holders) as a consequence of the exchange of their Orion preferred stock for Orion Newco preferred stock in the Merger, to the extent of the least of (i) the earnings and profits of Orion Newco (which likely will include the accumulated earnings and profits of Orion, if any, as of the close of the taxable year in which the Merger is completed), (ii) the amount of the dividend arrearage with respect to the Orion preferred stock, or (iii) the amount by which the greater of the fair market value or liquidation preference of the Orion Newco preferred stock exceeds the issue price of the Orion preferred stock. However, the recognition of ordinary income generally applies only to exchanges pursuant to a "recapitalization." Because the Merger should not constitute a "recapitalization" within the meaning of Section 368(a)(1)(E) of the Code, and because Orion does not expect Orion or Orion Newco to have any accumulated or current earnings and profits for the taxable year in which the Merger occurs, Orion does not believe the risk of recognizing ordinary income on an exchange of Orion preferred stock for Orion Newco preferred stock will be significant. However, there can be no assurance that the IRS or a court considering the question will not disagree with Orion's determinations. Holders of Orion preferred stock should also note that, if the redemption price (including any dividend arrearage on the date of the Merger) of shares of Orion Newco preferred stock exceeds the issue price of those shares (which generally will be the fair market value of the Orion Newco preferred stock, appropriately adjusted to reflect any income recognized by holders under Section 305(c) of the Code in connection with the Merger, as discussed above), the excess redemption price generally will be taxable to the holders of the Orion Newco preferred stock as ordinary income (for which a dividend received deduction may be available to certain corporate holders), to the extent of Orion Newco's earnings and profits (which, as noted above, likely will include Orion's accumulated earnings and profits), over the period from the date the Orion Newco preferred stock is issued to the date the Orion Newco preferred stock is required (or deemed required) to be redeemed. This could result in the recognition of ordinary income by Orion Newco preferred stockholders in advance of their receipt of cash dividends or redemption proceeds. HOLDERS OF ORION PREFERRED STOCK ARE URGED TO CONSULT THEIR OWN TAX ADVISORS REGARDING THE APPLICATION OF THE FOREGOING RULES TO THEIR SHARES OF ORION PREFERRED STOCK. Ernst & Young LLP's Tax Opinion that the Merger will qualify as a tax-free reorganization under Section 368(a) of the Code is based on representations of Orion that certain requirements are met, including: (i) following the Merger, Orion will continue to own substantially all its assets and substantially all the assets of Orion Merger Subsidiary (other than the Orion Newco Stock distributed in the Merger); (ii) historic stockholders of Orion (i.e., Orion stockholders who have not acquired their Orion Stock in contemplation of the Merger) will receive pursuant to the Merger and continue to own (not taking into account any shares of Orion Newco Stock that are sold or otherwise disposed of following the Merger pursuant to a plan or intention in existence at the time of the Merger, such as shares sold in 59 market transactions and shares with respect to which holders have entered into risk-limiting transactions, such as short sales and hedges, that have substantially eliminated their potential for appreciation and risk of depreciation) shares of Orion Newco Stock having a fair market value on the date of the Merger equal to at least 50% of the total consideration issued to Orion stockholders in the Merger; and (iii) following the Merger, Orion Newco will own stock of Orion representing 80% of the voting power of all classes of Orion voting stock. If one or more of the foregoing requirements is not satisfied, the Merger may nonetheless qualify for tax-free treatment under Section 351(a) of the Code, provided shares of Orion Newco Stock issued to the Merger Transferors and/or Exchanging Partners representing more than 20% of the voting power of all classes of Orion Newco voting stock (or more than 20% of the total shares of any class of Orion Newco nonvoting stock issued in the Merger Transactions) are not, pursuant to a plan or commitment in existence at the time of the Merger, sold or otherwise disposed of to a person who has not made a significant transfer of property to Orion Newco pursuant to either the Merger or the Exchange. Even assuming the Merger qualifies as a tax-free reorganization or exchange under Section 351(a) of the Code, holders of existing warrants to purchase Orion Stock may recognize gain or loss in connection with the exchange or conversion of those warrants for, or into, warrants to purchase Orion Newco Stock. Such recognition of gain or loss generally can be avoided by exercising the warrants to purchase Orion Stock prior to the Merger. Whether or not the Merger qualifies for tax-free treatment, no income or loss generally will be recognized by holder of a nonqualified option to purchase Orion Stock granted to the holder in connection with the performance of services (an "Orion NSO") as a consequence of the conversion of the Orion NSO into a nonqualified option to purchase Orion Newco Stock (an "Orion Newco NSO"). Rather, a holder of an Orion Newco NSO generally will recognize ordinary income only when the holder exercises the Orion Newco NSO, which income generally will equal the spread between the fair market value of the Orion Newco Stock on date of exercise (determined without regard to any restrictions that will lapse over time) and the exercise price. The conversion of qualified incentive stock options ("ISOs") to purchase Orion Stock into options to purchase Orion Newco Stock will not disqualify the new options to purchase Orion Newco Stock from ISO status, provided the Merger qualifies as a tax-free reorganization under Section 368(a) of the Code and the Orion ISO is not modified other than to permit the holder to exercise the Orion ISO for Orion Newco Stock. Similarly, shares of Orion stock acquired on exercise of an Orion ISO will not be the subject of a "disqualifying disposition" merely because the shares are exchanged pursuant to the Merger for shares of Orion Newco Stock, provided the Merger qualifies as a tax-free reorganization under Section 368(a) of the Code. If, however, the Merger does not constitute a reorganization described in Section 368(a) of the Code, then, regardless of whether the Merger qualifies as a tax-free exchange under Section 351(a) of the Code, (i) each Orion ISO will become disqualified and will be treated as an Orion Newco NSO, and (ii) an exchange of shares of Orion stock acquired on exercise of an Orion ISO within one year of the date of exercise, or within two years of the date on which the Orion ISO was granted to the holder, for shares of Orion Newco Stock will constitute a "disqualifying disposition" in which the holder will recognize ordinary income equal to the excess fair market value on the date of the Merger of the Orion Newco Stock received over the price paid by the holder for his or her Orion Stock on exercise of the Orion ISO. Pursuant to Section 1032 of the Code, Orion Newco will not recognize any gain or loss as a result of issuing shares of Orion Newco Stock to the Merger Transferors or to the Exchanging Partners. Finally, it should be noted that Orion and its subsidiaries have substantial net operating loss carryovers ("NOLs") that currently may be used against future taxable income of the group. Due to prior changes in the ownership of the stock of Orion, the use of those losses against future taxable income may be subject to limitations imposed under Section 382 of the Code. Further, the issuance of the Orion Newco Series C Preferred Stock to Exchanging Partners will contribute towards (and may likely cause) an ownership change under Section 382(g) of the Code to occur and thus impose additional limitations on the use of losses incurred prior to the issuance to offset future taxable income. In general, 60 under Section 382 of the Code, the annual amount of taxable income earned following a change of more than 50 percent in the ownership of a corporation that can be offset by NOLs incurred prior to such a change in ownership equals the product of a rate (published monthly by the IRS) in effect on the date of the change of ownership times the fair market value of the corporation's stock outstanding immediately prior to such change in ownership. Depending on the fair market value of Orion Common Stock, if such an ownership change does occur as a result of the issuance of the Series C Preferred Stock, the change could extend the period over which Orion may utilize its NOLs to offset future taxable income. The future tax benefit of some portion of the NOLs would likely be lost to the extent an ownership change extends the period over which the NOLs can be utilized beyond the applicable 15-year carryforward period. THE SUMMARY SET FORTH ABOVE IS FOR GENERAL INFORMATION PURPOSES ONLY. THE SUMMARY IS BASED ON CURRENTLY EXISTING PROVISIONS OF THE CODE, EXISTING AND PROPOSED TREASURY REGULATIONS THEREUNDER AND CURRENT ADMINISTRATIVE RULINGS AND COURT DECISIONS AS OF THE DATE OF THIS PROXY STATEMENT/PROSPECTUS, ALL OF WHICH ARE SUBJECT TO CHANGE. TRANSFERORS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO SPECIFIC TAX CONSEQUENCES TO THEM OF THE EXCHANGE, INCLUDING THE APPLICABILITY AND EFFECT OF FOREIGN, STATE, LOCAL, AND OTHER APPLICABLE TAX LAWS AND THE POSSIBLE EFFECT OF ANY PROPOSED CHANGES IN THE TAX LAWS. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS PRIOR TO AND FOLLOWING THE TRANSACTIONS The following table sets forth certain information regarding beneficial ownership of the Orion Common Stock, as of September 30, 1996, and as adjusted to reflect the beneficial ownership of Orion Newco Common Stock after the Merger, the Exchange, the Debenture Investments and the other Transactions, assuming for this purpose that the Transactions close as of January 30, 1997, by (i) each stockholder known by Orion to be the beneficial owner of more than five percent of the outstanding Orion Common Stock, (ii) each director of Orion, (iii) each current executive officer named in the Summary Compensation Table and (iv) all directors and executive officers as a group
AFTER THE TRANSACTIONS BEFORE THE TRANSACTIONS AFTER THE TRANSACTIONS ON A FULLY DILUTED BASIS(23) ------------------------------- ------------------------------- ------------------------------ PERCENT OF PERCENT OF PERCENT OF AMOUNT OF TOTAL SHARES OF AMOUNT OF TOTAL SHARES OF AMOUNT OF TOTAL SHARES OF SHARES COMMON STOCK SHARES COMMON STOCK SHARES COMMON STOCK BENEFICIALLY OUTSTANDING BENEFICIALLY OUTSTANDING BENEFICIALLY OUTSTANDING OWNED (2) OWNED (2) OWNED (2) -------------- ---------------- -------------- ---------------- -------------- --------------- NAME AND ADDRESS OF BENEFICIAL OWNER (1) Exchanging Partners ................ British Aerospace Space Systems, Inc. (3) British Aerospace Communications, Inc. 13873 Park Center Road Herndon, VA 22071 .................. 598,183 5.4% 7,119,840 40.5% 7,119,840 27.5% Lockheed Martin Commercial Launch Services, Inc. P.O. Box 179 MSM DC-1400 Denver, CO 80201-0179 .............. 239,769 2.2 1,355,997 11.2 1,355,977 5.2 MCN Sat U.S., Inc 37, Avenue Louis Breuget B.P.1. 78146 Velizy Villacoublay Cedez France ............................. * * 1,727,257 13.6 1,727,257 6.7 61 AFTER THE TRANSACTION BEFORE THE TRANSACTIONS AFTER THE TRANSACTIONS ON A FULLY DILUTED BASIS(23) ------------------------------- ------------------------------- ------------------------------- PERCENT OF PERCENT OF PERCENT OF AMOUNT OF TOTAL SHARES OF AMOUNT OF TOTAL SHARES OF AMOUNT OF TOTAL SHARES OF SHARES COMMON STOCK SHARES COMMON STOCK SHARES COMMON STOCK BENEFICIALLY OUTSTANDING BENEFICIALLY OUTSTANDING BENEFICIALLY OUTSTANDING OWNED (2) OWNED (2) OWNED (2) -------------- ---------------- -------------- ---------------- -------------- --------------- Trans-Atlantic Satellite, Inc. 1211 Avenue of the Americas 41st Floor New York, NY 10036 ................. * * 796,457 6.8 796,457 3.1 Kingston Communications International Limited Telephone House Carr Lane Kingston-upon-Hull HU1 3RE England ............................ 43,252 * 683,137 5.9 683,137 2.6 COM DEV Satellite Communications Limited 150 Sheldon Drive Cambridge, Ontario Canada N1R 7H6 18,382 * 559,067 4.9 559,067 2.2 Exchanging Partners as a group ......................... 899,586 8.1 12,241,755 54.5 12,241,755 47.3 John V. Saeman J.V. Saeman & Co.(4)(5) Medellion Enterprises, LLC Suite 570 3200 Cherry Creek South Drive Denver, CO 80209.................... 1,486,440 13.4 1,486,440 13.4 1,486,440 5.7 CIBC Wood Gundy Ventures, Inc. (4)(6) 425 Lexington Avenue New York, NY 10017 977,123 8.2 977,123 8.2 977,123 3.8 Cumberland Associates 1114 Avenue of the Americas New York, NY 10036.................. 815,000 7.4 815,000 7.4 815,000 3.2 Fleet Venture Resources, Inc.(4)(7) Fleet Equity Partners VI, L.P. Chisholm Partners II, L.P. 50 Kennedy Plaza Providence, RI 02903................ 743,428 6.3 743,428 6.3 743,428 2.9 Dawson-Samberg Capital Management, Inc. Pequot General Partners DS International Partners Pequot Endowment Partners, L.P. Dawson-Samberg(8) 354 Pequot Ave. Southport, CT 06490................. 637,500 5.8 637,500 4.4 637,500 2.5 Space Systems/Loral, Inc. 3925 Fabian Way Palo Alto, CA 94303................. 588,235 5.4 588,235 5.4 588,235 2.3 Gustave M. Hauser(4)(9) 712 Fifth Avenue New York, New York 01910............ 437,517 4.0 437,517 4.0 437,517 1.7 John G. Puente (4)(10) 2440 Research Blvd., Suite 400 Rockville, MD 20850................. 432,181 3.9 432,181 3.9 432,181 1.7 62 AFTER THE TRANSACTIONS BEFORE THE TRANSACTIONS AFTER THE TRANSACTIONS ON A FULLY DILUTED BASIS(23) ------------------------------- ------------------------------- ------------------------------ PERCENT OF PERCENT OF PERCENT OF AMOUNT OF TOTAL SHARES OF AMOUNT OF TOTAL SHARES OF AMOUNT OF TOTAL SHARES OF SHARES COMMON STOCK SHARES COMMON STOCK SHARES COMMON STOCK BENEFICIALLY OUTSTANDING BENEFICIALLY OUTSTANDING BENEFICIALLY OUTSTANDING OWNED (2) OWNED (2) OWNED (2) -------------- ---------------- -------------- ---------------- -------------- --------------- Sidney S. Kahn(4)(11) 14 East 60th Street, Suite 500 New York, New York 10022............ 254,840 2.3 254,840 2.3 254,840 1.0 W. Neil Bauer (4)(12) 2440 Research Blvd., Suite 400 Rockville, MD 20850................. 133,821 1.2 133,821 1.2 133,821 * David J. Frear (4)(13) 2440 Research Blvd., Suite 400 Rockville, MD 20850................. 60,181 * 60,181 * 60,181 * Richard H. Shay (14) 2440 Research Blvd., Suite 400 Rockville, MD 20850................. 35,805 * 35,805 * 35,805 * Warren B. French, Jr. (15) 124 S. Main Street Edinburg, VA 22824.................. 15,623 * 15,623 * 15,623 * Richard J. Brekka (16) CIBC Wood Gundy Ventures, Inc. 425 Lexington Avenue New York, NY 10017.................. 10,000 * 10,000 * 10,000 * Barry Horowitz (17) Mitretek Systems, Inc. 7525 Colshire Drive McLean, VA 22102.................... 10,000 * 10,000 * 10,000 * Douglas H. Newman (18) 2440 Research Blvd., Suite 400 Rockville, MD 20850 ................ 20,000 * 20,000 * 20,000 * W. Anthony Rice (19) British Aerospace 13873 Park Center Road Herndon, VA 22071................... 10,000 * 10,000 * 10,000 * Robert M. Van Degna (20) Fleet Equity Partners 50 Kennedy Plaza Providence, RI 02903................ 10,000 * 10,000 * 10,000 * Hans Giner (21) 2440 Research Blvd., Suite 400 Rockville, MD 20850................. 5,000 * 5,000 * 5,000 * Dennis J. Curtin (22) 2440 Research Blvd., Suite 400 Rockville, MD 20850................. 26,039 * 26,039 * 26,039 * All directors and executive officers as a group (15 persons) ... 2,947,447 25.6 2,947,447 25.6 2,947,447 11.4
- ---------- * Less than 1%. (1) In accordance with Rule 13d-3 under the Exchange Act, a person is deemed to be a "beneficial owner" of a security if he or she has or shares the power to vote or direct the voting of such security or the power to dispose or direct the disposition of such security. A person is also deemed to be a beneficial owner of any securities of which that person has the right to acquire beneficial ownership within 60 days from September 30, 1996. More than one person may be deemed to be a beneficial owner of the same securities. All persons shown in the table above have sole voting and investment power, except as otherwise indicated. This table includes shares of Orion Common Stock subject to outstanding options granted pursuant to Orion's Stock Option Plan and the Non-Employee Director Stock Option Plan. The shares held by the Exchanging Partners 63 may be deemed to be beneficially owned by their parent companies, including British Aerospace Public Limited Company, COM DEV, Limited, Kingston Communications (Hull) plc, Martin Marietta Technologies, Inc. and Lockheed Martin Corporation, Matra Hachette and Nissho Iwai Corporation. See "The Merger, the Exchange and the Debenture Investments -- The Exchange Agreement -- Parties." (2) For the purpose of computing the percentage ownership of each beneficial owner, any securities which were not outstanding but which were subject to options, warrants, rights or conversion privileges held by such beneficial owner exercisable within 60 days were deemed to be outstanding in determining the percentage owned by such person but were not deemed outstanding in determining the percentage owned by any other person. (3) Includes 511,678 shares held of record and 86,505 shares issuable upon the exercise of warrants held by British Aerospace Space Systems, Inc. Such warrants were exercised subsequent to September 30, 1996. (4) Does not include shares issuable upon exercise of warrants which are exercisable only in the event that the Orion Senior Preferred Stock is redeemed by Orion prior to its conversion into Orion Newco Common Stock. (5) The 1,486,440 shares of Orion Common Stock beneficially owned by John V. Saeman include 58,823 shares issuable upon conversion of 500 shares of Orion Series A Preferred Stock, and 16,339 shares issuable upon conversion of 166.667 shares of Orion Series B Preferred Stock. Of the remaining 1,411,278 shares of stock beneficially owned by John V. Saeman, 814,005 are held by J. V. Saeman & Co., a general partnership, of which Mr. Saeman and his wife are the sole partners, 40,196 are held by JCC, Ltd., a limited partnership, of which J. V. Saeman & Co. is the general partner, and 535,523 are held by Medallion Enterprises, LLC, a limited liability company, of which Mr. Saeman and his wife are the sole members. Includes 10,000 shares issuable upon exercise of stock options exercisable within 60 days. (6) Includes 764,705 shares issuable upon conversion of 6,500 shares of Orion Series A Preferred Stock and 212,418 shares issuable upon conversion of 2,166.667 shares of Orion Series B Preferred Stock held by CIBC, which conversion would increase the number of shares of Orion Common Stock by 977,123 (8.9%). (7) Includes 588,234 shares issuable upon conversion of 4,000 shares of Orion Series A Preferred Stock held by the two Fleet entities (which include, for purposes of this footnote, Fleet Venture Resources, Inc. and Fleet Equity Partners, VI, L.P.) and 1,000 shares of Orion Series A Preferred Stock held by Chisholm, and 130,685 shares issuable upon conversion of 1,333 shares of Orion Series B Preferred Stock held by Fleet and preferred options held by Chisholm which are convertible into 24,509 shares of Orion Common Stock. Such conversion would increase the number of outstanding shares of Orion Common Stock by 743,428 (6.8%). (8) Includes 54,100 shares held by Dawson-Samberg Capital Management, Inc., 235,400 shares held by Pequot General Partners, 204,100 shares held by DS International Partners and 143,900 shares held by Pequot Endowment Partners, L.P. (9) Includes 58,823 shares issuable upon the conversion of 500 shares of Orion Series A Preferred Stock and 16,339 shares issuable upon conversion of 166.667 shares of Orion Series B Preferred Stock held by Mr. Hauser and his wife. Includes 10,000 shares issuable upon exercise of stock options exercisable within 60 days. (10) Includes 58,439 shares held of record and 7,351 shares issuable upon the exercise of options by Mr. Puente's wife. Includes 321,501 shares held of record, 43,087 shares issuable upon the exercise of stock options, 1,411 shares issuable upon the conversion of 12 shares of Orion Series A Preferred Stock and 392 shares issuable upon conversion of 4 shares of Orion Series B Preferred Stock held by Mr. Puente. Includes 10,000 shares issuable upon exercise of stock options exercisable within 60 days. (11) Includes 29,411 shares issuable upon the exercise of 250 shares of Orion Series A Preferred Stock and 8,169 shares issuable upon conversion of 83.333 shares of Orion Series B Preferred Stock. Includes 10,000 shares issuable upon exercise of stock options exercisable within 60 days. (12) Includes 133,821 shares issuable upon the exercise of stock options held by Mr. Bauer exercisable within 60 days. Does not include 10,220 shares held of record, 1,882 shares issuable upon the conversion of 16 shares of Orion Series A Preferred Stock and 522 shares issuable upon conversion of 5.333 shares of Orion Series B Preferred Stock purchased in June 1995 held by Mr. Bauer's wife. Mr. Bauer disclaims beneficial ownership of these shares. (13) Includes 46,321 shares issuable upon the exercise of stock options exercisable within 60 days and 1,176 shares issuable upon conversion of 10 shares of Orion Series A Preferred Stock and 326 shares issuable upon conversion of 3.333 shares of Orion Series B Preferred Stock. (14) Includes 18,895 shares issuable upon exercise of stock options exercisable within 60 days. (15) Does not include 172,520 shares held of record, 29,412 shares issuable upon the conversion of 250 shares of Orion Series A Preferred Stock or 8,170 shares issuable upon conversion of 83.334 shares of Orion Series B Preferred Stock held by Shenandoah Telecommunications Company, of which Mr. French is the former Chairman and presently a consultant. Mr. French disclaims beneficial ownership of these shares. Includes 10,000 shares issuable upon exercise of stock options exercisable within 60 days. (16) Mr. Brekka disclaims beneficial ownership of all shares of Orion's capital stock which are owned by CIBC Wood Gundy. Includes 10,000 shares issuable upon exercise of stock options exercisable within 60 days. 64 (17) Includes 10,000 shares issuable upon the exercise of stock options exercisable within 60 days. (18) Includes 10,000 shares issuable upon the exercise of stock options exercisable within 60 days. (19) Does not include 598,183 shares beneficially owned by British Aerospace Space Systems, Inc. Mr. Rice, a Director of Orion and a director of British Aerospace Space Systems, Inc., disclaims beneficial ownership of these shares. Includes 10,000 shares issuable upon exercise of stock options exercisable within 60 days. (20) Excludes 588,234 shares issuable upon conversion of 4,000 shares of Orion Series A Preferred Stock held by Fleet and 1,000 shares of Orion Series A Preferred Stock held by Chisholm, and 130,685 shares issuable upon conversion of 1,333 shares of Orion Series B Preferred Stock held by Fleet and preferred options held by Chisholm which are convertible into 24,509 shares of Orion Common Stock. Such conversion would increase the number of outstanding shares of Orion Common Stock by 743,428 (6.8%). Mr. Van Degna, a Director of Orion, is the chairman and chief executive officer of each of the managing general partners of Fleet Equity Partners VI, L.P., the chairman and chief executive officer of Fleet Venture Resources, Inc. and the chairman and chief executive officer of the corporation that is the general partner of the partnership that is the general partner of Chisholm Partners II, L.P. Mr. Van Degna disclaims beneficial ownership of these shares. Includes 10,000 shares issuable upon exercise of stock options exercisable within 60 days. (21) Includes 5,000 shares issuable upon the exercise of stock options exercisable within 60 days. (22) Includes 14,446 shares issuable upon the exercise of stock options exercisable within 60 days, and 705 shares issuable upon the conversion of 6 shares of Orion Series A Preferred Stock and 196 shares issuable upon conversion of 2 shares of Orion Series B Preferred Stock. (23) The percentage ownership of each beneficial owner calculated on a fully diluted basis assumes conversion of all securities which were not outstanding but which were subject to options, warrants, rights or conversion privileges held by all beneficial owners exercisable within 60 days. 65 THE RELATED TRANSACTIONS The following describes certain Transactions whose completion is a condition to the Merger, the Exchange or the Debenture Investments. THE NOTES OFFERING/ORION 1 CREDIT FACILITY REFINANCING Orion 1 Credit Facility Refinancing. The Orion 1 Credit Facility Refinancing and the release of the Limited Partners' (and their affiliates') Orion 1 Credit Facility Support Agreements (as defined below) is a condition to the Exchange, and such release and the Exchange are conditions to the Debenture Investments. A substantial portion of the funding for the Orion 1 satellite, which constitutes the principal asset of Orion Atlantic (and, indirectly, of Orion), was provided under the Orion 1 Credit Facility. Principal and interest payments under the Orion 1 Credit Facility commenced in July 1995, six months after commencement of commercial operations of Orion 1. As of September 30, 1996, approximately $210.4 million remained outstanding under the Orion 1 Credit Facility. That facility is secured by substantially all of the assets of Orion Atlantic. The Orion 1 Credit Facility also is supported by certain guarantees and other commitments by the Exchanging Partners and Orion (the "Orion 1 Credit Facility Support Agreements"), under which the Exchanging Partners and Orion agreed to make payments to Orion Atlantic, either on a monthly basis or to the extent needed to meet obligations under the Orion 1 Credit Facility or otherwise, of over $420 million over the seven-year period commencing with commercial operation of Orion 1. Through September 30, 1996, the Exchanging Partners and Orion have paid approximately $26.7 million to Orion Atlantic under the Orion 1 Credit Facility Support Agreements. In connection with the Orion 1 Credit Facility Refinancing, Orion Newco, Orion Atlantic, Orion, OrionSat and the Exchanging Partners are obligated to take all measures reasonable necessary or advisable to cause the Bank Agreement Termination and the Capacity Agreement Termination. However, the Capacity Agreements of Kingston and Matra (but not the associated Capacity Guarantees) will remain in full force and effect and the Kingston Capacity Agreement and the Matra Capacity Agreement will be deemed amended, effective as of the date of the Exchange, to reduce the amount of capacity subject to such Capacity Agreements. Notes Offering. The Orion 1 Credit Facility Refinancing will be effected with the proceeds of the Notes Offering. It is presently expected that the Notes Offering will be in the amount of approximately $347 million with expected gross proceeds of approximately $275 million (excluding approximately $72 million of overfunding of interest due on such notes). The possible effects of incurring substantial additional indebtedness are discussed elsewhere in this Proxy Statement/Prospectus under the captions "Risk Factors -- Risks Relating to Orion's Business -- Substantial Leverage; Secured Indebtedness" and "Management's Discussion and Analysis of Financial Condition and Results of Operations of Orion -- Liquidity and Capital Resources -- Current Funding Requirements." Orion Newco is expected to incur substantial additional amounts of indebtedness over the next few years, as described above under the caption "Risk Factors -- Risks Relating to Orion's Business -- Need for Additional Capital." The Notes Offering is expected to include (i) Senior Notes due 2007 of Orion Newco ("Senior Notes") sold as a unit with Warrants ("Warrants") to purchase shares of Orion Newco Common Stock and (ii) Senior Discount Notes due 2007 of Orion Newco ("Senior Discount Notes" and together with the Senior Notes, the "Notes") sold as a unit with Warrants to purchase shares of Orion Newco Common Stock. It is expected that the Notes will be guaranteed by each Restricted Subsidiary (as defined in the Notes Indentures) of the Company. The Senior Notes are presently expected to be issued at their principal amount with cash interest payable on a semi-annual basis. The first six semi-annual interest payments on the Senior Notes are to be paid from an escrow account funded out of the proceeds of the Notes Offering. The Senior Discount Notes are presently expected to be issued at a discount from their principal amount, and no cash interest is expected to be payable on the Senior Discount Notes for the first five years. The Notes are presently expected to rank senior in right of payment to all subordinated indebtedness of the Company and pari passu in right of payment with all unsecured senior indebtedness of the Company. The Notes are presently expected to be unsecured (except to the extent of the proceeds in the escrow account for application to the first six semi-annual interest payments on the Senior 66 Notes). The Notes are presently expected to mature ten years after issuance and to provide for optional and mandatory redemption. The Notes are to be issued under Notes Indentures among Orion Newco, its Restricted Subsidiaries and a trustee which are expected to contain, among other limitations, covenants which will restrict the ability of the Company and its subsidiaries to: incur additional indebtedness; create liens; engage in sale-leaseback transactions; pay dividends or make distributions in respect of their capital stock; make investments or make certain other restricted payments; sell assets; create restrictions on the ability of restricted subsidiaries to make certain payments; issue or sell stock of restricted subsidiaries; enter into transactions with stockholders or affiliates; and consolidate, merge or sell all or substantially all of their assets. However, these limitations will be subject to a number of important qualifications and exceptions. Each Warrant will entitle the holder thereof to purchase the number of shares of Orion Newco Common Stock at the exercise prices that will be established at the time the Warrants are issued. The Warrants are presently expected not to be exercisable for at least six months, and possibly longer, after the date of issuance. The Warrants are presently expected to expire on the tenth anniversary of the date of issuance. The terms of the Notes and the Warrants as issued may differ in certain respects from the terms described above. See "Risk Factors -- Risks Relating to Merger, Exchange and Debenture Investments -- Certain Terms of Notes Offering Not Yet Determined." Each of the Exchanging Partners has agreed that Orion Newco may pursue the Notes Offering to effect the Orion 1 Credit Facility Refinancing. Under the Exchange Agreement, however, Orion Newco and Orion have reserved the right not to proceed with the Notes Offering if they determine that it would not be in the best interests of the stockholders of Orion Newco or Orion (including the entities who would become stockholders of Orion Newco after the Merger). OAP ACQUISITION Orion has acquired or is in the process of acquiring the only outstanding minority interest in Orion Asia Pacific from an affiliate of British Aerospace for approximately 86,000 shares of Orion Newco Common Stock. Orion acquired the remainder of Orion Asia Pacific in December 1992. Orion Asia Pacific holds rights under an agreement with the Republic of the Marshall Islands pursuant to which Orion is pursuing an orbital slot for the Orion 3 satellite. Consummation of the OAP Acquisition is a condition to the British Aerospace Investment. 67 INFORMATION ABOUT ORION NEWCO Orion Newco is a newly formed Delaware corporation. Orion is the initial stockholder of Orion Newco and owns one share of Orion Newco Common Stock. Orion Newco is substantially identical in all material respects to Orion. In particular, Orion Newco has a certificate of incorporation and bylaws substantially identical in all material respects to those of Orion and a capital structure substantially identical to that of Orion. For more information, stockholders are referred to Orion Newco's certificate of incorporation and bylaws filed as exhibits to the Registration Statement of which this Proxy Statement/Prospectus is a part. DESCRIPTION OF ORION NEWCO CAPITAL STOCK The authorized capital stock of Orion Newco consists of 40,000,000 shares of Orion Newco Common Stock, par value $.01 per share, and 1,000,000 shares of preferred stock, par value $.01 per share. The following summary description of the capital stock of Orion Newco upon consummation of the Merger Transactions and the Debenture Investments is qualified in its entirety by reference to the Certificate of Incorporation and Bylaws of Orion Newco, copies of which are filed as exhibits to the Registration Statement of which this Proxy Statement/Prospectus is a part. ORION NEWCO COMMON STOCK As of December 15, 1996, there were 10,974,121 shares of Orion Common Stock outstanding, held by approximately 350 stockholders of record. As described below, the rights and preferences of Orion Newco Common Stock are substantially identical in all material respects to those of Orion Common Stock. Dividends. Subject to preferences that may then be applicable to any then outstanding preferred stock, holders of Orion Newco Common Stock are entitled to receive dividends out of funds legally available therefor when, as and if declared by the Board of Directors. Orion has not paid any cash dividends upon its Orion Common Stock and does not plan to pay any dividends on such stock for the foreseeable future. The Notes Indentures will contain covenants that restrict Orion Newco's ability to pay cash dividends. Voting Rights. Each holder of Orion Newco Common Stock is entitled to one vote per share of Orion Newco Common Stock held by such holder on all matters to be voted upon by the stockholders of Orion Newco. Holders of shares of Orion Newco Common Stock are not entitled to cumulative voting rights. Staggered Terms of Directors. Under the provisions of Orion Newco's Certificate of Incorporation, the members of the Board of Directors are divided into three classes with the term of one class expiring each year. Accordingly, only those Directors of a single class can be changed in any one year and it could take three years to change the entire Board. While Orion Newco believes that a staggered Board of Directors is in the best interests of Orion Newco and its stockholders, such requirement may have the effect of protecting management in retaining its position and discouraging potential acquirors. Liquidation Rights. All shares of Orion Newco Common Stock have equal rights, on a share for share basis, to receive pro rata the net assets of Orion Newco upon liquidation or dissolution after payments to creditors and holders of preferred stock, if any, then issued and outstanding. There are no redemption or sinking fund provisions applicable to the Orion Newco Common Stock. All outstanding shares of Orion Newco Common Stock are, and the shares of Orion Newco Common Stock offered hereby will be when issued in accordance herewith, fully paid and non-assessable. ORION NEWCO PREFERRED STOCK Orion Newco's Certificate of Incorporation authorizes the Board of Directors to issue, from time to time and without further stockholder action, one or more series of preferred stock, and to fix the relative rights and preferences of the shares, including voting powers, dividend rights, liquidation preferences, 68 redemption rights and conversion privileges. Because of its broad discretion with respect to the creation and issuance of preferred stock without stockholder approval, the Board of Directors could adversely affect the voting power of the holders of Orion Newco Common Stock and, by issuing shares of preferred stock with certain voting, conversion and/or redemption rights, could discourage any attempt to obtain control of Orion Newco. ORION NEWCO SENIOR PREFERRED STOCK As described above under the caption "The Merger, the Exchange and the Debenture Investments -- The Merger Agreement -- Terms of the Merger Agreement," pursuant to the Merger Orion Newco will issue the Orion Newco Series A Preferred Stock and the Orion Newco Series B Preferred Stock in exchange for an identical number of shares of Orion Series A Preferred Stock and Orion Series B Preferred Stock. Preemptive Rights. The holders of Orion Newco Senior Preferred Stock have a contractual "preemptive" right to purchase a pro rata portion of any equity securities sold by Orion Newco in the future on the same terms and conditions as sold to others, subject to certain exceptions for securities sold or granted to employees, certain small offerings, existing rights to acquire equity securities and public offerings of securities under the Securities Act. Dividends and Conversion. Dividends on the Orion Newco Senior Preferred Stock accrue at 8% per annum, and are payable as and when declared by the Board. The Orion Newco Senior Preferred Stock is convertible into Orion Newco Common Stock at initial prices of $8.50 and $10.20 per share, subject to anti-dilution adjustments in the case of recapitalizations or issuances of Orion Newco Common Stock below the conversion price (other than pursuant to Warrants issued in the Notes Offering). Future issuances of Orion Newco Common Stock below the conversion price could significantly increase the percentage of Orion Newco's equity owned by the holders of the Orion Newco Senior Preferred Stock. Upon conversion of the Orion Newco Senior Preferred Stock, any accrued and unpaid dividends on the Orion Newco Senior Preferred Stock will be waived. Liquidation Rights. The Orion Newco Senior Preferred Stock has a liquidation preference equal to the amount invested, which preference increases to the extent of any accrued and unpaid dividends. Voting Rights. Holders of the Orion Newco Senior Preferred Stock are entitled to vote with holders of the Orion Newco Series C Preferred Stock and the Orion Newco Common Stock, together as a single class on an as-if-converted basis. Put Rights. The holders of Orion Newco Senior Preferred Stock have the right to sell the Orion Newco Common Stock received upon the conversion thereof to Orion Newco upon, among other things, certain mergers, changes of control or sales of substantially all the assets of Orion Newco at the pro rata interest of such holders in the consideration received, in the case of certain fundamental changes, or fair market value. In the case of mergers in which the consideration to be received by holders of Orion Newco Common Stock is in a form other than cash, Orion Newco shall pay the purchase price with a combination of a specified amount of freely tradable securities, a specified amount of cash, and the balance with a note payable over two years. The holders of Orion Newco Senior Preferred Stock (and any Orion Newco Common Stock received upon the conversion thereof) also have the right to sell such stock (or the common stock issuable upon conversion thereof) to Orion Newco commencing in June 1999 at the fair market value of their shares (in the case of Orion Newco Common Stock) or the liquidation value, including accrued and unpaid dividends (in the case of Orion Newco Senior Preferred Stock), in accordance with the following schedule: ON OR AFTER MAY 31, PORTION ------------------- --------- 1999............... 33 1/3 % 2000............... 66 2/3 % 2001............... 100 % 69 The holders of Orion Newco Senior Preferred Stock have agreed to waive exercise of these rights for so long as any Notes or Debentures remain outstanding. These rights terminate upon the closing of a "Qualified Public Offering," as discussed below. Tag Along Rights. Certain principal stockholders of Orion have granted to CIBC, Fleet and Chisholm the right to have a pro rata portion (based on the percentage of Orion Newco Common Stock outstanding) of the Orion Newco Common Stock issuable upon conversion of the Orion Newco Senior Preferred Stock included in any sales by those principal stockholders which involve more than 5% of the Orion Newco Common Stock then outstanding. Termination of Certain Rights Upon Qualified Public Offering. The rights of the holders of the Orion Newco Senior Preferred Stock relating to sale following certain mergers, changes of control or sale of substantially all assets, the rights to sell such stock to Orion Newco commencing in June 1999 or in connection with certain business combinations at fair market value, the preemptive rights and certain of the additional investment rights terminate upon the closing of a "Qualified Public Offering" which is defined as a public offering of the Orion Newco Common Stock with gross proceeds to Orion Newco of not less than $30 million and a public offering price per share of not less than $25.50. Restrictive Covenants; Representations. The documents relating to the Orion Newco Senior Preferred Stock impose certain covenants on Orion Newco. The covenants include limitations on payment of dividends, redemption of junior securities such as Orion Newco Common Stock, certain issuances of senior securities (except when the Orion Newco Senior Preferred Stock is able to acquire an equivalent seniority), expansion into other lines of business or engaging in certain affiliated transactions. Failure to comply with those covenants (or failure of representations to be true and complete when made) could result in an increase in the dividend on the Orion Newco Senior Preferred Stock not to exceed an annual dividend of 14% and could give the holders of the Orion Newco Senior Preferred Stock certain rights to sell such stock to Orion Newco if the non-compliance is material or (in certain cases) continues after certain cure periods. The Notes Indentures are expected to contain a covenant which will effectively prohibit such sale to Orion while any Notes are outstanding. Orion Newco has the right to redeem the Orion Newco Senior Preferred Stock (subject to limitations contained in the Notes Indentures) at its liquidation value (plus accrued and unpaid dividends) by paying holders of Orion Newco Senior Preferred Stock that amount and activating certain warrants (issued concurrently with the Orion Newco Senior Preferred Stock) to purchase Orion Newco Common Stock at the conversion price of such Orion Newco Senior Preferred Stock. These warrants do not become exercisable unless Orion Newco exercises its right to repurchase the Orion Newco Senior Preferred Stock. Orion Newco's Right to Force Conversion of Orion Newco Senior Preferred Stock. Orion Newco may require conversion of the Orion Newco Senior Preferred Stock (resulting in the cancellation of accrued but unpaid dividends) if it meets certain public float requirements, the holders of Orion Newco Senior Preferred Stock are not subject to any agreements restricting the sale of Orion Newco Common Stock received on conversion and the closing trading price of the Orion Newco Common Stock for 30 of the 45 trading days preceding notice of the required conversion has been above (i) $21.24 (if Orion Newco makes the conversion election prior to June 17, 1997) and (ii) $25.50 (if Orion Newco makes the conversion election on or after June 17, 1997). ORION NEWCO SERIES C PREFERRED STOCK The relative rights and preferences of the Orion Newco Series C Preferred Stock will be as set forth on the Certificate of Designations, the form of which is attached to this Proxy Statement/Prospectus as Attachment C, and are described above under "The Merger, the Exchange and the Debenture Investments -- Description of the Orion Newco Series C Preferred Stock." WARRANTS AND OPTIONS As of December 15, 1996, there were warrants and options outstanding to purchase an aggregate of 1,193,721 shares of Orion Common Stock at exercise prices ranging from $8.16 to $14.00 per share, with a weighted average exercise price of $10.31 per share. Holders of Orion Series A Preferred Stock have 70 (and holders of Orion Newco Series A Preferred Stock will have) options to invest an additional approximately $350,000 in similar preferred stock (except that such similar preferred stock would be convertible at any time into Orion Newco Common Stock at a price based upon the date when the option is exercised within a range from $10.20 to $17.00 per share of Orion Newco Common Stock). The holders of Orion Newco Senior Preferred Stock also hold certain warrants to purchase Orion Newco Common Stock at the conversion price of such Orion Newco Senior Preferred Stock. These warrants do not become exercisable unless Orion Newco exercises its right to repurchase the Orion Newco Senior Preferred Stock. The warrants and options contain provisions for the adjustment of exercise prices in certain events, including stock dividends, stock splits, reorganizations, reclassifications or mergers. REGISTRATION RIGHTS Orion Newco Senior Preferred Stock; SS/L. The holders of Orion Newco Senior Preferred Stock and SS/L (an existing stockholder) are entitled to include their shares of Orion Newco Common Stock in a registered offering of securities by Orion Newco (a "piggyback" registration) for its own account or for the account of its stockholders. If Orion Newco proposes to register any shares of Orion Newco Common Stock under the Securities Act (other than for an offering primarily to employees or in connection with a merger or acquisition), the holder of registration rights may request that Orion include in the registered offering shares held by such holder or which the holder would receive upon conversion or exercise. If so requested, Orion Newco must use its best efforts to include in the registered offering all shares requested, provided, among other conditions, that the managing underwriter of such offering has the right to limit or exclude entirely such shares of Orion Newco Common Stock from such offering. Orion Newco is required to bear all registration and selling expenses, other than underwriting discounts, selling commissions, applicable stock transfer taxes, and certain registration fees and expenses, in connection with such piggyback registrations. The holders of Orion Newco Senior Preferred Stock have demand rights (including two "long form" and an unlimited number of "short form" registrations) to require Orion Newco to register the securities held by them, subject to certain conditions. Orion Newco is required to bear all registration and selling expenses, other than underwriting discounts, selling commissions, applicable stock transfer taxes, and certain registration fees and expenses, in connection with such demand registrations. Series C Preferred Stock. The registration rights held by the holders of the Orion Newco Series C Preferred Stock are described above under "The Merger, the Exchange and the Debenture Investments-- Registration Rights." Any exercise of such registration rights may hinder efforts by Orion Newco to arrange future financings of Orion Newco and may have an adverse effect on the market price of the Orion Newco Common Stock. See "Orion Newco Shares Eligible for Future Sale." CERTAIN ANTI-TAKEOVER EFFECTS Orion Newco's Certificate of Incorporation and Bylaws contain certain provisions that are intended to enhance the likelihood of continuity and stability in the composition of Orion Newco's Board of Directors and in the policies formulated by the Board of Directors, and to discourage an unsolicited takeover of Orion Newco if the Board of Directors determines that such a takeover is not in the best interest of Orion Newco and its stockholders. However, these provisions could have the effect of discouraging certain attempts to acquire Orion Newco or remove incumbent management even if some or a majority of Orion Newco's stockholders were to deem such an attempt to be in their best interest, including those attempts that might result in a premium over the market price for the shares of Orion Newco Common Stock held by stockholders. Orion Newco is subject to Section 203 of the Delaware General Corporation Law ("Section 203") which, subject to certain exceptions, prohibits a Delaware corporation from engaging in certain business combinations with any interested stockholder for a period of three years following the date that such stockholder became an interested stockholder. In general, Section 203 defines an "interested stockholder" as any entity or person beneficially owning 15% or more of the outstanding voting stock of 71 the corporation and any entity or person affiliated with or controlling or controlled by such entity or person. A Delaware corporation may elect not to be subject to Section 203 by having its stockholders approve an amendment to its certificate of incorporation or bylaws to such effect. Orion Newco has not made such an election and, therefore, Section 203 may have an anti-takeover effect with respect to Orion Newco. Under the Communications Act, if Orion Newco controlled an FCC radio common carrier licensee (which it presently does not), the FCC could refuse or revoke such licensee's license if (i) over 25% of Orion Newco was controlled by foreign persons or entities and (ii) the FCC found that the public interest would be served thereby. Because of these provisions, Orion Newco's Certificate of Incorporation empowers the Board of Directors of Orion Newco to redeem any of Orion Newco's outstanding capital stock to the extent necessary to prevent the loss or secure the reinstatement of any license or franchise from any governmental agency. Such stock may be redeemed at the lesser of (i) fair market value or (ii) such holder's purchase price (if the stock was purchased within a year of such redemption). See "Information About Orion's Business -- Regulation" and "Risk Factors -- Risks Relating to Orion's Business -- Approvals Needed; Regulation of Industry." The Company has agreed to certain limits on this right with respect to the Debenture Investments. See "The Merger, the Exchange and the Debenture Investments -- The Debenture Investments." Orion Newco's Certificate of Incorporation contains a provision (the "Fair Price Provision") that requires the approval of the holders of a majority of Orion Newco's voting stock (other than voting stock held by an Interested Stockholder (as defined below)) as a condition to a merger or to certain other business transactions with, or proposed by, a holder of 20% or more of Orion Newco's voting stock (an "Interested Stockholder"), except in cases (such as the Debenture Investments) where the Continuing Directors approve the transaction or certain minimum price criteria and other procedural requirements are met. A "Continuing Director" is a director who is not an Interested Stockholder or affiliated with an Interested Stockholder or who was a member of the Board prior to the time the Interested Stockholder became an Interested Stockholder or whose nomination or election to the Board of Directors is recommended or approved by a majority of the Continuing Directors. The minimum price criteria generally require that, in a transaction in which stockholders are to receive payments, holders of Orion Newco Common Stock must receive a value equal to the highest price paid by the Interested Stockholder for Orion Newco Common Stock during the prior two years, and that such payment be made in cash or in the type of consideration paid by the Interested Stockholder for the greatest portion of its shares. Orion Newco's Board of Directors believes that the Fair Price Provision will help assure that all of Orion Newco's stockholders are treated similarly if certain kinds of business combinations are effected. However, the Fair Price Provision may make it more difficult to accomplish certain transactions that are opposed by the incumbent Board of Directors and that could be beneficial to stockholders. Orion Newco's Certificate of Incorporation also requires any person (or entity) (the "Acquiring Stockholder") who acquires or seeks to acquire shares of capital stock of the Company that would increase such person's voting power in Orion Newco above any of three thresholds (20%, 33% or 50%) to send a disclosure statement to Orion Newco and the other stockholders. The Acquiring Stockholder must receive the approval of the holders of a majority of the other shares of Orion Newco before the Acquiring Stockholder can vote the acquired stock. In addition, if the Acquiring Stockholder has acquired or is acquiring more than 50% of the outstanding capital stock, the other stockholders who vote against such acquisition are entitled to dissent and obtain for their shares, from Orion Newco, payment equivalent to the estimated fair value of their shares. The practical effect of this requirement is to condition the acquisition of control of Orion Newco on the approval of a majority of the pre-existing disinterested stockholders. Orion Newco's Certificate of Incorporation provides that all actions taken by the stockholders must be taken at an annual or special meeting of stockholders. Under the Bylaws, special meetings of the stockholders of Orion Newco may be called only by a majority of the members of the Board of Directors, the Chairman or stockholders owning in the aggregate at least 35% of the outstanding shares of capital stock of Orion Newco entitled to vote. Orion Newco is not obligated to hold more than one 72 special meeting called by stockholders during any six-month period. Stockholders are required to comply with certain advance notice provisions with respect to any nominations of candidates for election to Orion Newco's Board of Directors or other proposals submitted for stockholder vote. These provisions may have the effect of deterring hostile takeovers or delaying changes in control or management of Orion Newco. Orion Newco's Certificate of Incorporation and Bylaws provide that the Board of Directors of Orion Newco is divided into three classes of directors serving staggered three-year terms. The classification of directors has the effect of making it more difficult for stockholders to change the composition of the Board of Directors in a relatively short period of time. The authorized number of directors may be changed by resolution of the Board of Directors or by the holders of at least two-thirds of the voting power of all outstanding shares, and directors may not be removed without cause. The foregoing provisions of Orion Newco's Certificate of Incorporation and Bylaws, except for those dealing with the liability of directors, may not be altered, amended or repealed without the approval of the holders of at least two-thirds of the voting power of all outstanding shares entitled to vote thereon and the affirmative vote of the Board of Directors. LISTING The Orion Common Stock is, and after the Merger Transactions the Orion Newco Common Stock will be, quoted on the Nasdaq National Market under the trading symbol "ONSI." TRANSFER AGENT The transfer agent and registrar for the Orion Common Stock is, and after the Merger Transactions the transfer agent and registrar for the Orion Newco Common Stock will be, Fleet National Bank. ORION NEWCO SHARES ELIGIBLE FOR FUTURE SALE Upon completion of the Merger and the Exchange, there will be approximately 25.9 million shares of Orion Newco Common Stock outstanding on a fully diluted basis, assuming a closing of the Merger Transactions as of January 30, 1997. Approximately 14.5 million of these shares will initially be held by Orion's current stockholders, all of which will be freely transferable without restriction or further registration under the Securities Act, other than the 5.5 million shares held by "affiliates" of Orion Newco, as that term is defined under the Securities Act. The shares held by affiliates of Orion Newco are expected to be eligible for sale pursuant to Rule 144 under the Securities Act. In general, under Rule 144 as currently in effect, a person (or persons whose shares are aggregated), including an affiliate, who has beneficially owned shares of Orion Newco (or shares of Orion exchanged for shares of Orion Newco) for at least two years (including the holding period of any prior owner other than an affiliate) is entitled to sell, within any three-month period, a number of shares that does not exceed the greater of (i) 1% of the then outstanding shares of Orion Newco Common Stock (approximately 111,000 shares outstanding immediately after the Transactions) or (ii) the average weekly trading volume of the Orion Newco Common Stock during the four calendar weeks preceding such sale, subject to the filing of a Form 144 with respect to such sale and certain other limitations and restrictions. In addition, a person who is not deemed to have been an affiliate of Orion Newco at any time during the 90 days preceding a sale, and who has beneficially owned the shares proposed to be sold (or shares of Orion exchanged for such shares) for at least three years, would be entitled to sell such shares under Rule 144(k) without regard to the requirements described above. The Exchanging Partners, as owners of the Orion Newco Series C Preferred Stock, and British Aerospace and Matra Marconi Space, as owners of the Debentures, will own the remaining 11.4 million shares of Orion Newco Common Stock, which will be issuable upon the conversion of such securities. All of such shares will be deemed to be "restricted securities" as that term is defined in Rule 144. Moreover, each Exchanging Partner will enter into a Transfer Restriction Agreement regarding the transfer of the shares of Orion Newco Common Stock issuable upon conversion of, or as dividends on, the Series C Preferred Stock. Pursuant to the applicable Transfer Restriction Agreement, each Exchang- 73 ing Partner may not transfer any shares of Orion Newco Common Stock issued upon conversion of shares of Series C Preferred Stock or as dividends on such Series C Preferred Stock (the "Affected Shares") without the prior written consent of Orion Newco until the expiration of the Lockup Period (other than certain transfers to affiliates). Also, pursuant to the applicable Transfer Restriction Agreement, each Exchanging Partner agrees that it will not transfer during any 90-day period Affected Shares that collectively represent more than 25% of the aggregate number of shares of Orion Newco Common Stock issuable upon conversion of the Series C Preferred Stock received by such Exchanging Partner pursuant to the Exchange Agreement or as dividends on such Series C Preferred Stock (the "25% Limit") unless any such transfer is (i) pursuant to an underwritten, public offering pursuant to a registration statement under the Securities Act, (ii) pursuant to a tender or exchange offer made by or on behalf of the Company or a third party, (iii) in connection with a merger, consolidation, sale of all or substantially all of the assets, recapitalization or similar transaction involving Orion Newco or (iv) pursuant to a transaction not involving a public distribution or offering registered under the Securities Act and not made through a broker, dealer or market-maker pursuant to Rule 144 (including a pledge that meets such requirements); provided, however, that prior to any transfer of Affected Shares under clause (iv) above and prior to any transfer of Series C Preferred Stock other than under the circumstances set forth in clause (i), (ii) or (iii) above, the transferee shall execute and deliver to Orion Newco a transfer restriction agreement substantially similar to the Transfer Restriction Agreement the transferor originally entered into (omitting the Lockup Period provision noted above). The 25% Limit described above will terminate on the date that is five years after the date of issuance of the Orion Newco Series C Preferred Stock under the Exchange Agreement. See "The Merger, the Exchange and the Debenture Investments -- Certain Transfer Restrictions." The Exchanging Partners and holders of the Debentures will be granted certain shelf, demand and "piggyback" registration rights with respect to the Orion Newco Common Stock issuable upon conversion of the Orion Newco Series C Preferred Stock or such Debentures, respectively, and the Orion Newco Common Stock issuable as dividends thereon or interest with respect thereto. See "The Merger, the Exchange and the Debenture Investments -- Registration Rights" and "-- The Debenture Investments." No predictions can be made as to the effect, if any, that sales of Orion Newco Common Stock or the availability of additional shares of Orion Newco Common Stock for sale by the Exchanging Partners or other stockholders of Orion Newco would have on the market price of the Orion Newco Common Stock prevailing from time to time or on the ability of Orion Newco to raise additional equity financing. See "The Merger, the Exchange and the Debenture Investments -- Registration Rights," "-- Certain Transfer Restrictions," "-- The Debenture Investments" and "-- Security Ownership of Certain Beneficial Owners Prior to and Following the Transactions." COMPARATIVE RIGHTS OF ORION STOCKHOLDERS AND ORION NEWCO STOCKHOLDERS Upon consummation of the Merger, stockholders of Orion will become stockholders of Orion Newco. There are no material differences between the rights stockholders of Orion possessed prior to the Merger and the rights such stockholders will have after the Merger as Orion Newco stockholders. 74 INFORMATION ABOUT ORION'S BUSINESS OVERVIEW Orion is a rapidly growing provider of satellite-based communications services, focused primarily on (i) private communications network services, (ii) Internet services and (iii) video distribution and other satellite transmission services. Orion provides multinational corporations with private communications networks designed to carry high speed data, fax, video teleconferencing, voice and other specialized services. The Orion satellite's ubiquitous coverage reaches all locations within its footprint, enabling the delivery of high speed data to customers in emerging markets and remote locations which lack the necessary infrastructure to support these services. The Company also offers high speed Internet access and transmission services to companies outside the United States seeking to avoid "last mile" terrestrial connections and bypass congested regional Internet network routes. In addition, Orion provides satellite capacity for video distribution, satellite news gathering and other satellite services primarily to broadcasters, news organizations and telecommunications providers. The Company provides its services directly to customer premises using VSATs. The Company commenced operations of the Orion 1 satellite in January 1995. As of September 30, 1996, Orion serviced 167 customers through 304 points of service. The Company's customers include Amoco Poland Limited, Amway Corporation, AT&T Corp., BBC, British Telecom, CNN, Citibank, N.A., Deere & Co., Global One, GTECH Corporation, Hungarian Broadcasting, News International Limited, RTL Television, Pepsi-Cola International, Sprint Communications, Viacom International Inc., Westinghouse Communications, World Wide Television News and Xerox Corporation, or certain of their subsidiaries. As of September 30, 1996, Orion's contract backlog was $123 million (after pro forma adjustments for the Exchange). Substantially all of Orion's current contracts with customers are denominated in U.S. Dollars. For the three months ended September 30, 1996, the Company generated revenues of $12.2 million and had a loss from operations, net loss and EBITDA (as defined below) of $(7.2) million, $(5.8) million and $1.7 million, respectively. For the first nine months of 1996, the Company generated revenues of $30.0 million and had a loss from operations, net loss, net cash used in operating actives and EBITDA of $(26.3) million, $(19.8) million, $(25.0) million and $0.1 million, respectively. "EBITDA" represents earnings before minority interests, interest income, interest expense, net of other expense (income), income taxes, depreciation and amortization. EBITDA is commonly used in the communications industry to analyze companies on the basis of operating performance, leverage and liquidity. EBITDA is not intended to represent cash flows for the period and should not be considered as an alternative to cash flows from operating, investing or financing activities as determined in accordance with GAAP. EBITDA is not a measurement under GAAP and may not be comparable to other similarly titled measures of other companies. The Company owns and operates the Orion 1 satellite, which provides coverage of 34 European countries, much of the United States and parts of Canada, Mexico and North Africa. Through arrangements with local ground operators, Orion currently has the ability to deliver network services to and among points in 27 European countries, portions of the United States and a limited number of Latin American countries. Orion 2, expected to be launched in the second quarter of 1999, will increase significantly the Company's pan-European capacity and provide coverage of Central and South America. Orion 3, expected to be launched in the fourth quarter of 1998, will cover broad areas of the Asia Pacific region including China, Japan, Korea, India, Southeast Asia, Australia, New Zealand, Eastern Russia and Hawaii. In the aggregate, the footprints of Orion 1, Orion 2 and Orion 3 will cover approximately 86% of the world's population. The Company believes that demand for satellite based communications services will continue to grow due to (i) the expansion of businesses beyond the limits of wide bandwidth terrestrial infrastructure, (ii) accelerating demand for high speed data services, (iii) growing demand for Internet and intranet services, especially outside the U.S., (iv) increased size and scope of television programming distribution, (v) worldwide deregulation of telecommunications markets, and (vi) continuing technological advancements. Satellites are able to provide reliable, high bandwidth services anywhere in their coverage areas and the Company believes that it is well positioned to satisfy market demand for these services. In 75 addition, the Company believes that satellites will play a larger role in providing Internet services due to their flexibility to accomodate high bandwidth and asymmetric traffic. FEATURES AND BENEFITS Orion's satellite-based network offers customers a number of important features, which provide significant benefits versus competing alternatives. Bypass terrestrial network and multiple international connection points. Orion's ability to bypass terrestrial facilities improves service reliability and quality by reducing potential points of failure and avoids "last mile" limitations. In addition, terrestrial bypass allows Orion to avoid the multiple in-country toll charges of terrestrial facilities and thereby reduces cost. Direct end-to-end service to customer sites. Orion provides service from rooftop to rooftop using VSAT earth stations located on customer premises. This "end-to-end service" is reliable, rapidly installed, easily upgraded and avoids the "last mile" limitations of some terrestrial alternatives. Ubiquitous coverage. Orion delivers wide bandwidth service to emerging markets and remote locations where there are no effective terrestrial alternatives. One-stop shopping. Orion provides its customers with a single point of contact for customer care, including service, billing and support. Two-way communications for all sites. Orion's meshed network solutions and frame relay services promote network efficiency and allow real-time data transfer among dispersed network points. Well-suited for asymmetric communications traffic. Orion's network solutions can be designed to carry asymmetric traffic efficiently, which increases performance and lowers cost to customers for services such as Internet services. Point to multipoint capability. Orion's ability to broadcast video, data and voice to multiple locations simultaneously enables efficient network design. High power Ku-band transmissions, high reception sensitivity. Orion's high power transmissions allow customers to lower costs by utilizing small, less expensive earth station equipment. Orion 1's reception sensitivity allows for effective reception from portable earth stations, an advantage in satellite news gathering. Cost-competitive. Orion prices its services to be competitive with both satellite-based and terrestrial alternatives. THE ORION SATELLITE SYSTEM The Company launched Orion 1, a high-power satellite with 34 Ku-band transponders, in November of 1994. Orion 1 provides coverage of 34 European countries, much of the United States and parts of Canada, Mexico and North Africa. Through arrangements with local ground operators, Orion currently has the ability to deliver network services to and among points in 27 European countries, portions of the United States and a limited number of Latin American countries. The Company has recently signed a contract for the construction and launch of Orion 2. Orion 2 will expand the Company's European coverage and extend coverage to portions of the Commonwealth of Independent States, Latin America and the Middle East, as shown in more detail in the footprint set forth below under the caption "-- Implementation of the Orion Satellite System -- Orion 2." Orion 2 will increase significantly the Company's pan-European capacity, currently the area of strongest demand for the Company's services. The Company recently commenced selling services in certain areas of Latin America. Orion 2 is scheduled to be launched in the second quarter of 1999. The Company has recently entered into an authorization to proceed with Hughes Space for the construction and launch of Orion 3 and has commenced construction of Orion 3. Orion 3 will cover broad areas of the Asia Pacific region including China, Japan, Korea, India, Southeast Asia, Australia, New Zealand, Eastern Russia and Hawaii, as shown in more detail in the footprint set forth below under 76 the caption "-- Implementation of the Orion Satellite System -- Orion 3." Orion 3's footprint will provide the Company with the ability to redistribute programming from the United States via Hawaii to most of the Asia Pacific region. The Company has already taken a number of steps to establish an early market presence in Asia, and has entered into an $89 million lease for eight of Orion 3's 43 transponders. Orion 3 is scheduled to be launched in the fourth quarter of 1998. In the aggregate, the footprints of Orion 1, Orion 2 and Orion 3 will cover approximately 86% of the world's population. Maps of the footprints of Orion 1, Orion 2 and Orion 3 are set forth below under the caption "-- Implementation of the Orion Satellite System." THE ORION STRATEGY Orion's strategy is to maximize its revenues per satellite transponder through the delivery of value-added services to end users. To quickly establish a stable base of revenues, Orion sells transponder capacity to video broadcasters and telecommunications service providers. However, Orion's long-term strategic focus is on value-added private network services, which include network design, VSAT installation, support and monitoring, in addition to basic satellite capacity service. The implementation of Orion's strategy is based on the following elements: o Focus on Specialized Communications Needs of Multinational Organizations o Bridge to Emerging Markets and Remote Locations o End-to-End Service o Global Coverage o Early Market Entry o Local Presence o Ownership of Facilities FOCUS ON SPECIALIZED COMMUNICATIONS NEEDS OF MULTINATIONAL ORGANIZATIONS Orion targets the needs of multinational businesses and governmental customers for customized private network communications services. Advantages of the Company's satellite-based network services include: (i) transmission over wide areas to multiple dispersed sites including sites in emerging markets; (ii) interconnectivity among all sites; (iii) wide bandwidth and high data speeds; (iv) transmission of data, fax. teleconferencing and voice over the same network; (v) high transmission reliability, quality and security; (vi) Internet access; and (vii) rapid implementation, both for the initial installation and for later network modifications. Due to the flexibility of the network, Orion is able to provide companies with customized solutions to link multiple locations. BRIDGE TO EMERGING MARKETS AND REMOTE LOCATIONS Orion targets customers doing business in emerging markets and remote locations of developed markets which often lack the fiber optic and digital infrastructure required for wide bandwidth, high speed data applications. Terrestrial transmissions in many emerging markets must often pass through local, poorly developed network segments before reaching the customer premises, making it difficult to send and receive high speed data. In contrast, Orion's satellite system completely avoids such "bottlenecks" in local network segments by sending and receiving transmissions directly to and from customers, avoiding the need to interconnect with the local infrastructure. A significant portion of Orion's private communications network customers transmit high-speed data to and from locations in Central and Eastern Europe. Orion 2 and Orion 3 will extend coverage to the Commonwealth of Independent States, Latin America and the Asia Pacific Region. 77 END-TO-END SERVICE Orion provides its services directly to and among customer locations using satellite transmission and VSATs installed at customer premises. Offering end-to-end services and bypassing terrestrial infrastructure allows Orion to offer higher reliability and higher quality services than some terrestrial facilities by bypassing multiple telecommunications service providers and local networks and avoiding related toll charges. It also permits Orion to install networks more quickly than many of its competitors, who must deal with multiple vendors and multiple communications technologies. Orion offers its customers one-stop shopping. This includes a single point of contact, an all-inclusive contract and consistent quality of service throughout the network. GLOBAL COVERAGE Orion believes that providing global coverage is a competitive advantage in marketing to multinational corporations. Orion 1 covers 34 European countries, much of the U.S. and portions of Canada, Mexico and North Africa. Orion uses capacity leased from other carriers to supplement its network coverage area (such as to areas of Russia and Latin America). Orion estimates that when Orion 2 (with coverage of Europe, Russia, the eastern United States, Latin America, North Africa and the Middle East) and Orion 3 (with coverage of the Asia Pacific region) are deployed, the satellite footprints in the aggregate will cover an area inhabited by approximately 86% of the world's population. This coverage will enable Orion to offer its customers a single source for service offerings and a greater measure of network quality control than terrestrial alternatives. EARLY MARKET ENTRY Orion develops an early market presence in targeted geographic areas prior to satellite launch in order to build its customer base. To accomplish this, Orion hires sales people, develops relationships with ground operators, and delivers its services using leased satellite capacity. Orion employed this strategy prior to the commercial operation of the Orion 1 satellite and is pursuing the same approach with Orion 2 and Orion 3. For example, the Company is currently providing service in Latin America and Russia over leased satellite capacity. LOCAL PRESENCE Orion has arrangements with 30 local ground operators covering most countries within the Orion 1 footprint, and is entering into additional arrangements as it offers services in new areas. These ground operators are critical to providing integrated service because they obtain necessary licenses, install and maintain the customers' networks, provide in-country business experience and often facilitate market entry. OWNERSHIP OF FACILITIES Orion believes it is strategically important to own its satellite facilities. Orion believes that over the long-term ownership of satellite facilities provides a cost advantage over resellers and other private service providers that must lease satellite capacity to provide services to customers. The Company's satellite ownership enables it to control the quality and reliability of its network solutions, maintain the flexibility to rapidly add capacity, new locations and new features to its customer networks, and respond quickly to customer requests. INDUSTRY OVERVIEW Fixed communications satellites are generally located in geostationary orbit approximately 22,300 miles above the earth and blanket large geographic areas of the earth with signal coverage. Satellites are thus well suited for transmissions that must reach many locations over vast distances simultaneously (i.e., point-to-multipoint transmissions), such as the distribution of television programming to cable operators, television stations and directly to homes. Satellites can be accessed from virtually any location within the geographic area they cover. This ubiquitous coverage allows the satellite to transmit voice and data 78 communications to remote locations and emerging markets where terrestrial infrastructure is not well developed. Historically, satellites were used primarily for international voice and data traffic, using large earth stations that enabled lower-power satellites to function as "cables in the sky." The principal drawback to satellite-based voice transmission is the 1/4 of a second delay caused by the signal traveling to and from the satellite. In the U.S., Western Europe and Japan, the use of satellites for voice traffic has decreased since the early 1980s with the growth of fiber optic cable networks. Geostationary satellites now are used primarily for television distribution. However, voice and data traffic remains the dominant use of satellites in developing countries. Prior to the late 1970s or early 1980s, most terrestrial infrastructure consisted of copper wire (and, to a lesser extent, microwave systems), which was well suited for ordinary telephone service. Today most developed economies employ fiber optic cables, which provide much wider bandwidth than copper. In addition, transoceanic cables now link most major industrialized countries. Fiber optic cables are well suited for carrying large amounts of bulk traffic between two fixed locations, and unlike copper wire facilities have sufficient capacity to carry the high speed data communications that comprise an increasing percentage of communications traffic. However, in many less developed areas, terrestrial facilities still consist mainly of copper wire. Even in areas with fiber optic networks, the "last mile" connections to customer premises often consist of copper wire. As a result, customers with sites in areas which are underdeveloped or which have not upgraded their "last mile" copper wire to fiber optic cable often do not have access to the full range of high speed data communications demanded by many businesses. Satellites provide a number of advantages over terrestrial facilities for many high speed communications services. First, satellites provide ubiquitous service within their footprint and can deliver service directly to customers' premises. Satellites enable high speed communications service where there is no suitable terrestrial alternative available. In addition, satellites can completely bypass terrestrial network congestion points, "last mile" bottlenecks and unreliable networks of incumbent service providers to provide advanced services to locations where conventional terrestrial service is available but inadequate. Second, the cost to provide bandwidth via satellite does not increase with the distance between sending and receiving stations. Not only must terrestrial networks add physical capacity to cover additional distances, they must also continually reamplify transmission signals. Satellites are well suited for transmission across large distances, for wide bandwidth and for point-to-multipoint (broadcast) applications. Finally, since VSATs are relatively easy to install and/or relocate, high power satellite networks can be rapidly installed, upgraded and reconfigured. In contrast, installation of fiber optic cable is expensive, time consuming and requires obtaining rights-of-way. The current generation of high power Ku-band satellites, such as Orion 1, is particularly well suited to provide high speed business communications services in addition to video distribution services. The use of the Ku-band frequencies (as opposed to the C-band used by older generations of satellites) offers reduced interference with ground communications. This enables satellites to use the higher broadcasting power necessary to support small, low-cost VSAT earth stations and makes it cost effective to transmit to or among numerous locations. DATA NETWORKING During the past decade, there has been significant growth in data networking applications. The data networking market includes a number of types of services, including leased lines for private networks, public data network services, managed network services, frame relay and other services such as ATM (asynchronous transfer mode) and WAN (wide area network) services. Ovum, Ltd. (a U.K.-based consulting firm) estimates that revenues from the X.25 packet-switched data networking services in Western Europe alone totaled approximately $2.7 billion in 1996, excluding revenues from such services as leased lines, frame relay and ATM. Data networking applications include: o Private network services; intranets: Many companies are utilizing their own "private" networks to meet their specific communications requirements, including voice and data communications, business television transmissions, video teleconferencing, high speed fax and e-mail. Corporate networks offer higher performance, greater control and security than can be provided through the public network. 79 Corporations are also taking advantage of intranets to distribute information within their own companies using Internet technologies. o Data inquiry, collection and retrieval: Hotel and travel reservation systems and financial enterprises use private communications networks for database inquiries and retrieval of information stored on computers. Banks use such networks to verify account balances and connect automatic teller machines to computers. Retail establishments verify credit standing and gather inventory information. Other businesses use private communications networks to gather data from multiple locations and transport it to central locations for analysis. o Internet/intranet: Business and consumers rely on the Internet for a growing number of services, including research, e-mail, data exchange, software and graphics, financial services and shopping, and even voice communications. These applications are predicted to continue to expand and diversify in the future as enabling technologies mature. o Image transmissions: Manufacturing, publishing, research and medical industries use dedicated communications networks for high-resolution image transmissions requiring large amounts of bandwidth. o Government networks: Network telecommunications are employed for complex military and nonmilitary government applications, including administrative and logistical functions, that require high security and customer network control. Orion believes that the demand for international data networking will continue to grow as a result of (i) the shift to client/server computing, (ii) the proliferation of bandwidth intensive applications and the development of protocols such as frame relay to handle these applications, and (iii) use of the Internet and intranets as part of main-stream corporate communications. (i) Shift to client/server computing. Businesses are increasingly shifting from using large host computers and centralized data network architectures to distributed PC and workstation based platforms. As a result, businesses require more private network infrastructure to establish and interconnect local and wide area networks. As businesses become more global, the ability to link multiple locations becomes more critical. (ii) Proliferation of bandwidth intensive applications; frame relay. Companies are relying more heavily on applications such as CAD/CAM and image transfer that require more bandwidth and result in traffic patterns that involve bursts of transmissions. In addition, there is increasing demand for near-instantaneous connectivity and fast, reliable data transport. Frame relay services support these applications and reduce the cost of fully and partially meshed networks. The Company expects that demand for frame relay services will experience rapid growth through the year 2000. (iii) Expansion in Internet and intranet services. The Internet is becoming a major vehicle for economic and social activity enabling broad, global access to financial and business information, research material, and information on leisure, arts and general interest topics. Business uses of the Internet include communication within and among businesses, electronic commerce, advertising and merchandising. Internet usage has also led to increased demand for "intranet" services for corporate applications. Intranet servers are used for publishing information, processing data and data-based applications and collaboration among employees, vendors, and customers. The significant growth in data networking services has led to rapid growth in demand for satellite-based networks. Multinational companies are not always able to implement client/server architectures, install wide bandwidth applications or employ Internet and intranet solutions in every market due to underdeveloped terrestrial communications infrastructure. Therefore, a growing use of VSATs is to provide wide bandwidth capacity to industrial sites in emerging markets and remote locations. Recent Comsys and Price Waterhouse reports have identified an installed base of 140,000 to 160,000 VSATs and predict significant worldwide growth over the next few years. ORION MARKET OPPORTUNITY The Company believes that demand for satellite based communications services will continue to grow because of (i) the expansion of businesses beyond the limits of wide bandwidth terrestrial infrastructure, (ii) accelerating demand for high speed data services, (iii) growing demand for Internet and 80 intranet services, especially outside the U.S., (iv) increased size and scope of television programming distribution, (v) worldwide deregulation of telecommunications markets, and (vi) continuing technological advancements. (i) Expansion of business beyond the limits of wide bandwidth terrestrial infrastructure. Overall growth in the international telecommunications market reflects the increasingly international nature of business, the increasing importance of emerging and newly industrialized economies and the increase in international trade. International businesses expanding into emerging markets often rely on the incumbent communications service providers for voice circuits. However, as large organizations increasingly rely on more sophisticated, high speed communications services to run their businesses, many of these companies face operational bottlenecks when attempting to implement more sophisticated communications networks. These problems are faced both by companies in emerging markets and companies in developed markets that rely on "last mile" copper infrastructure to interconnect with a fiber optic network. Satellites provide wide bandwidth end-to-end service directly connecting customer premises and bypassing the limitations of terrestrial facilities. (ii) Accelerating demand for high speed data services. The growth of graphical user interfaces, the popularity of image-intensive applications such as CAD/CAM, the incorporation of high-resolution electronic images into business processes and video teleconferencing have necessitated major upgrades of corporate data networks to accommodate the high data transfer requirements of these applications. Most of these high speed data services require fiber optic cable or other high bandwidth connections to the customer premises. Even in developed markets, the "last mile" connection to the customers premises often consists of copper wire, which cannot handle many high speed data services. Satellites are well positioned to take advantage of this trend because they provide reliable high bandwidth service everywhere in their coverage areas, reaching sites in underdeveloped areas and bypass "last mile" copper wire facilities that are unable to handle high speed communications. (iii) Demand for Internet and intranet services. The growth in Internet and intranet services has further strained corporate network infrastructures. The utility of Internet services to users is often constrained by the lack of sufficient bandwidth to support high-resolution graphical applications and images. Even where infrastructure quality is high, the rapid growth of the Internet continues to create network congestion. Users are sometimes unable to use current-generation software or gain high speed access to the Internet due to the poor quality of their local terrestrial infrastructure. Satellites have many advantages in delivering Internet services. satellite based networks provide services directly to customer premises, bypassing terrestrial bottlenecks and congested Internet routing facilities. In addition, satellite based networks can be designed to support asymmetric and multicast Internet traffic much more efficiently than terrestrial networks. (iv) Increased size and scope of television programming distribution. The global television market is experiencing significant growth, both in terms of the number of broadcasters creating programming and the number of channels available to viewers. Within the U.S., the number of television broadcast and cable television program networks grew from three in 1970 to over 100 in 1993 and to approximately 200 in 1996. U.S. and international broadcasters are seeking to expand into each others' markets, increasing the need for satellite transmission capacity. Non-U.S. broadcasters are using international satellites to distribute domestic programming to U.S. and other overseas audiences of similar cultural heritage. Furthermore, the Company believes that as the number of broadcasters and channels increases, individual competitors will have a greater need for competitive differentiation which will increase the use of live transmissions and expand television coverage. Multichannel programming is expanding rapidly in Eastern Europe, Latin America and Asia. The growth in multichannel programming has increased the demand for international programming such as news and sports. Orion is well positioned to take advantage of this growth due to its high-power Ku-band satellite and transatlantic footprint. (v) Worldwide deregulation of telecommunications markets. During the past decade many countries have liberalized their telecommunications markets in order to permit new competitors to provide facilities and services. These changes have been particularly apparent in Europe, where Orion 81 currently has the ability to deliver network service to and among points in 27 countries. Deregulation is also creating new competitors to national telecommunications companies, which represent potential additional customers for the Company's services. (vi) Continuing technological advancements. The following recent technological advances are expected to increase capacity, efficiency and demand for satellite services: 1. High Power Satellites. The ability of service providers to deliver high quality services directly to customer premises has greatly improved with the development of high power satellites. Older, lower power satellites require large, expensive earth stations to receive transmissions. Typically these earth stations were located outside urban areas and required interconnection with public telephone systems. High power satellites, such as Orion 1, enable the use of small, inexpensive VSAT earth stations that may be installed at a customer location, thereby reducing customer costs and bypassing all terrestrial facilities. 2. Meshed Network Services. Traditional VSAT networks employ a hub/star architecture anchored by an expensive hub earth station that controls the network and communicates with each of the VSATs. Recent advances in VSAT technology have led to the creation of fully meshed satellite-based networks. These networks offer less transmission delay than hub/star networks by enabling any network node to communicate with any other network node directly through the satellite without having to transmit through a central network control point. 3. Frame Relay. The Company believes that despite rapid advances in network services and application software, many companies hesitated to implement meshed data networks due to high overhead costs generated by descriptive and routing commands required to travel with the data traffic. Frame relay technology reduces the number and complexity of commands needed to send data, and enables companies to implement more cost-effective meshed networks. To meet customers' demands for fully meshed frame relay network services, the Company has developed its VISN service. 4. Compressed Digital Video. CDV technology is designed to compress up to ten high-quality video channels in the same bandwidth that previously carried one or two analog channels. This technology is creating a rapid expansion in the number of available video channels with improved transmission quality. CDV lowers the per-channel cost of delivering programming via satellite and cable television systems, thereby enabling more programming options to be provided to smaller markets. The Company believes that CDV will enable continued growth in the number of video channels and also accelerate broadcasters' efforts to distribute their programming internationally. The Company also believes that CDV will result in higher total revenues per transponder as more customers can be served per transponder. However, CDV may also in effect increase the supply of satellite transponders, causing prices to decline. See "Risk Factors -- Risks Relating to Orion's Business -- Potential Adverse Effects of Competition." Although CDV is just beginning to be adopted in the industry, as of September 30, 1996, approximately 63% of Orion's video customers used CDV technology. 82 ORION SERVICES Orion provides satellite-based digital communications services comprised of: (i) private network services for multinational business and governmental customers, (ii) Internet backbone and access services and (iii) satellite transmission capacity services, including video distribution services for broadcasters, news organizations and international carriers. As indicated by the charts below, 61% of revenues are derived from the sale of satellite capacity, primarily for video. However, 62% of bookings for the nine months ended September 30, 1996 were from private network and Internet services. The Company believes these figures are consistent with its strategy of building a stable base of revenues through sales of transmission capacity and then focusing on the delivery of value-added private network services to end-users. [DIAGRAM] - ---------- * Bookings represent new customer contracts executed during the period. See "Risk Factors -- Risks Relating to Orion's Business -- Uncertainties Relating to Backlog." PRIVATE COMMUNICATIONS NETWORK SERVICES International Leased Line Services. Orion's international leased line services include Digital Link and Digital Channelized Link. Digital Link can be designed as a "point-to-point" private network service directly connecting customer locations or as a "point-to-multipoint" service for customers seeking to transmit communications from a central location to numerous remote sites. Orion also offers Digital Channelized Link, a multiplexed version of Digital Link that integrates digitally compressed voice, fax and data traffic into a single channel. Digital Link and Digital Channelized Link services have been offered by Orion since 1993. International leased line services have constituted a majority of Orion's bookings of private communications network services to date. Customers typically connect between three and nine sites with data rates generally of 128 Kbps or greater. One customer, a major multinational consumer goods company, required voice/fax and data connectivity from nine offices in Central and Eastern Europe and the company's U.S. headquarters, utilizing data speeds of up to 128 Kbps. The sites are manufacturing centers for the customer's soap and toiletry products. The customer was seeking a "one-stop shopping" solution which allowed for simultaneous exchange of all of its voice/fax and data applications over a single network provided by single network service provider. The customer investigated two alternative networking solutions and selected satellite connectivity provided by Orion over terrestrial facilities provided by the local PTT's due to superior quality. The customer uses Orion's service for managing inventory and "just-in-time" order entry. International Data Networking Services. Orion's fully-meshed frame relay based international data networking service, "Virtual Integrated Sky Network" ("VISN"), allows customers to transmit and receive voice, fax and data communications, including intranet services, among multiple locations simultaneously. VISN was developed by Orion and produced by Nortel Dasa (a joint venture among Northern Telecom, Dornier GmbH, and Daimler Benz Aerospace AG). The first phase of this service became available to customers commencing in the third quarter of 1995, and subsequent phases of the service 83 have been introduced during 1996 and are expected to be introduced during 1997, including the addition of video teleconferencing. VISN offers customers bandwidth on demand for data, voice and fax and, following the introduction of in-process and future releases, customers will have the option to be charged on a "pay per use" basis (e.g., minutes of use for voice and volume for data). VISN employs TDMA technology, which will enable networks to send both voice and data concurrently and further increase the effective bandwidth available for data transmission. The VISN product was awarded "Best New Transport Technology Product" at the 1995 ComNet New Product Achievement Awards Competition. Most customers have between four and ten sites, and generally have minimum data rates with the ability to use substantially greater bandwidth for bursts of traffic. A VISN customer, Creditanstalt Bankverein, Austria's second largest bank, needed a voice and data network among all of its branches in Central and Eastern Europe. Data applications varied from electronic mail to transfer transactions to its centralized data center in Vienna, along with voice requirements for interoffice telephone calls and facsimile transmission. Creditanstalt investigated terrestrial leased line and dial-up services to satisfy its requirements. Orion's VISN service offered full meshed, frame relay network service which supports both voice/fax and data transmission simultaneously. Creditanstalt replaced its terrestrial network with a nine site VISN network using data speeds of up to 256 Kbps. INTERNET BACKBONE AND ACCESS SERVICES The Company believes that the rapid growth of the Internet has created substantial opportunities for Orion. First, the United States has become the residence of the majority of the world's Internet content. Companies are looking for reliable, wide bandwidth connections which bypass congested Internet network segments. Orion's transatlantic capacity is well suited for companies in Europe, including Internet Service Providers ("ISPs"), seeking high-speed access to the U.S. Internet. Second, the Internet has begun to evolve from a user centered "pull" environment (users requesting information) to a content provider centered "push" environment (information delivered to users without concurrent request). Broadly distributed entertainment, information and advertising via the Internet are well suited for broadcast, point-to-multipoint communications facilities, such as satellite. By using satellite broadcasts to transmit the most popular Internet content to regional locations, ISPs can reduce their costs and relieve network congestion. Finally, Internet data communications are typically asymmetric. A typical, large Internet data transmission is predicated by a user request that comprises only a few bytes of traffic. This interaction is inefficient when carried over terrestrial full-duplex networks, which carry the same capacity in both directions. Orion's satellite based solutions can be designed with different amounts of capacity in each direction, providing an inexpensive circuit for user requests and high-speed, reliable and available capacity for the data that flows back to the user. Although Orion's Internet services were introduced only in the second quarter of 1996, sales of such services constituted 16% of new service bookings for the nine months ended September 30, 1996. Orion offers three Internet-related services, described below. ISP Backbone Service. Orion's DirectNet I service is designed for European ISPs. The service combines a dedicated, high speed point-to-point circuit between the ISP's points of presence in Europe and the North American Internet through a dedicated, fully redundant backbone connection. Orion also offers additional features with its DirectNet I service, including 24-hour network monitoring, control and support and a 99.5% network availability guarantee and associated downtime credits. Orion is pursuing requirements or joint venture arrangements with ISPs in which all of their transatlantic traffic would be carried over Orion 1 as it develops. For example, Orion has an arrangement with PSINet Inc. in which Orion has agreed to serve as the supplier for PSINet's backbone, connecting PSINet's various points of presence in Europe to the U.S. Internet backbone. Orion's ISP customers include, for example, companies such as Global Ukraine, an ISP based in Kiev. Global Ukraine sought Internet connectivity to the United States backbone with advanced technical features. Orion now provides Global Ukraine with a 256 Kbps circuit from the Ukraine to the United States with a connection into the U.S. Internet at three network access points, providing route diversity and ensuring fast response time by avoiding points of potential network congestion. Orion does not expect DirectNet I to generate a material portion of its revenues. 84 Corporate Internet Access. Orion's DirectNet II service is offered to international corporations requiring high volume data transmission in connection with World Wide Web browsing and downloading. DirectNet II provides a point-to-point circuit between the North American Internet and the corporation's premises. Orion offers large corporations Internet access service by reselling the Internet access services of several large ISPs, such as DIGEX and UUNet. Multicast Satellite-Based Internet Services. Orion recently introduced its WorldCost service which allows ISPs or corporate users to significantly reduce Internet bandwidth and ground facility costs. The service is based on an asymmetric architecture which couples wide bandwidth satellite broadcasting with narrow bandwidth terrestrial links to the Internet. Furthermore, WorldCost can provide a single channel that is shared among multiple ISPs, which can remove a significant amountof traffic from ISP terrestrial networks. The Company has recently taken orders from customers but is not currently providing any customers with this service. VIDEO DISTRIBUTION AND OTHER SATELLITE TRANSMISSION SERVICES Orion provides transmission capacity to cable and television programmers, news and information networks, telecommunications companies and other carriers for a variety of applications. Approximately two-thirds of Orion's transmission capacity services consist of video services. The Company offers transmission capacity services under long term contracts, with approximately 35% of such services being under contracts of three years or less, 14% being under contracts of approximately four to six years in duration and approximately 51% being delivered under longer term contracts (such percentages being based upon contract values). The remainder consists principally of occasional use services for periods of up to a few hundred hours. Video Services -- Contribution: Orion's video services include "contribution," the long-distance transport of video signals (usually one or more television channels) to one location. Viacom has leased capacity for one channel on Orion 1 for the purpose of occasional or full time transmission for video programming from its U.S. facilities to a broadcast facility in London. From there it can be inserted into programming and rebroadcast in Europe. Orion's contribution services also include transport of news programming for RTL, a major commercial broadcast network in Germany. RTL needed to interconnect its various news bureaus in Germany and the U.S. to transmit news stories to its headquarters in Koln. Orion provided 24 MHz of transatlantic transmission capacity service allowing transmission of RTL's programming in compressed digital video format. Video Services -- Distribution: Cable and television programmers use Orion's satellite transmission services for distribution of television programming to local broadcast stations, cable head-ends, MMDS (multichannel microwave distribution) systems and SMATV (satellite master antenna television). Orion has a joint marketing agreement with NTL, which operates one of the largest video gateways in Europe, located in downtown London. Orion and NTL offer programmers uplink, compression and distribution to cable head-ends throughout the United Kingdom and to locations in Europe. Orion's ability to offer video distribution services is aided by the transponder switching capabilities of Orion 1, which are (and those of Orion 2 and Orion 3 are expected to be) designed to permit programs to be distributed simultaneously throughout the satellite's coverage area. Orion's video distribution customers include Black Entertainment Television, Inc. ("BET"), which was seeking a video distribution service for the distribution of its BET On Jazz International Network, an internationally distributed programming network dedicated to international Jazz and Blues artists. BET required receipt of its signal at its headquarters in Washington, D.C., conversion to a European TV standard, digital compression and uplinking of the compressed digital video signal for distribution to cable head ends in the United Kingdom and other sites in Europe. News and Special Events: Orion 1 is used for transmission of special events or remote feeds to international news bureaus from television stations and on-location mobile transmitters. Because Orion's Ku-band technology and VSAT ground segment infrastructure offers high reception sensitivity, the Company is especially effective in transmitting television signals sent from low-powered portable trans- 85 mitters typically used by news organizations and program distributors. In contrast to video contribution services, news and special events are characterized by occasional use rather than long-term capacity contracts. CNN selected Orion's service for its coverage of Bosnia, and Orion provided service to the European Broadcasting Union for coverage of the Olympics in Atlanta. International Carriers: Orion satellite transmission services are used by international carriers to provide backup for terrestrial lines and to provide communications services to areas with inadequate telecommunications capabilities. These carriers resell Orion's capacity as part of their own services. Capacity Sales: Orion sells bulk capacity to resellers who use Orion's transmission capacity as one component of a customer's end-to-end communications solution. For example, Orion currently sells capacity to a number of firms that resell Orion's capacity to governmental organizations. Orion offers a range of value-added services in conjunction with its video distribution and other satellite transmission services. Such services may include the provision of video uplinking and receiving stations, digital compression equipment and software, transmission monitoring, and gateway interconnection services. CUSTOMERS AND BACKLOG Customers. As of September 30, 1996, Orion had entered into contracts with 167 customers, principally large multinational corporations, European companies and governmental agencies. These entitles come from many different industries, including communications, broadcasting, manufacturing, government, banking and finance, energy, lottery, consumer distribution, Internet access services and publishing. Selected customers from each service area are set forth below. 85 SELECTED ORION CUSTOMERS Private Network Services: AT&T Deere & Company Digital Link/Digital Amoco EDS Channelized Link Amway GE Americom Chase Manhattan Bank Global One Citibank News International Limited Concert Westinghouse Private Network Services: Balluff & Co. Pepsi Cola VISN Creditanstalt Price Waterhouse Internet-related Am. Univ. of Bulgaria LV Net Teleport Banknet Spectrum BITS Terminal Bar Datac TSSA Nask Global Ukraine Video Transmission and Other AsiaNet Hughes Network Systems Black Entertainment Hungarian Broadcasting Television Bonneville International MCI British Telecom RTL Television CNN Telecom Italia Comsat Viacom International 86 More than half of Orion's customers are based in the U.S., but these customers have a substantial majority of their points of service in Western and Eastern Europe, as indicated in the charts below. [DIAGRAM] Orion has entered into a contract with DACOM Corp., a Korean communications company which provides international and long distance telephone and leased line services, international and domestic data communications and value added network services. Under the contract, DACOM will, subject to certain conditions, lease eight dedicated transponders on Orion 3 for 13 years for direct-to-home television service and other satellite services, for $89 million payable in installments from December 1996 through seven months following the lease commencement date of the transponders. DACOM has the right to terminate the contract before March 1997 (and Orion would retain the $10 million paid) if it fails to obtain certain approvals. Payments are subject to refund if Orion 3 has not been successfully launched and commenced of commercial operation by June 30, 1999. Although Orion 3 is scheduled to be launched in the fourth quarter of 1998, there can be no assurance that Orion will be able to meet the delivery requirement of this contract. Backlog. At September 30, 1996, Orion had approximately $123 million of contracts in backlog (after giving effect to the Exchange and related transactions, which will result in changes to arrangements with Limited Partners that reduce backlog by approximately $11 million), as compared to approximately $95 million at September 30, 1995. The backlog contracts generally have terms of between three and four years. Orion presently anticipates that at least $86.4 million of its backlog will be realized after 1997. Orion has begun to receive contract renewals under expiring contracts (under some of the earliest contracts, which were entered into in 1993). The size of contracts varies significantly, depending on the amount of capacity required to provide service, the geographic location of the network and other services provided. As of September 30, 1996, Orion had a VSAT installation backlog of 68. Although many of the Company's customers, especially customers under large and long-term contracts, are large corporations with substantial financial resources, other contracts are with companies that may be subject to other business or financial risks. If customers are unable or unwilling to make required payments, the Company may be required to reduce its backlog figures (which would result in a reduction in future revenues of the Company), and such reductions could be substantial. The Company has recently instituted tighter credit policies, and has taken steps to remove from backlog arrangements with customers who have not taken service or have not made all required payments. In the second quarter of 1996, the Company determined that one large customer under a long-term contract (accounting for backlog of approximately $19.9 million) was not likely to raise necessary financing to commence its service in the near future, and accordingly the Company no longer considers such contracts part of its backlog. Also in the second quarter of 1996, the Company removed from its backlog contracts with a customer (accounting for backlog of approximately $4.5 million) which had ceased paying for the Company's services. In the fourth quarter of 1996, the Company removed $10.4 million from its backlog related to contracts under which customers failed to use the contracted service or failed to make timely payment. The Company's contracts commence and terminate on fixed dates. If the Company is delayed in commencing service or does not provide the required service under any particular contract, as it has occasionally done in the past, it may not be able to recognize all the revenue it initially includes in 87 backlog under that contract. In addition, the current backlog contains some contracts for the useful life of Orion 1; if the useful life of Orion 1 is shorter than expected, some portion of backlog may not be realized unless services satisfactory to the customer can be provided over another satellite. See "Risk Factors -- Risks Relating to Orion's Business -- Uncertainties Relating to Backlog." SALES AND MARKETING Orion uses both direct and indirect sales channels. Orion markets its private communications network services and Internet services through direct sales, local representatives and distributors in Europe and the United States, and wholesale arrangements with major carriers, Internet service providers, resellers and systems integrators. Orion markets its video distribution and other satellite transmission services primarily through direct sales. Orion also has established arrangements with local companies in most countries within the Orion 1 footprint to assist Orion with selling efforts and to provide customer support and network maintenance functions in those countries (as discussed below under the caption "Network Operations; Local Ground Operators"). Orion generally will enter into a single contract with customers covering service to a number of countries. Orion offers the business customer a single point-of-contact, a single contract and a price for its entire network, which Orion believes constitutes true "one-stop shopping." Orion prices its services centrally, using a single, easily administered set of pricing procedures for customer networks. Marketing will be critical to Orion's success. However, Orion has limited experience in marketing, having commenced full commercial operations in 1995. Orion's marketing program until recently consisted of direct sales using a U.S. based sales force and indirect sales channels, including Limited Partner sales representatives, for sales in Europe. The majority of Orion's contract bookings to date have been generated by its direct sales force. Certain of its indirect sales channels in Europe have not met expectations. Orion has been significantly increasing its direct sales capabilities in Europe, particularly with respect to sales of private communications network services. Although Orion believes that the increase in its European sales capabilities will increase its bookings, there can be no assurance regarding the timing or amount of such increase. Sales of Orion's services generally involve a long-term complex sales process, and Orion's bookings have fluctuated significantly. See "Risk Factors -- Risks Relating to Orion's Business -- Risks Relating to Potential Lack of Market Acceptance and Demand; Ground Operations." The Company may from time to time enter into joint ventures or acquire businesses which provide it with additional customers or which enhance its marketing capabilities. Although the Company is presently considering one such possible acquisition, it does not have binding arrangements at the present time. The Company believes that such acquisition, if consummated, would not have a material effect on the Company. See "Risk Factors -- Risks Relating to Orion's Business -- Risks Concerning Ability to Manage Growth." DIRECT SALES Orion has assembled a direct sales force of 31 as of December 15, 1996 (as increased from 26 at June 30, 1996) full-time employees in the United States and Europe to offer its private communications network and satellite transmission services. Approximately 68% of the sales force is based in the United States (in Maryland) and approximately 32% is based in Europe. Orion expects to continue to expand its sales force significantly throughout 1997, both in the U.S. and Europe. INDIRECT SALES CHANNELS Representatives/Distributors. Orion has entered into agreements for the marketing of its private communications network services in the United Kingdom, France, Germany, Austria, Italy and other European countries. These agreements call for sales, marketing and customer support services in specified geographical areas, generally on a non-exclusive basis. Generally, the duration of these agreements is three years. Third party sales representatives receive commissions and fees for sales and customer support services, each of which are payable over the life of the customer contracts to which the representative's services relate and which are based upon the revenues derived. Sales representatives are 88 supervised by Orion sales managers, who establish marketing strategies with the representatives, establish pricing, attend certain sales calls, develop marketing materials and sales training tools, coordinate joint efforts in promotional events and provide information about Orion's services. Orion also provides engineering support to its sales representatives. Orion provides some of these functions to support the sales efforts of its distributors. Distributors purchase Orion's services at wholesale prices and resell those services to customers at prices determined by the distributors. Two Limited Partners who serve as sales representatives (and ground operators) are entitled to receive additional commissions under a "profit sharing" formula based on their overall contribution to sales, but no amounts have been paid under such formula to date. Orion expects that unless Limited Partners sales representatives increase their sales significantly, payments under the profit sharing arrangement will be minimal. Major Carriers and Other Wholesalers. Orion has entered into distributor resale arrangements with major carriers, teleport operators, resellers and other companies in the United States and internationally. These distributors typically purchase communications network services from Orion (primarily the Digital Link and Digital Channelized Link and to a lesser extent the DirectNet services) at a wholesale rate for resale to their customers. This represents an important sales channel for the Company, and the Company is focusing on strengthening these relationships. Major carriers employ substantial sales forces and have the advantage of being existing providers to many of Orion's target customers, which makes marketing easier and increases awareness of customer needs. NETWORK OPERATIONS; LOCAL GROUND OPERATORS Orion has a centralized network operations function at its corporate headquarters in Rockville, Maryland, supported by arrangements with local companies in most countries within the Orion 1 footprint who assist Orion with selling efforts and providing customer support and network maintenance functions. Orion's relationships with ground operators are critical to providing integrated service because ground operators obtain necessary licenses, install and maintain the customers' networks, provide in-country business experience and often facilitate market entry. Network Operations. Once Orion enters into a contract with a customer, Orion finalizes the design of the customer's network, acquires the required equipment and arranges for the installation and commissioning of the network. Upon commencement of service, Orion also monitors the performance of the networks through its U.S. based network management center, located at its corporate headquarters in Rockville, Maryland, and from facilities in Europe. The network management center allows Orion to perform diagnostic procedures on customer networks and to reconfigure networks to alter data speeds, change frequencies and provide additional bandwidth. Ground Operators. Through arrangements with 30 local ground operators, Orion currently has the ability to deliver network services (through Orion 1 or leased capacity on other satellites) to or among points in 27 European countries, the United States and Mexico (which comprises substantially all of the countries within the coverage area of Orion 1), as well as arrangements to deliver network services in certain other Latin American countries. The ground operator agreements call for installation and maintenance of VSATs and other equipment, customer support and other functions in designated geographical areas, generally on a non-exclusive basis. Generally, such ground operations agreements last three years. Orion coordinates ground operations services (including service calls) by its local agents through centralized customer service centers located at Orion's corporate headquarters and at its facilities in Amsterdam. Orion also provides its ground operators with installation and maintenance, training materials and support. Ground operators receive fixed fees for installation, maintenance and other services, which vary depending on the level of services and the geographic area. Certain ground operators receive payments for customer support over the life of the related customer contract, based upon the revenues derived. Two Limited Partner ground operators are entitled to receive additional fees under a profit sharing formula, but no amounts have been paid under such formula to date and Orion expects that, unless such Limited Partners significantly increase the number of VSATs they maintain on behalf of Orion or Orion's customers, profit sharing payments will be minimal. Orion's operations will continue to depend significantly on Orion being able to provide ground operations for private network services using representatives and distributors throughout the footprint of Orion's satellites. In the event that its network of ground operators is not maintained and expanded, or fails to perform as expected, Orion's 89 ability to offer private network services will be impaired. See "Risk Factors - --Risks Relating to Orion's Business -- Risks Relating to Potential Lack of Market Acceptance and Demand; Ground Operations." Set forth below is a map showing the locations of Orion's existing European ground operators and potential new ground operators. [DOCUMENT CONTAINS A MAP OF EUROPE INDICATING WHERE ORION HAS GROUND OPERATORS AND WHERE ORION IS NEGOTIATING THE HIRING OF ADDITIONAL GROUND OPERATORS] MIGRATION PLAN FOR NEW MARKETS Prior to the launch of Orion 1, the Company began providing private communications network services to customers over satellite capacity leased from others. This early market entry strategy is being extended to Latin America and Asia with the execution of the Orion 2 Satellite Contract and commencement of construction of Orion 3 in December 1996. By developing an early market presence, Orion builds its customer base, establishes relationships with ground operators and becomes familiar with the regulations and practices in its new markets prior to launch of its satellites. Upon the launch of Orion 1, Orion migrated its customer base to its own satellite, and Orion expects to pursue the same approach for Orion 2 and Orion 3. In Latin America, the Company has a relationship with a ground operator in Mexico and is currently providing service to customers in Mexico, Colombia and Paraguay over leased capacity. The Company intends to migrate such services to Orion 2 after it commences operations, as Orion did with its Orion 1 satellite. The Company has three U.S. based direct sales personnel focused on selling in Latin America, and is pursuing relationships with other potential ground operators and joint venture partners. In Asia, the Company has assigned two full time personnel to pursue arrangements with potential ground operators and joint venture partners, and has commenced discussions with such entities in a number of Asian countries. Orion has begun the process of identifying potential sales representatives in countries within the Orion 3 footprint. The Company has also begun discussions with existing customers who have operations within the Orion 3 footprint and have expressed an interest in procuring Orion's services in Asia. Orion has started to identify other potential multinational and Asia-based customers, and plans to open a regional office in Asia in the second half of 1997. The Company expects its marketing for Orion 3 will be assisted by the $89 million pre-construction lease by DACOM, a Korean communications company, of eight of Orion 3's transponders for direct-to-home service and other satellite services. See "-- Implementation of the Orion Satellite System -- Orion 3 -- Pre-Construction Customer." IMPLEMENTATION OF THE ORION SATELLITE SYSTEM Orion currently provides its services with Orion 1 and with facilities leased from other providers covering areas outside the satellite's footprint. Ultimately the Company will provide these services with three satellites, together with facilities leased outside of its footprints. Orion 1 provides coverage of the Northern Atlantic Ocean region. Orion 2 is being designed to cover the Atlantic Ocean region but with coverage of points further East (into the Commonwealth of Independent States) and South (into Latin America and Africa), and Orion 3 is being designed to cover the Asia Pacific region. The design, construction, launch and in-orbit delivery of a satellite is a long and capital-intensive process. Satellites comparable to Orion's typically cost in excess of $200 million (exclusive of development, financing and other costs) and take two to three years to construct, launch and place in orbit. Prior to launch, the owner generally must obtain a number of licenses and approvals, including approval of the host country's national telecommunications authorities to construct and launch the satellite, coordination and registration of an orbital slot (of which there are a limited number) through the ITU to 90 avoid interference with other communications systems and a consultation on interference with INTELSAT (and EUTELSAT in the case of European satellites). Obtaining the necessary consents can involve significant time and expense, and in the case of the United States, requires a showing that the owner has the financial ability to fund the construction and launch of the satellite and to operate for one year. The Company has commenced construction of Orion 3 and plans to commence construction of Orion 2 prior to receipt of all regulatory approvals. Failure to obtain such approvals prior to launch would have a material adverse effect on the Company. See "Risk Factors -- Risks Relating to Orion's Business -- Approvals Needed; Regulation of Industry" and "Regulation" below. Orion 1 is expected to have an in-orbit useful life of approximately 10.7 years, estimated to end in October 2005, and Orion 2 and Orion 3 are expected to have in-orbit useful lives of 13 years and 15 years, respectively (based upon present design). While there can be no assurances that adequate financing and regulatory approvals will be obtained, Orion plans to launch replacement satellites as its satellites reach the end of their useful lives. ORION 1 Orion 1 was launched in November 1994 and commenced commercial operations in January 1995. Satellite Design and Footprint. Orion 1, which is in geosynchronous orbit at 37.5|SD West longitude, is a high power Ku-band telecommunications satellite that contains 28 transponders of 54 MHz bandwidth and six transponders of 36 MHz bandwidth (although one of these transponders has not operated in accordance with specifications, as described below). The footprint of Orion 1 is shown below (although certain transponders of Orion 1 can be reconfigured to match changing business and telecommunications requirements). [DIAGRAM] Satellite Construction and Performance. Orion 1 was constructed by Matra Marconi Space's subsidiary MMS Space Systems Limited, one of the major satellite contractors in Europe. Orion 1 was designed both for the delivery of high-speed data and for high-powered digital video transmission to corporate users. In particular, Orion 1 was designed with high reception sensitivity, which enables two-way transmission from and to small earth stations, reducing the equipment and transmission cost to customers. Orion 1 has transatlantic networking capability, which allows users to uplink data in the U.S. or Europe and downlink that transmission simultaneously to the U.S. and Europe. 91 This configuration simplifies customers' transatlantic networking solutions. Orion believes that Orion 1's Ku-band technology and VSAT ground segment infrastructure is among the least expensive, most flexible technologies for interactive satellite transmissions in the North Atlantic market. Like most recent satellites, Orion 1 offers digitally compressed transmission, in addition to analog transmission, which allows the satellite to increase by up to ten fold its usable bandwidth per transponder, leading to greater revenue per transponder and greater network availability to customers in need of bandwidth on demand. When Orion 1 was delivered into orbit, one of the 36 MHz transponders with coverage of the United States did not perform in accordance with contract specifications. Orion settled the matter with the manufacturer for a one time refund of $2.75 million (which amount was applied as a mandatory prepayment under the existing Orion 1 Credit Facility). In addition, the manufacturer will pay Orion approximately $7,000 per month for the life of the satellite under the warranty to the extent the transponder is not used to generate revenue. Orion believes that the failure of such transponder to perform in accordance with specifications will not have a significant impact on Orion's ability to offer its services. In November 1995, one of Orion 1's components supporting nine transponders of dedicated capacity serving the European portion of the Orion 1 footprint, experienced an anomaly that resulted in a temporary service interruption, lasting approximately two hours. Full service to all affected customers was restored using redundant equipment on the satellite. The redundant equipment currently generates a majority of Orion's revenues. Orion believes, based on the data received to date by Orion from its own investigations and from the manufacturer, and based upon advice from Orion's independent engineering consultant, Telesat Canada, that because the redundant component is functioning fully in accordance with specifications and the performance record of similar components is strong, the anomalous behavior is unlikely to affect the expected performance of the satellite over its useful life. Furthermore, there has been no effect on Orion's ability to provide services to customers. However, in the event that the redundant component fails, Orion 1 would experience a significant loss of usable capacity. In such event, while Orion would be entitled to insurance proceeds of approximately $47 million and could lease replacement capacity and function as a reseller with respect to such capacity (at substantially reduced gross margins), the loss of capacity would have a material adverse effect on Orion. See "Risk Factors -- Risks Relating to Orion's Business - -- Risks of Satellite Loss or Reduced Performance." Control of Satellite. Orion uses its tracking, telemetry and command facility in Mt. Jackson, Virginia (the "TT&C facility") to control Orion 1, and has in place backup facilities at its headquarters in Rockville, Maryland. In addition, Orion has a satellite control center at Orion's headquarters in Rockville, Maryland, from which commands can be sent to the satellite, directly, or remotely through the TT&C facility. Orion also has constructed a network management center at its headquarters to monitor the performance of Orion 1 and to perform diagnostic procedures on and to reconfigure its communications networks. Orion leases additional facilities in Europe for backup tracking, telemetry and command and network monitoring functions. ORION 2 Schedule and Footprint. Orion intends to launch Orion 2 in the Atlantic Ocean region to bolster its European capacity and to expand its coverage area in the Commonwealth of Independent States, Latin America and parts of Africa. Orion 2 will be a high power Ku-band communications satellite which will contain approximately 30 transponders of 54 MHz bandwidth. Orion has obtained conditional authorization from the FCC for the orbital slot at 12|SD West longitude for operation of Orion 2. The FCC has commenced the coordination process through the ITU and will commence consultation with INTELSAT upon request from Orion. Orion currently plans to commence construction of Orion 2 immediately after completion of the Offering and launch Orion 2 late in the second quarter of 1999. See "-- Satellite Construction, Launch and Performance" and "Risk Factors -- Risks Relating to Orion's Business -- Launch of Orion 2 and Orion 3 Subject to Significant Uncertainties." 92 [DIAGRAM] Satellite Construction, Launch and Performance. Matra Marconi Space and MMS Space Systems are the prime contractors for Orion 2 and will use MMS Space Systems' EUROSTAR satellite platform for Orion 2. This platform was previously used for Inmarsat 2, Telecom 2, Hispasat and Orion 1. Lockheed Martin CLS will provide launch services for Orion 2 using the Atlas II A-S launch vehicle. Atlas II A-S, which is larger than the launch vehicle used for the launch of Orion 1, is an expanded version of Atlas II. All 26 of the Atlas II, II A and II A-S launches have been successful. There have been more than 500 Atlas flights since the first research and development launch in 1957. For a discussion of the Company's financing needs with respect to Orion 2, and related risks, see "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources" and "Risk Factors -- Risks Relating to Orion's Business -- Launch of Orion 2 and Orion 3 Subject to Significant Uncertainties -- Substantial Financing Requirements." The Orion 2 satellite will be tested extensively prior to launch. Matra Marconi Space is obligated to correct all defects in the satellite or its components discovered prior to the launch. If Orion 2 is launched but fails to meet the specified performance criteria following launch, or fails to arrive at its designated orbit within 180 days of launch, or is completely destroyed or incapable of operation, Orion 2 will be deemed a "constructive total loss." Upon a constructive total loss of Orion 2, Orion would generally be entitled to order from Matra Marconi Space a replacement satellite on substantially the same terms and conditions as set forth in the Orion 2 Satellite Contract, subject to certain pricing adjustments. If Orion 2 is substantially able to perform but fails to meet certain criteria for full acceptance, Orion 2 will be deemed a "partial loss." Upon a partial loss of Orion 2, Orion would be entitled to receive a partial refund based on calculations of Orion 2's performance capabilities. If Orion 2 is not a constructive total loss or partial loss, but does not meet the specified performance requirements at final acceptance or for five years thereafter, Matra Marconi Space may be required to make certain refund payments to Orion up to a maximum of approximately $10 million. Orion's principal remedy in the case of a constructive total loss or partial loss will be under the launch insurance the Company is to obtain. A total or partial loss will involve delays and loss of revenue, which will impair Orion's ability to service its indebt- 93 dness, and such insurance will not protect Orion against business interruption, loss or delay of revenues or similar losses and may not fully reimburse the Company for its expenditures. See "Insurance" below and "Risk Factors -- Risks Relating to Orion's Business -- Risks of Satellite Loss or Reduced Performance - -- Limited Insurance for Satellite Launch and Operation." The Orion 2 Satellite Contract provides for incentive payments to encourage early delivery and limited liquidated damages payable in the event of late delivery. The incentive payments would equal $25,000 per day for each day that Orion 2 is delivered prior to the scheduled delivery date. Liquidated damages in the event of a late delivery of Orion 2 also would be calculated on a daily basis, with the aggregate amount not to exceed approximately $12 million. These liquidated damages would be Orion's exclusive remedy for late delivery, except as discussed above. Control of Satellite. Orion expects to use the TT&C facility to control Orion 2, and to use its existing network monitoring facilities in Rockville, Maryland and backup facilities in Europe. There can be no assurance that Orion 2 will be launched successfully. See "Risk Factors -- Risks Relating to Orion's Business -- Launch of Orion 2 and Orion 3 Subject to Significant Uncertainties." ORION 3 Schedule and Footprint. Orion intends to launch Orion 3 in the Asia Pacific region. Orion 3 is expected to cover all or portions of China, Japan, Korea, India, Hawaii, Southeast Asia, Australia, New Zealand, and Eastern Russia. Orion 3 is expected to be a high-power satellite with 23 54 MHz and two 27 MHz equivalent Ku-band transponders, 10 36 MHz C-band transponders for use by Orion, and eight Ku-band transponders to be used by DACOM, a large Asian customer, for direct-to-home television services and other satellite services. Orion, through the Republic of the Marshall Islands, has filed the appropriate documentation to begin the ITU process to coordinate an orbital slot at 139|SD East longitude. Orion has not commenced the consultation process with INTELSAT with respect to such orbital slot. Orion commenced construction of Orion 3 in December 1996. Orion 3 is scheduled to be launched in the fourth quarter of 1998. See "Risk Factors -- Risks Relating to Orion's Business -- Launch of Orion 2 and Orion 3 Subject to Significant Uncertainties." For a discussion of Orion's financing needs with respect to Orion 3, see "Management's Discussion and Analysis of Financial Condition and Results of Operations of Orion -- Liquidity and Capital Resources" and "Risk Factors -- Risks Relating to Orion's Business -- Need for Substantial Additional Capital" and "-- Launch of Orion 2 and Orion 3 Subject to Significant Uncertainties -- Substantial Financing Requirements." 94 The proposed coverage of Orion 3 is shown below. [DIAGRAM] Pre-Construction Customer. Orion has entered into a contract with DACOM Corp., a Korean communications company which provides international and long distance telephone and leased line services, international and domestic data communications and value added network services. Under the contract, DACOM will lease eight dedicated transponders on Orion 3 for 13 years for direct-to-home television service and satellite services, in return for payment of approximately $89 million payable over a period from December 1996 through seven months following the lease commencement date for the transponders. DACOM has the right to terminate the contract before March 1997 (and Orion would retain the $10 million paid) if it fails to obtain certain approvals. Payments are subject to refund if the successful launch and commencement of commercial operation of Orion 3 has not occurred by June 30, 1999. Although Orion 3 is scheduled to be launched in the fourth quarter of 1998, there can be no assurance that Orion will meet the delivery requirements of this contract. See "Risk Factors -- Risks Relating to Orion's Business -- Launch of Orion 2 and Orion 3 Subject to Significant Uncertainties -- Timing Uncertainties." As part of the arrangements with DACOM, Orion granted DACOM a warrant to purchase 50,000 shares of Common Stock at $14 per share. Satellite Construction, Launch and Performance. Orion has selected Hughes Space as the prime contractor for Orion 3 and will use a Hughes Space HS 601 HP satellite platform for Orion 3. Launch services for Orion 3 will be provided using the McDonnell Douglas Delta III launch vehicle. Delta III, 95 which is larger than the launch vehicle used for the launch of Orion 1, is an expanded version of the Delta II launch vehicle which has had 53 successful launches with a failure rate of less than 2%. There have been no Delta III flights to date, and the Company expects its launch to be the third Delta III flight based upon information provided by the launch vehicle manufacturer regarding its present flight schedules. For a discussion of the Company's financing needs with respect to Orion 3, and related risks, see "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity" and "Risk Factors -- Risks Relating to Orion's Business -- Launch of Orion 2 and Orion 3 Subject to Significant Uncertainties -- Substantial Financing Requirements." Under the proposed Orion 3 Satellite Contract, the Orion 3 satellite will be tested extensively prior to launch. Hughes Space is obligated to correct all defects in the satellite or its components discovered prior to the launch. The risk of loss or damage to Orion 3 passes from Hughes Space to Orion at the time of intentional ignition of Orion 3. After Orion 3 is launched and meets the specified performance criteria following launch, and has not suffered damage caused by any failure or malfunction of the launch vehicle, Hughes Space is required to perform in-orbit testing of Orion 3 to determine whether the transponders meet the specified performance criteria. If the transponders meet the specified performance criteria, Hughes Space is entitled to retain the full satellite performance payments described below. See "Insurance" and "Risk Factors -- Risks Relating to Orion's Business -- Satellite Risks -- Limited Insurance for Satellite Launch and Operation." Orion has options to purchase an additional satellite which may be used as a replacement satellite for Orion 3 to be launched within 12 to 19 months (depending on the option chosen by Orion), with fees for accelerating the construction after Orion places the order for completion of an additional satellite. Hughes Space is obligated to furnish the replacement satellite on terms substantially similar to those contained in the Orion 3 Satellite Contract. The Orion 3 Satellite Contract provides for incentive payments to encourage satellite performance and limited liquidated damages payable in the event of late delivery. The incentive payments could total $18 million depending on the satellite's performance, of which $10 million could be payable upon acceptance of the Orion 3 satellite and $8 million is payable over the course of the satellite's operational lifetime (all of which incentive payments are included in the contract price for Orion 3). In the event that it is determined during the Orion 3's operational lifetime that a transponder is not successfully operating, Orion is entitled to receive payment refunds under the Orion 3 Satellite Contract. Liquidated damages in the event of a late delivery of Orion 3 also would be calculated on a daily basis, with the aggregate amount not to exceed approximately $6 million. These liquidated damages would be Orion's exclusive remedy for late delivery. Control of Satellite. Orion expects to lease a tracking, telemetry and command facility in Asia to control Orion 3 and to maintain backup facilities in Korea, pursuant to arrangements with DACOM. There can be no assurance that Orion 3 will be launched successfully. See "Risk Factors -- Risks Related to Orion's Business -- Launch of Orion 2 and Orion 3 Subject to Significant Uncertainties." ORBITAL SLOTS Orion 1: Orion has been licensed by the FCC and has completed the coordination process with INTELSAT to operate Orion 1 in geostationary orbit at 37.5' West longitude. Orion 2: Orion has obtained conditional authorization from the FCC for the construction, launch and operation of Orion 2 at 12' West longitude. On behalf of Orion, the FCC has commenced the orbital slot coordination process through the ITU. Orion believes that its use of the 12' West longitude slot for Orion 2 is not likely to interfere with proposed uses of adjacent slots filed for by other governments, except for a possible overlap of 75 MHz with one such filing as discussed more fully below under the caption "-- ITU Coordination Process." Orion will consult with INTELSAT regarding Orion 2, and believes that since there are no INTELSAT satellites located adjacent to the 12' West longitude orbital slot, the INTELSAT coordination should be obtained in due course. 96 Orion 3: Orion, through the Republic of the Marshall Islands, has filed the appropriate documentation with the ITU to begin the ITU coordination process for Orion 3 at 139' East longitude. Based upon the time of filing by the Republic of the Marshall Islands, Orion believes that the proposed orbital slot for Orion 3 would have effective priority under ITU procedures with respect to the 139' East longitude orbital slot, but some proposals for adjacent slots would be entitled to priority over the Company's proposal (through the Republic of the Marshall Islands) with respect to possible interference. Orion believes, based upon its monitoring of the other proposals and information in the industry regarding their progress, that none of the entities with effective priority over the Company's proposal (through the Republic of the Marshall Islands) will be able to launch a satellite prior to launch of Orion 3 to take advantage of such priority. Orion has not commenced the consultation process with INTELSAT with respect to Orion 3, but as in the case of Orion 2 expects to complete the INTELSAT coordination in due course. Other Orbital Slots: Orion has received an authorization from the FCC for a Ku-band satellite in geostationary orbit at 47' West longitude, and has coordinated this orbital position with INTELSAT. Orion has also filed an application with the FCC to operate a satellite at 126' East longitude. The FCC has filed documentation with the ITU to commence the coordination process for this slot. In May 1996, in response to Orion's application, the FCC assigned the U.S. domestic orbital location of 135' West longitude to Orion. In November 1996, the FCC granted authorization to Orion to utilize the slot, conditioned on Orion submitting financial qualification information, or documentation justifying a waiver of the financial requirements, within 120 days after the release of the individual order with respect to Orion's application. Orion presently intends to seek a waiver with respect to this 120 day requirement, but believes failure to obtain a waiver would not have a material affect on Orion or its business. Such 120 day requirement does not apply to authorization previously granted to Orion, such as for the 12' West longitude orbital slot proposed to be used for Orion 2. In September 1995, Orion filed applications for authority to construct, launch and operate Ka-band satellites at 78.0' East longitude, 93.0' West longitude, and 83.0' West longitude, and an amendment to its pending application to construct, launch and operate a Ku-band satellite at 127' West longitude to add a Ka-band payload. In addition, Orion filed an application to modify its authority to construct, launch and operate a Ku-band satellite at 47' West longitude to include a North/South beam configuration. On November 9, 1995, Orion filed an application for authority to construct, launch and operate a Ka-band satellite at 12' West longitude. In May 1996, the FCC assigned Ka-band orbital locations for 33 U.S. companies for international orbital locations, including two assigned to Orion at 78' East longitude and 126.5' East longitude, and one at 47' West longitude. This orbital assignment plan was conditioned upon authorization of the domestic portion of the proposed satellite systems. At approximately the same time the FCC made ITU filings for these satellites. The FCC order does not license these satellites, and some of the applications to use the orbital assignments are subject to further FCC processing. There are ongoing negotiations among the applicants concerning a consensual Ka-band orbital assignment plan to be submitted to the FCC to resolve a number of mutually exclusive orbital assignment requests, including Orion's pending Ka-band application for 93.0' West longitude, 83.0' West longitude and 127' West longitude. The FCC has indicated that if a consensus cannot be reached by the applicants, the FCC will itself resolve these orbital conflicts in the processing of these applications, and such processing will be in conformity with yet-to-be adopted Ka-band service rules. There can be no assurance that Orion will receive final licenses to operate at these orbital positions, or that the FCC will act favorably on Orion's other satellite filings. ITU Coordination Process. An international treaty to which the U.S. and the Republic of the Marshall Islands are parties requires coordination of satellite orbital slots through the procedures of the ITU. There are only a limited number of such orbital slots. ITU procedures provide for a priority to attach to proposals that are submitted first for a particular orbital slot and associated frequencies, and provide for protection from interference by satellites in adjacent slots. This priority does not establish legally-binding rights, but at a minimum establishes certain procedural rights and obligations for and with respect to the party that first submits its proposal. 97 Over the past decade, a substantial increase in satellite proposals introduced into the ITU coordination process has caused delays in that process. In addition, many proposals are submitted to the ITU for registration of satellite systems that ultimately are not constructed or launched. As a result, the ITU is investigating ways to improve or streamline the filing process for registration of orbital slots. In the meantime, it has become international practice for operators who propose to use a certain orbital slot to investigate and evaluate whether proposals to launch satellites into the same or a nearby orbital location are likely to result in actual operation, and for operators to negotiate with other countries or operators that propose to use the same or a nearby orbital location. There can be no assurance of the outcome of any objections to this international practice or as to the results of the ITU's investigations. Orion is involved in discussions with certain governments concerning their proposals to use orbital slots. While Orion believes that it can successfully coordinate and resolve any interference concerns regarding the use of the orbital locations and frequency bands proposed for Orion 2 and Orion 3, there can be no assurance that this will be achieved, nor can there be assurance that ITU coordination will be completed by the scheduled launch dates for Orion 2 and Orion 3. In the event that successful coordination cannot be achieved, Orion may have to modify the satellite design for Orion 2 or Orion 3 in order to minimize the extent of any potential interference with other proposed satellites using those orbital locations or frequency bands. Any such modifications may result in certain features of Orion 2 and Orion 3 differing from those described in this Prospectus and may result in limitations on the use of one or more transponders on Orion 2 or Orion 3 or delays in the launch of Orion 2 or Orion 3. In order to achieve successful coordination, Orion may also have to modify the operation of the satellites, or enter into commercial arrangements with operators of other satellites, in order to protect against harmful interference to Orion's operations. If interference occurs with satellites that are in close proximity to Orion 2 and Orion 3, or with satellites that are subsequently launched into locations in close proximity without completing ITU coordination procedures, such interference would have an adverse effect on the proposed use of the satellites and on Orion's business and financial performance. See "Risk Factors - -- Risks Relating to Orion's Business -- Approvals Needed; Regulation of Industry." INSURANCE Orion has obtained satellite in-orbit life insurance for Orion 1 covering the period from May 1996 to May 1997 in an initial amount of approximately $245 million providing protection against partial or total loss of the satellite's communications capability, including loss of transponders, power or ability to control the positioning of the satellite. The aggregate premium for in-orbit insurance for Orion 1 is approximately $6 million per annum. Orion intends to procure launch insurance for the construction, launch and insurance costs of Orion 2 and Orion 3. In the past, satellite launch insurance was generally procured approximately six months prior to launch. Recently, it has become possible to obtain a commitment from insurance underwriters well before that time, which fixes the rate and certain terms of launch insurance. Orion intends shortly to seek such a commitment from insurance underwriters to provide launch insurance for Orion 2 and Orion 3. Such insurance is expected to be quite costly, with present insurance rates ranging at or above 16% of the insured amount, depending upon such factors as the launch history and recent performance of the launch vehicle to be used and general availability of launch insurance in the insurance marketplace (although such rates have reached 20% or higher in the past several years). Such insurance can be expected to include certain contract terms, exclusions, deductibles and material change conditions that are customary in the industry. After launch of Orion 2 and Orion 3, the Company will need to procure satellite in-orbit life insurance for Orion 2 and Orion 3. There can be no assurance that such insurance will be available or that the price of such insurance or the terms and exclusions in the actual insurance policies will be favorable to the Company. Launch and in-orbit insurance for its satellites will not protect the Company against business interruption, loss or delay of revenues and similar losses and may not fully reimburse the Company for its expenditures. Accordingly, an unsuccessful launch of Orion 2 or Orion 3 or any significant loss of performance with respect to any of its satellites would have a material adverse effect on Orion and would impair Orion's ability to service its indebted- 98 ness, including the Notes. See "Risk Factors -- Risks Relating to Orion's Business -- Risks of Satellite Loss or Reduced Performance -- Limited Insurance for Satellite Launch and Operation." COMPETITION As a provider of data networking and Internet-related services, Orion competes with a large number of telecommunications service providers and value-added resellers of transmission capacity. As a provider of satellite transmission capacity, Orion competes with other providers of satellite and terrestrial facilities. Many of these competitors have significant competitive advantages, including long-standing customer relationships, close ties with regulatory and local authorities, control over connections to local telephone networks and have financial resources, experience, marketing capabilities and name recognition that are substantially greater than those of Orion. The Company believes that competition in emerging markets will intensify as incumbent service providers adapt to a competitive environment and international carriers increase their presence in these markets. The Company also believes that competition in more developed markets will intensify as larger carriers consolidate, enhance their international alliances and increase their focus on data networking. Orion's ability to compete with these organizations will depend in part on Orion's ability to price its services at a significant discount to terrestrial service providers, its marketing effectiveness, its level of customer support and service and the technical advantages of its systems. SERVICE PROVIDERS Orion has encountered strong competition from major established carriers such as AT&T, MCI, Sprint, British Telecom, Cable & Wireless, Deutsche Telekom, France Telecom and Kokusai Denshin Denwa, which provide international telephone, private line and private network services using their national telephone networks and link to those of other carriers. A number of these carriers have formed global consortia to provide private network services, including AT&T -- Unisource Services Company (AT&T, PTT Telecom Netherlands, Telia (Sweden), Swiss Telecom PTT and Telefonica of Spain), Concert (British Telecom and MCI), and Global One (Sprint, France Telecom and Deutsche Telekom). Other service providers include MFS Worldcom (which acquired IDB Communications Group, Inc. and Wiltel International, Inc.), Infonet, SITA, Telemedia International, Spaceline, ANT Bosch (which is being acquired by General Electric), Teleport Europe, Impsat, and various local resellers of satellite capacity. Finally, service organizations that purchase satellite capacity, VSAT and other hardware and install their own networks may be considered competitors of the Company with respect to their own networks. Although these carriers and service providers are competitors, some are also Orion's customers. Orion believes that all network service providers are potential users of Orion's satellite capacity for the network services they offer their customers. See "Risk Factors -- Risks Relating to Orion's Business -- Potential Adverse Effects of Competition." SATELLITE CAPACITY Orion provides fixed satellite service and does not intend to compete with proposed mobile satellites or low earth orbit systems ("LEO") such as Globalstar, Iridium or Odyssey (although the Company does expect to compete with Teledesic, a proposed LEO system), or, with the exception of the pre-leased transponders on Orion 3 to be used for video transmissions, with direct-to-home satellite systems such as Primestar, DirectTV or EchoStar. Mobile satellite services are characterized by voice and data transmission to and from mobile terminals on platforms such as ships or aircraft. Direct-to-home services are characterized by the transmission of television and entertainment services directly to consumers. Orion's satellites will compete with trans-Atlantic fixed satellite systems, European regional and domestic systems and Asian systems. Existing International and Trans-Atlantic Satellite Systems. The market for international fixed satellite communications capacity has been dominated by INTELSAT for thirty years, and INTELSAT can be expected to continue to dominate this market for the foreseeable future. INTELSAT, a consortium of approximately 138 countries established by international treaty in 1964, owns and operates the largest 99 fleet of commercial geosynchronous satellites in the world (25 satellites, with additional satellites on order). INTELSAT's satellites have historically been general purpose, lower-power satellites designed to serve large areas with public telephone service transmitted between expensive gateway earth stations. INTELSAT generally provides capacity directly to its signatories who then market such capacity to their customers. The availability of new services generally is subject to the discretion of each country's signatory and INTELSAT is required under its charter to set its pricing in order to achieve a fixed pre-tax return on equity that is established from time to time by INTELSAT's board of governors. INTELSAT is considering a restructuring and it is expected that the Intelsat Assembly of Parties will decide on a new structure for the organization in 1997. Any restructuring of INTELSAT that increases its marketing flexibility could materially impact Orion's ability to compete in the market for private satellite delivered services. PanAmSat currently operates four satellites, with one satellite providing coverage in each of the Atlantic Ocean region, the Asia Pacific region and Indian Ocean region (the fourth covers the Atlantic Ocean region but is near the end of its useful life). These satellites primarily provide broadcasting services, such as television programming and backhaul operations. PAS 3, launched in January 1996, with coverage of the Atlantic Ocean, competes directly with Orion 1. It has performance attributes which are generally comparable to those of Orion 1 and carries 16 Ku-band transponders, of which 8 transponders are capable of providing service to or within Europe, and 16 C-band transponders. PanAmSat has announced that it intends to launch four additional satellites, two in 1997 that will provide coverage of the U.S., Central America and Mexico, and two that will provide coverage of the Indian and Pacific Ocean regions, respectively, in 1997 and early 1998. PanAmSat is in the process of selling a controlling interest to Hughes Electronics Corp., which is the largest private space-related company in the world. This transaction will enhance PanAmSat's ability to compete with Orion. Existing European Regional and Domestic Satellite Systems. In Europe, Orion competes with certain regional satellites systems and may compete with domestic satellite systems. Regional and domestic satellite systems generally have limited ability to serve customers with needs for extensive international networks. Orion's primary competitor in Europe is the major regional satellite system operated by EUTELSAT. EUTELSAT, established in 1977, presently comprises over approximately 45 member countries. EUTELSAT operates seven satellites, providing telephony, television, radio and data services, and has announced a plan to launch five new satellites through 1998. Asian Pacific Region Satellite Systems. Orion believes that currently-operating satellite systems in the Asia Pacific region generally are limited in their ability to provide private network and similar services at an acceptable performance level due to insufficient power, limited Ku-band capacity and limited geographic coverage. Nevertheless, there is a large number of satellite systems operating in Asia. The major Asia Pacific regional satellite systems include the AsiaSat system licensed in Hong Kong (with two satellites in operation and a third planned for launch in 1997), the Chinese Apstar system (also with two satellites in operation and a third planned for launch near the end of 1997) and the Indonesian Palapa system (with three satellites in orbit and plans to launch at least three more satellites through 1999). Japan has licensed several satellite networks for domestic and international service, including the JCSat series (three satellites in operation and a fourth planned for launch in 1997), NTT's two N-Star satellites, and Space Communications Corporation's Superbird A and B (with a third planned for 1997). Optus operates four Australian domestic satellites that offer limited international coverage and plans several follow-on satellites. Korea operates Koreasat 1 and 2, primarily for domestic service, with plans for a third satellite that would offer expanded regional service in 1999. Thailand has licensed the Thaicom system, with two domestic satellites in operation, and plans two new satellites in 1997 offering regional coverage. Measat operates a Malaysian system consisting of two satellites providing DTH service to Malaysia and parts of Asia. Other Satellite Systems. There are numerous satellites other than the ones discussed above that compete to some extent with Orion. In addition, the Company is aware of a substantial number of satellites that are in construction or in the planning stages. Most of these satellites will cover areas within the footprint of Orion 1 and/or the proposed footprints of Orion 2 and Orion 3. As these new satellites commence operations, they (other than replacement satellites not significantly larger than the ones they replace) will substantially increase the capacity available for sale in the company's markets. After a 100 satellite has been successfully delivered in orbit, the variable cost of transmitting additional data via the satellite is limited. Accordingly, absent a corresponding increase in demand, this new capacity can be expected to result in significant additional price reductions. For example, Teledesic Corporation proposes to operate up to 840 low earth orbit small satellites by 2001 to provide global fixed satellite services (including voice, data and broadband transmission services). Although Orion cannot assess to what degree, if any, these proposed satellites might compete with Orion in the future, Teledesic could provide significant competition to the Company. See "Risk Factors -- Risks Relating to Orion's Business -- Potential Adverse Effects of Competition." TERRESTRIAL CAPACITY Orion competes with terrestrial facilities for intra-Europe and trans-Atlantic capacity. European Facilities. Orion's services compete with terrestrial telecommunications delivery services, which are being improved gradually through the build-out of fiber optic networks and a move from analog to digital switching. As fiber networks and digital network switching become more prevalent, the resulting improved and less expensive terrestrial capacity increasingly competitive with Orion's services. Undersea Cable. Undersea fiber optic cable capacity has increased substantially in recent years. Although Orion believes that undersea cable capacity is not as well suited as satellite capacity to serve the requirements of video broadcasters or the demand for multi-point private network services, fiber optic and coaxial cables are well suited for carrying large amounts of bulk traffic, such as long distance telephone calls, between two locations. Operators of undersea fiber optic cable systems typically are joint ventures among major telecommunications companies. Orion expects strong competition from these carriers in providing private network services. REGULATION REGULATORY OVERVIEW The international telecommunications environment is highly regulated. As an operator of privately owned international satellite systems licensed by the United States, Orion is subject to the regulatory authority of the United States (primarily the FCC) and the national communications authorities of the countries in which it provides service. Each of these entities can potentially impose operational restrictions on Orion. In addition, Orion is subject to the INTELSAT and EUTELSAT consultation processes. The changing policies and regulations of the United States and other countries will continue to affect the international telecommunications industry. Orion cannot predict the impact that these changes will have on its business or whether the general deregulatory trend in recent years will continue. Orion believes that continued deregulation would be beneficial to Orion, but deregulation also could reduce the limitations facing many of its existing competitors and potential new competitors. The operation of Orion 2 and Orion 3 will require a number of regulatory approvals, including (i) the approvals of the FCC (in the case of Orion 2), (ii) completion of successful consultations with INTELSAT and, in the case of Orion 2, with EUTELSAT; (iii) satellite "landing" rights in countries that are not INTELSAT signatories or that require additional approvals to provide satellite or VSAT services; and (iv) other regulatory approvals. Obtaining the necessary licenses and approvals involves significant time and expense, and receipt of such licenses and approvals cannot be assured. Failure to obtain such approvals would have a material adverse effect on Orion and on its ability to service its indebtedness and the value of the Orion Newco Common Stock. In addition, Orion is required to obtain approvals from numerous national local authorities in the ordinary course of its business in connection with most arrangements for the provision of services. Within Orion 1's footprint, such approvals generally have not been difficult for Orion to obtain in a timely manner. However, the failure to obtain particular approvals has delayed, and in the future may delay, the provision of services by Orion. See "Risk Factors -- Risks Relating to Orion's Business -- Approvals Needed; Regulation of Industry." 101 AUTHORITY TO CONSTRUCT, LAUNCH AND OPERATE SATELLITES Orion 1. In June 1991, Orion received final authorization from the FCC (the "Orion 1 License") to construct, launch and operate a Ku-band satellite in geostationary orbit at 37.5' West longitude in accordance with the terms, conditions and technical specifications submitted in its application to the FCC. The Orion 1 license from the FCC expires in January 2005. Although Orion has no reason to believe that its licenses will not be renewed (or new licenses obtained) at the expiration of the license term, there can be no assurance of renewal. Orion 2. Orion has obtained conditional authorization from the FCC for the orbital slot at 12' West longitude for operation of Orion 2. The Orion 2 authorization will not become final until Orion completes a consultation with INTELSAT and demonstration to the FCC of its financial ability to meet the costs of construction, the launch of its satellite and operating expenses for one year following launch. Orion has not yet met the required financial qualifications demonstration to the FCC. It is required to make such showing within 90 days after completion of INTELSAT consultation, and accordingly intends to commence consultation with INTELSAT after it has obtained an additional financing and believes it can make the required financial showing. The application filed with the FCC for Orion 2 contains a technical proposal different than that currently being coordinated with the ITU, and will need to be amended. Orion has no reason to believe that the FCC will not approve such amendment or that the amendment will cause material delay in obtaining final FCC authority for Orion 2. Orion 3. Orion is pursuing an orbital slot at 139' East longitude through the Republic of the Marshall Islands. Under an agreement with the Republic of the Marshall Islands entered into in 1990, the Republic of the Marshall Islands agreed to file with the ITU all documents necessary to secure authorization for Orion to operate a satellite in geo-stationary orbit. In return for the right to utilize any orbital slots secured by the Republic of the Marshall Islands, Orion must, among other things, (i) commence construction of a functioning operating center for satellites serving the Pacific Island portion of the Orion Asia Pacific network at least a year prior to the operation of an Orion satellite, (ii) train and support certain employees designated by the Republic of the Marshall Islands at least a year prior to the operation of an Orion Asia Pacific satellite, and (iii) construct, equip and install (except for power supply or back-up) four earth stations capable of handling a "T-1" circuit for operation with the Orion Asia Pacific system prior to the operation of an Orion Asia Pacific satellite. CONSULTATION WITH INTELSAT AND EUTELSAT Orion 1. Prior to receiving final licensing and launch authority for Orion 1, Orion successfully completed its consultation with INTELSAT pursuant to the INTELSAT Treaty. A similar consultation for Orion 1 was completed with EUTELSAT in May 1994. Additional consultations or other approvals may be needed in individual countries for the use of VSATs. Orion 2. Orion has not commenced consultations with INTELSAT or EUTELSAT for Orion 2, and intends to commence such consultation with INTELSAT for Orion 2 when it is ready to make its financial showing to the FCC, as discussed above. Orion believes that since there are no INTELSAT or EUTELSAT satellites located adjacent to the 12' West longitude orbital slot, the INTELSAT and EUTELSAT coordination should be obtained in due course. Orion 3. Orion has not commenced consultations with INTELSAT for Orion 3, but Orion believes that since there are no INTELSAT satellites located adjacent to the 139' East longitude orbital slot, the INTELSAT coordination should be obtained in due course. INTERNATIONAL TELECOMMUNICATION UNION An international treaty to which the U.S. and the Republic of the Marshall Islands are parties requires coordination of satellite orbital slots through the procedures of the ITU. The process for coordinating orbital slots through the ITU is discussed under the caption " -- Orbital Slots -- ITU Coordination Process." Orion 1: After Orion 1 reached its orbital position and commenced operation, the FCC notified the ITU. This concluded the process for coordination of the Orion 1 orbital slot. 102 Orion 2: On behalf of Orion, the FCC has commenced the orbital slot coordination process through the ITU. Orion believes that its use of the 12' West longitude slot for Orion 2 is not likely to interfere with proposed uses of adjacent slots filed for by other governments, except for a possible overlap of 75 MHz with one proposal as discussed more fully under the caption "-- Orbital Slots -- ITU Coordination Process." Orion 3: Orion, through the Republic of the Marshall Islands, has filed the appropriate documentation with the ITU to begin the ITU coordination process for Orion 3 at 139' East longitude. As discussed more fully under the caption "-- Orbital Slots -- ITU Coordination Process," based upon the time of filing by the Republic of the Marshall Islands, Orion believes that the proposed orbital slot for Orion 3 would have priority under ITU procedures with respect to the 139' East longitude orbital slot, but some proposals by other administrations for adjacent slots would be entitled to effective priority over the proposal by the Republic of the Marshall Islands with respect to possible interference. Orion believes, based upon its monitoring of the proposals of other administrations and information in the industry regarding their progress, that none of the administrations with effective priority over the proposal by the Republic of the Marshall Islands will be able to launch a satellite prior to launch of Orion 3 to take advantage of such priority. Orion also believes that it can complete the ITU coordination process for Orion 3 at 139' East longitude, however, there can be no assurance that this will be achieved. UNITED STATES REGULATORY RESTRICTIONS Orion is subject to regulation under the Communications Act, the FCC's July 1985 Separate Systems decision as modified by subsequent FCC decisions, other FCC regulations, and the terms of the various orders issued by the FCC with respect to Orion and its subsidiaries, including the terms of the Orion 1 License. These regulations, orders and authorizations impose various restrictions on Orion and on other similarly situated companies. Certain important restrictions are described below. Limited Interconnection with Public Switched Message Networks. Under current U.S. policies concerning "separate satellite systems," such systems may provide: (i) all services not interconnected with the public switched network ("PSN"); (ii) emergency restoration services and up to 8,000 64 kbps equivalent circuits per satellite interconnected with the PSN for common carrier public switched international services; and (iii) interconnected private line services. Under applicable FCC orders, Orion has been authorized to provide up to 8,000 64 kbps equivalent circuits interconnected to the PSN for public switched services. All U.S. restrictions on the interconnection of public switched networks with separate satellite systems are expected to terminate in the first quarter of 1997. Orion's networking business is intended to be non-common carrier service, and accordingly it will not be permitted to provide interconnected switched services, but will be permitted to sell this capacity to common carriers. Use of the Orion 1 Satellite System for U.S. Domestic Services. In January 1996, the FCC eliminated certain distinctions between U.S. licensed domestic satellites and separate satellite systems. It authorized both sets of U.S. licensed satellite operators to provide both domestic and international services. Domestic operators have designed their current satellite facilities principally for continental U.S. coverage of the United States, and thus may as a general matter offer only limited competition for international services at the outset. However, future satellite designs of domestic satellite operators could be modified to more directly compete in the international market. New Orbital Locations. The FCC now requires applicants, at the time of filing for an orbital position (either domestic arc or international orbital position), to demonstrate the financial ability to construct, launch and operate that satellite for a one year period. This new requirement will have no change in the licensing of Orion's orbital positions at 37.5' West, 12' West, 47' West longitude and 126' East longitude (the orbital slot at 139' East longitude is not being pursued through the FCC and is not subject to the financial showing requirement.) To the extent that Orion is seeking an orbital location through the FCC, Orion will need to have significant financing on hand at the time of application or obtain a waiver of the required financial demonstration. There is no assurance that Orion will be able to obtain such waiver. 103 Unauthorized Transfer of Control. The Communications Act bars a change in control of the holder of FCC licenses without prior approval from the FCC. Any finding that a change of control without prior FCC approval had occurred could have a significant adverse effect on Orion's ability to implement its business plan. INTERNATIONAL REGULATION Orion will need to comply with the applicable laws and obtain the approval of the regulatory authority of each country in which it proposes to provide network services or operate VSATs. The laws and regulatory requirements regulating access to satellite systems vary from country to country. Some countries have substantially deregulated satellite communications, making customer access to Orion services a simple procedure, while other countries maintain strict monopoly regimes. The application procedure can be time-consuming and costly, and the terms of licenses vary for different countries. Orion provides service using the licenses it obtains or that are obtained by local ground operators or, in certain cases, through customer-obtained authorizations. For example, Orion's representatives in the United Kingdom (Kingston Communications), France (Matra Hachette), Germany (Nortel Dasa) and Italy (Telecom Italia) have licenses in such countries. Orion also has obtained "landing rights" through the INTELSAT treaty (although each INTELSAT signatory country retains sovereignty over the transmission of satellite signals and retains the right to object to the use of satellites within its borders). Orion is now authorized, either directly or through its ground operators, to provide service in 27 European countries. Orion expects to pursue a similar strategy in Asia and Latin America. In addition, Orion will need to comply with the national laws of each country in which it provides services. Laws with respect to satellite services are currently unclear in certain jurisdictions, particularly within the Orion 3 footprint. In certain of these jurisdictions, satellite services may only be provided via domestic satellites. The Company believes that certain of these restrictions may change and it can structure its operations to comply with the remaining restrictions. However, there can be no assurance in this regard. See "Risk Factors -- Risks Relating to Orion's Business -- Approvals Needed; Regulation of Industry." HUMAN RESOURCES As of October 31, 1996, Orion and its subsidiaries had 175 full time employees. Of its total work force, six are part of management, 44 are in engineering or satellite control operations, 75 are in marketing, sales and sales support, and 50 are devoted to support and administrative activities. LEGAL PROCEEDINGS In October 1995, Skydata Corporation ("Skydata"), a former contractor, filed suit against Orion Atlantic, Orion Satellite Corporation and Orion, in the United States District Court for the Middle District of Florida, claiming that certain Orion Atlantic operations using frame relay switches infringe a Skydata patent. Skydata's suit sought damages in excess of $10 million and asked that any damages assessed be trebled. On December 11, 1995, the Orion parties filed a motion to dismiss the lawsuit on the grounds of lack of jurisdiction and violation of a mandatory arbitration agreement. In addition, on December 19, 1995, the Orion parties filed a Demand for Arbitration against Skydata with the American Arbitration Association in Atlanta, Georgia, requesting damages in excess of $100,000 for breach of contract and declarations, among other things, that Orion and Orion Atlantic own a royalty-free license to the patent, that the patent is invalid and unenforceable and that Orion and Orion Atlantic have not infringed on the patent. On March 5, 1996, the court granted the Company's motion to dismiss the lawsuit on the basis that Skydata's claims are subject to arbitration. Skydata appealed the dismissal to the United States Court of Appeals to the Federal Circuit. Skydata also filed a counterclaim in the arbitration proceedings asserting a claim for $2 million damages as a result of the conduct of Orion and its affiliates. On May 15, 1996, the arbitrator granted the Orion parties' request for an initial hearing on claims relating to the Orion parties' rights to the patent, including the co-ownership claim and other contractual claims. 104 On November 9, 1996, Orion and Skydata executed a letter with respect to the settlement in full the pending litigation and arbitration. As part of the settlement, the parties are to release all claims by either side relating in any way to the patent and/or the pending litigation and arbitration. In addition, Skydata is to grant Orion (and its affiliates) an unrestricted, world-wide paid-up license to make, have made, use or sell products or methods under the patent and all other corresponding continuation and reissue patents. Orion is to pay Skydata $437,000 over a period of two years as part of the settlement. The parties are in the process of documenting the terms of the settlement in a formal settlement agreement. While Orion is party to regulatory proceedings incident to its business, there are no material legal proceedings pending or, to the knowledge of management, threatened against Orion or its subsidiaries. 105 MANAGEMENT OF ORION AND ORION NEWCO DIRECTORS AND EXECUTIVE OFFICERS Orion's Board is, and following the Merger Orion Newco's Board will be, divided into three classes of directors, serving staggered three-year terms. The directors and executive officers of Orion and their ages and (in the case of directors) terms as of November 15, 1996 are as follows:
TERM EXPIRES NAME AGE POSITION WITH ORION (DIRECTORS) - -------------------- ----- ------------------------------------------------- --------------- Gustave M. Hauser .. 67 Chairman, Director 1998 President and Chief Executive Officer, Director W. Neil Bauer....... 50 (Principal Executive Officer) 1999 Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer and David J. Frear...... 40 Principal Accounting Officer) Vice President, Corporate and Legal Affairs, and Richard H. Shay..... 55 Secretary Senior Vice President, Orion Satellite Corporation and General Manager, Engineering and Denis Curtin........ 57 Satellite Operations Vice President of Orion and President, Orion Hans C. Gin|fer.......57 Asia Pacific Corporation Vice President of Orion and President, Orion Douglas H. Newman .. 57 Satellite Corporation Richard J. Brekka .. 35 Director 1997 Warren B. French, Jr.................. 73 Director 1997 Barry Horowitz...... 52 Director 1998 Sidney S. Kahn...... 59 Director 1999 John G. Puente...... 66 Director 1998 W. Anthony Rice..... 44 Director 1997 John V. Saeman...... 60 Director 1998 Robert M. Van Degna............... 52 Director 1999
BACKGROUND OF DIRECTORS AND EXECUTIVE OFFICERS Information with respect to the business experience and the affiliations of the directors and executive officers of Orion (and, following the Merger, Orion Newco) is set forth below. Gustave M. Hauser has been Chairman of Orion since January 1996 and has been a director of Orion since December 1982. Since 1983, he has been Chairman and Chief Executive Officer of Hauser Communications, Inc., an investment and operating firm specializing in cable television and other electronic communications. From 1973 to 1983 he served as Chairman and Chief Executive Officer of Warner-Amex Cable Communications, Inc. (formerly Warner Cable Communications, Inc.), a major multiple system operator of cable television systems and originator of satellite delivered video programming. He is a trustee of the Museum of Television and Radio. He is a past Vice Chairman of the National Cable Television Association, and from 1970 to 1977 he served, by appointment of the President of the United States, as a director of the Overseas Private Investment Corporation. W. Neil Bauer has been President of Orion since March 1993, and has been Chief Executive Officer and a director since September 1993. From 1989 to February 1993, Mr. Bauer was employed by GE American Communications, Inc., where he served as Senior Vice President and General Manager of 106 Commercial Operations. Prior to 1989, Mr. Bauer was Chief Financial Officer of GE American Communications, Inc. and later head of commercial sales. He held several key financial planning positions at GE/RCA from 1984 through 1986 focused on operational and business analysis of diverse business units including all communications units. From 1974-1983, he was employed by RCA Global Communications, an international record carrier. During this period, he held several financial and operational positions and was responsible for financial and business planning. David J. Frear has been Vice President and Chief Financial Officer of Orion since November 1993 and Treasurer of Orion since January 1994. From September 1990 through April 1993, Mr. Frear served as Vice President and Chief Financial Officer of Millicom Incorporated, an international telecommunications service company. From January 1988 to September 1990, Mr. Frear held various positions in the investment banking department at Bear, Stearns & Co. Inc. Mr. Frear received his CPA in 1979. Richard H. Shay has been Secretary of Orion since January 1993 and a Vice President since April 1992. From July 1981 until September 1985, Mr. Shay served as Chief Counsel to the National Telecommunications and Information Administration ("NTIA") of the U.S. Department of Commerce and then as Deputy General Counsel to the Department, where he was responsible for the legal matters of the Department's agencies. In his capacity as Chief Counsel to NTIA, Mr. Shay also served as Acting Director of its Office of International Policy, served on the official U.S. delegation to the 1982 Nairobi Plenipotentiary Conference of the ITU and was involved in preparation for the 1983 ITU Direct Broadcast Satellite World Administrative Radio Conference. Denis J. Curtin is Senior Vice President, OrionSat and General Manager, Engineering and Satellite Operations. He joined the Company in September 1988 as Vice President, Engineering. He previously was Senior Director of Satellite Engineering of COMSAT's Systems Division. While at COMSAT, Dr. Curtin served for over 21 years in the systems engineering, program and engineering management of both domestic and international satellite systems. He has an MS in Physics, a Ph.D. in Mechanical Engineering, and has published numerous papers on solar cell and solar array technology, is the editor of the Trends in Satellite Communications and is a Fellow of the American Institute of Astronautics and Aeronautics. Hans C. Giner became President of Orion Asia Pacific, Orion's subsidiary devoted to pursuing construction and launch of a satellite covering the Asia Pacific region, in the fourth quarter of 1995 and a Vice President of Orion in the first quarter of 1996. Mr. Gin|fer served as a consultant to Orion from October 1995 through January 1996 relating to similar matters. Prior thereto, he held senior positions in the satellite and telecommunications industries for more than 20 years. Most recently, from April 1994 through September 1995 he served as President of Stellar One Corporation, a high-tech company designing, manufacturing and distributing technologies for telecommunications groups, particularly local telephone and cable television companies. Prior to that, from November 1987 through March 1994, Mr. Gin|fer held several positions for, and ultimately served as president and CEO of Millisat Holdings, Inc., a member of the Millicom Group, with worldwide responsibility for development of media and telecommunications properties, including broadcast, cable and wireless television. Douglas H. Newman has been President of Orion Satellite Corporation since October 16, 1995. Mr. Newman was with Sprint International as Vice President and General Manager Asia-Pacific Division from July 1993 until October 1994. He served as Vice President World Wide Sales and Marketing for Analog Devices Inc. from December 1988 to July 1993. Prior to that he was a Vice President of National Semiconductor Corporation both in Europe and the United States from May 1979 until December 1988. Earlier, he spent 15 years at Texas Instruments Inc.'s European Semiconductor Division in a variety of management positions in engineering, marketing and sales. Richard J. Brekka has been a director of Orion since June 1994. He is a Managing Director of CIBC Wood Gundy Capital ("CIBC-WG"), the merchant banking division of Canadian Imperial Bank of Commerce and is a Director and the President of CIBC Wood Gundy Ventures, Inc., an indirect wholly owned subsidiary of Canadian Imperial Bank of Commerce. Mr. Brekka joined CIBC-WG in February 1992. Prior to joining CIBC-WG, Mr. Brekka was an officer of Chase Manhattan Bank's merchant banking group from February 1988 until February 1992. 107 Warren B. French, Jr. has been a director of Orion since August 1988. He was President and a director of Shenandoah Telephone Company of Edinburg, Virginia from 1973 to 1988 and President and a director of Shenandoah Telecommunications Company, the parent company of Shenandoah Telephone Company, from 1981 to 1988. From 1988 through 1995, he was Chairman and a director of Shenandoah Telecommunications Company. He is a past Chairman of the United States Telephone Association and is a former director of First National Corporation. Barry Horowitz has been a director of Orion since May 1996. He is President and Chief Executive Officer of Mitretek Systems, Inc. Mitretek works with federal, state and local governments as well as other non-profit public interest organizations on technology-based research and development programs. Mitretek was incorporated in December 1995 as a result of a restructuring with The MITRE Corporation. Principal capabilities are related to information and environmental system technologies. In addition, Dr. Horowitz is President and Chief Executive Officer of Concept 5 Technologies, Inc., a subsidiary of Mitretek, which provides technical services to commercial clients, with its initial focus on the financial community. Prior to the restructuring and since 1969, Dr. Horowitz served MITRE in several capacities, including Trustee and President and CEO. Sidney S. Kahn has been a director of Orion since July 1987. He is presently a private investor. From 1977 to December 1989, he was Senior Vice President of E.F. Hutton Company, Inc., a wholly owned subsidiary of the E.F. Hutton Group, Inc. He is also a director of Delia's, Inc. John G. Puente has been a director since 1984. Mr. Puente was Chairman of Orion from April 1987 through January 1996, and since July, 1996 has been serving as a consultant to the Company and chairman of the Company's Executive Committee. He served as Chief Executive Officer of Orion from April 1987 through September 1993. He was a director and, from 1978 to April 1987, served as Senior Vice President, Executive Vice President or Vice Chairman of M/A-COM, Inc., a diversified telecommunications and manufacturing company. He was a founder of SouthernNet, Inc., a fiber optic long distance communications company and one of the two companies that merged to form Telecom*USA, Inc. (which was later acquired by MCI), serving as a director of SouthernNet from July 1984 until August 1987, and Chairman of the Board of SouthernNet from July 1984 until December 1986. During his tenure as Chairman of the Board of SouthernNet, Mr. Puente was instrumental in the founding of the National Telecommunications Network, a national consortium of long distance fiber optic communications companies, and was its first chairman. In 1972 Mr. Puente was a founder of DCC, Inc., of which he became Chairman and CEO. In 1978 DCC, Inc. was acquired by Microwave Associates to form M/A-COM, Inc.; DCC, Inc., subsequently was acquired by Hughes Aircraft Company and became Hughes Network Systems, Inc. Mr. Puente also played a prominent role in the early development of the communications satellite industry, holding technical and executive positions in COMSAT and American Satellite Corporation. W. Anthony Rice has been a director of Orion since January 1994. Mr. Rice is Chief Executive Officer of British Aerospace Asset Management, the business unit responsible for all of the company's activities in respect of commercial aircraft leasing and financing. Previously, he served as Group Treasurer of British Aerospace Plc from 1991 until the end of 1995. British Aerospace is Europe's leading defense and aerospace company. John V. Saeman has been a director of Orion since December 1982. He is an owner of Medallion Enterprises LLC, a private investment firm located in Denver, Colorado. Mr. Saeman was Vice Chairman and Chief Executive Officer of Daniels & Associates, Inc. and its related entities in the telecommunications field from 1980 to 1988. He is former director as well as past Chairman of Cable Satellite Public Affairs Network (C-Span) as well as a former director and past Chairman of the National Cable Television Association. Mr. Saeman was a director of Celerex Corporation and is a director of Nordstrom National Credit Bank. Celerex Corporation filed a petition for reorganization under Chapter 11 of the United States Bankruptcy Code in 1995. 108 Robert M. Van Degna has been a director of Orion since June 1994. He is the managing general partner of Fleet Equity Partners. Mr. Van Degna joined Fleet Financial Group in 1971 and has held a variety of lending and management positions until he organized Fleet Equity Partners in 1982 and became its managing general partner. Mr. Van Degna also serves as a director of ACC Corporation and, Preferred Networks, Inc. Orion's Certificate of Incorporation and Bylaws provide that the Board of Directors of Orion, which presently consists of 11 members (with one vacancy), shall consist of that number of directors determined by resolution of the Board of Directors. The Charter provides that the Board of Directors shall be divided into three classes, each consisting of approximately one-third of the total number of directors. Class I Directors, consisting of Messrs. Hauser, Puente and Saeman, will hold office until the 1998 annual meeting of stockholders; Class II Directors, consisting of Messrs. Bauer, Horowitz, Kahn and Van Degna will hold office until the 1999 annual meeting of stockholders; and Class III Directors consisting of Messrs. Brekka, Rice and French will hold office until the 1997 annual meeting of stockholders. There are no family relationships among any of the directors or officers of Orion. Executive officers serve at the discretion of the Board of Directors. Three directors, Messrs. Rice, Brekka and Van Degna, were elected pursuant to agreements with each of British Aerospace, CIBC and Fleet, respectively, which terminated in August 1995 when the Orion Common Stock became publicly traded. COMMITTEES OF THE BOARD OF DIRECTORS The Board of Directors has established a Committee on Auditing, Corporate Responsibility and Ethics (the "Audit Committee"), a Committee on Human Resources and Compensation (the "Compensation Committee"), an Executive Committee, a Finance Committee and a Nominating Committee. The Audit Committee is composed of Messrs. Van Degna (chairman), Hauser and Kahn. The Audit Committee examines and considers matters relating to the financial affairs of Orion, including reviewing Orion's annual financial statements, the scope of the independent annual audit and the independent auditors' letter to management concerning the effectiveness of Orion's internal financial and accounting controls. From the time Orion became subject to the Exchange Act through December 31, 1995 (the "1995 Public Company Period"), the Audit Committee held one meeting. The Compensation Committee is composed of Messrs. Brekka (chairman), French, Saeman and Van Degna. The Compensation Committee considers and makes recommendations to Orion's Board of Directors with respect to programs for human resource development and management organization and succession, approves changes in senior executive compensation, considers and makes recommendations to Orion's Board of Directors with respect to compensation matters and policies and employee benefit and incentive plans and exercises authority granted to it to administer such plans and administers Orion's stock option and grants of stock options under the stock option plans. During the 1995 Public Company Period, the Compensation Committee held two meetings. Three of the four members attended both meetings; Mr. Brekka attended one of the two meetings. The Executive Committee is composed of Messrs. Hauser, Kahn, Puente (chairman), Saeman and Van Degna. The Executive Committee provides strategic direction with respect to financing, strategic partners, acquisitions and market focus, subject to approval by the Board of Directors of all significant actions. The Executive Committee was formed in July 1996 and has met numerous times with regard to the Transactions and other matters. Mr. Puente has been actively engaged as chairman of the Executive Committee in connection with the Transactions. The Finance Committee is composed of Messrs. Brekka, Hauser, Kahn (chairman), Puente, Rice and Saeman. The Finance Committee considers and makes recommendations to the Board of Directors with respect to the financial affairs of Orion, including matters relating to capital structure and requirements, financial performance, dividend policy, capital and expense budgets and significant capital commitments. During the 1995 Public Company Period, the Finance Committee held ten meetings. Four of the members attended at least eight of these meetings; Messrs. Rice and Brekka attended fewer than that number. 109 The Nominating Committee is composed of Messrs. French, Puente and Saeman (chairman). The Nominating Committee recommends to the Board of Directors qualified candidates for election as directors of Orion and considers candidates, if any, recommended by stockholders. During the 1995 Public Company Period, the Nominating Committee held one meeting. Each member of the Nominating Committee attended this meeting. LIMITS ON LIABILITY; INDEMNIFICATION The provisions of Orion Newco's Certificate of Incorporation relating to limits on liability and indemnification of directors are substantially identical to the provisions of Orion's Certificate of Incorporation summarized below. Orion's Certificate of Incorporation provides that Orion's directors will not be liable for monetary damages for breach of the directors' fiduciary duty of care to Orion and its stockholders. This provision in the Certificate of Incorporation does not eliminate the duty of care, and in appropriate circumstances equitable remedies such as an injunction or other forms of non-monetary relief would remain available under Delaware law. In accordance with the requirements of Delaware law, Orion's directors remain subject to liability for monetary damages (i) for any breach of their duty of loyalty to Orion or its stockholders, (ii) for acts or omissions not in good faith or involving intentional misconduct or knowing violation of law, (iii) under Section 174 of the Delaware General Corporation Law for approval of an unlawful dividend or an unlawful stock purchase or redemption and (iv) for any transaction from which the director derived an improper personal benefit. This provision also does not affect a director's responsibilities under any other laws, such as the federal securities laws or state or federal environmental laws. Orion's Certificate of Incorporation also provides that, except as expressly prohibited by law, Orion shall indemnify any person who was or is a party (or threatened to be made a party) to any threatened, pending or completed action, suit or proceeding by reason of the fact that such person is or was a director or officer of Orion (or is or was serving at the request of Orion as a director or officer of another enterprise), against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding if such person acted in good faith and a manner such person reasonably believed to be in or not opposed to the best interests of Orion, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful. Such indemnification shall not be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to Orion unless (and only to the extent that) the Delaware Court of Chancery or the court in which such action or suit was brought determines that, in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity. 110 EXECUTIVE COMPENSATION SUMMARY COMPENSATION TABLE The following table sets forth a summary of total compensation, including bonuses, paid to the Chief Executive Officer and the four other most highly paid executive officers (the "named executive officers") for services in all capacities to Orion and its subsidiaries for the fiscal years ended December 31, 1996, 1995 and 1994.
ANNUAL COMPENSATION LONG TERM COMPENSATION ------------------------------------- ------------------------------------ AWARDS PAYOUTS ------------------------- -------- OTHER SECURITIES ANNUAL RESTRICTED UNDERLYING ALL OTHER NAME AND COMPEN- STOCK OPTIONS/ LTIP COMPEN- PRINCIPAL POSITION YEAR SALARY($) BONUS($) SATION($)(1) AWARD(S)($) SARs(#) PAYOUTS($) SATION($) ------------------ ---- --------- -------- ------------ ----------- ------- ---------- ------------ W. NEIL BAUER,................ 1996 $278,106 $ -- $ -- President and Chief 1995 265,000 90,000 110,294 Executive Officer 1994 250,000 100,000 100,684 DAVID J. FREAR, .............. 1996 185,996 -- -- Vice President, Treasurer 1995 179,005 40,000 4,570 55,147 and Chief Financial Officer 1994 170,000 51,000 25,715 DOUGLAS H. NEWMAN ............ 1996 201,206 -- -- Vice President of Orion 1995 34,618 14,000 50,000 and President, Orion 1994 -- Satellite Corporation HANS C. GINER................. 1996 141,638 35,000 Vice President of Orion and 1995 -- President, Orion Asia Pacific 1994 -- Corporation DENIS J. CURTIN,.............. 1996 155,380 5,000 Senior Vice President of 1995 151,081 38,000 24,705 Orion Satellite Corporation 1994 133,850 35,700
- ---------- (1) Relocation expenses. OPTION GRANTS IN LAST FISCAL YEAR Orion has adopted a 1987 Employee Stock Option Plan (the "1987 Employee Stock Option Plan"). Under the 1987 Employee Stock Option Plan, options to purchase up to an aggregate of 1,470,588 shares of Orion Common Stock are available for grants to employees of Orion. Orion has also adopted a Non-Employee Director Stock Option Plan. The following table sets forth information concerning grants of stock options to the named executive officers pursuant to the 1987 Employee Stock Option Plan during the year ended December 31, 1996.
Potential Realized Value at Assumed Annual Rates of Stock Price Appreciation Individual Grants for Option Term -------------------------------------------------------- -------------------- Number of % of Total Securities Options Exercise or Underlying Granted to Base Price Options Employees in Per Share Expiration Name Granted Fiscal Year ($/Sh)(1) Date 5%($) 10%($) - ---- ---------- ------------ ------------ ------------ -------- -------- W. Neil Bauer -- -- David J. Frear . -- -- Douglas H. Newman. -- -- Hans C. Giner ... 25,000 20% 8.49 01/16/03 (2) 86,386 201,425 10,000 8% 10.78 11/19/03 (2) 43,875 102,302 Denis J. Curtin . 5,000 4% 10.78 11/19/03 (2) 21,937 51,151
- ---------- (1) The option exercise price is equal to one hundred percent of the fair market value of the Orion Common Stock on the date the option was granted. (2) The options will vest in equal installments over a five-year period from the date of grant. 111 OPTION EXERCISES IN LAST FISCAL YEAR AND YEAR-END OPTION VALUES The following table sets forth the value of all unexercised options held at year-end 1996 by the named executive officers. No named executive officer exercised any stock options during the fiscal year. NUMBER OF SECURITIES UNDERLYING UNEXERCISED VALUE OF UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS AT AT DECEMBER 31, 1996 DECEMBER 31, 1996 (1) ------------------------- ------------------------- NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE ---- ------------------------- ------------------------- W. Neil Bauer ..... 97,058/138,235 312,130/279,780 David J. Frear .... 35,293/ 60,294 75,659/ 86,286 Douglas H. Newman . 10,000/ 40,000 32,050/128,200 Hans C. Giner ..... 0/ 35,000 0/130,575 Denis J. Curtin ... 31,284/ 20,661 121,404/ 40,321 - ---------- (1) Based on a per share price of $12.875 on December 31, 1996. COMPENSATION OF DIRECTORS Prior to January 1996 (Orion having become a publicly traded company during 1995), directors did not receive compensation for serving on the Board of Directors or its committees but were reimbursed for their expenses for each Board of Directors or its committee meeting attended. Commencing in January 1996, directors receive annual compensation of $4,000, $1,500 for each Board of Directors meeting attended, $750 for each committee meeting attended and per annum grants of stock options to purchase 10,000 shares of Orion Common Stock under the 1996 Non-Employee Director Stock Option Plan. An initial grant of options to purchase 10,000 shares of Orion Common Stock under that plan was made to each non-employee director in January 1996. In addition, an initial grant of options to purchase 30,000 shares of Orion Common Stock under that plan was made to Barry Horowitz, a director, upon his election in March 1996. The option exercise price of the options granted to each non-employee director in January 1996 and Mr. Horowitz in March 1996 was equal to the fair market value of Orion Common Stock on the respective dates the options were granted. EMPLOYMENT AGREEMENTS AND TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL ARRANGEMENTS Orion has not entered into any employment agreements or any termination of employment or change in control arrangements with any of its officers, except for certain change in control vesting provisions in the 1987 Stock Option Plan described below. In his capacity as a consultant to the Company, John G. Puente, a director of the Company and Chairman of the Executive Committee, is compensated at a rate of $25,000 per month and has been granted non-incentive stock options to purchase up to an aggregate of 100,000 shares of Orion Common Stock at an exercise price of $9.83 per share. Of the options granted to Mr. Puente, 50% are vested and 50% will vest upon the successful completion during Mr. Puente's tenure as Chairman of the Executive Committee or within six months thereafter, of the Notes Offering. All options granted to Mr. Puente will vest immediately upon the sale or merger of the Company during Mr. Puente's tenure as Chairman of the Executive Committee or within six months thereafter. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION Mr. Bauer, the President and Chief Executive Officer of Orion and Mr. Puente, then Chairman of Orion, served on the Compensation Committee and therefore participated in making recommendations to the Board of Directors on officer compensation matters until June 28, 1995. STOCK OPTION PLANS 1987 Employee Stock Option Plan. In April 1987, Orion adopted its 1987 Employee Stock Option Plan. Under the 1987 Employee Stock Option Plan, as amended in March 1995, options to purchase up to an aggregate of 1,470,588 shares of Orion Common Stock may be granted to key employees of Orion 112 and its subsidiaries. The 1987 Employee Stock Option Plan provides for the grant both of incentive stock options intended to qualify as such under Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), and nonstatutory stock options. The 1987 Employee Stock Option Plan will terminate in May 1997, unless sooner terminated by the Board of Directors. The 1987 Employee Stock Option Plan is administered by the Board, but the Board has delegated administration to the Compensation Committee, which is comprised of disinterested directors. Subject to the limitations set forth in the 1987 Employee Stock Option Plan, the Compensation Committee has the authority to select the persons to whom grants are to be made, to designate the number of shares to be covered by each option and whether such option is an incentive stock option or a nonstatutory stock option, to establish vesting schedules, to specify the type of consideration to be paid to Orion upon exercise and, subject to certain restrictions, to specify other terms of the options. The maximum term of options granted under the 1987 Employee Stock Option Plan is ten years. The aggregate fair market value of the stock with respect to which incentive stock options are first exercisable in any calendar year may not exceed $100,000 per individual. Options granted under the 1987 Employee Stock Option Plan generally are non-transferable and expire either upon, or 30 days after, the termination of an optionee's employment relationship with Orion. In general, if an optionee dies or is permanently disabled during his or her employment by or service to Orion, such person's option may be exercised up to one year following such death or disability. Options granted under the 1987 Employee Stock Option Plan to the executive officers will immediately vest in the event the optionee's employment is terminated within two years after a "Change in Control" by Orion other than for "Cause" or by the optionee for "Good Reason" (as such terms are defined in an applicable resolution of the Board of Directors). "Cause" for termination of employment is narrowly defined, including only such matters as fraud, a crime involving moral turpitude, compromising trade secrets, willfully failing to perform material assigned duties or gross or willful misconduct that causes substantial harm to Orion. "Good Reason" means a reduction in the optionee's base salary, except for a reduction of up to 10% due to a reduction in compensation generally applicable to execu tive officers of Orion, a substantial reduction in responsibilities or required relocation. A "Change in Control" occurs when any person or entity becomes the beneficial owner, directly or indirectly, of securities representing 51% or more of the combined voting power of Orion's then outstanding securities (excluding for purposes of such computation all securities of Orion beneficially owned by such person or entity as of March 15, 1995). The exercise price of incentive stock options must equal at least the fair market value of the Orion Common Stock on the date of grant. The exercise price of nonstatutory stock options may be less than the fair market value of the Orion Common Stock on the date of grant. The exercise price of incentive stock options granted to any person who at the time of grant owns stock possessing more than 10% of the total combined voting power of all classes of stock must be at least 110% of the fair market value of such stock on the date of grant and the term of these options cannot exceed five years. As of September 30, 1996, Orion had options outstanding under the 1987 Employee Stock Option Plan to purchase an aggregate of 891,776 shares held by 86 persons at a weighted average exercise price of $9.77 per share. The exercise price of all options granted under the 1987 Employee Stock Option Plan has been at least equal to the fair market value of the Orion Common Stock on the date of the grant as determined in good faith by the Board of Directors. As of September 30, 1996, options to purchase 129,755 shares of Orion Common Stock granted pursuant to the Plan had been exercised. There are 449,057 shares of Orion Common Stock available for future grants under the Employee Plan. The 1987 Employee Stock Option Plan may be amended by the Board, subject to stockholder approval if such approval is then required by applicable law or in order for the 1987 Employee Stock Option Plan to continue to satisfy the requirements of Rule 16b-3 under the Exchange Act. Non-Employee Director Stock Option Plan. In January 1996, Orion adopted its Non-Employee Director Stock Option Plan ("Non-Employee Director Stock Option Plan") and up to 380,000 shares of Orion Common Stock are reserved for issuance thereunder. The stock options granted under the Non-Employee Director Stock Option Plan are non-incentive options. 113 Under the terms of the Non-Employee Director Stock Option Plan, each Non-Employee Director (as defined) generally will receive or have vest options to purchase 10,000 shares of Orion Common Stock for each year that such Non-Employee Director serves as a director of Orion. Each current Non-Employee Director has a vested option to purchase 10,000 shares of Orion Common Stock, and an unvested option to purchase 10,000 shares of Orion Common Stock which will vest at the next annual meeting of stockholders (expected to be held in May 1997) if such director remains in office until such date. In addition, Mr. Horowitz, who became a director on May 20, 1996, has an additional option to purchase 10,000 shares which will vest if he remains in office until the 1998 annual stockholders meeting. Each current Non-Employee Director will be annually granted an additional option to purchase 10,000 shares of Orion Common Stock each year after the annual meeting of stockholders if he or she is then a Non-Employee Director. Each new Non-Employee Director whose commencement of service is after March 20, 1996 will be granted an initial option to purchase the number of shares of Orion Common Stock equal to (i) the number of complete and partial years in the term to which such Non-Employee Director was elected or appointed, multiplied by (ii) 10,000. Each Non-Employee Director also will be annually granted an additional option to purchase 10,000 shares of Orion Common Stock as of each of (i) the day after the Non-Employee Director's first re-election to the Board of Directors and (ii) each year after the annual meeting of stockholders if he or she is then a Non-Employee Director. Each option will be exercisable from and after the day of the first annual meeting of stockholders after grant of the option. In the case of an initial option to purchase of more than 10,000 shares, the option will be exercisable to the extent of 10,000 shares from and after the day of the first annual meeting of stockholders after grant of the option, in respect of an additional 10,000 shares from and after the day of the second annual meeting of stockholders after grant of the option, and (if the option is to purchase of more than 20,000 shares), in respect of an additional 10,000 shares from and after the day of the third annual meeting of stockholders after grant of the option. Upon the termination of service of a Non-Employee Director in all capacities as an employee and/or director of Orion and all of its affiliated companies other than by reason of the death or permanent and total disability, any option granted to such Non-Employee Director pursuant to the Non-Employee Director Stock Option Plan shall terminate to the extent it is not then exercisable. If the termination of service is by reason of the death or permanent and total disability of a Non-Employee Director, the options held by such Non-Employee Director shall be exercisable in respect of all shares subject to such options for a period of one year from the date of such termination of service or until expiration of the option, if earlier. The option exercise price under the Non-Employee Director Stock Option Plan is equal to 100% of the fair market value of Orion Common Stock on the date the option is granted. Options granted under the Non-Employee Director Stock Option Plan expire if not exercised within five years from the date of grant. Payment for shares purchased under the Non-Employee Director Stock Option Plan may be made either in cash or cash equivalents, in shares of Orion Common Stock with a fair market value equal to the option price, or a combination of cash and shares of Orion Common Stock. The Non-Employee Director Stock Option Plan also allows for "cashless exercise," in which a licensed broker tenders to Orion cash equal to the exercise price (plus taxes required to be withheld) at the time Orion issues the stock certificates. The Non-Employee Director Stock Option Plan will terminate automatically on March 20, 2006, unless previously terminated. No termination, suspension or amendment of the Non-Employee Director Stock Option Plan may, without the consent of the optionee to whom an option has been granted, adversely affect the rights of the holder of the option. OTHER STOCK OPTIONS From time to time, the Board of Directors of Orion may grant options to purchase shares of Orion Common Stock outside of the 1987 Employee Stock Option Plan and Non-Employee Director Stock Option Plan. As of November 30, 1996, options to purchase an aggregate of 123,987 shares of Orion 114 Common Stock were outstanding outside of such plans at an average exercise price of $8.30. During 1995, 6,463 options granted outside of such plans were exercised. OTHER EMPLOYEE BENEFIT PLANS 1997 Employee Stock Purchase Plan. In September 1996, Orion adopted its 1997 Employee Stock Purchase Plan (the "Stock Purchase Plan"). Under the Stock Purchase Plan, eligible employees may purchase up to an aggregate of 500,000 shares of Orion Common Stock through payroll deductions. Eligible employees include all employees except those who have been employed by Orion for less than three months, those who work less than five months per calendar year or less than 20 hours per week, and those who would own 5% or more of the total combined voting power of all classes of Orion's capital stock upon their participation in the Stock Purchase Plan. The Stock Purchase Plan will terminate at the sooner of September 2006 or such time as all shares of Orion Common Stock available under the Stock Purchase Plan have been issued. The Stock Purchase Plan is administered by the Board, but the Board has delegated administration to its Human Resources and Compensation Committee. Employees may commence participation in the Stock Purchase Plan or change their payroll deduction percentages effective at the beginning of each calendar quarter. On the last day of each quarter, all funds accumulated in an employee's account are used to purchase shares of Orion Common Stock at a purchase price equal to the lesser of 85% of the fair market value of such Orion Common Stock (i) on the first trading day of the quarter or (ii) on the last trading day of the quarter, but in no event shall the per-share price be less than the par value of the Orion Common Stock ($.01). No employee may purchase in any one calendar year shares of Orion Common Stock having an aggregate fair market value in excess of $25,000. Orion Common Stock purchased under the Stock Purchase Plan are entitled to full dividend participation. An employee's participation in the Stock Purchase Plan terminates in the event the employee voluntarily terminates such participation, ceases to be employed by Orion or ceases to be eligible to participate in the Stock Purchase Plan, or in the event the Board elects to terminate the Stock Purchase Plan. An employee who retires, is laid off, takes a leave of absence, dies or suffers a disability may directly or, in the case of death, through the employee's estate withdraw any payroll deductions remaining in the employee's account, receive that number of shares of Orion Common Stock which may be purchased with the amount then credited to the employees account, or make up any deficiency resulting from missed payroll deductions through an immediate cash payment. Participation in the Stock Purchase Plan may resume at the beginning of the next quarter if the employee again becomes eligible to participate. The Stock Purchase Plan is not subject to the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), nor is it qualified under Section 401(a) of the Code. As of November 15, 1996, no shares of Orion Common Stock have been purchased or issued under the Stock Purchase Plan. 1997 401(k) Profit Sharing Plan. In September 1996, Orion adopted its 1997 401(k) Profit Sharing Plan (the "401(k) Plan"). Under the 401(k) Plan, eligible employees may elect to have a portion of their pay deducted for investment in a variety of mutual funds that invest in equity and debt securities and a money market account. In addition, Orion may in its discretion make matching contributions in the form of cash or in the equivalent amount of Orion Common Stock, and may make profit sharing contributions. Up to 100,000 shares of Orion Common Stock are issuable as matching contributions under the 401(k) Plan. The 401(k) Plan will continue indefinitely unless terminated by Orion at any time in its discretion. Orion may also suspend matching and profit sharing contributions at any time in its sole discretion. The 401(k) Plan is administered under a written trust agreement between Orion and certain trustees (the "401(k) Trustees"). The 401(k) Trustees oversee the investment of employee contributions, and Orion administers all other matters in connection with the day-to-day operation of the 401(k) Plan. Eligible employees may elect to deduct up to $9,500 of their compensation on a pre-tax basis in a given calendar year. The 401(k) Trustees have discretion to select among these investment media, or employees may direct the 401(k) Trustees to invest their payroll deductions in accordance with specific instructions. At its discretion, Orion may match all or part of employee payroll deductions in cash or the 115 equivalent amount of Orion Common Stock. In addition, Orion may also make additional profit sharing contributions in its discretion by distributing a certain percentage of its profits to employees pro rata based on the ratio of an employee's compensation to the total compensation of all 401(k) Plan participants. Orion is responsible for directing the investment of any matching or profit sharing contributions it makes to employee accounts. An employee's payroll deductions (and any rollover contributions into the 401(k) Plan) and earnings thereon are always 100% vested and non-forfeitable. Matching and profit sharing contributions become 100% vested and non-forfeitable for any employee who attains age 65, dies, or becomes disabled while working for Orion. An employee whose employment terminates for any other reason will be 0% vested in any matching and profit sharing contribution which the employee has received if the employee has less than two years of service with Orion and 100% vested in such matching and profit sharing contributions if the employee has two or more years of service. The 401(k) Plan allows employees to begin receiving benefits upon age 65 or upon becoming disabled while employed by Orion. Employees may also withdraw from their account in the event of certain defined hardships, and may borrow between $1,000 and the lesser of $50,000 or 50% of the vested amounts in their accounts at the 401(k) Trustee's discretion. An employee's participation in the 401(k) Plan will terminate in the event of voluntary termination by the employee, termination of the employee's employment or eligibility, or Orion's election to terminate the 401(k) Plan. The 401(k) Plan is qualified under Section 401(a) of the Code and as a qualified cash or deferred compensation arrangement under Section 401(k) of the Code. The 401(k) Plan is also subject to certain provisions of ERISA, principally Title I, relating to protection of employee benefit rights, and to the provisions of the Code relating to retirement plans. As of November 15, 1996, no shares of Orion Common Stock or other cash matching or profit sharing contributions have been distributed under the 401(k) Plan. 116 PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) As discussed more fully under the caption "The Merger, the Exchange and the Debenture Investments," pursuant to the Merger, each share of Orion Common Stock, Orion Series A Preferred Stock and Orion Series B Preferred Stock will be converted into the right to receive one share of Orion Newco Common Stock, Orion Newco Series A Preferred Stock and Orion Newco Series B Preferred Stock, respectively. In addition, pursuant to the Exchange, Orion Newco will issue shares of Orion Newco Series C Preferred Stock for the Exchanging Partners' limited partnership interests in Orion Atlantic, a consolidated subsidiary of Orion, as a result of which, among other things, Orion Newco and its subsidiaries (including Orion) will become the owner of all the partnership interests in Orion Atlantic. Orion Newco will also acquire approximately $37.5 million of Orion Atlantic's obligations to the Exchanging Partners. The Merger will be accounted for as a reorganization of entities under common control. As a result, the assets and liabilities transferred pursuant to the Merger will be accounted for at historical cost in a manner similar to a pooling of interests. The Exchange will be accounted for as an acquisition of minority interests using purchase accounting. As a result, the assets and liabilities of Orion Atlantic will be revalued to fair value to the extent of the Exchanging Partners' interests acquired as a result of the Exchange. The determination of the fair value of the Orion Newco Series C Preferred Stock has been based on a fairness opinion issued by Salomon Brothers dated December 10, 1996 (see "The Merger, the Exchange and the Debenture Investments -- Opinion of Orion's Financial Advisor"). Such value has been allocated to Orion Atlantic's assets and liabilities based on the estimate of fair market value of the Orion 1 satellite as of December 1, 1996 of $304 million provided in an appraisal dated December 20, 1996 from Ascent Communications Advisors, L.P., and management's best estimate of fair value for other assets and liabilities of Orion Atlantic. In addition to the Merger, the Exchange and the Debenture Investments, the pro forma condensed consolidated balance sheet at September 30, 1996 gives effect to the following transactions, which are, directly or indirectly, conditions precedent to the Merger, the Exchange and the Debenture Investments as described above, as if they took place on that date: (i) the Notes Offering (including the use of the net proceeds therefrom to repay indebtedness under the Orion 1 Credit Facility and to prefund the first six scheduled interest payments and to pay interest rate hedge breakage costs associated with the Orion 1 Credit Facility), (ii) the British Aerospace Investment, with gross proceeds of $50 million (and the application of $1 million of the proceeds thereof to make interest payments under the Orion 2 Satellite Contract and the Orion 3 Satellite Contract), (iii) the satisfaction of $13 million owed to Matra Marconi Space through the Matra Marconi Investment of $10 million and $3 million of cash, (iv) the acquisition by Orion of British Aerospace's 17% ownership of Orion Asia Pacific for approximately 86,000 shares of Orion Common Stock, (v) payments of approximately $3.9 million, including accrued interest, owed to STET, a former Limited Partner, and (vi) the write-off of deferred financing fees (such transactions collectively with the Merger and the Exchange, the "Transactions"). The pro forma condensed consolidated statements of operations for the year ended December 31, 1995 and the nine months ended September 30, 1996 have been prepared as if the Transactions took place on January 1, 1995. The unaudited pro forma condensed consolidated financial statements do not purport to present the actual financial position or results of operations of the Company had the Transactions in fact occurred on the dates specified, nor are they indicative of the results of operations that may be achieved in the future. The unaudited pro forma condensed consolidated financial statements are based on the assumptions and adjustments further described herein. 117 ORION NETWORK SYSTEMS, INC. PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET SEPTEMBER 30, 1996 (UNAUDITED)
ACTUAL DEBIT CREDIT PRO FORMA -------------- ---------------- ---------------- --------------- Current assets: Cash and cash equivalents........... $ 36,656,619 $260,125,000 (1) $216,280,254 (2) $122,338,532 48,750,000 (3) 3,050,000 (4) 3,862,833 (5) Accounts receivable................. 5,808,568 5,808,568 Accrued interest.................... 157,125 157,125 Prepaid expenses and other.......... 5,584,196 5,584,196 -------------- ---------------- ---------------- --------------- Total current assets................ 48,206,508 308,875,000 223,193,087 133,888,421 Property and equipment: ............ Land................................ 73,911 73,911 Telecommunications.................. 22,707,786 22,707,786 Furniture and computer.............. 4,598,505 4,598,505 Satellite and related............... 322,450,415 1,000,000 (3) 27,751,744 (6) 323,466,583 27,767,912 (6) -------------- ---------------- ---------------- --------------- 349,830,617 28,767,912 27,751,744 350,846,785 Less accumulated depreciation ...... (57,914,578) 27,751,744 (6) (30,162,834) -------------- ---------------- ---------------- --------------- Net property and equipment.......... 291,916,039 56,519,656 27,751,744 320,683,951 Deferred financing costs............ 11,208,678 14,875,000 (1) 11,208,678 (2) 15,175,000 250,000 (3) 50,000 (4) Restricted cash .................... 72,000,000 (1) 72,000,000 Other assets........................ 4,645,948 1,200,000 (3) 24,544,477 18,698,529 (6) ---------------- ---------------- --------------- Total assets........................ $355,977,173 $472,468,185 $262,153,509 $566,291,849 ============== ================ ================ =============== Current liabilities: ............... Accounts payable.................... $ 4,094,026 $ 4,094,026 Accrued liabilities................. 7,374,884 7,374,884 Other current liabilities........... 5,402,117 5,402,117 Interest payable.................... 3,128,365 $ 3,038,858 (2,5) 89,507 Current portion of long term debt .. 33,873,930 27,496,124 (2) 6,377,806 -------------- ---------------- ---------------- --------------- Total current liabilities........... 53,873,322 30,534,982 23,338,340 Long term debt...................... 221,781,393 180,218,718 (2) $347,000,000 (1) 425,512,675 13,000,000 (4) 10,000,000 (4) 3,500,000 (5) 50,000,000 (3) 6,550,000 (6) Other liabilities................... 32,878,061 30,995,875 (6) 1,882,186 Minority interest Orion Atlantic ... 19,961,032 9,974,466 (2) -- 9,986,566 (6) Minority interests in other entities............................ 52,984 52,984 Redeemable preferred stock: ....... Series A........................... 15,820,460 15,820,460 Series B........................... 4,718,526 4,718,526 Series C........................... 94,000,000 (6) 94,000,000 Stockholders' equity: .............. Common stock........................ 112,325 857 (3) 113,182 Capital in excess of par............ 86,508,773 1,199,143 (3) 87,707,916 Accumulated deficit................. (79,729,703) 7,124,717 (2) (86,854,420) -------------- ---------------- ---------------- --------------- Total stockholders' equity.......... 6,891,395 7,124,717 1,200,000 966,678 -------------- ---------------- ---------------- --------------- Total liabilities and equity ....... $355,977,173 $291,885,324 $502,200,000 $566,291,849 ============== ================ ================ ===============
118 ORION NETWORK SYSTEMS, INC. NOTES TO PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET SEPTEMBER 30, 1996 (UNAUDITED) 1. To reflect the estimated proceeds from the Notes Offering of $332 million, net of estimated financing costs of approximately $15 million. Of the $347 million of gross proceeds from the Notes Offering, $ has been allocated to the Senior Notes, $ to the Senior Discount Notes and $ to capital in excess of par value to reflect the issuance of the Orion Newco Common Stock warrants (the "Warrants") based on the estimated relative fair values of the Senior Notes, the Senior Discount Notes and the Warrants. The Senior Notes and Senior Discount Notes are assumed to bear interest at 11.875% and 13.125% per annum, respectively, and are due in 2007. No assurance can be given that the value allocated to the Warrants is indicative of the price at which the Warrants may actually trade. Of such proceeds, approximately $72 million will be placed in an escrow account to fund the first six scheduled interest payments on the Senior Notes. Such amount has been reflected as restricted cash. The actual amount placed in escrow will depend on the interest on the Senior Notes and on market interest rates on the closing date of the Notes Offering. 2. To reflect the repayment of $207.7 million plus accrued interest of $2.7 million (as of September 30, 1996) under the Orion 1 Credit Facility, the write-off of unamortized deferred financing costs of $11.2 million and interest rate hedge breakage costs of $5.9 million, and the pro rata allocation of such costs to the minority interests of Orion Atlantic. At January 30, 1997, the expected closing date of the Notes Offering, the aggregate principal and interest outstanding under the Orion 1 Credit Facility will be $216 million. 3. To reflect (i) the estimated proceeds from the British Aerospace Investment of $49.8 million, net of estimated financing costs of $.2 million, (ii) the initial down payment of $1 million to Matra Marconi Space to begin construction of Orion 2 and (iii) the acquisition by Orion of British Aerospace's 17% common stock interest in Orion Asia Pacific, a consolidated subsidiary (for approximately $1.2 million in Orion Common Stock), which will be completed in connection with the Transactions. 4. To record the payment of accrued satellite incentive obligations to Matra Hachette of $13 million, Matra's Marconi Space's corresponding reinvestment of $10 million in Debentures, and financing costs of $50,000. 5. To reflect the repayment of $3.5 million of promissory notes and $0.4 million of accrued interest (as of September 30, 1996) thereon to STET, a former limited partner, required to be paid as a result of the Exchange. See "Certain Transactions." 6. To reflect the effects of the Exchange Agreement, including the acquisition by Orion of certain obligations to the Exchanging Partners aggregating approximately $37.5 million, through the exchange of the Exchanging Partners' partnership interests in Orion Atlantic for Orion Newco Series C Preferred Stock. The Orion Newco Series C Preferred Stock has been valued at approximately $94 million based on a fairness opinion prepared by Salomon Brothers dated December 10, 1996 using an underlying Orion Common Stock price of $12 per share (see "The Merger, the Exchange and the Debenture Investments -- Opinion of Orion's Financial Advisor"). Such amount has been allocated to the obligations acquired and the 58.7% interest of Orion Atlantic previously held by the Exchanging Partners. Such allocation results in a step up in basis of approximately $46.5 million, of which $27.8 million had been allocated to the Orion 1 satellite based on an appraisal prepared by Ascent Communications Advisors, L.P. estimating the fair value of the Orion 1 satellite to be $304 million. The remaining step up of $18.7 million has been allocated to costs in excess of fair value of net assets acquired and is included in Other Assets in the accompanying Pro Forma Condensed Consolidated Business Sheet. Accumulated depreciation of $27.8 million relating to the portion of the satellite revalued to fair value has been offset against the basis of the satellite. 119 ORION NETWORK SYSTEMS, INC. PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS NINE MONTHS ENDED SEPTEMBER 30, 1996 (UNAUDITED)
ACTUAL DEBIT CREDIT PRO FORMA --------------- ---------------- --------- ---------------- Revenues ................................ $ 30,015,517 $ 30,015,517 Operating expenses: ..................... Direct................................... 4,285,834 4,285,834 Sales and marketing...................... 7,792,666 7,792,666 Engineering and technical services ...... 6,333,525 6,333,525 General and administrative............... 11,469,235 11,469,235 Depreciation and amortization............ 26,402,947 $ 3,362,919 (1) 29,765,866 --------------- ---------------- --------- ---------------- Total.................................... 56,284,207 3,362,919 59,647,126 --------------- ---------------- --------- ---------------- Loss from operations..................... (26,268,690) 3,362,919 (29,631,609) Other expense (income): ................. Interest income.......................... (1,841,868) (1,841,868) Interest expense......................... 20,228,519 19,292,733 (2) 39,521,252 Other.................................... (48,356) (48,356) --------------- ---------------- --------- ---------------- Total other expense (income)............. 18,338,295 19,292,733 37,631,028 --------------- ---------------- --------- ---------------- Loss before minority interest............ (44,606,985) 22,655,652 (67,262,637) Minority interest........................ 24,799,698 24,799,698 (3) -- --------------- ---------------- --------- ---------------- Net loss................................. (19,807,287) 47,455,350 (67,262,637) Preferred stock dividend and accretion .. 1,006,285 6,329,100 (4) 7,335,385 --------------- ---------------- --------- ---------------- Net loss attributable to common shareholders............................. $(20,813,572) $53,784,450 $(74,598,022) =============== ================ ========= ================ Net loss per common share................ $ (1.90) $ (6.46) =============== ================ Weighted average common shares outstanding.............................. 10,943,287 11,544,626 (5) =============== ================
120 ORION NETWORK SYSTEMS, INC. NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS NINE MONTHS ENDED SEPTEMBER 30, 1996 (UNAUDITED) 1. To reflect depreciation on the step up in basis on the Orion 1 satellite of $2.0 million and the amortization of excess cost over fair value of net assets acquired of $1.3 million resulting from the acquisition of the Limited Partners' partnership interests in Orion Atlantic over the estimated useful life of the satellite of 10.5 years. 2. To reflect the adjustment to interest as follows:
Reduction in Orion 1 Credit Facility interest expense................................ $(12,096,466) Reduction in Orion 1 Credit Facility interest rate cap expense....................... (1,067,500) Reduction in amortization of deferred financing costs on the Orion 1 Credit Facility .......................................................................... (1,597,941) Interest expense on Senior Notes..................................................... 19,771,875 Interest expense on Senior Discount Notes............................................ 14,266,277 Interest expense on Debentures, net of amounts capitalized related to construction of Orion 2 of $3.2 million......................................................... 695,625 Interest expense from amortization of deferred financing costs on new borrowings .... 1,115,625 Reduction in interest expense relating to repayment of other obligations to Limited Partners ........................................................................... (1,794,762) --------------- Net increase in pro forma interest expense.......................................... $ 19,292,733 ===============
The Senior Notes and Senior Discount Notes are assumed to bear interest at a rate of 11.875% and 13.125%, respectively, per annum. A change in the interest rate on the Notes of 0.5% would result in a change of $1.3 million in interest expense for the nine months ended September 30, 1996. The amount of pro forma interest expense with respect to the Notes does not give the effect to any allocation of the gross proceeds of the Notes Offering between the Notes and Warrants. Because a portion of the gross proceeds will be allocated to the Warrants, the discount on the Notes resulting therefrom will be accreted into interest expense (using the interest method) over the term of the Notes. 3. Elimination of minority interest as a result of the Exchange. 4. To record the dividend requirement on the Orion Newco Series C Preferred Stock issued as a result of the Exchange as well as pro rata accretion to redemption value over a 25 year-period. 5. Pro forma weighted average shares outstanding for the nine months ended September 30, 1996 consist of:
Historical weighted average shares outstanding................................ 10,943,287 Pro forma issuance of shares to British Aerospace and Matra Marconi Space for interest on $60 million Debentures ........................................... 515,625 Pro forma issuance of shares to British Aerospace for purchase of 17% minority interest in Orion Asia Pacific ...................................... 85,714 ------------ Total pro forma weighted average shares outstanding........................... 11,544,626 ============
121 ORION NETWORK SYSTEMS, INC. PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1995 (UNAUDITED)
ACTUAL DEBIT CREDIT PRO FORMA --------------- ---------------- --------- --------------- Revenues.............................. $ 22,283,882 $ 22,283,882 Operating expenses: .................. Direct................................ 10,485,745 10,485,745 Sales and marketing................... 8,613,399 8,613,399 Engineering and technical services ... 8,539,644 8,539,644 General and administration............ 10,072,429 10,072,429 Depreciation and amortization......... 31,403,376 $ 4,253,528 (1) 35,656,904 --------------- ---------------- --------- --------------- Total................................. 69,114,593 4,253,528 73,368,121 --------------- ---------------- --------- --------------- Loss from operations.................. (46,830,711) 4,253,528 (51,084,239) Other expense (income): .............. Interest income....................... (1,924,822) (1,924,822) Interest expense...................... 24,738,446 25,898,354 (2) 50,636,800 Other................................. 3,359,853 3,359,853 --------------- ---------------- --------- --------------- Total other expense (income).......... 26,173,477 25,898,354 52,071,831 --------------- ---------------- --------- --------------- Loss before minority interest......... (73,004,188) 30,151,882 (103,156,070) Minority interest..................... 46,089,010 46,089,010 (3) -- --------------- ---------------- --------- --------------- Net loss.............................. (26,915,178) 76,240,892 (103,156,070) Preferred stock dividend and accretion............................. 1,329,007 8,438,800 (4) 9,767,807 --------------- ---------------- --------- --------------- Net loss attributable to common shareholders.......................... $(28,244,185) $84,679,692 $ (112,923,877) =============== ================ ========= =============== Net loss per common share............. $ (3.07) $ (12.01) =============== =============== Weighted average common shares outstanding........................... 9,103,505 9,376,719 (5) =============== ===============
122 ORION NETWORK SYSTEMS, INC. NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1995 (UNAUDITED) 1. To reflect depreciation on the step up in basis on the Orion 1 satellite of $2.5 million and the amortization of excess cost over fair value of net assets acquired of $1.7 million resulting from the acquisition of the Exchanging Partners' partnership interests in Orion Atlantic over the estimated useful life of the satellite of 10.5 years. 2. To reflect the adjustment to interest expense as follows:
Reduction in Orion 1 Credit Facility interest expense.......................................... $(17,437,104) Reduction in Orion 1 Credit Facility interest rate cap expense................................. (426,250) Reduction in amortization of deferred financing costs on the Orion 1 Credit Facility .......... (2,012,222) Interest expense on Senior Notes .............................................................. 26,362,500 Interest expense on Senior Discount Notes...................................................... 16,824,834 Interest expense on Debentures net of amounts capitalized related to construction of Orion 2 of $2.3 million................................................................................ 2,993,219 Interest expense from amortization of deferred financing costs on new borrowings .............. 1,487,500 Reduction in interest expense relating to repayment of other obligations to Limited Partners .................................................................................... (1,894,123) --------------- Net increase in pro forma interest expense..................................................... $ 25,898,354 ===============
The Senior Notes and Senior Discount Notes are assumed to bear interest at a rate of 11.875% and 13.125%, respectively, per annum. A change in the interest rate on the Notes of 0.5% would result in a change of $1.7 million in interest expense for the year ended December 31, 1995. The amount of pro forma interest expense with respect to the Notes does not give effect to any allocation of the gross proceeds of the Notes Offering between the Notes and Warrants. Because a portion of the gross proceeds will be allocated to the Warrants, the discount on the Notes resulting therefrom will be accreted into interest expense (using the interest method) over the term of the Notes. 3. Elimination of minority interest as a result of the Exchange. 4. To record the dividend requirement on the Orion Newco Series C Preferred Stock issued as a result of the Exchange as well as pro rata accretion to redemption value over a 25-year period. 5. Pro forma weighted average shares outstanding for the year ended December 31, 1995 consist of:
Historical weighted average shares outstanding............................................... 9,103,505 Pro forma issuance of shares to British Aerospace and Matra Marconi Space for interest on $60 million Debentures....................................................................... 187,500 Pro forma issuance of shares to British Aerospace for purchase of 17% minority interest in Orion Asia Pacific ...................................................................... 85,714 ----------- Total pro forma weighted average shares outstanding.......................................... 9,376,719 ===========
123 SELECTED CONSOLIDATED FINANCIAL AND OPERATIONAL DATA OF ORION (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) The following selected consolidated statements of operations and balance sheet data as of and for the years ended December 31, 1991, 1992, 1993, 1994 and 1995 are derived from the Company's audited consolidated financial statements. The selected consolidated statements of operations and balance sheet data as of September 30, 1996 and for the nine months ended September 30, 1995 and 1996 are derived from the unaudited consolidated financial statements of the Company and, in the opinion of the Company, include all adjustments, consisting of normal recurring accruals, necessary for a fair presentation of such information. Operating results for the nine months ended September 30, 1996 are not necessarily indicative of the results that may be achieved for the year ending December 31, 1996. The pro forma consolidated statements of operations and balance sheet data are derived from the unaudited Pro Forma Condensed Consolidated Financial Statements included herein. The pro forma data are not necessarily indicative of the results that would have been achieved nor are they indicative of the Company's future results. The data should be read in conjunction with the Pro Forma Condensed Consolidated Financial Statements and the Consolidated Financial Statements, related notes and other financial information included herein. From its inception in 1982 through January 20, 1995, when Orion 1 commenced commercial operations, Orion was a development stage enterprise. Because of Orion's exclusive management and control of Orion Atlantic as its sole general partner (subject to certain rights of approval by the Limited Partners), and Orion's aggregate 33 1/3% (through November 1995, 41 2/3% from December 1995 through the present) partnership interest, the financial statements of Orion Atlantic are consolidated with the financial statements of Orion. See "Management's Discussion and Analysis of Financial Condition and Results of Operations of Orion," "Pro Forma Condensed Consolidated Financial Statements" and the Consolidated Financial Statements and Notes thereto.
YEAR ENDED DECEMBER 31, ----------------------------------------------------------------------- 1995 PRO 1991 1992 1993 (1) 1994 1995 FORMA(2) ----------- ----------- ----------- ----------- ----------- ----------- Consolidated Statements of Operations Data: Revenues....................... $ 648 $ 1,403 $ 2,006 $ 3,415 $ 22,284 $ 22,284 Interest expense............... 456 180 133 61 24,738 50,637 Net loss....................... (2,573) (3,295) (7,886) (7,965) (26,915) (103,156) Net loss per common share ..... $ (0.35) $ (0.40) $ (0.85) $ (0.86) $ (3.07) $ (12.01) Shares used in calculating per share data(3).................. 7,318,147 8,232,548 9,266,445 9,272,166 9,103,505 9,376,719 ----------- ----------- ----------- ----------- ----------- ----------- Ratio of earnings to fixed charges(4)..................... -- -- -- -- -- -- Other Operating Data: ......... Number of customers............ 3 5 10 34 109 Capital expenditure............ $ 44,036 $ 78,429 $ 44,130 $ 51,103 $ 9,060 Customer contract backlog(5) .. $ 4,572 $ 9,402 $ 18,185 $ 39,122 $ 120,612 Points of Service(6)........... -- 57 151 EBITDA (7)..................... $ (1,852) $ (6,243) $ (9,069) $ (14,014) $ (15,427)
NINE MONTHS ENDED SEPTEMBER 30, ------------------------------------- 1996 PRO 1995 1996 FORMA(2) ----------- ------------ ------------ Consolidated Statements of Operations Data: Revenues....................... $ 13,947 $ 30,016 $ 30,016 Interest expense............... 17,080 20,229 39,521 Net loss....................... (19,985) (19,807) (67,263) Net loss per common share ..... $ (2.42) $ (1.90) $ (6.46) Shares used in calculating per share data(3).................. 8,522,067 10,943,287 11,544,626 ----------- ------------ ------------ Ratio of earnings to fixed charges(4)..................... -- -- -- Other Operating Data: ......... Number of customers............ 79 167 Capital expenditure............ $ 3,863 $ 10,266 Customer contract backlog(5) .. $ 94,890 $ 134,320 $ 123,000 Points of Service(6)........... 124 304 EBITDA (7)..................... $ (15,177) $ 134
AS OF SEPTEMBER 30, 1996 ---------------------- PRO ACTUAL FORMA(2) --------- ------------ Consolidated Balance Sheet Data: Cash and cash equivalents........ $ 26,507 $ 7,668 $ 3,404 $ 11,219 $ 55,112 $ 36,657 $122,339 Restricted Cash(8)............... -- -- -- -- -- -- 72,000 Total assets..................... 106,712 204,975 271,522 340,176 389,075 355,977 566,292 Long-term debt (less current portion)......................... 1,073 106,821 185,294 230,175 250,669 221,781 425,513 Limited Partners' interest in OrionAtlantic(9)................. 77,683 77,753 69,909 62,519 14,626 19,961 -- Redeemable preferred stock ...... -- -- -- 14,555 20,358 20,539 114,539 Total stockholders' equity (deficit)........................ 2,559 14,478 8,400 3,351 26,681 6,891 967 Book value per share ............ .44 2.26 1.26 .49 2.46 .63 .09
- ---------- (1) In 1993, Orion Atlantic terminated its commitment to purchase a second satellite from MMS Space Systems, resulting in a termination charge of $5 million. See Note 3 to the Consolidated Financial Statements. 124 (2) Adjusted to reflect the pro forma effects of the Transactions (see "Pro Forma Condensed Consolidated Financial Statements"), assuming such events occurred, in the case of the Consolidated Statements of Operations Data, on January 1, 1995 and, in the case of the Balance Sheet Data, on September 30, 1996. (3) Computed on the basis described for net loss per common share in Note 2 to the Consolidated Financial Statements. (4) For purposes of the ratio of earnings to fixed charges, earnings consist of earnings from continuing operations, plus fixed charges reduced by the amount of unamortized interest capitalized. Fixed charges consist of interest on all indebtedness (including commitment fees and amortization of deferred financing costs) plus the portion of rent expense representing interest (estimated to be one-third of such expense). For the years ended December 31, 1991, 1992, 1993, 1994 and 1995, and the nine months ended September 30, 1995 and 1996, earnings were inadequate to cover fixed charges by $2.6 million, $8.8 million, $24.0 million, $35.2 million, $28.2 million, $21.3 million and $19.8 million, respectively. On a pro forma basis assuming consummation of the Transactions, earnings would not have been sufficient to cover fixed charges by $105.4 million and $70.5 million for the year ended December 31, 1995 and the nine months ended September 30, 1996, respectively. A 0.5% increase in the assumed interest rates on the Notes would result in pro forma deficiencies of earnings to cover fixed charges of approximately $107.1 million for the year ended December 31, 1995 and $71.8 million for the nine months ended September 30, 1996. (5) Backlog represents future revenues under contract. See "Risk Factors -- Risks Relating to Orion's Business -- Uncertainties Relating to Backlog." (6) Points of service includes installed VSATs and additional transmission destinations (such as customer premises) that share a VSAT. (7) "EBITDA" represents earnings before minority interests, interest income, interest expense, net of other expense (income), income taxes, depreciation and amortization. EBITDA is commonly used in the communications industry to analyze companies on the basis of operating performance, leverage and liquidity. EBITDA is not intended to represent cash flows for the period and should not be considered as an alternative to cash flows from operating, investing or financing activities as determined in accordance with GAAP. EBITDA is not a measurement under GAAP and may not be comparable to other similarly titled measures of other companies. Other expense (income) includes gains on sale of equipment less costs of $5 million in 1993 associated with the termination of the Company's commitment to purchase a second satellite and the write-off of costs relating to the 1995 Financing of $3.4 million in the fourth quarter of 1995. (8) Restricted cash represents the estimated $72 million that will be placed in escrow on the closing date of the Notes Offering to fund the payment of the first six scheduled payments of interest on the Senior Notes. The actual amount to be placed in escrow and reflected as restricted cash will depend on the interest rate on the Senior Notes and interest rates on government securities on such closing date. (9) Represents amounts invested by Limited Partners (net of syndication costs related to the investments), adjusted for such Limited Partners' share of net losses. The interests of the Limited Partners will be acquired by the Company in the Exchange. 125 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF ORION GENERAL Orion's principal business is the provision of satellite communications for private communications networks and video distribution and other satellite transmission services. From its inception in 1982 through January 20, 1995, when Orion 1 commenced commercial operations, Orion was a development stage enterprise. Prior to January 1995, Orion's efforts were devoted primarily to monitoring the construction, launch and in-orbit testing of Orion 1, product development, marketing and sales of interim private communications network services, raising financing and planning Orion 2 and Orion 3. OrionSat is the sole general partner in Orion Atlantic and Orion has a 41 2/3 % equity interest in Orion Atlantic. Orion will become the 100% owner of Orion Atlantic upon consummation of the Exchange. As a result of Orion's control of Orion Atlantic, Orion's consolidated financial statements include the accounts of Orion Atlantic. All of Orion Atlantic's revenues and expenses are included in Orion's consolidated financial statements, with appropriate adjustment to reflect the interests of the Limited Partners in Orion Atlantic's losses prior to the Exchange. The assets and liabilities reported in the consolidated balance sheets at September 30, 1996, December 31, 1995 and December 31, 1994 primarily pertain to Orion Atlantic. OVERVIEW Orion's revenues are principally generated under three to four year contracts for delivery of communications services. Such revenues, substantially all of which are generated through Orion Atlantic, are derived principally from recurring monthly fees from its customers, although many contracts include initial non-recurring installation and other fees. These non-recurring fees generally are structured to cover the Company's actual costs of installation of the customer's site-based equipment. The revenues from each contract vary, depending upon the type of service, amount of capacity, data handling ability of the network, the number of VSATs (which generally are owned by Orion), value-added services and other factors. Depending on the complexity of the services to be provided to a customer, the period between the date of signature of a contract and the commencement of actual services (and receipt of fees) typically ranges from 30 days to six months. Substantially all of Orion's contracts are denominated in U.S. dollars, although some contracts are denominated in pounds sterling, deutschemarks, Austrian shillings or French francs. See "Risk Factors -- Risks Relating to Orion's Business -- Risks of Conducting International Business." Orion begins to record revenues under its contracts upon service commencement to the customer. The services provided by Orion have been subject to decreasing prices over recent years and this pricing pressure is expected to continue (and may accelerate) for the foreseeable future, particularly if capacity continues to increase, which it may. Orion will need to increase its volume of sales in order to compensate for such price reductions. Orion believes that customers will increase the data speeds in their communications networks to support new applications, and that such upgrading of customer networks will lead to increased revenues that will mitigate the effect of price reductions. See "Risk Factors -- Risks Relating to Orion's Business -- Potential Adverse Effects of Competition." Orion expects to continue to incur increasing net losses and negative cash flow (after payments for capital expenditures and interest) for the foreseeable future. Orion's direct cost of services includes principally (i) costs relating to the installation, maintenance and licensing of VSAT earth stations at its customers' premises; (ii) satellite lease payments for transponder capacity (generally for services outside of the Orion 1 footprint); and (iii) associated miscellaneous expenses. Sales and marketing expenses consist of salaries, sales commissions (including commissions to third party sales representatives), travel and promotional expenses. The Company has recently commenced a significant expansion of its marketing program and expects to continue this expansion through 1997. Due to the complexity of the Company's services, and the expected turnover of 126 new sales personnel, sales and marketing expense is expected to increase significantly during 1997. Engineering and technical expenses, consisting principally of personnel costs and travel, relate to TT&C, network monitoring, network design and similar activities. The Company constructed its TT&C facilities to control two satellites. As a result, the Company anticipates a slight increase in costs with Orion 2 and a more substantial increase in costs with Orion 3, which will require separate TT&C facilities. General and administrative expenses consist of in-orbit insurance premiums, personnel costs other than for selling and engineering, information systems, professional services, and occupancy costs. These costs will increase generally as the Company's operations expand. Specifically, in-orbit insurance costs will increase significantly following the launches of Orion 2 and Orion 3. Depreciation and amortization expenses result mainly from the depreciation of the Orion 1 satellite, VSATs and the related equipment to service the expansion of the private network communication services business (see Note 2 of the Notes to Consolidated Financial Statements) and will increase substantially after the launch of Orion 2 and Orion 3. Interest income is primarily the result of interest earned on the proceeds from Orion's private and public equity offerings. Interest costs will increase substantially as a result of the Notes Offering and will increase again after additional financing for Orion 2 and Orion 3 is obtained. Interest expenses are associated with Orion's credit facilities used to fund the construction and launch of Orion 1 and the related tracking, telemetry and control facility. Such financing will be required substantially in advance of the anticipated revenues from Orion 2 or Orion 3. Orion's costs (other than sales commissions) generally do not vary substantially with the amount of revenue from the Orion 1 satellite. RESULTS OF OPERATIONS NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO THE NINE MONTHS ENDED SEPTEMBER 30, 1995 Revenue. Total revenue for the nine months ended September 30, 1996 was $30.0 million, compared to $13.9 million for the same period in 1995, an increase of 116%, resulting from increased volume of sales. Revenues from private communications network services were $11.6 million for the first nine months of 1996 compared to $4.8 million for the comparable period in 1995, as the number of points of service increased to 304 as of September 30, 1996 from 124 at September 30, 1995. Revenues from video distribution and other satellite transmission services were $18.2 million for the first nine months of 1996 compared to $8.4 million for the same period in 1995, resulting from a substantial increase in customers for these services in 1996. OPERATING EXPENSES Direct expenses. Direct expenses for the nine months ended September 30, 1996, were $4.3 million compared to $10.0 million for the same period in 1995. The decrease of $5.7 million, or 57%, was primarily attributable to accruals for satellite incentive obligations owed by Orion to the contractor under the Orion 1 Satellite Contract during the initial satellite deployment period from January 20, 1995 through June 30, 1995. The Company capitalized the present value of the remaining satellite incentive obligation of approximately $14.8 million, effective July 1, 1995, as part of the cost of the satellite. As of September 30, 1996, Orion had obligations with a present value of approximately $21.7 million with respect to satellite incentives. Sales and marketing expenses. Sales and marketing expenses were $7.8 million for the nine months ended September 30, 1996, as compared to $5.9 million in the same period of 1995. The increase of $1.9 million, or 32% is primarily attributable to sales commissions, third party sales representative fees and ground operator fees associated with the growth in the private communications network service business. Engineering and technical expenses. Engineering and technical expenses were $6.3 million in the nine months ended September 30, 1996, as compared to $6.0 million for the comparable period in 1995. The increase was due to customer engineering functions in support of network services. General and administrative expenses. General and administrative expenses were $11.5 million for the nine months ended September 30, 1996, compared to $7.2 million for the period ended September 30, 1995. The increase of $4.3 million, or 60%, for the nine months ended September 30, 1996 was 127 primarily due to the inclusion of the cost of in-orbit life insurance for the entire period during 1996. The policy became effective in May 1995. Depreciation and amortization. Depreciation and amortization expense for the nine months ended September 30, 1996 was $26.4 million, an increase of $4.1 million, or 18%, over the same period in 1995. The increase is primarily a result from depreciation of VSATs and other ground equipment to service the expansion of the private network communication services business and depreciation of the Orion 1 satellite which was placed in service January 20, 1995. Interest. Interest income was $1.8 million for the nine months ended September 30, 1996, compared to $1.1 million for the nine months ended September 30, 1995. The increase in interest income ($0.7 million or 64%) during the first three quarters of 1996 is primarily a result of interest earned on the proceeds from the Company's initial public offering in August 1995. Interest expense, net of capitalized interest, was $20.2 million for the nine months ended September 30, 1996, compared to $17.1 million for the comparable period in 1995. The increase in interest expense of $3.1 million in the first three quarters of 1996 is attributable to expensing interest (including commitment fees, interest accretion associated with the Orion 1 satellite incentive obligation and amortization of deferred financing costs) from the in-service date of Orion 1 and the impact of an interest rate cap agreement in 1996. Prior to the in-service date of Orion 1, substantially all interest expense was capitalized. Interest expense will substantially increase as a result of the Notes Offering. Net Loss. The Company incurred a net loss of $19.8 million, compared to a net loss of $20.0 million for the nine months ended September 30, 1996 and 1995, respectively, after deduction of the limited partners' and minority interests' share in the Company's losses before minority interests' of $24.8 million and $33.4 million, respectively. Net loss is expected to increase substantially in subsequent periods as a result of interest expense on the Notes and elimination of the minority interests in Orion Atlantic. YEAR ENDED DECEMBER 31, 1995 COMPARED TO THE YEAR ENDED DECEMBER 31, 1994 Revenue. Services revenue for 1995 was $22.3 million compared to $3.4 million for 1994. Revenues from private communications network services were $10.0 million from 72 customers in 1995 and $3.4 million from 18 customers in 1994, as the number of sites in service increased to 143 from 53. Revenues from transmission capacity and video distribution services were $12.3 million during 1995. There were no revenues from these services during 1994, as Orion 1 commenced operations on January 20, 1995. OPERATING EXPENSES Direct expenses. Direct expenses were $10.5 million and $3.5 million in 1995 and 1994, respectively. The increase of $7.0 million, or 199%, was primarily attributable to accruals for satellite incentives during 1995, which were not applicable prior to launch in November 1994, costs associated with equipment sales ($2.5 million in 1995, $0 in 1994), and installation and maintenance costs in connection with higher volumes of customer sites placed in service during 1995 ($1.3 million in 1995, $0.5 million in 1994). These increases were partially offset by a reduction in leased transponder capacity costs as customers were transferred from leased capacity to Orion 1. No equipment sales occurred during 1994. Sales and marketing expenses. Sales and marketing expenses were $8.6 million in 1995, as compared to $5.9 million in 1994, an increase of $2.7 million or 47%. The increase is due to the hiring of additional sales personnel, increased advertising and promotion expenses associated with increased sales and equipment sales commissions. Engineering and technical expenses. Engineering and technical expenses were $8.5 million in 1995, as compared to $3.0 million for 1994, an increase of $5.5 million or approximately 184%. The increase is attributable to increased staffing requirements related to control and operation of the satellite, and customer engineering functions in support of the expansion of the network services business. General and administrative expenses. General and administrative expenses were $10.1 million for 1995 compared to $5.1 million for 1994. The increase of $5.0 million or 99% was primarily due to the cost of in-orbit insurance for Orion 1, beginning in May 1995, and other costs associated with Orion's commencement of full commercial operations. 128 Depreciation and amortization. Depreciation and amortization was $31.4 million in 1995, an increase of $29.7 million, as compared to $1.7 million for 1994. The increase primarily resulted from the commencement of depreciation of Orion 1 upon being placed in service January 20, 1995. Interest. Interest income was $1.9 million for 1995, compared to $0.4 million for the prior year. The increase in interest income during 1995 is primarily a result of interest earned on proceeds from Orion's initial public offering in August 1995. Interest expense, net of capitalized interest, increased from $0.06 million for 1994 to $24.7 million for 1995. The increase in interest expense in 1995 is attributable to expensing interest (including commitment fees and amortization of deferred financing costs) from the in-service date of Orion 1. Prior to that date, substantially all interest expense was capitalized as part of the cost of Orion 1. Other. Other expenses of $3.4 million for the year-ended December 31, 1995 are primarily related to costs incurred in connection with Orion Atlantic's plans to raise financing for Orion 2, which plans were deferred in November 1995. Net loss. The Company incurred a net loss of $26.9 million and $8.0 million for 1995 and 1994, respectively, after deduction of the Limited Partners' and minority interests' share in the Company's results of operations of $46.1 million and $7.4 million, respectively. YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993 Revenue. Services revenue for the year ended December 31, 1994 was $3.4 million compared to $2.0 million for the year ended December 31, 1993. The increased revenue reflects an increase in the number of private network customers from 12 in 1993 to 18 in 1994. OPERATING EXPENSES Direct expenses. Direct expenses were $3.5 million and $2.6 million in the years ended December 31, 1994 and 1993, respectively. Direct expenses increased $0.9 million or 32% which was primarily attributable to the increased revenue generated by private network services. Sales and marketing expenses. Sales and marketing expenses were $5.9 million in the year ended December 31, 1994, as compared to $1.9 million in 1993 primarily due to the Company's increased selling efforts in private network services. Engineering and technical expenses. Engineering and technical expenses were $3.0 million in the year ended December 31, 1994, as compared to $1.8 million for the year ended December 31, 1993. Engineering and technical services increased $1.2 million due to the increased support requirements of private network services. General and administrative expenses. General and administrative expenses were $5.1 million for the year ended December 31, 1994 compared to $4.7 for the year ended December 31, 1993. Orion Atlantic entered into interest rate hedging arrangements which fixed the maximum interest rate through November 1995 at 11.54%. Thereafter, an interest cap agreement is in place relating to a notional amount declining every nine months from $150 million effective November 30, 1993. General and administrative expenses increased $0.4 million principally due to the increased staffing requirements of the Company's management team in anticipation of higher operating levels. Interest. During the year ended December 31, 1994, Orion incurred $27.0 million of interest costs (including commitment fees and amortization of deferred financing costs) compared to $16.3 for the comparable period in 1993, substantially all of which was capitalized. The increase in interest is attributable to additional borrowings related to the construction of Orion 1 and subordinated borrowings beginning in late 1993 from the Limited Partners to fund the development of the Orion Atlantic network services business. Other. Other income was $0.05 million in the year ended December 31, 1994, compared to expense of $4.9 million for the year ended December 31, 1993. The increase in other income is related to the April 1993 termination by Orion Atlantic of its commitment to purchase a second satellite from Space 129 Systems (due to a reassessment of the satellite design and target markets) which resulted in the forfeiture of $5.0 million which was then expensed as a termination charge. Net loss. The Company incurred net losses of $8.0 million and $7.9 million for the years ended December 31, 1994 and 1993, respectively, after deducting the Limited Partners' and minority interests' share in Orion's results of operations of $7.4 million and $7.8 million, respectively. LIQUIDITY AND CAPITAL RESOURCES Funding to date. Orion has required significant capital for operating and investing activities in the development of its business, and will need significant additional capital in the future to develop fully its global satellite communications system. The Company's funding has been provided primarily by the sale of equity securities, including the completion of its initial public offering in August 1995 which generated proceeds to the Company of approximately $52 million (net of underwriting discounts), bank loans, vendor financing, lease arrangements and short-term loans from its investors. As of September 30, 1996, Orion had a working capital deficiency of $5.7 million and the net cash used in operations for the nine months ended September 30, 1995 and 1996, was $30.4 million and $25.0 million, respectively. Funding for the construction and launch of the Orion 1 satellite and related facilities was fully committed through $90 million of equity from the limited partners of Orion Atlantic, an aggregate of $251 million under the Orion 1 Credit Facility and approximately $11 million under other debt facilities, dedicated primarily to the construction of the TT&C facility, which is being used to control Orion 1. Amounts outstanding under the Orion 1 Credit Facility bear interest at 1.75% over the LIBOR rate (7.68% at December 31, 1995). Orion Atlantic has entered into agreements with Chase Manhattan Bank,(National Association) ("Chase") for interest rate hedging arrangements which fixed the maximum interest rate through November 1995 at 11.54%. Thereafter a self funding interest rate cap agreement is in place relating to a notional amount declining every six months from $150 million effective November 30, 1995 to $15.6 million effective March 31, 2001. Under the terms of the cap agreement, when LIBOR equals or exceeds 5.5%, Orion Atlantic pays Chase a fee equal to 3.3% per annum of the notional amount and receives a payment from Chase in an amount equal to the difference between the actual LIBOR rate and 5.5% on the notional amount. There was an unrealized loss on this cap as of September 30, 1996 of approximately $5.9 million. On the closing date of the Notes Offering, the Company will pay its then outstanding obligation under this facility, including costs to break the interest cap agreement. In the event of a deficiency in cash flow required to service the Orion 1 Credit Facility, the Limited Partners of Orion Atlantic, including the Company, would be obligated to make additional payments toward such deficiency under the terms of their contingent satellite capacity commitment agreements. Such agreements would be terminated as a result of the Exchange. Existing Obligations. The following is a description of Orion's existing obligations, a substantial portion of which are to be paid with the proceeds of the Notes Offering; however, no assurance can be given that the Notes Offering will be completed. Orion Atlantic began repayment of the term loans under the Orion 1 Credit Facility in 1995. Sales of services to customers and certain capacity commitments of the Limited Partners are expected to provide the cash to meet Orion Atlantic's loan repayment obligations. The Company and the other Limited Partners of Orion Atlantic have agreed to lease capacity on Orion 1, subject to obligations of Orion Atlantic under the refund agreement (defined below) to refund lease payments, and have entered into additional contingent capacity lease contracts as support for payment of the senior bank debt of Orion Atlantic. The Company's obligations under these firm and contingent capacity arrangements are $2.5 million and $4.3 million, respectively, per year for seven years, and the Company is obligated to indemnify STET (a former limited partner whose partnership interest in Orion Atlantic was purchased by Orion Atlantic) against certain payments made by STET under its firm and contingent capacity leases. This indemnity could increase Orion's obligations to make payments in the event of cash deficits of Orion Atlantic to $8.6 million per year, and could require Orion for a term of four years commenc- 130 ing in January 1998 to make payments to Orion Atlantic of up to approximately $2.5 million per year. The Company maintains a $10 million letter of credit supporting this indemnification obligation. Amounts outstanding under the Orion 1 Credit Facility (approximately $210.4 million, including interest, as of September 30, 1996) are secured by the assets of Orion Atlantic, the partnership interests of the partners in Orion Atlantic and the stock of OrionSat, and are due in graduated installments through 2002. Among other customary covenants and requirements, the Orion 1 Credit Facility includes significant restrictions on the distribution of any funds from Orion Atlantic to the partners. Distributions can only be made if Orion Atlantic has sufficient revenues to cover operating costs and debt service. Orion's capacity commitments and the Orion 1 Credit Facility are required to be refinanced in connection with the Exchange. See "The Related Transactions -- The Notes Offering/Orion 1 Credit Facility Refinancing." At September 30, 1996, the Company had outstanding indebtedness of approximately $7.2 million under a seven year term loan provided by General Electric Capital Corporation ("GECC") for the TT&C facility, which is secured by the TT&C facility and various assets relating thereto. Additionally, at September 30, 1996, the Company had obligations with a present value of $21.7 million, which are payable to the manufacturer of Orion 1 through 2006 (of which $13 million will be paid in cash on the Closing Date, $10 million of which will be reinvested in the Debentures), and $8.0 million payable to a former partner in Orion Atlantic through 1997. Of this $8.0 million, approximately $3.5 million (plus interest of approximately $500,000 as of January 30, 1997) will be paid with proceeds of the Notes Offering. Also at September 30, 1996, the Company had outstanding approximately $8.1 million of subordinated debt under a facility of up to $10.5 million from certain Limited Partners (excluding the Company) for Orion Atlantic's network services. See Note 5 to Consolidated Financial Statements for additional discussion of Orion's long-term debt. Orion will be acquiring the Limited Partners' interests in such obligations in the Exchange. Current Funding Requirements. The Company will need a substantial amount of capital over the next three years (and possibly thereafter) to fund the costs of Orion 2 and Orion 3, the purchase of VSATs and other capital expenditures and to make various other payments, such as principal and interest payments with respect to the TT&C Financing, the Notes and any indebtedness incurred to finance Orion 2 or Orion 3. The Company's cash flows will be inadequate to cover its cash needs and the Company will seek financing from outside sources. The Company does not have a revolving credit facility or other source of readily available capital. Sources of additional capital may include public or private debt or equity financings. The Company is often involved in discussions or negotiations with respect to such potential financings and, because of its substantial capital needs, may consummate any such financing at any time. The Company has commenced construction of Orion 3 and intends to commence construction of Orion 2 immediately after consummation of the Notes Offering, despite the fact that it does not have any commitment from any outside source to provide such financing. If the Company is unable to obtain financing from outside sources in the amounts and at the times needed, it could forfeit payments made on Orion 2 and Orion 3 and its rights to Orion 2 and Orion 3 under the Orion 2 Satellite Contract and Orion 3 Satellite Contract and there would be a material adverse effect on the Company's ability to make payments on the Notes and the value of the Orion Newco Common Stock. Expected payments prior to launch under the Orion 2 Satellite Contract and Orion 3 Satellite Contract and for launch insurance for Orion 2 and Orion 3 aggregate approximately $500 million. In addition to the $3 million paid in the fourth quarter of 1996, Orion will need to make payments of approximately $90 million, $360 million and $50 million in 1997, 1998 and 1999, respectively. These amounts include the Company's estimate regarding the cost of launch insurance (but not in-orbit insurance, which the Company presently estimates will cost approximately $5 million to $6 million per annum per satellite), although the Company has not had material discussions with potential insurers and has not received any commitment to provide insurance. The Company's actual payments could be substantially higher due to any change orders for the satellites, insurance rates, delays and other factors. In addition, the Company expects to expend approximately $22 million, $30 million and $34 million on VSATs and other capital expenditures in 1997, 1998 and 1999, respectively. The Company believes these VSAT and 131 other capital expenditures can be financed through capital leases or other secured financing arrangements. However, the Company has not engaged in material discussions with potential lenders and there can be no assurance that such financing can be obtained. Under the Orion 1 Satellite Contract, the contractor is entitled to receive incentive payments based upon the performance of Orion 1 in orbit. These incentive payments could reach an aggregate of approximately $44 million through 2007, if the transponders on Orion 1 continue to operate in accordance with specification during that period. As of September 30, 1996, Orion had obligations with a present value of approximately $21.7 million with respect to incentive payments. Orion will pay $13 million in satellite incentives following completion of the Notes Offering of which $10 million will be re-invested in Debentures of Orion Newco in the Matra Marconi Investment. The foregoing estimates do not include any amounts for other possible financing requirements. The Company may from time to time enter into joint ventures and make acquisitions of complimentary businesses and is often engaged in discussions or negotiations with regard to such potential joint ventures and acquisitions. Such joint ventures or acquisitions would need to be financed, which would increase the Company's need for additional capital. In addition, Orion intends to replace Orion 1 at the end of its useful life (expected to be in October 2005). Such replacement likely will require additional financing if the cash flow from Orion's operations is not sufficient to fund a replacement satellite. See "Risk Factors -- Risks Relating to Orion's Business --Need for Substantial Additional Capital" and " -- Launch of Orion 2 and Orion 3 Subject to Significant Uncertainties -- Substantial Financing Requirements; Risks of Commencing Construction Prior to Completing Financing." As of September 30, 1996, after giving pro forma effect to the Transactions, Orion would have had approximately $426 million of long-term indebtedness. The accretion of original issue discount, if any, on the Senior Discount Notes will increase the amount of Orion's indebtedness. As indicated above, Orion's financing plan requires a total of $480 million of additional financing to fully fund the construction, launch and insurance of Orion 2 and Orion 3 and associated financing and start-up costs, and Orion presently expects that a significant portion of such additional financing will be in the form of additional indebtedness. Such additional indebtedness would increase Orion's long-term indebtedness. See "Risk Factors -- Risks Relating to Orion's Business - --Substantial Leverage; Secured Indebtedness." The level of the Company's indebtedness could have important consequences to its stockholders, including the following: (i) the ability of the Company to obtain any necessary financing in the future for working capital, capital expenditures, debt service requirements or other purposes may be limited; (ii) a substantial portion of the Company's cash flow from operations, if any, must be dedicated to the payment of principal of and interest on its indebtedness and other obligations and will not be available for other purposes; (iii) the Company's level of indebtedness could limit its flexibility in planning for, or reacting to changes in, its business; (iv) the Company will be more highly leveraged than some of its competitors, which may place it at a competitive disadvantage; and (v) the Company's high degree of indebtedness will make it more vulnerable to a default and the consequences thereof (such as bankruptcy workout) in the event of a downturn in its business. Because of its substantial needs for additional financing, Orion may attempt to raise additional funds substantially earlier than the date it needs such funds, depending on the conditions of the capital markets from time-to-time, including during 1997. If the Merger and the Exchange are consummated, Orion will be entitled to incur additional indebtedness at any time, including prior to the date such funds are needed, without obtaining any further stockholder approval. If Orion raises such funds prior to the date such funds are needed, it will (in addition to the risks and costs associated with increased leverage) incur substantial interest cost for periods when such funds are not deployed in its business. TAXES As of December 31, 1995, Orion had net operating loss carryforwards for federal tax purposes of approximately $51.2 million. The ability of Orion to benefit from net operating losses for federal income tax purposes will depend on a number of factors, including whether Orion has sufficient income from which to deduct the losses, limitations that may arise as a result of changes in the ownership of Orion, 132 including as a result of the Transactions and other factors, and certain other limitations which may significantly reduce the economic benefit of those losses to Orion. Due to uncertainty regarding its ability to realize the benefits of such net operating loss carryforwards, the Company has established a valuation allowance for the full amount of its net operating loss carryforwards. Of Orion's net operating losses, approximately $31.2 million was incurred by Orion Atlantic and allocated to Orion. Orion Atlantic is structured as a partnership for U.S. income tax purposes. As a result, Orion Atlantic itself generally should not be subject to federal income taxation. Instead, the Partners of Orion Atlantic, including Orion and OrionSat, will separately report their allocable shares of Orion Atlantic's net income, loss, gain, deductions, and credits, as determined under the allocation provisions of the Partnership Agreement. Orion Atlantic may, however, be subject to income tax on a portion of its income in certain states and other countries in which it has operations. Under the Partnership Agreement, the first $20 million of any losses was allocated to OrionSat, and any losses in excess of that amount generally have been allocated to the Partners, including Orion and OrionSat, in proportion to their respective percentage interests. Subsequent to consummation of the Exchange, all losses will be allocated to Orion. EFFECT OF INFLATION Orion believes that inflation has not had a material effect on the results of operations to date. EFFECT OF RECENTLY ISSUED FINANCIAL ACCOUNTING STANDARDS In March 1995, the FASB issued Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of, which requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amount. Statement No. 121 also addresses the accounting for long-lived assets that are expected to be disposed of. Orion adopted Statement No. 121 in the first quarter of 1996. The effect of adoption was not material to its financial condition or results of operations. In October 1995, the FASB issued Statement No. 123, Accounting for Stock Based Compensation, which is effective for awards after January 1, 1996. Orion has elected to continue to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25) and related Interpretations in accounting for its employee stock based award programs, because the alternative fair value accounting provided for under FASB Statement No. 123 requires use of option valuation models that were not developed for use in valuing employee stock options. Under APB 25, when the exercise price of the employee award equals the market price of the underlying stock on the date of grant, as has been the case historically with Orion's awards, no compensation expense is recognized. 133 PRICE RANGE OF ORION COMMON STOCK AND DIVIDEND POLICY Since completion of Orion's initial public offering in August 1995, the Orion Common Stock has been quoted on the Nasdaq National Market under the trading symbol "ONSI." As of December 15, 1996, there were approximately 350 stockholders of record of Orion Common Stock. The following table summarizes the high and low closing sale prices of the Orion Common Stock by fiscal quarter for 1995, 1996 and 1997 as reported on the Nasdaq National Market. QUARTER ENDED: 1995 ------------------------------------- ------------ August 1 through September 30 ....... $10 3/4 to $14 1/4 December 3 .......................... 16 3/4 to 12 QUARTER ENDED: 1996 ------------------------------------ ------------------ March 31 ........................... $ 8 1/4 to $14 3/4 June 30 ............................ 10 1/4 to 14 1/4 September 30 ....................... 7 1/4 to 12 1/8 December 31 ........................ 9 1/2 to 12 7/8 QUARTER ENDED: 1997 - --------------------------- ----------- March 31 (through January 14)............. $12 1/2 to $15 On December 13, 1996, the date preceding public announcement of the Merger Transactions, the last reported sale price of the Orion Common Stock, as reported on the Nasdaq National Market, was $12 5/8 . Orion has never paid any cash dividends on the Orion Common Stock and the Board of Directors of Orion currently does not anticipate paying cash dividends in the foreseeable future on shares of Orion Common Stock. The terms of the Orion 1 Credit Facility, which regulate cash distributions to Orion Atlantic's partners, including Orion, and agreements relating to the Orion Senior Preferred Stock limit Orion's ability to pay cash dividends on the Orion Common Stock. The Notes Indentures are expected to contain covenants restricting the payment of cash dividends by Orion Newco for the foreseeable future. See "The Related Transactions -- The Notes Offering/Orion 1 Credit Facility Refinancing -- Notes Offering." 134 CERTAIN TRANSACTIONS The following is a summary of certain transactions among Orion, directors, officers and certain stockholders of Orion, and related persons. Orion believes that each of such transactions was on terms no less favorable to Orion than reasonably could have been obtained in arm's-length transactions with independent third parties. Orion has a policy requiring that any material transactions between Orion and persons or entities affiliated with officers, directors or principal stockholders of Orion be on terms no less favorable to Orion than reasonably could be obtained in arm's-length transactions with independent third parties. Orion's policy is to conduct an appropriate review of all related party transactions and to have the Audit Committee or a comparable body review potential conflict of interest situations. Orion is a party to numerous agreements with one or more Exchanging Partners, most of which were entered into in December 1991, including the partnership agreement of Orion Atlantic, firm and contingent capacity leases (most of which will be terminated in connection with the Exchange), the Orion 1 Satellite Contract, the Orion 2 Satellite Contract, agreements with STET or its affiliates concerning the TT&C facility, representative agent agreements and agreements to make loans or advances to Orion (which will be terminated as part of the Exchange). See "The Merger, the Exchange and the Debenture Investments -- The Exchange Agreement." Orion entered into the Orion 1 Satellite Contract with British Aerospace, an affiliate of a principal stockholder of Orion and of which Mr. Rice, a director of Orion, is a Group Treasurer. Under the terms of the Orion 1 Satellite Contract, Orion has paid an aggregate of $43.4 million in 1991, $72 million in 1992 (plus a $5 million payment upon termination for convenience by Orion of a second satellite), $26 million in 1993, $89.8 million in 1994 and $0.3 million in 1995. As of September 30, 1996, Orion Atlantic had obligations of $15 million to Matra Marconi Space with respect to incentive payments under the Orion 1 Satellite Contract, of which $13 million will be paid on the closing date of the Exchange. Of this amount, $10 million will be re-invested in Orion by Matra Marconi Space in the Matra Marconi Investment. See "The Merger, the Exchange and the Debenture Investments -- The Debenture Investments." The balance of the outstanding obligations are payable 18 months following commencement of construction under the Orion 2 Satellite Contract, and subsequent payments of up to $29.4 million may become payable thereafter, depending on satellite performance. See "Management's Discussion and Analysis of Financial Condition and Results of Operations of Orion -- Liquidity and Capital Resources." Orion has engaged certain Exchanging Partners as representative agents for sales and ground operations. A joint venture between two Exchanging Partners (Kingston Communications and British Aerospace) serves as a ground operations representative in the United Kingdom, and the affiliate of another Exchanging Partner (Matra Hachette) serves as a ground operations representative in France. Orion expects to pay these Exchanging Partners an aggregate of $1.6 million in 1996 as commissions and other fees (including for ground operations and, in the case of the Kingston Communications/British Aerospace joint venture, satellite capacity, equipment leasing and other charges), and paid these Exchanging Partners $1.9 million in 1995 and $1.9 million in 1994 for these services. See "Information About Orion's Business -- Sales and Marketing" and "-- Network Operations; Local Ground Operators." In December 1991, Orion issued 259,515 shares of Orion Common Stock at a value of $11.56 per share to British Aerospace Space Systems, Inc. in consideration of British Aerospace Space Systems, Inc.'s agreement to guarantee Orion's obligations under a $10 million letter of credit (see Note 4 to Consolidated Financial Statements). The shares were reconveyed to Orion and are held in treasury at a value of $0. The shares are pledged as security for British Aerospace Space Systems, Inc. in the event it is required to fund amounts under its guarantee and Orion does not provide reimbursement. These arrangements will be terminated upon the closing of the Transactions. In December 1993, Orion issued an aggregate of 178,097 shares of Orion Common Stock as part of a private placement of Orion Common Stock to certain of its directors and affiliates of those directors at a purchase price of $10.20 per share. The terms of such issuance permitted the purchas- 135 ers to receive the benefit of any lower price at which Orion Common Stock subsequently was issued in a private placement or to receive any other security subsequently issued in a private placement. In June 1994, when Orion issued shares of Orion Common Stock as part of a private placement of Orion Common Stock to a limited number of institutions and other investors (including 64,705 shares to affiliates of Directors) at a purchase price of $8.50 per share, Orion issued 100,326 additional shares to the Directors and affiliates of Directors who purchased Orion Common Stock in December 1993. In addition, after Orion issued Orion Series A Preferred Stock (along with warrants and options to make an additional investment) to CIBC, Fleet and Chisholm (each as defined below) in June 1994, the Directors and affiliates of Directors who purchased Orion Common Stock in December 1993 each exercised their right to receive Orion Series A Preferred Stock (along with warrants and options to make an additional investment) in exchange for the Orion Common Stock previously acquired, and Orion issued an aggregate of $3,000,000 of Orion Series A Preferred Stock to such persons and entities. In April 1994, Orion entered into an agreement with Space Systems/Loral ("SS/L") whereby SS/L agreed to purchase 588,235 shares of Orion Common Stock for an aggregate purchase price of $5,000,000. In June 1994, CIBC Wood Gundy Ventures, Inc. ("CIBC"), Fleet Venture Resources, Inc. ("Fleet") and Chisholm Partners, II, L.P. ("Chisholm") purchased $11.5 million in Orion Series A Preferred Stock. For a description of the Orion Series A Preferred Stock, see "Description of Orion Newco Capital Stock -- Preferred Stock." In connection with the transaction, CIBC and Fleet each were granted the right to elect one member of Orion's Board of Directors. These rights terminated as a result of the Company's initial public offering. In June 1994, CIBC, Inc. (an affiliate of CIBC) became a $25,000,000 lender under the Orion 1 Credit Facility. In June 1995, CIBC, Fleet and certain Directors and affiliates of Directors who purchased Orion Series A Preferred Stock in June 1994 purchased approximately $4.2 million of Orion Series B Preferred Stock. This purchase was pursuant to an option granted in June 1994. The Orion Series B Preferred Stock has rights, designations and preferences substantially similar to those of the Orion Series A Preferred Stock, and is subject to similar covenants, except that the Orion Series B Preferred Stock is convertible into Orion Common Stock at an initial price of $10.20 per share, subject to certain anti-dilution adjustments. For a description of the Orion Series B Preferred Stock, See "Description of Orion Newco Capital Stock -- Orion Newco Preferred Stock. In November 1995, Orion Atlantic redeemed the limited partnership interest previously held by STET for an aggregate of approximately $11.5 million (the "STET Redemption"), including $3.5 million in cash and $8 million in promissory notes, $3.5 million (plus accrued interest of approximately $400,000) of which will be paid on the closing date of the Exchange. As part of the STET Redemption, Telecom Italia, a subsidiary of STET, entered into a representative agreement and distributor arrangement with Orion providing for sales, marketing, customer support and ground operations services in Italy. Orion Atlantic funded the STET Redemption by selling a new limited partnership interest to Orion for $8 million (including $3.5 million in cash and $4.5 million in promissory notes) $3.5 million (plus accrued interest of approximately $400,000) of which will be paid on the closing date of the Exchange). Orion Atlantic also entered into amendments to existing contracts with STET that were expected to result in a cash savings by the Company of approximately $3.5 million over a ten-year period. In connection with the STET Redemption, Orion agreed to indemnify Telecom Italia for payments which would be made under its firm and contingent capacity agreements with Orion Atlantic. Such indemnity will be discontinued on the closing date of the Exchange. In July 1996, Matra Marconi Space, the parent company of MMS Space Systems, the prime contractor for Orion 1, entered into the Orion 2 Satellite Contract with Orion regarding construction of Orion 2, which contract was amended in December 1996. Certain terms of the Orion 2 Satellite Contract are described above under the caption "Information About Orion's Business -- Implementation of the Orion Satellite System -- Orion 2." Matra Hachette, one of the parent companies of Matra Marconi 136 Space, will be a more than 5% beneficial owner of Orion Common Stock after the Exchange and the Merger. See "The Merger, the Exchange and the Debenture Investments." Effective June 1996, Orion and the Exchanging Partners entered into the Exchange Agreement. In December 1996 and January 1997, the Exchanging Partners agreed to extend to April 30, 1997 the termination date for the Exchange. See "The Merger, the Exchange and the Debenture Investments -- The Exchange Agreement." Effective January 13, 1997, Orion, Orion Newco and each of British Aerospace and Matra Marconi Space entered into the Debenture Agreement. The net proceeds of the Debenture Investments, which will occur concurrently with the Notes Offering, are estimated to be approximately $59 million. Such net proceeds are expected to be used for initial payments to the manufacturers under the Orion 2 Satellite Contract. FORWARD-LOOKING STATEMENTS Information set forth in this Proxy Statement/Prospectus under the captions "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations of Orion" and "Selected Consolidated Financial and Operationa Data of Orion" and under other captions contains various "forward-looking statements" within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. Such statements represent Orion's reasonable judgment concerning the future and are subject to risks and uncertainties that could cause Orion's actual operating results and financial position to differ materially. Such forward-looking statements include the following: Orion's belief that the Merger Transactions will enhance the ability of the Company to raise additional financing; Orion's belief that a change in the operational structure of Orion Atlantic would reduce certain potential conflicts of interest and operating concerns that may be inherent in the current partnership structure of Orion Atlantic; Orion's projections regarding the continuation of operating losses and net cash flow deficits; Orion's belief and the judgments of its independent engineering consultant, Telesat Canada, regarding the expected performance of the Orion 1 satellite over its useful life, and the effect of such performance on Orion's business; Orion's expectations regarding the period for construction and launch of Orion 2 and Orion 3; Orion's belief that it can overcome uncertainties relating to Orion 2 and Orion 3; Orion's expectations regarding receipt of regulatory approvals, coordination of orbital slots and avoidance of possible interference; Orion's beliefs regarding existing and future regulatory requirements, its ability to comply with such requirements and the effect of such requirements on its business; Orion's beliefs regarding the competitive advantages of satellites and of Orion's satellites, strategies and services in particular, both in general and as compared to other providers of services or transmission capacity and other services presently offered or which may be offered in the future; Orion's expectations regarding the growth in telecommunications and the demand for telecommunications services; Orion's beliefs regarding the demand for or attractiveness of Orion's services; Orion's beliefs regarding technological advances and their effect on telecommunications services or demand therefor; Orion's beliefs regarding availability of net operating loss carryforwards; Orion's beliefs regarding its representatives and distributors; Orion's belief regarding transactions or existing management structures being in the best interests of Orion and its stockholders; the description of the Merger, the Exchange and the Debenture Investments under the caption "Certain Transactions" as being on terms no less favorable to Orion than reasonably could have been obtained in arm's-length transactions with independent third parties; Orion's intention not to pay any cash dividends on the Orion Common Stock in the foreseeable future; Orion's belief that any liability that might be incurred by Orion upon the resolution of certain existing or future legal proceedings not having a material adverse effect on the consolidated financial condition or results of operations of Orion; and the adoption of new accounting releases not being material to its financial condition or results of operations. Orion cautions that the above statements are further qualified by important factors that could cause Orion's actual results to differ materially from those in the forward-looking statements. Such factors include, without limitation, those set forth in this Proxy Statement/Prospectus under "Risk Factors" and the following: the Merger, the Exchange and the Debenture Investments are dependent on the Orion 1 Credit Facility Refinancing and the Debenture Investments, and there being no assurance that these 137 financings or the Merger, the Exchange and the Debenture Investments can be consummated; the terms of financings not being known and there being no assurance that such terms will not be unfavorable to Orion; there being no assurance that Orion will obtain all necessary approvals or waivers to implement the Merger, the Exchange and the Debenture Investments, or regarding the effect of failure to obtain such approvals or waivers; there being no assurance as to the effect of issuance of Orion Newco Series C Stock on the market for Orion Newco Common Stock; no assurances regarding the business plan; Orion's history of losses and expectation of future losses; the substantial financial risks and financing requirements; substantial leverage and limits on Orion's ability to raise additional funds; risks of satellite loss or reduced performance; launch of Orion 2 and Orion 3 being subject to significant uncertainties; risks relating to Orion's business plan; potential adverse effects of competition; no assurances regarding approvals needed or current or future regulation of the telecommunications industry; no assurances regarding technological changes; risks of conducting international business; dependence of Orion on key personnel; control of Orion Newco by principal stockholders; risks relating to senior preferred stock; limits on paying cash dividends on Orion Common Stock; and anti-takeover and other provisions of the certificate of incorporation. See "Risk Factors." OTHER MATTERS The Board of Directors of Orion does not know of any matter to be brought before the Special Meeting other than as described in the Notice of Special Meeting accompanying this Proxy Statement/Prospectus. If any other matter comes before the Special Meeting, it is the intention of the persons named in the accompanying proxy to vote the proxy in accordance with their best judgment with respect to such other matter. LEGAL MATTERS Certain legal matters with respect to the Merger Transactions and the securities offered hereby will be passed upon for Orion and Orion Newco by Hogan & Hartson L.L.P., Washington, D.C. EXPERTS The consolidated financial statements of Orion Network Systems, Inc. at December 31, 1995 and 1994, and for each of the three years in the period ended December 31, 1995, included in the Proxy Statement of Orion Network Systems, Inc., which is referred to and made a part of this Prospectus and Registration Statement, have been audited by Ernst & Young LLP, independent auditors, as set forth in their report thereon appearing elsewhere herein, and are included in reliance upon such report given upon the authority of such firm as experts in accounting and auditing 138 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS PAGE --------- Report of Independent Auditors ...................................... F-2 Consolidated Financial Statements Consolidated Balance Sheets ........................................ F-3 Consolidated Statements of Operations .............................. F-4 Consolidated Statements of Changes in Stockholders' Equity........ F-5 Consolidated Statements of Cash Flows .............................. F-6 Notes to Consolidated Financial Statements ......................... F-7 F-1 REPORT OF INDEPENDENT AUDITORS The Board of Directors Orion Network Systems, Inc. We have audited the accompanying consolidated balance sheets of Orion Network Systems, Inc. as of December 31, 1995 and 1994, and the related consolidated statements of operations, changes in stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Orion Network Systems, Inc. at December 31, 1995 and 1994, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. ERNST & YOUNG LLP Washington, DC February 9, 1996 F-2 ORION NETWORK SYSTEMS, INC. CONSOLIDATED BALANCE SHEETS
DECEMBER 31, SEPTEMBER 30, ------------------------------- ---------------- 1994 1995 1996 --------------- --------------- ---------------- (UNAUDITED) ASSETS (NOTE 3) Current assets: Cash and cash equivalents $11,218,831 $55,111,585 $36,656,619 Accounts receivable (less allowance for doubtful accounts $278,000 at December 31, 1995 and $328,000 at September 30, 1996) 551,870 5,189,598 5,808,568 Notes receivable and accrued interest -- 129,810 157,125 Prepaid expenses and other current assets 150,276 3,168,058 5,584,196 --------------- --------------- ---------------- Total current assets 11,920,977 63,599,051 48,206,508 Property and equipment, at cost: Land 73,911 73,911 73,911 Telecommunications equipment 4,231,380 13,836,841 22,707,786 Furniture and computer equipment 1,833,169 3,395,799 4,598,505 Satellite and related equipment 303,486,227 321,918,549 322,450,415 --------------- --------------- ---------------- 309,624,687 339,225,100 349,830,617 Less: accumulated depreciation (1,628,958) (32,170,865) (57,914,578) --------------- --------------- ---------------- Net property and equipment 307,995,729 307,054,235 291,916,039 Deferred financing costs, net 15,551,956 12,894,720 11,208,678 Other assets, net 4,706,876 5,527,221 4,645,948 --------------- --------------- ---------------- Total assets $340,175,538 $389,075,227 $355,977,173 =============== =============== ================ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $1,154,344 $ 10,454,723 $4,094,026 Accrued liabilities 5,522,220 6,812,223 7,374,884 Other current liabilities -- 2,111,687 5,402,117 Interest payable 7,734,764 8,005,079 3,128,365 Current portion of long-term debt (Note 5) 12,015,663 28,607,110 33,873,930 --------------- --------------- ---------------- Total current liabilities 26,426,991 55,990,822 53,873,322 Long-term debt (Note 5) 230,175,483 250,669,286 221,781,393 Other liabilities 3,091,074 20,698,084 32,878,061 Limited Partners' interest in Orion Atlantic (Notes 1 and 3) 62,519,087 14,626,338 19,961,032 Minority interest in other consolidated entities 57,639 52,354 52,984 Commitments and contingencies (Note 4) Series A 8% Cumulative Redeemable Convertible Preferred Stock, $.01 par value; 15,000 shares authorized; 13,871, 14,491 and 14,500 shares issued and outstanding at September 30, 1996 and December 31, 1995 and 1994, respectively, plus accrued dividends (Note 6) 14,554,693 15,705,054 15,820,460 Series B 8% Cumulative Redeemable Convertible Preferred Stock, $.01 par value; 5,000 shares authorized; 4,298 and 4,483 shares issued and outstanding at September 30, 1996 and December 31, 1995, plus accrued dividends (Note 6) -- 4,652,647 4,718,526 Stockholders' equity (Notes 4 and 6): Common stock, $.01 par value; 40,000,000 shares authorized; 11,232,533, 11,115,965 and 7,045,523 issued, 10,973,018, 10,856,450 and 6,786,008 outstanding at September 30, 1996 and December 31, 1995 and 1994, respectively, less 259,515 held as treasury shares (at no cost) 70,455 111,160 112,325 Capital in excess of par value 33,952,062 85,485,613 86,508,773 Accumulated deficit (30,671,946) (58,916,131) (79,729,703) --------------- --------------- ---------------- Total stockholders' equity 3,350,571 26,680,642 6,891,395 --------------- --------------- ---------------- Total liabilities and stockholders' equity $340,175,538 $389,075,227 $355,977,173 =============== =============== ================
See notes to consolidated financial statements. F-3 ORION NETWORK SYSTEMS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED YEAR ENDED DECEMBER 31, SEPTEMBER 30, ----------------------------------------------- -------------------------------- 1993 1994 1995 1995 1996 --------------- --------------- --------------- --------------- ---------------- (UNAUDITED) (UNAUDITED) Services revenue .......................... $ 2,006,021 $ 3,415,053 $ 22,283,882 $ 13,947,425 $ 30,015,517 Operating expenses: ....................... Direct 2,648,306 3,503,037 10,485,745 10,019,683 4,285,834 Sales and marketing ...................... 1,920,578 5,863,823 8,613,399 5,914,332 7,792,666 Engineering and technical services........ 1,775,261 3,004,144 8,539,644 6,021,853 6,333,525 General and administrative................ 4,731,322 5,058,201 10,072,429 7,168,165 11,469,235 Depreciation and amortization............. 1,752,103 1,716,019 31,403,376 22,276,632 26,402,947 --------------- --------------- --------------- --------------- ---------------- Total operating expenses................. 12,827,570 19,145,224 69,114,593 51,400,665 56,284,207 --------------- --------------- --------------- --------------- ---------------- Loss from operations....................... (10,821,549) (15,730,171) (46,830,711) (37,453,240) (26,268,690) Other expense (income): Interest income........................... (181,707) (413,435) (1,924,822) (1,078,347) (1,841,868) Interest expense.......................... 132,869 60,559 24,738,446 17,080,146 20,228,519 Other..................................... 4,949,722 (54,737) 3,359,853 (43,216) (48,356) --------------- --------------- --------------- --------------- ---------------- Total other expense (income)............. 4,900,884 (407,613) 26,173,477 15,958,583 18,338,295 --------------- --------------- --------------- --------------- ---------------- Loss before minority interest.............. (15,722,433) (15,322,558) (73,004,188) (53,411,823) (44,606,985) Limited Partners' and minority interest in the net loss of Orion Atlantic and other consolidated entities .................... 7,836,362 7,357,640 46,089,010 33,426,738 24,799,698 --------------- --------------- --------------- --------------- ---------------- Net loss................................... (7,886,071) (7,964,918) (26,915,178) (19,985,085) (19,807,287) Preferred stock dividend .................. -- 626,400 1,329,007 959,646 1,006,285 --------------- --------------- --------------- --------------- ---------------- Net loss attributable to common stockholders.............................. $ (7,886,071) $ (8,591,318) $(28,244,185) $(20,944,731) $(20,813,572) =============== =============== =============== =============== ================ Net loss per common share.................. $ (0.85) $ (0.86) $ (3.07) $ (2.42) $ (1.90) =============== =============== =============== =============== ================ Weighted average common shares outstanding............................... 9,266,445 9,272,166 9,103,505 8,522,067 10,943,287 =============== =============== =============== =============== ================
See notes to consolidated financial statements. F-4 ORION NETWORK SYSTEMS, INC. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
COMMON STOCK ------------------------- CAPITAL IN TOTAL TOTAL NUMBER OF EXCESS OF ACCUMULATED STOCKHOLDERS|AL SHARES AMOUNT PAR VALUE DEFICIT EQUITY ------------- ----------- -------------- ---------------- ---------------- Balance at December 31, 1992................. 6,405,732 $ 64,057 $28,608,812 $(14,194,557) $ 14,478,312 Issuance of common stock (Note 6)........... 178,097 1,781 1,804,564 -- 1,806,345 Exercise of stock options................... 165 2 998 -- 1,000 Net loss for 1993........................... -- -- -- (7,886,071) (7,886,071) ------------- ----------- -------------- ---------------- ---------------- Balance at December 31, 1993................. 6,583,994 65,840 30,414,374 (22,080,628) 8,399,586 Issuance of common stock.................... 782,503 7,825 6,326,028 -- 6,333,853 Exercise of stock options................... 31,967 319 208,131 -- 208,450 Conversion of common stock to redeemable preferred stock (Note 6)................... (352,941) (3,529) (2,996,471) -- (3,000,000) Accrued dividend on preferred stock......... -- -- -- (626,400) (626,400) Net loss for 1994........................... -- -- -- (7,964,918) (7,964,918) ------------- ----------- -------------- ---------------- ---------------- Balance at December 31, 1994................. 7,045,523 70,455 33,952,062 (30,671,946) 3,350,571 Issuance of common stock.................... 4,002,941 40,030 50,960,330 -- 51,000,360 Exercise of stock options and warrants...... 67,501 675 573,221 -- 573,896 Accrued dividend on preferred stock......... -- -- -- (1,329,007) (1,329,007) Net loss for 1995........................... -- -- -- (26,915,178) (26,915,178) ------------- ----------- -------------- ---------------- ---------------- Balance at December 31, 1995................. 11,115,965 111,160 85,485,613 (58,916,131) 26,680,642 Conversion of preferred to common........... 91,071 910 804,034 -- 804,944 Exercise of stock options and warrants...... 25,497 255 219,126 -- 219,381 Accrued dividend on preferred stock......... -- -- -- (1,006,285) (1,006,285) Net loss for the nine months ended September 30, 1996................................... -- -- -- (19,807,287) (19,807,287) ------------- ----------- -------------- ---------------- --------------- Balance at September 30, 1996 (unaudited) .. 11,232,533 $112,325 $86,508,773 $(79,729,703) $ 6,891,395 ============= =========== ============== ================ ================
See notes to consolidated financial statements. F-5 ORION NETWORK SYSTEMS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED YEAR ENDED DECEMBER 31, SEPTEMBER 30, -------------------------------------------- --------------------------- 1993 1994 1995 1995 1996 ------------- ------------- ---------------- --------------- --------------- (UNAUDITED) (UNAUDITED) OPERATING ACTIVITIES Net loss............................................ $ (7,886,071) $ (7,964,918) $(26,915,178) $(19,985,085) $(19,807,287) Adjustments to reconcile net loss to net cash used in operating activities: ...................... Depreciation and amortization...................... 1,798,526 1,713,117 31,403,376 22,276,632 26,402,947 Amortization of deferred financing costs........... -- -- 2,130,588 1,597,941 1,597,941 Provision for bad debts............................ -- -- 277,529 671,226 524,999 Satellite incentives and accrued interest.......... -- -- 5,185,834 6,463,771 1,747,334 Limited Partners' interest in Orion Atlantic....... (7,843,860) (7,390,331) (46,109,627) (33,454,227) (24,800,306) Minority interest in other consolidated entities.......................................... 7,496 37,627 20,617 27,489 608 Gain on sale of assets............................. (50,278) (54,737) (59,301) (45,616) (41,054) Changes in operating assets and liabilities: ...... Accounts receivable............................... 63,075 (426,281) (4,915,257) (1,921,320) (1,143,969) Accrued interest.................................. -- -- (129,810) -- (27,315) Prepaid expenses and other current assets......... 197,025 159,030 (3,017,782) (4,261,808) (2,416,138) Other assets...................................... (279,902) 321,443 (519,773) (1,618,912) 427,741 Accounts payable and accrued liabilities.......... 3,125,830 535,092 7,327,377 745,518 (5,818,070) Other current liabilities......................... -- -- 3,670,988 977,374 3,279,274 Interest payable.................................. -- -- (885,106) (1,883,773) (4,876,714) ------------- ------------- ---------------- --------------- --------------- Net cash used in operating activities............... (10,868,159) (13,069,958) (32,535,525) (30,410,790) (24,950,009) INVESTING ACTIVITIES Capital expenditures................................ (44,130,325) (51,103,006) (9,060,412) (3,863,019) (10,266,012) Cost of business acquisition........................ (2,721) -- -- -- -- Refund from satellite manufacturer.................. -- -- 2,750,000 2,750,000 -- FCC license costs................................... (93,545) (96,030) (558,817) (381,337) (117,600) ------------- ------------- ---------------- --------------- --------------- Net cash used in investing activities............... (44,226,591) (51,199,036) (6,869,229) (1,494,356) (10,383,612) FINANCING ACTIVITIES Limited Partners' capital contributions............. -- 4,000,000 7,600,000 7,600,000 30,135,000 Redemption of limited partner interest.............. -- -- (4,450,000) -- -- Expenditures on equity financing costs.............. (31,773) (409,181) -- -- -- Proceeds from issuance of redeemable preferred stock ............................................. -- 10,928,293 4,483,001 51,616,441 219,380 Proceeds from issuance of common stock and ........ subscriptions, net of issuance costs................ 1,807,345 6,542,303 51,974,436 4,483,001 -- PPU borrowings...................................... 1,400,000 4,375,000 2,275,000 2,275,000 -- Proceeds from issuance of notes payable............. 2,146,625 8,136,191 551,850 551,850 -- Proceeds from senior notes payable to banks ........ 45,604,063 36,685,505 18,367,134 18,367,134 -- Repayment of senior notes payable to banks ......... -- -- (12,468,049) (9,718,049) (22,768,340) Repayment of notes payable.......................... (46,320) -- (1,916,966) (1,668,818) (2,328,096) Payments on capital lease obligations............... -- (252,823) (576,727) (416,679) (559,266) Capacity and other liabilities...................... -- 2,101,168 17,483,733 10,662,162 12,179,977 Distributions to joint venture minority interest........................................... (49,073) (22,873) (25,904) (25,904) -- ------------- ------------- ---------------- --------------- --------------- Net cash provided by financing activities .......... 50,830,867 72,083,583 83,297,508 83,726,138 16,878,655 ------------- ------------- ---------------- --------------- --------------- Net increase (decrease) in cash and cash equivalents........................................ (4,263,883) 7,814,589 43,892,754 51,820,992 (18,454,966) Cash and cash equivalents at beginning of period............................................. 7,668,125 3,404,242 11,218,831 11,218,831 55,111,585 ------------- ------------- ---------------- --------------- --------------- Cash and cash equivalents at end of period ......... $ 3,404,242 $ 11,218,831 $ 55,111,585 $ 63,039,823 $ 36,656,619 ============= ============= ================ =============== ===============
See notes to consolidated financial statements. F-6 ORION NETWORK SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (INFORMATION WITH RESPECT TO SEPTEMBER 30, 1996 AND FOR THE NINE MONTHS ENDED SEPTEMBER 1995 AND 1996 IS UNAUDITED) 1. ORGANIZATION Orion Network Systems, Inc. (Orion) was incorporated in the State of Delaware on October 26, 1982 (inception) under the name Orion Satellite Corporation, and in January 1988, changed its name to Orion Network Systems, Inc. Orion has developed and operates an international satellite communications system for use in private communications networks to multinational businesses and transmission capacity for video and other program distribution services. Orion's first satellite (Orion 1) was successfully launched on November 29, 1994. Orion took delivery of the Orion 1 satellite on January 20, 1995. As a result, Orion is no longer considered a development stage enterprise effective January 1995. For periods prior to January 1995, Orion was in the development stage. Since 1989, management has been involved primarily in developing Orion's partnership, International Private Satellite Partners, L.P. (Orion Atlantic), in order to raise the necessary capital to finance the construction and launch of up to two telecommunications satellites in geosynchronous orbit over the Atlantic Ocean and to establish a multinational sales and service organization. Orion has been financed by equity and debt from individual and corporate investors. British Aerospace PLC or its affiliates (BAe) and Lockheed Martin Corporation or its affiliates (Lockheed Martin) are stockholders of Orion, limited partners in Orion Atlantic and were significant contractors in the construction and launch of the satellite system. In June 1991, Orion, through a wholly-owned subsidiary, Orion Satellite Corporation (OrionSat), received a license from the Federal Communications Commission (FCC) authorizing it to construct, launch and operate a satellite system comprised of two satellites to provide international telecommunications services. Pursuant to an application by OrionSat, the license was transferred to Orion Atlantic on April 19, 1994, by order of the FCC. In December 1991, the initial phase of the partnership financing plan was concluded by a closing on equity commitments in the form of limited partnership interests aggregating $90 million and execution of a credit agreement related to senior debt commitments for up to $251 million (see further discussion in Note 3). Also in December 1991, notice to proceed with the construction contract for the first satellite was given to BAe, the prime contractor. OrionSat is the sole general partner in Orion Atlantic and received a 25% equity interest as of the initial closing for, among other things, its contribution of certain rights and interests under its FCC license, certain contract rights, and other tangible and intangible assets. Orion participates as a limited partner with a 16 2/3% equity interest and participates fully in the obligations and rights of the limited partnership. The aggregate ownership interest by Orion and its subsidiaries in Orion Atlantic is 41 2/3% (see Note 3). In August 1995, the Company completed its initial public offering of common stock by selling 4,000,000 common shares at $14 per share. Proceeds to the Company, net of underwriting discount, aggregated approximately $52.25 million. In July 1995, in connection with the planned initial public offering, the shareholders approved a 1 for 1.36 reverse stock split. All references in the consolidated financial statements with regard to shares, per share amounts and share prices have been adjusted for the reverse stock split. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONSOLIDATION POLICY The consolidated financial statements include the accounts of Orion, its two wholly-owned subsidiaries OrionNet, Inc. (OrionNet) and OrionSat, its 83% owned subsidiary, Asia Pacific Space and Communications Ltd. (Asia Pacific) (see Note 7), the Orion Financial Partnership, in which Orion holds a 50% interest, and Orion Atlantic, in which Orion holds, at December 31, 1995, a 41 2/3% ownership F-7 ORION NETWORK SYSTEMS, INC. - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES-(Continued) interest. Management control and direction of Orion Atlantic by OrionSat is a requirement of the FCC in order for Orion Atlantic to continue to hold the license authority received in June 1991. OrionSat, as the general partner of Orion Atlantic, exercises such control through the provisions of the partnership agreement. The amount reflected in the balance sheet as "Limited Partners' interest in Orion Atlantic" represents amounts invested by entities other than Orion (net of syndication costs related to the investments) adjusted for those Limited Partners' share of operating results. All significant intercompany accounts and transactions have been eliminated. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. CASH AND CASH EQUIVALENTS Orion considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. Cash and cash equivalents includes cash in banks and short term investments, as follows: DECEMBER 31, 1995 ------------------ Cash ................ $ 3,091,277 Money market funds . 6,018,925 FHLMC discount notes 11,389,208 Commercial paper ... 34,612,175 ------------------ $55,111,585 ================== The FHLMC discount notes and commercial paper mature between January and March 1996. STATEMENT OF CASH FLOWS Non-cash investing and financing activities and supplemental cash flow information includes:
NINE MONTHS ENDED YEAR ENDED DECEMBER 31, SEPTEMBER 30, ---------------------------------------- -------------------------- 1993 1994 1995 1995 1996 -------------- ------------ ------------ ------------- ------------ Satellite construction costs financed by notes payable $27,517,175 $ 7,862,050 $ -- $ -- $ -- Conversion of common stock to redeemable preferred stock -- 3,000,000 -- -- -- Property and equipment financed by capital leases -- 94,323 4,350,766 -- -- Accrued dividend on preferred stock -- 626,400 1,329,007 959,646 1,006,285 Conversion of preferred stock to common stock -- -- 9,000 -- 804,944 Premium on satellite due to redemption of L.P. interest -- -- 3,066,925 -- -- Redemption of STET interest with notes payable -- -- 8,000,000 -- -- Reduction in amount due to satellite manufacturer -- -- 485,799 -- -- Satellite incentive obligation capitalized -- -- 14,816,406 -- -- Interest paid during the year, net of amounts capitalized 37,983 45,051 11,312,875 10,857,800 11,436,301
F-8 ORION NETWORK SYSTEMS, INC. - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES-(Continued) NET LOSS PER COMMON SHARE Net loss per common share is based on the weighted average number of common shares outstanding during the period. Pursuant to the requirements of the Securities and Exchange Commission, common stock issued and stock issuable relating to convertible preferred stock, warrants and options granted within one year of filing the registration statement relating to the Company's initial public offering of common stock were treated as outstanding for all periods prior to the second quarter of 1995. INTERIM FINANCIAL STATEMENTS The accompanying financial statements as of September 30, 1996 and for the nine months ended September 30, 1995 and 1996 are unaudited but include all adjustments, consisting only of normal recurring accruals, which Orion considers necessary for a fair presentation of financial position and operating results for those interim periods. The operating results for the nine months ended September 30, 1996 are not necessarily indicative of the results that may be expected for the year ended December 31, 1996. PROPERTY AND EQUIPMENT Property and equipment are carried at cost. Depreciation and amortization are calculated using the straight-line method over their estimated useful lives as follows: Satellite and related equipment ..... 10.5 years Telecommunications equipment ....... 2-7 years Furniture and computer equipment ... 2-7 years Costs incurred in connection with the construction and successful deployment of the satellite and related equipment are capitalized. Such costs include direct contract cost, allocated indirect costs, launch costs, launch insurance, construction period interest and the present value of satellite incentive payments, Orion began depreciating the satellite over its estimated useful life commencing on the date of operational delivery in orbit (January 20, 1995). In March 1995, the Financial Accounting Standards Board (FASB) issued Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of", which requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amount. Statement No. 121 also addresses the accounting for long-lived assets that are expected to be disposed of. The effect of adoption was not material. DEFERRED FINANCING COSTS Deferred financing costs related to obtaining debt and Orion's share of equity financing for Orion Atlantic are amortized over the period the debt is expected to be outstanding. Accumulated amortization at September 30, 1996, December 31, 1995 and 1994 was $8,589,000, $6,990,000 and $4,860,000 respectively. Amortization through January 1995 was capitalized as part of the cost of the satellite. Costs of approximately $3.4 million relating to a debt offering which was postponed in November 1995 have been charged to other expense. F-9 ORION NETWORK SYSTEMS, INC. - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES-(Continued) OTHER ASSETS Other assets consist principally of FCC license application costs, organization costs and goodwill. The Company began amortizing FCC license application costs related to Orion 1 in January 1995 and will continue to amortize these costs over the estimated useful life of the satellite. Organization costs and goodwill are amortized over five and ten years respectively. Accumulated amortization at September 30, 1996, December 31, 1995 and 1994 was $3,535,000, $3,069,000 and $1,934,000, respectively. REVENUE RECOGNITION Orion's revenue results from providing telecommunications and related services. Revenue is recognized as earned in the period in which services are provided. The following summarizes the Company's domestic and foreign revenues for 1995: Revenues from unaffiliated customers United States...................... $ 8,528,736 Europe............................. 8,056,146 Revenues from related parties ....... 5,699,000 ------------- Total services revenue............... $22,283,882 ============= INTEREST RATE MODIFICATION AGREEMENTS Orion may, from time to time, enter into interest-rate swap and cap agreements to modify the interest characteristics of its outstanding debt from a floating to a fixed-rate basis. These agreements involve the receipt of floating rate amounts in an exchange for fixed-rate interest payments over the life of the agreement without an exchange of the underlying principal amount. The differential to be paid or received is accrued as interest rates change and recognized as an adjustment to interest expense related to the debt. The related amount payable to or receivable from counterparties is included in interest payable. The fair values of the swap agreements are not recognized in the financial statements. (See Notes 5 and 8) INCOME TAXES The Company adopted the provisions of FASB Statement No. 109, "Accounting for Income Taxes" effective January 1, 1993, and as a result, uses the liability method of accounting for income taxes. There was no cumulative effect to this accounting charge. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. F-10 ORION NETWORK SYSTEMS, INC. - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES-(Continued) Following is a summary of the components of the net deferred tax asset at December 31, 1995 and 1994 (in thousands): Tax benefit of temporary differences: DECEMBER 31, ----------------------- 1994 1995 ----------- ----------- Net operating loss carryforwards $ 12,480 $ 19,463 Orion Atlantic losses ........... (2,040) 1,237 Other ........................... 830 1,056 ----------- ----------- Total ........................... 11,270 21,756 Valuation allowance ............. (11,270) (21,756) ----------- ----------- Net deferred tax asset .......... $ -- $ -- =========== =========== At December 31, 1995, Orion has approximately $51,219,000 in net operating loss carryforwards which expire at varying dates from 2004 through 2010. The use of these loss carryforwards may be limited under the Internal Revenue Code as a result of ownership changes experienced by Orion. Due to uncertainty regarding its ability to realize the benefits of such net operating loss carryforwards, the Company has established a valuation allowance for the full amount of its net operating loss carryforwards. RECLASSIFICATIONS Certain prior year amounts have been reclassified to conform to the current year presentation. 3. ORION ATLANTIC Orion Atlantic is a Delaware limited partnership formed to provide international private communications networks and basic transponder capacity and capacity services (including ancillary ground services) to businesses and institutions with trans-Atlantic and intra-European needs. The business was organized by OrionSat, the general partner of Orion Atlantic. The principal purposes of Orion Atlantic are to finance the construction, launch and operation of up to two telecommunications satellites in geosynchronous orbit over the Atlantic Ocean and to establish a multinational sales and service organization. OrionSat was granted final authority by the FCC on June 27, 1991 to construct, launch and operate an international communications satellite system, including two orbital slots at 37.5' W.L. and 47' W.L. OrionSat, the general partner of Orion Atlantic, entered into an agreement with Orion Atlantic and its limited partners on December 20, 1991, to convey the FCC license to Orion Atlantic. OrionSat filed an application to transfer the satellite authorization to Orion Atlantic in December 1992; the transfer was granted by the FCC on April 19, 1994. Effective January 20, 1995, Orion Atlantic is no longer considered a development stage enterprise. For periods prior to January 1995, Orion Atlantic was considered a development stage enterprise. Eight international corporations, including Orion, invested a total of $90 million in equity as limited partners in Orion Atlantic. Orion Atlantic also has a credit facility which provided up to $251 million for the first satellite from a syndicate of major international banks led by Chase Manhattan Bank, N.A. In addition to their equity investments, the Limited Partners have agreed to lease capacity on the satellites up to an aggregate $155 million and have entered into additional contingent capacity lease contracts ("contingent call") up to an aggregate $271 million, as support for repayment of the senior debt. The firm capacity leases and contingent calls are payable over a seven-year period after the first satellite is placed in service. In July 1995, January and July 1996 the Limited Partners (excluding the Company) paid $7.6 million, $18.0 million and $12.1 million, respectively, pursuant to these contingent calls. F-11 ORION NETWORK SYSTEMS, INC. - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 3. ORION ATLANTIC-(Continued) Satellite Construction Contract -- In December 1991, the contract for construction, launch services, and launch and commissioning insurance for two communications satellites went into effect with OrionSat's rights and obligations under the contract being assigned to Orion Atlantic. During 1993, Orion Atlantic terminated its commitment to purchase the second satellite and, as a result, incurred a $5 million termination charge. Such amount is included in other income (expense) in the accompanying Statements of Operations. The satellite was constructed by MMS Space Systems, Limited ("MMS Space Systems"). The fixed base price of the total contract, excluding obligations relating to satellite performance, aggregated $227 million and has been fully paid at December 31, 1995. In addition to the fixed base price, the contract requires payments to be made, in lieu of a further contract price increase, aggregating approximately $44 million through 2006. Such payments are due, generally, if 24 out of 34 satellite transponders are operating satisfactorily. Shortly after acceptance of the satellite in January 1995, the Company filed a warranty claim with the satellite manufacturer relating to one transponder that did not appear to be performing in accordance with contract specifications. In August 1995, Orion Atlantic received a one time refund of $2.75 million which was applied as a mandatory prepayment to the senior notes payable -- banks (See Note 5). The Company believes that since Orion 1 is properly deployed and operational, based upon industry data and experience, payment of the obligation mentioned above is highly probable and the Company has capitalized the present value of this obligation of approximately $14.8 million as part of the cost of the satellite. Payment of amounts due under this obligation are delayed until payment is permitted under the senior notes payable -- banks (See Note 5). The present value was estimated by discounting the obligation at 14% over the expected term, assuming payment of the incentives begins upon expiration of the senior notes payable -- banks in 2002. Partnership and Limited Partners -- OrionSat has the primary responsibility for the control, management and operations of Orion Atlantic. Under the partnership agreement, the limited partners have rights of approval for a limited number of matters, e.g., terms for acceptance of new partners, significant budget modifications, and certain borrowings. The financing and legal structure of Orion Atlantic restricts the use of partnership resources to the purposes of constructing, launching and operating the satellite system. Cash will be distributable by Orion Atlantic to the partners in the future only after sufficient operating revenues have been generated to pay satellite system operating costs and debt service. Orion and OrionSat will share pro rata with the partners in $28 million of the first $100 million of cash available for distribution to the partners as a return of capital. Thereafter, operating cash flow is distributable based on ownership interests. Condensed balance sheet information for Orion Atlantic at December 31, 1995 and 1994 follows: 1994 1995 --------------- --------------- ASSETS Current assets ........................... $ 5,664,469 $ 14,085,169 Property and equipment, net .............. 306,088,340 303,889,894 Deferred financing costs and other ....... 17,473,547 16,051,517 --------------- --------------- Total assets.............................. $329,226,356 $334,026,580 =============== =============== LIABILITIES AND PARTNERSHIP CAPITAL Current liabilities....................... $ 27,024,035 $ 52,883,250 Long-term debt and other liabilities .... 234,909,566 284,110,104 Partnership capital subject to redemption 10,000,000 -- Partnership capital ...................... 57,292,755 1,533,226 Less: Orion Network Systems, Inc. note .. -- (4,500,000) --------------- --------------- Total liabilities and partnership capital $329,226,356 $334,026,580 =============== =============== F-12 ORION NETWORK SYSTEMS, INC. - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 3. ORION ATLANTIC-(Continued) Redemption of STET Partnership Interest; Issuance of New Interest to Orion. - -- On November 21, 1995 Orion Atlantic redeemed the limited partnership interest held by STET (the "STET Redemption"). Such redemption was for $11.5 million, including $3.5 million of cash and $8.0 million in 12%, promissory notes due through 1997. STET's firm and contingent capacity leases will remain in place until released by the Banks under the Orion 1 Credit Facility. STET's existing contractual arrangements with Orion Atlantic have been modified in a number of respects, including (i) a reduction of approximately $3.5 million in amounts due by Orion Atlantic to Telespazio S.p.A., an affiliate of STET, over a ten-year period under contracts relating to the construction of Orion 2, back-up tracking, telemetry and command services through a facility in Italy and engineering consulting services, (ii) the establishment of ground operations and distribution agreements between Orion Atlantic and Telecom Italia, a subsidiary of STET, relating to Italy, and the granting to Telecom Italia of exclusive marketing rights relating to Italy for a period ending December 1998 conditioned upon Telecom Italia achieving certain sales quotas, and (iii) canceling exclusive ground operations and sales representation agreements between Orion Atlantic and STET (or its affiliates) relating to Eastern Europe. Orion Atlantic funded the STET Redemption by selling a new limited partnership interest to Orion for $8 million (including $3.5 million in cash and $4.5 million in 12% promissory notes due through 1997). In connection with the STET redemption, Orion agreed to indemnify Telecom Italia for payments which were made in July 1995 of $950,000 and which would be made in the future under its firm and contingent capacity agreements with Orion Atlantic and posted a $10 million letter of credit to support such indemnity. The Company has accounted for this transaction as an acquisition of a minority interest and, as a result, approximately $3.1 million has been allocated to the cost of the satellite and related equipment. Other Transactions Involving Limited Partners -- Certain Limited Partners were also subcontractors under the satellite construction contract. Orion Atlantic also has contracted with Limited Partners or their affiliates for certain consulting, post-launch support services and other services related to developing the business. Approximately $5.0 million has been incurred under these agreements, all of which was capitalized. During 1995, Orion Atlantic entered into agreements with certain Limited Partners (including the Company) under which the participating Limited Partners would voluntarily give up their rights to receive capacity under their firm capacity agreements through January 1996. The participating Limited Partners would continue to make payments for such capacity but would have the right to receive refunds from Orion Atlantic out of cash available after operating costs and payments under the Credit Facility. Through December 31, 1995, Orion Atlantic has received $14.1 million (excluding payments from the Company) under the firm capacity agreements subject to refund, which amount is included in the balance sheet caption "Other liabilities." In addition, services revenue included $5.7 million in 1995 from Limited Partners pursuant to the firm capacity commitments, not subject to refund. 4. COMMITMENTS AND CONTINGENCIES Obligations with Respect to Orion Atlantic -- Orion presently has certain significant obligations to Orion Atlantic and the Limited Partners, including commitments under satellite capacity agreements between Orion and Orion Atlantic, under which Orion will be liable to pay Orion Atlantic approximately $2.5 million per year for seven years for satellite capacity and is contingently liable for up to an additional $4.3 million per year for up to seven years if Orion Atlantic experiences cash flow deficits commencing when Orion Atlantic's first satellite begins commercial operations; and reimbursement (jointly and severally with OrionSat) with respect to a $10 million letter of credit provided by OrionSat to a limited partner, which is secured by 259,515 shares of Orion's common stock held in treasury and cash distributions that Orion and OrionSat may receive with respect to their partnership interests in Orion Atlantic. F-13 ORION NETWORK SYSTEMS, INC. - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 4. COMMITMENTS AND CONTINGENCIES-(Continued) Orion 1 satellite -- In November 1995, a portion of the Orion 1 satellite experienced an anomaly that resulted in a temporary service interruption, lasting approximately two hours, in the dedicated capacity serving the European portion of Orion Atlantic's services. The nine affected transponders account for a majority of Orion Atlantic's present revenues. Full service to all affected customers was restored using redundant equipment on the satellite. Orion Atlantic believes, based on the data and the Telesat Report (issued by Telesat Canada, independent engineering consultants dated November 14, 1995), that, because the redundant component is functioning fully in accordance with specifications and the performance record of similar components is strong, the anomalous behavior is unlikely to affect the expected performance of the satellite over its useful life. Furthermore, there has been no effect on Orion Atlantic's ability to provide services to customers. However, in the event that the currently operating component fails, Orion 1 would experience a significant loss of usable capacity. In such event, while Orion Atlantic would be entitled to insurance proceeds of approximately $50 million and could lease replacement capacity and function as a reseller with respect to such capacity (at reduced levels of profitability), the loss of capacity would have a material adverse effect on Orion and on Orion Atlantic. Orion 2 satellite -- In connection with the proposed financing of Orion 2, a subsidiary of Orion Atlantic entered into a satellite construction contract for Orion 2 with MMS Space Systems, subject to completion of proposed financing. Depending upon the timing and terms and conditions of the financing for Orion 2 and the then satellite design, the Company may seek to renew this satellite contract with MMS Space Systems. There can be no assurance that the terms of a new satellite contract will resemble those of the satellite contract with MMS Space Systems. The Company expects to use Orion Atlantic's Tracking, Telemetry and Control (TT&C) facility to control Orion 2 (although authorizations will be needed). Eutelsat Lease -- In January 1993, Orion Atlantic entered into a lease, which expired in December 1994, with one of its limited partners under which Orion Atlantic leased one-half of a transponder on a EUTELSAT satellite for use in providing private network services prior to the operational delivery of Orion 1. The lease required quarterly payments of $481,000 of which $855,000 was deferred by the limited partner until March 1995. Rent under this lease totaled $1.9 million in 1994 and $1.8 million in 1993. Litigation -- In October 1995, Skydata Corporation ("Skydata"), a former contractor, filed suit against Orion Atlantic, Orion Satellite Corporation and Orion, in the United States District Court for the Middle District of Florida, claiming that certain Orion Atlantic operations using frame relay switches infringe a Skydata patent. Skydata's suit sought damages in excess of $10 million and asked that any damages assessed be trebled. On December 11, 1995, the Orion parties filed a motion to dismiss the lawsuit on the grounds of lack of jurisdiction and violation of a mandatory arbitration agreement. In addition, on December 19, 1995, the Orion parties filed a Demand for Arbitration against Skydata with the American Arbitration Association in Atlanta, Georgia, requesting damages in excess of $100,000 for breach of contract and declarations, among other things, that Orion and Orion Atlantic own a royalty-free license to the patent, that the patent is invalid and unenforceable and that Orion and Orion Atlantic have not infringed on the patent. See Note 11. While Orion is party to regulatory proceedings incident to the business of Orion, there are no other material legal proceedings pending or, to the knowledge of management, threatened against Orion or its subsidiaries. Other -- Orion has entered into operating leases, principally for office space. Rent expense was $735,000, $668,000 and $661,000 during 1995, 1994, and 1993, respectively. F-14 ORION NETWORK SYSTEMS, INC. - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 4. COMMITMENTS AND CONTINGENCIES-(Continued) Future minimum lease payments are as follows: 1996... $ 774,357 1997... 793,716 1998... 887,138 1999 . 907,477 ------------ $3,362,688 ============ 5. LONG-TERM DEBT Long-term debt consists of the following: DECEMBER 31, ------------------------------- 1994 1995 --------------- --------------- Senior notes payable -- banks .... $224,584,097 $230,483,182 Note payable -- TT&C Facility .... 9,348,730 8,774,266 Satellite incentive obligation .... -- 20,002,240 Notes payable -- STET.............. -- 8,000,000 Notes payable -- Limited Partners . 5,775,000 8,050,000 Other.............................. 2,483,319 3,966,708 --------------- --------------- Total long-term debt ............. 242,191,146 279,276,396 Less: current portion ............. 12,015,663 28,607,110 --------------- --------------- Long-term debt less current portion.......................... $230,175,483 $250,669,286 =============== =============== Total interest (including commitment fees and amortization of deferred financing costs) incurred for the years ended December 31, 1995, 1994 and 1993 was $26.0, $27.0, and $16.3 million, respectively. Substantially all of the interest incurred in 1994 and 1993 has been capitalized, while approximately $1.3 million of interest was capitalized in 1995. Aggregate annual maturities of long-term debt consist of the following (in thousands): 1996........ $ 28,607 1997........ 34,917 1998........ 34,358 1999........ 46,853 2000........ 43,590 Thereafter . 90,951 ---------- $279,276 ========== Senior Notes Payable to Banks -- In December 1991, OrionSat, on behalf of Orion Atlantic, executed a credit agreement for up to $400 million of senior debt from an international banking syndicate. Amounts advanced under the credit facility are secured by the assets of Orion Atlantic and are due over seven years in graduated installments beginning July 31, 1995. The credit agreement prohibits the extension of credit by Orion Atlantic to any affiliate of the partnership, as defined. Accordingly, Orion Atlantic may not loan or advance funds to the Company or its affiliates. The credit agreement also restricts distributions to the partners. At December 31, 1995, none of Orion Atlantic's capital was available for distribution. The credit facility has a number of other customary covenants and requirements, including the Banks' approval of significant changes to the construction contract and increases in F-15 ORION NETWORK SYSTEMS, INC. - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 5. LONG-TERM DEBT-(Continued) budgeted costs. The Banks also have full recourse to OrionSat as general partner, and Orion has pledged its investment in the common stock of OrionSat and its limited partner ownership interest to the Banks. Amounts outstanding under the credit facility bear interest at 1.75% over the LIBOR (7.68% at December 31, 1995). Orion Atlantic has entered into agreements with Chase Manhattan Bank, N.A. (Chase) for interest rate hedging arrangements which fixed the maximum interest rate through November 1995 at 11.54%. Thereafter a self funding interest rate cap agreement is in place relating to a notional amount declining every six months from $150 million effective November 30, 1995 to $15.6 million effective March 31, 2001. Under the terms of the cap agreement, when LIBOR equals or exceeds 5.5% Orion Atlantic pays Chase a fee equal to 3.3% per annum of the notional amount and receives a payment from Chase in an amount equal to the difference between the actual LIBOR rate and 5.5% on the notional amount. There was an unrealized loss as of December 31, 1995 of approximately $4.6 million relating to these arrangements. Commitment fees of 0.5% of the unused Credit Facility are payable semiannually. Note Payable -- TT&C Facility -- Orion Atlantic entered into a financing arrangement with General Electric Capital Corporation ("GECC") to finance the Tracking Telemetry and Control (TT&C) Facility. The TT&C arrangement calls for a note payable, the maximum amount of which is $11 million of which up to $8.9 million is for payment to Lockheed Martin under the Satellite Control System Contract, with the remaining balance available to be drawn to finance the cost of launch insurance required for the benefit of GECC. In June 1995, Orion Atlantic accepted the TT&C Facility and Orion Atlantic refinanced $9.3 million from GECC as a seven-year term loan, payable monthly. Orion Atlantic made a mandatory prepayment of $1 million in January 1996. The interest rate is fixed at a 13.5%. The TT&C debt is secured by the TT&C Facility, the Satellite Control System Contract and Orion Atlantic's leasehold interest in the TT&C Facility land. The TT&C financing agreement contains similar representations, warranties and covenants to those in the senior notes. Satellite incentive obligation -- The obligations relating to satellite performance (see Note 3) have been recorded at the present value (discounted at 14%, the Company's estimated incremental borrowing rate for unsecured financing) of the required payments commencing at the maturity of the senior notes payable to banks and continuing through 2006. Under the terms of the construction contract, payment of the obligation is delayed until such time as payment is permitted under the senior notes payable to banks. Notes Payable -- STET -- In connection with the STET Redemption (see Note 3), the Company issued STET $8 million of promissory notes which bear interest at 12% per annum. Payments are due as follows: $2.5 million plus accrued interest on December 31, 1996; $3.5 million plus accrued interest on the earlier of December 31, 1997 or the refinancing of the senior notes payable to banks; and the remaining $2.0 million in monthly installments of $0.2 million plus accrued interest beginning January 1997. Notes Payable -- Limited Partners -- In 1993, Orion Atlantic received commitments for Preferred Participation Units (PPUs) aggregating $9.5 million from certain Limited Partners (including $1.5 million from Orion Network Systems) for development of Orion Atlantic's network services business. Holders of PPUs earn interest on aggregate amounts drawn at the rate of 30% per annum, of which 6% is paid and the remainder accrued, but not paid until July 1, 1995, at which time interest and principal payments due are subordinated to operating requirements and senior notes debt service but are payable prior to distributions to Limited Partners. Principal amounts drawn are payable on February 1, 1999. Principal amounts may be prepaid without penalty on or after January 1, 1996. F-16 ORION NETWORK SYSTEMS, INC. - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 6. REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY The Company has authorized 1,000,000 shares of $0.01 par value preferred stock. Redeemable Preferred Stock In June 1994, Orion issued 11,500 shares of Series A 8% Cumulative Redeemable Convertible Preferred Stock at $1,000 per share and granted an option to purchase an additional 3,833 shares of similar preferred stock at $1,000 per share. Dividends on preferred stock accrue at 8% per year and are payable as and when declared. Orion may redeem the preferred stock at the amount invested plus accrued and unpaid dividends. Upon such a redemption, the preferred stockholders would receive a warrant to acquire at $8.50 per share the number of shares of common stock into which the preferred stock was convertible. The 11,500 shares issued are convertible into 1,352,941 shares of common stock ($8.50 per share). Upon conversion any accrued and unpaid dividends would be waived. Orion may require conversion of the preferred stock beginning in June 1996 if certain conditions are met. The preferred stock has a liquidation preference equal to the amount invested plus accrued and unpaid dividends. Preferred stockholders are entitled to vote on an as-converted basis and have the right to put the stock to Orion upon a merger, change of control or sale of substantially all assets at the greater of liquidation value or fair value. The put expires upon the completion of a qualified public equity offering, as defined. If the preferred stock is not previously redeemed or converted to common stock, the preferred stockholders also have the right to put the stock to Orion as follows: 33 1/3% beginning in June 1999; 66 2/3% beginning in June 2000; and 100% beginning in June 2001. After Orion issued preferred stock (along with warrants and options to make an additional investment) in June 1994, the Directors and affiliates of Directors who purchased common stock in December 1993 and the institutions and other investors who purchased common stock in June 1994 each exercised its right to receive preferred stock (along with warrants and options to make an additional investment) in exchange for the common stock previously acquired and Orion issued an aggregate of 3,000 shares of Series A Preferred Stock and related options for 1,000 shares to such persons and entities, of which 9 shares of preferred stock were converted into 1,058 shares of common stock. The remaining 2,991 shares issued are convertible into 351,882 shares of common stock and the preferred stock underlying the options are convertible into 98,039 shares of common stock. In June 1995, certain Directors, affiliates of Directors, and certain holders of Series A Preferred Stock purchased 4,483 shares of Series B Preferred Stock for approximately $4.5 million. This purchase was pursuant to an option granted in June 1995 to purchase $1 of preferred stock similar to the Series A Preferred Stock for each $3 of Series A Preferred Stock purchased in June 1994, except that such similar preferred stock would be convertible at any time with Common Stock at a price within a range of $10.20 to $17.00 per share of common stock based upon when the option is exercised. The Series B Preferred Stock has rights, designations and preferences substantially similar to those of the Series A Preferred Stock, and is subject to similar covenants, except that the Series B Preferred Stock is convertible into 439,510 shares of Common Stock at an initial price of $10.20 per share, subject to certain anti-dilution adjustments, and purchases of Series B Preferred Stock did not result in the purchaser receiving any rights to purchase additional preferred stock. Stockholders' Equity In December 1993, 178,097 shares of Common Stock were issued at $10.20 per share to new and existing shareholders. In May 1994, Orion issued 588,235 shares of common stock at $8.50 per share to Space Systems Loral pursuant to a stock purchase agreement. In May 1994, 19,424 shares of common stock were issued at $10.20 per share to new and existing shareholders. F-17 ORION NETWORK SYSTEMS, INC. - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 6. REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY-(Continued) In June 1994, Orion issued an aggregate of 174,844 shares of common stock to a limited number of institutions and other investors at a purchase price of $8.50 per share. The December 1993 and June 1994 common stock purchases were subsequently converted to redeemable preferred stock. Stock Options -- In 1987, Orion adopted a stock option plan. Under this plan, as amended, 1,470,588 shares of common stock are reserved for issuance upon exercise of options granted. Shares of common stock may be purchased under this plan at prices not less than the fair market value, as determined by the Board of Directors, on the date the option is granted. The Board of Directors also has granted nonqualified options to purchase 53,341 shares of common stock outside the plan described at prices ranging from $5.44 to $12.24 per share. Stock options outstanding at December 31:
1993 1994 1995 --------------- ---------------- ---------------- Range of exercise price ......... $5.44 - 15.00 $5.44 - 12.24 $5.44 - 12.24 --------------- ---------------- ---------------- Outstanding at beginning of year 555,581 871,464 804,056 Granted during year ............. 374,448 37,867 380,069 Exercised ....................... (165) (31,967) (60,928) Canceled ........................ (58,400) (73,308) (151,728) --------------- ---------------- ---------------- Outstanding at end of year ..... 871,464 804,056 971,469 =============== ================ ================
In November 1993, options for 95,588 shares of common stock were granted to key executives which may be exercised only upon the achievement of certain business and financial objectives. In 1995 and 1994, these executives earned the right to exercise 11,029 and 29,410 of these options based on the achievement of such objectives. The options vest annually over a one to five-year period. All options are exercisable up to seven years from the date of grant. There are approximately 499,119 shares available to be granted under the plan. As of December 31, 1995, 356,226 qualified and nonqualified options were exercisable. Stock Warrants -- Orion issued stock warrants to a financial advisor in 1991 entitling the financial advisor to purchase 43,049 shares of common stock at a price of $11.56 a share. Also, in 1991, as an inducement to Chase to provide partnership bridge equity if required, Orion issued stock warrants entitling Chase to purchase up to 73,529 shares of common stock at $11.56 per share. These warrants expire in 1996. Finally, as an inducement to two limited partners to incur satellite capacity obligations required by the senior debt lender, Orion issued warrants for the purchase of an aggregate 129,757 shares of common stock at $11.56 per share. These warrants expire in 1996. See Note 11. Warrants have been issued, in conjunction with loans to Orion by certain stockholders and members of executive management (since repaid or converted to common stock), to acquire 483,823 shares of Orion's common stock at $11.56 to $12.92 per share through 1997. The exercise price of these warrants was equal to or above the fair value of the stock at the time of issuance; accordingly, no value was allocated to the warrants. Total warrants outstanding were 553,768 at December 31, 1995 and 735,769 at December 31, 1994 and 1993. The holders of preferred stock also hold warrants to purchase 1,704,824 shares of common stock at the conversion price of such preferred stock. These warrants do not become exercisable unless Orion exercises its right to repurchase the preferred stock at the liquidation value, plus accrued and unpaid dividends. F-18 ORION NETWORK SYSTEMS, INC. - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 6. REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY-(Continued) The Company has elected to continue to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25) and related Interpretations in accounting for its employee stock based award programs, because the alternative fair value accounting provided for under FASB Statement No. 123, "Accounting for Stock Based Compensation" which is effective for awards after January 1, 1996 requires use of option valuation models that were not developed for use in valuing employee stock options. Under APB 25, when the exercise price of the employee award equals the market price of the underlying stock on the date of grant, as has been the case historically with the Company's awards, no compensation expense is recognized. 7. INVESTMENT IN ASIA PACIFIC In January 1990, Orion entered into an arrangement with Asia Pacific whereby each company exchanged into escrow common shares having a market value of $500,000. In this exchange, Orion received 250,000 shares of Asia Pacific common stock representing at that time an 11% ownership interest, for which it issued 51,061 shares of common stock at a value of $9.79 per share to Asia Pacific. The assigned value of the Asia Pacific shares received of $500,000 was recorded as a reduction to stockholders' equity. In 1992, the Board of Directors of Orion authorized the acquisition of up to 100% of Asia Pacific's outstanding common stock. As a result of this new agreement, the January 1990 transaction was rescinded and the shares held in escrow were returned to the respective companies. The acquisition of an 83% interest in Asia Pacific was finalized and executed in December 1992, resulting in the exchange of 289,147 shares of Orion's common stock for 2,089,392 shares of Asia Pacific common stock. The acquisition was accounted for as a purchase. Asia Pacific is a development stage enterprise. 8. FAIR VALUES OF FINANCIAL INSTRUMENTS Other than amounts due under the senior notes payable to banks, Orion believes that the carrying amount reported in the balance sheet of its other financial assets and liabilities approximates their fair value. The fair value of Orion Atlantic's senior notes payable to banks at December 31, 1995 is estimated to be $235.1 million based on the principal balance outstanding, net of the estimated fair value of the interest rate modification agreement, which approximates an implicit loss of $4.6 million. Credit risk exists if the counterparty is not able to make the required payments to Orion under these agreements. Orion believes the risk to be remote. F-19 ORION NETWORK SYSTEMS, INC. - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 9. CONDENSED FINANCIAL INFORMATION OF ORION As described in Notes 3 and 5, the net assets, credit facilities and other resources of Orion Atlantic are restricted to the construction and operation of the satellite system. Presented below are condensed balance sheets of Orion (parent company only basis) at December 31, 1995 and 1994 and condensed statements of operations and cash flows for the years ended December 31, 1995, 1994 and 1993. All material contingencies, obligations and guarantees of Orion have been separately disclosed in the preceding notes to the financial statements.
DECEMBER 31, ------------------------------ 1994 1995 -------------- --------------- ASSETS Current assets: Cash and cash equivalents ........................ $ 6,201,941 $ 48,797,627 Receivable from Orion Atlantic ................... 2,071,547 1,217,169 Other current assets ............................. 215,985 611,391 -------------- --------------- Total current assets............................. 8,489,473 50,626,187 Investment in and advances to subsidiaries: OrionNet.......................................... 2,477,943 5,993,628 OrionSat.......................................... (2,793,608) (20,496,009) Asia Pacific ..................................... 1,870,508 1,634,048 Orion Atlantic ................................... 7,800,544 10,585,573 Other assets....................................... 1,710,080 6,256,742 -------------- --------------- Total assets....................................... $19,554,940 $ 54,600,169 ============== =============== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: .............................. Notes and interest payable to Orion Atlantic ..... $ -- $ 2,482,667 Accounts payable and accrued liabilities.......... 860,191 2,361,291 -------------- --------------- Total current liabilities........................ 860,191 4,843,958 Notes and interest payable to Orion Atlantic ...... -- 2,077,327 Other liabilities.................................. 789,485 640,542 Redeemable preferred stock......................... 14,554,693 20,357,701 Stockholders' equity............................... 3,350,571 26,680,642 -------------- --------------- Total stockholders' equity......................... $19,554,940 $ 54,600,169 ============== ===============
CONDENSED STATEMENTS OF OPERATIONS OF ORION NETWORK SYSTEMS, INC.
1993 1994 1995 --------------- --------------- --------------- Services revenue.................... $ -- $ -- $ -- Costs and expenses: ................ General and administrative.......... 2,855,646 2,487,201 4,204,011 Interest expense (income)........... 197,673 (243,152) (1,834,589) --------------- --------------- --------------- Total costs and expenses............ 3,053,319 2,244,049 2,369,422 Equity in net losses of subsidiaries........................ 4,832,752 5,720,869 24,545,756 --------------- --------------- --------------- Net loss............................ $(7,886,071) $(7,964,918) $(26,915,178) =============== =============== ===============
F-20 ORION NETWORK SYSTEMS, INC. - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 9. CONDENSED FINANCIAL INFORMATION OF ORION-(Continued) CONDENSED STATEMENTS OF CASH FLOWS OF ORION NETWORK SYSTEMS, INC.
1993 1994 1995 --------------- --------------- -------------- Net cash used in operations.......................... $(2,319,221) $(2,709,307) $(4,107,237) Investing activities: Advances to subsidiaries............................ (1,115,662) (2,973,264) (3,264,024) Investment in Orion Atlantic........................ -- -- (5,400,000) Capital expenditures................................ (106,835) (771,890) (597,698) Acquisition of Asia Pacific......................... (2,721) -- -- --------------- --------------- -------------- (1,225,218) (3,745,154) (9,261,722) Financing activities: Proceeds from issuance of redeemable preferred stock -- 10,928,293 4,483,001 Proceeds from issuance of common stock............... 1,807,345 6,542,303 51,974,436 PPU funding.......................................... (280,000) (765,000) (455,000) Proceeds from issuance of notes payable.............. 326,511 -- -- Repayment of notes payable........................... (46,318) (5,648,535) (37,792) --------------- --------------- -------------- 1,807,538 11,057,061 55,964,645 --------------- --------------- -------------- Net increase (decrease) in cash ..................... (1,736,901) 4,602,600 42,595,686 Cash and cash equivalents at beginning of year ..... 3,336,242 1,599,341 6,201,941 --------------- --------------- -------------- Cash and cash equivalents at end of year ............ $ 1,599,341 $ 6,201,941 $48,797,627 =============== =============== ==============
Basis of presentation -- In these parent company-only condensed financial statements, Orion's investment in subsidiaries is stated at cost less equity in the losses of subsidiaries since date of inception or acquisition. 10. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) The following is a summary of the quarterly results of operations for the years-ended December 31, 1995 and 1994:
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 ----------- ----------- --------------- ------------- (IN THOUSANDS, EXCEPT PER SHARE DATA) 1995 Revenues ................... $ 2,508 $ 5,238 $ 6,201 $ 8,336 Loss from operations........ (11,891) (12,038) (13,525) (9,377) Loss before minority interest................... (15,978) (18,248) (19,186) (19,592) Net loss.................... (5,996) (6,991) (6,998) (6,930) Net loss per share.......... (0.64) (0.75) (0.78) (0.67) 1994 Revenues ................... $ 616 $ 718 $ 896 $ 1,185 Loss from operations........ (3,211) (4,233) (3,651) (4,636) Loss before minority interest................... (3,190) (4,044) (3,638) (4,451) Net loss.................... (1,786) (1,928) (2,217) (2,034) Net loss per share.......... (0.19) (0.21) (0.24) (0.22)
F-21 ORION NETWORK SYSTEMS, INC. - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 11. SUBSEQUENT EVENTS (UNAUDITED) In July 1996, Orion entered into an Exchange Agreement (the "Exchange Agreement") with the Limited Partners that hold 58 1/3% of the partnership interests in Orion Atlantic. Pursuant to the Exchange Agreement, Orion will acquire all of the interests held by the Limited Partners, as well as approximately $38 million of Orion Atlantic indebtedness to Limited Partners in exchange for a newly issued series of redeemable convertible preferred stock in Orion and the release of certain credit support obligations of the Limited Partners. The Exchange Agreement is conditioned upon a number of events including, among other things, shareholder approval, the British Aerospace and Matra Marconi Space debenture investments, the acquisition of the minority interest of Asia Pacific held by British Aerospace, and the refinancing of the Orion 1 Credit Facility, all as described below. Orion intends to enter into an agreement with an affiliate of British Aerospace to acquire their 17% outstanding minority interest in Asia Pacific for approximately 86,000 shares of Orion Common Stock. Orion has entered into a Memorandum of Agreement, effective December 6, 1996, for procurement of Orion 2 spacecraft with Matra Marconi Space with an aggregate contract value of $200.8 million, excluding launch insurance. On December 13, 1996, OAP entered into an Authorization to Proceed Agreement with Hughes Space and Communications International for the procurement of Orion 3 spacecraft with an aggregate contract value, subject to execution of a definitive agreement, of $208 million, excluding launch insurance. Construction of Orion 3 commenced in mid-December 1996. The Company intends to file a Registration Statement with the Securities and Exchange Commission pursuant to which the Company will offer to sell an aggregate of $222 million of Units consisting of Senior Notes, due 2007 and warrants to purchase common stock, and an aggregate of $125 million of Units consisting of Senior Discount Notes due 2007 and warrants to purchase common stock (the "Offering"). The proceeds from this offering are intended to be used primarily to refinance the Orion 1 Credit Facility. Concurrently with the Offering, British Aerospace and Matra Marconi Space have committed to purchase $50 million and $10 million of convertible junior subordinated debentures, respectively. Such debentures are expected to bear interest at 8.75% payable semiannually in Orion common stock (valued at up to $14.00 per share) until maturity in 2012. The Offering is conditioned on consummation of the Exchange, repayment of the Orion 1 Credit Facility with proceeds of the Offering and the British Aerospace and Matra Marconi Space debenture investments; the Exchange is conditioned on, among other things, the Orion 2 Satellite Contract, which has been entered into, and approval of the Orion stockholders, expected to occur prior to the pricing of the Offering; and the British Aerospace debenture investment is conditioned on Orion's acquisition of the remaining minority interest in Asia Pacific, which has occurred or is in the process of occurring. In November 1996, Orion entered into a contract with DACOM Corp. ("DACOM"), a Korean communications company, under which DACOM will lease eight dedicated transponders on Orion 3 for 13 years, in return for approximately $89 million, which is payable over a period from December 1996 through six months following the lease commencement date for the transponders (which is scheduled to occur by January 1999). DACOM is to deposit funds with Orion in accordance with a milestone schedule. It has the right to terminate the contract at any time prior to March 31, 1997, upon which termination Orion would be entitled to retain all deposited funds. Prior to launch, payments will be held in escrow and are subject to refund pending the successful launch and commencement of commercial operation of Orion 3. In November 1996, Orion granted an option to Dacom to purchase 50,000 shares of common stock at a price of $14.00 per share. The warrant is exercisable for a six-month period beginning six months after the commencement date, as defined in the Joint Investment Agreement, and ending one year after commencement date and will terminate at that time or at any time the Joint Investment Agreement is terminated. F-22 ORION NETWORK SYSTEMS, INC. - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 11. SUBSEQUENT EVENTS (UNAUDITED)-(Continued) In January 1997, Orion issued an aggregate of approximately 86,500 shares of Common Stock to British Aerospace, one of the Company's principal stockholders which has a representative on the Company's Board of Directors. Such issuance was pursuant to the exercise of a warrant granted in December 1991 in connection with the formation of Orion Atlantic. Litigation. In connection with the Skydata suit discussed in Note 4, on March 5, 1996, the court granted the Company's motion to dismiss the lawsuit on the basis that Skydata's claims are subject to arbitration. Skydata appealed the dismissal to the United States Court of Appeals to the Federal Circuit. Skydata also filed a counterclaim in the arbitration proceedings asserting a claim for $2 million damages as a result of the conduct of Orion and its affiliates. On May 15, 1996, the arbitrator granted the Orion parties' request for an initial hearing on claims relating to the Orion parties' rights to the patent, including the co-ownership claim and other contractual claims. This initial hearing was scheduled to take place in November 1996. On November 9, 1996, Orion and Skydata executed a letter to settle in full the pending litigation and arbitration. As part of the settlement, the parties are to release all claims by either side relating in any way to the patent and/or the pending litigation and arbitration. In addition, Skydata is to grant Orion (and its affiliates) an unrestricted paid-up license to make, have made, use or sell products or methods under the patent and all other corresponding continuation and reissue patents. Orion is to pay Skydata $437,000 over a period of two years as part of the settlement. The parties are in the process of documenting the terms of the settlement in a formal settlement agreement. F-23 GLOSSARY ORION, ITS PARTNERS AND CREDITORS: Banks A syndicate of international banks that are parties to the Orion 1 Credit Facility. British Aerospace British Aerospace Public Limited Company, one of the world's leading aerospace organizations, and its affiliates, including its subsidiary British Aerospace Communications, Inc., a Limited Partner. Kingston Satellite Services, a joint venture between Kingston Communications and British Aerospace, serves as sales representative and ground operator for Orion in the United Kingdom. COM DEV COM DEV Satellite Communications Limited, a Limited Partner and a subsidiary of COM DEV, Limited. COM DEV, Limited is also a supplier of value-added satellite communications services, products for wireless personal communications and satellite remote sensing data. GECC General Electric Capital Corporation, the lender for the TT&C Financing. Kingston Communications Kingston Communications International Limited, a Limited Partner and a subsidiary of Kingston Communications (Hull) plc, the only municipally-owned telephone company in the United Kingdom. Kingston Satellite Services, a joint venture between Kingston Communications and British Aerospace, serves as sales representative and ground operator for Orion in the United Kingdom. Limited Partners The limited partners in Orion Atlantic, including British Aerospace Communications, Inc., COM DEV, Kingston Communications, Lockheed Martin CLS, MCN Sat US, Inc. and Trans-Atlantic Satellite, Inc. Lockheed Martin Lockheed Martin Corporation, a major manufacturer of aerospace and military equipment, and the ultimate parent company of Lockheed Martin CLS, a Limited Partner and the launch subcontractor under the Orion 1 Satellite Contract. Lockheed Martin CLS acquired the assets of General Dynamics Commercial Launch Services through a transfer of assets from Martin Marietta Corporation, which in turn acquired these and other assets (including the Atlas family of launch vehicles) from General Dynamics Corporation in 1994. Lockheed Martin CLS Lockheed Martin Commercial Launch Services, Inc., a Limited Partner and a subsidiary of Martin Marietta Technologies, Inc., a Lockheed Martin company. Lockheed Martin CLS acquired the assets of General Dynamics Commercial Launch Services through a transfer of assets from Martin Marietta Corporation, which in turn acquired these and other assets (including the Atlas family of launch vehicles) from General Dynamics Corporation in 1994. Lockheed Martin CLS is a commercial launch services provider and provided launch services to Orion as the launch subcontractor under the Orion 1 Satellite Contract. Lockheed Martin CLS became a Limited Partner by acquiring the limited partnership interest of General Dynamics CLS in the 1994 transaction described above. G-1 Matra Hachette Matra Hachette, an aerospace, defense, industrial and media company and part of the Lagardere Groupe of France, and the parent company of MCN Sat US, Inc., a Limited Partner. Matra Hachette is one of the parent companies of Matra Marconi Space which is the parent company of MMS Space Systems, the prime contractor for Orion 1, and the manufacturer under the Orion 2 Satellite Contract. Nissho Iwai Corp Nissho Iwai Corporation, is a trading company in Japan, and the parent company of Trans-Atlantic Satellite, Inc., a Limited Partner. Orion (1) the combined operations of Orion Network Systems, Inc., a Delaware corporation, and its subsidiaries (collectively, the "Operating Company"), prior to the date of the merger of a newly formed subsidiary ("Merger Sub") of Orion Newco Services, Inc., a recently formed Delaware corporation ("Orion Newco"), into the Operating Company (the "Merger") and (2) Orion and its subsidiaries, including the Operating Company, after the Merger. Orion 1 Credit Facility A facility of up to $251 million of senior debt provided to finance Orion 1, which will be repaid with proceeds of the Notes Offering. Orion Asia Pacific Asia Pacific Space and Communications, Ltd., a Delaware corporation. Orion acquired 83% of the stock of such company in December 1992 and will acquire the remaining 17%, which is held by British Aerospace, in exchange for approximately 86,000 shares of Common Stock in the OAP Acquisition. Orion Atlantic International Private Satellite Partners, L.P., a Delaware limited partnership of which OrionSat is the general partner, which owns Orion 1. OrionNet OrionNet, Inc., a Delaware corporation and wholly owned subsidiary of Orion. OrionSat Orion Satellite Corporation, a Delaware corporation and wholly owned subsidiary of Orion. Partners The partners in Orion Atlantic, consisting of OrionSat, as the general partner, and the Limited Partners (including Orion). Partnership Agreement The limited partnership agreement of Orion Atlantic, which includes the terms and conditions governing the partnership arrangements among the Partners. STET STET-Societa Finanziaria Telefonica-per Azioni is a former Limited Partner and the parent company of Telecom Italia, the Italian PTT. STET Redemption The redemption on November 21, 1995 by Orion Atlantic of the limited partnership interest held by STET and modification of STET's previously existing contractual arrangements with Orion Atlantic. TT&C Financing A facility of up to $11 million provided by GECC for Orion's TT&C facility that was converted to a seven-year term loan on June 1, 1995 and which had an outstanding balance of $7.2 million as of September 30, 1996. G-2 SATELLITE CONSTRUCTION AND SATELLITE COMMUNICATIONS: bandwidth The relative range of frequencies that can be passed through a transmission medium without distortion. The greater the bandwidth, the greater the information carrying capacity. Bandwidth is measured in Hertz. C-band Certain high frequency radio frequency bands between 3,400 to 6,725 MHz used by communications satellites. constructive total loss If a satellite is completely destroyed or incapable of operation (except for certain failures due to circumstances beyond the control of the manufacturer) during a specified number of days after launch. footprint Signal coverage area for a satellite. Hertz The unit for measuring the frequency with which an electromagnetic signal cycles through the zero-value state between the lowest and highest states. One Hertz (abbreviated as Hz) equals one cycle per second; kHz (kiloHertz) stands for thousands of Hertz; MHz (megaHertz) stands for millions of Hertz. Hughes Space Hughes Space and Communications International, Inc., the manufacturer under the Orion 3 Satellite Contract. Hughes Space is a subsidiary of Hughes Aircraft Company, which is a subsidiary of General Motors Corporation. Ku-band Certain high frequency radio frequency bands between 10,700 to 14,500 MHz permitting the use of smaller antennae than the older C-band technology. Matra Marconi Space Matra Marconi Space UK Limited, the parent company of MMS Space Systems and a subsidiary of Matra Marconi Space NV, and the manufacturer under the Orion 2 Satellite Contract. Matra Marconi Space NV is owned by Matra Hachette (51 percent) and General Electric Co. of Britain (49 percent). Orion 1 The high-power Ku-band communications satellite operated over the Atlantic Ocean by Orion Atlantic. Orion 1 Satellite Contract The fixed price turnkey contract originally entered into between British Aerospace and Orion Atlantic for the design, construction, launch and delivery in orbit of Orion 1. British Aerospace assigned its rights under the contract to MMS Space Systems, which was subsequently purchased by Matra Marconi Space NV and renamed MMS Space Systems Limited. British Aerospace remains liable to Orion Atlantic for the performance of the contract but performance has been assigned to MMS Space Systems and the Company understands that MMS Space Systems and Matra Marconi Space NV have fully indemnified British Aerospace against liabilities thereunder. Orion 2 The high-power Ku-band communications satellite to be operated over the Atlantic Ocean by Orion. Orion 2 Satellite Contract The spacecraft purchase agreement between Orion Atlantic and Matra Marconi Space for construction and launch of Orion 2. Orion 3 The high-power Ku-band communications satellite to be operated by Orion in the Asia Pacific region. G-3 Orion 3 Satellite Contract The proposed spacecraft purchase agreement between Orion Asia Pacific, a wholly owned subsidiary of Orion, and Hughes Space for construction and launch of Orion 3. Space Systems or MMS Space Systems MMS Space Systems Limited, a former subsidiary of British Aerospace which was sold to Matra Marconi Space NV, in 1994. Matra Marconi Space NV is owned by Matra Hachette (51 percent) and General Electric Co. of Britain (49 percent). MMS Space Systems served as the prime contractor under the Orion 1 Satellite Contract. transponder The part of a satellite which is used for the reception of communication signals from, and the frequency conversion, amplification and transmission to, earth. TT&C Station A satellite control system, which includes a satellite control center and a tracking, telemetry and command station complex at Mt. Jackson, Virginia. VSAT Very small aperture terminal earth stations that can be installed on rooftops or elsewhere at customer locations, with antennas as small as 0.8 meters but ranging in sizes up to 2.4 meters in diameter. REGULATION AND COMPETITION: Communications Act The U.S. Communications Act of 1934, as amended. EUTELSAT European regional satellite facilities consortium owned by approximately 40 European countries. FCC The United States Federal Communications Commission. INTELSAT International Telecommunications Satellite Organization, an international satellite facilities consortium owned by approximately 130 government and privately owned telecommunications companies. References to INTELSAT are intended to include the signatories thereof unless the context otherwise requires. ITU International Telecommunication Union, an international body formed by treaty that is responsible for coordinating and registering orbital slots to satellites. Orion 1 License The license granted to Orion by the FCC to construct, launch and operate Orion 1, at designated orbital location 37.5' West longitude over the Atlantic Ocean. PanAmSat Pan American Satellite Corporation, a publicly traded U.S. company providing trans-Atlantic satellite service and services to Latin America, the Pacific Ocean region, and the Indian Ocean region, using a satellite system separate from INTELSAT. PTT Postal, telephone and telegraph organization, ordinarily a government-owned communications monopoly. G-4 ATTACHMENT A AGREEMENT AND PLAN OF MERGER OF ORION MERGER COMPANY, INC. ("SUB") WITH AND INTO ORION NETWORK SYSTEMS, INC. ("ONS"), AMONG SUB, ONS, AND ORION NEWCO SERVICES, INC. THIS AGREEMENT AND PLAN OF MERGER (the "Agreement") is made and entered into as of the 8th day of January, 1997, by and among ORION NETWORK SYSTEMS, INC., a Delaware corporation ("ONS," or, with regard to the period upon and after the Effective Time of the Merger (as hereinafter defined), the "Surviving Corporation"), ORION NEWCO SERVICES, INC., a Delaware corporation ("Newco"), which is a direct wholly-owned subsidiary of ONS, and ORION MERGER COMPANY, INC., a Delaware corporation ("Sub"), which is a direct wholly-owned subsidiary of Newco and an indirect wholly-owned subsidiary of ONS (ONS and Sub, collectively, the "Constituent Corporations," and each, a "Constituent Corporation"). R E C I T A L S A. WHEREAS, ONS is a corporation organized and existing under the General Corporation Law of the State of Delaware (the "DGCL"), and is authorized to issue a total of Forty-One Million (41,000,000) shares of stock, in two (2) classes, the first class consisting of Forty Million (40,000,000) shares of common stock, $.01 par value per share (the "ONS Common Stock"), of which, as of December 15, 1996, Ten Million Nine Hundred Seventy-Four Thousand One Hundred and Twenty-One (10,974,121) shares are issued and outstanding (such shares or, as the context may require, such lesser or greater number of shares of ONS Common Stock as may be issued and outstanding immediately prior to the Effective Time of the Merger, the "Outstanding ONS Common Shares") (with, as of December 15, 1996, an additional Three Million One Hundred Ninety-Six Thousand Nine Hundred and Seventy-Six (3,196,976) shares of ONS Common Stock being issuable upon conversion of the Outstanding ONS Series A Preferred Shares (as hereinafter defined) and the Outstanding ONS Series B Preferred Shares (as hereinafter defined) and upon the exercise of rights under the ONS Options (as hereinafter defined) and the ONS Warrants (as hereinafter defined)) and Two Hundred Fifty-Nine Thousand Five Hundred and Fifteen (259,515) shares are issued but not outstanding (such shares or, as the context may reqire, such lesser or greater number of shares of ONS Common Stock as may be issued but not outstanding immediately prior to the Effective Time of the Merger, the "Treasury ONS Common Shares"), and the second class consisting of One Million (1,000,000) shares of preferred stock, $.01 par value per share (the "ONS Preferred Stock"), of which Fifteen Thousand (15,000) shares constitute a series of ONS Preferred Stock having the designation "Series A 8% Cumulative Redeemable Convertible Preferred Stock" (the "ONS Series A Preferred Stock") (of which shares of ONS Series A Preferred Stock Thirteen Thousand Eight Hundred and Seventy-One (13,871) are issued and outstanding as of December 15, 1996 (such shares or, as the context may require, such lesser or greater number of shares of ONS Series A Preferred Stock as may be issued and outstanding immediately prior to the Effective Time of the Merger, the "Outstanding ONS Series A Preferred Shares")), and of which Five Thousand (5,000) shares constitute a series of ONS Preferred Stock having the designation "Series B 8% Cumulative Redeemable Convertible Preferred Stock" (the "ONS Series B Preferred Stock") (of which shares of ONS Series B Preferred Stock Four Thousand Two Hundred and Ninety-Eight (4,298) are issued and outstanding as December 15, 1996 (such shares or, as the context may require, such lesser or greater number of shares of ONS Series B Preferred Stock as may be issued and outstanding immediately prior to the Effective Time of the Merger, the "Outstanding ONS Series B Preferred Shares," and together with the Outstanding ONS Series A Preferred Shares, the "Outstanding ONS Preferred Shares")). B. WHEREAS, Sub is a corporation organized and existing under the DGCL, and is authorized to issue a total of One Thousand (1,000) shares, in a single class of common stock, $.01 par value per share (the "Sub Common Stock"), of which, as of the date hereof, one (1) share is issued and outstanding (the "Outstanding Sub Common Share") (as of the date hereof, Newco holding of record the Outstanding Sub Common Share) and no shares are issued but not outstanding. C. WHEREAS, Newco is a corporation organized and existing under the DGCL, and is authorized to issue a total of Forty-One Million (41,000,000) shares of stock, in two (2) classes, the first class consisting of Forty Million (40,000,000) shares of common stock, $.01 par value per share (the "Newco Common Stock"), of which, as of the date hereof, one (1) share is issued and outstanding (the "Outstanding Newco Common Share") (as of the date hereof, ONS holding of record the Outstanding Newco Common Share) and no shares are issued but not outstanding, and the second class consisting of One Million (1,000,000) shares of preferred stock, $.01 par value per share (the "Newco Preferred Stock"), of A-2 which Fifteen Thousand (15,000) shares constitute or, prior to the Effective Time of the Merger will constitute, a series of Newco Preferred Stock having the designation "Series A 8% Cumulative Redeemable Convertible Preferred Stock" (the "Newco Series A Preferred Stock") (none of which shares of Newco Series A Preferred Stock are issued and outstanding as of the date hereof), and of which Five Thousand (5,000) shares constitute or, prior to the Effective Time of the Merger will constitute, a series of Newco Preferred Stock having the designation "Series B 8% Cumulative Redeemable Convertible Preferred Stock" (the "Newco Series B Preferred Stock") (none of which shares of Newco Series B Preferred Stock are issued and outstanding as of the date hereof). D. WHEREAS, the respective Boards of Directors of ONS, Sub, and Newco have determined that it is advisable and in the best interests of each of ONS, Sub, and Newco and their respective stockholders that Sub be merged with and into ONS in accordance with the terms and conditions of this Agreement (the "Merger"), and accordingly the Board of Directors of each of ONS, Sub, and Newco has adopted, approved, and authorized this Agreement and the Merger. E. WHEREAS, it is contemplated that the Merger will be effected in accordance with Section 251(g) of the DGCL, and it is expected that Ernst & Young LLP ("Ernst & Young"), tax advisor to ONS, will render an opinion (the "Tax Opinion") that the holders of shares of ONS stock which are converted in the Merger into the right to receive shares of Newco stock will have the opportunity to qualify for nonrecognition treatment because the Merger will qualify either as (a) a reorganization pursuant to Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code"), or (b) an exchange satisfying the requirements of Section 351(a) of the Code. F. WHEREAS, ONS, Orion Satellite Corporation, a Delaware corporation, and each of the existing limited partners (other than ONS) (the "Exchanging Partners") of International Private Satellite Partners, L.P., a Delaware limited partnership ("Orion Atlantic"), have entered into a Section 351 Exchange Agreement and Plan of Conversion, dated as of June 1996 (as amended, the "Exchange Agreement"), pursuant to which ONS has agreed, among other things, to have Newco issue shares of a series of Newco Preferred Stock having the designation "Series C 6% Cumulative Redeemable Convertible Preferred Stock" (the "Newco Series C Preferred Stock"), in exchange for the Exchanging Partners' respective limited partnership interests in Orion Atlantic and other rights relating thereto (the "Exchange"). NOW, THEREFORE, in consideration of the premises, the mutual agreements, promises, covenants, representations, warranties, acknowledgments, and other terms, conditions, and provisions set forth herein, and other good and valuable consideration, the sufficiency and receipt of which are hereby acknowledged, the parties agree as follows: ARTICLE I THE MERGER 1.1 The Merger; Filing and Effective Time. Subject to and in accordance with the terms and conditions of this Agreement and the DGCL, a certificate of merger regarding the Merger of Sub with and into ONS (the "Delaware Merger Certificate") shall be executed, acknowledged, and filed with the Secretary of State of the State of Delaware (the "Delaware Secretary of State") by the Surviving Corporation at or as soon as practicable after the Closing (as hereinafter defined). The Merger shall become effective upon such filing of the Delaware Merger Certificate (the "Effective Time of the Merger"). 1.2 Closing. Subject to and in accordance with the terms and conditions of this Agreement, the closing of the Merger (the "Closing") shall take place as soon as practicable after satisfaction of the latest to occur of the conditions set forth in Article V hereof (the "Closing Date"), at the offices of Hogan & Hartson L.L.P., Columbia Square, 555 13th Street, N.W., Washington, D.C. 20004, unless another date or place is agreed to in writing by the parties hereto. 1.3 Effect of the Merger. Upon the Effective Time of the Merger, the separate existence of Sub shall cease and Sub shall be merged with and into ONS. ONS shall survive the Merger, and the separate corporate existence of ONS as the Surviving Corporation shall continue unaffected and unimpaired by the Merger. Upon and after the Effective Time of the Merger, the rights, privileges, powers, and fran- A-3 chises of each of the Constituent Corporations, and all property belonging to each of such Constituent Corporations, shall be vested in the Surviving Corporation, but all rights of creditors and all liens upon any property of any of the Constituent Corporations shall be preserved unimpaired, and all debts, liabilities, and duties of the respective Constituent Corporations shall thenceforth attach to the Surviving Corporation, and may be enforced against it to the same extent as if such debts, liabilities, and duties had been incurred or contracted by the Surviving Corporation, all as more fully provided under the DGCL. 1.4 Certificate of Incorporation of the Surviving Corporation. The Certificate of Incorporation of ONS as in effect immediately prior to the Effective Time of the Merger (the "ONS Charter") shall be the certificate of incorporation of the Surviving Corporation (the "Surviving Corporation Charter"), except that the following amendments thereto are to be effected by the Merger upon the Effective Time of the Merger: (a) the Surviving Corporation Charter is to be amended by striking Article FIRST thereof in its entirety and inserting in lieu thereof the following: "FIRST: The name of the Corporation is Orion Oldco Services, Inc. (hereinafter called the 'Corporation')."; (b) the Surviving Corporation Charter is to be amended by adding and inserting, immediately following Article THIRTEENTH thereof, a new Article FOURTEENTH thereof, to read in its entirety as follows: "FOURTEENTH: Any act or transaction by or involving the Corporation that requires for its adoption under the General Corporation Law of the State of Delaware (the 'DGCL') or this Certificate of Incorporation the approval of the stockholders of the Corporation shall, pursuant to subsection (g) of Section 251 of the DGCL, require, in addition, the approval of the stockholders of Orion Newco Services, Inc., a Delaware corporation (the name of which is expected to be changed to 'Orion Network Systems, Inc.'), or any successor thereto by merger, by the same vote as is required by the DGCL and/or by this Certificate of Incorporation."; and (c) the Surviving Corporation Charter is to be amended by the Surviving Corporation's certification, in accordance with Section 243 of the DGCL (the "Paragraph (c) Certification"), that: (i) that certain "Certificate of Designations, Rights and Preferences of Series A 8% Cumulative Redeemable Convertible Preferred Stock" of ONS, filed with the Delaware Secretary of State on June 17, 1994 (the "Series A Certificate of Designations") prohibits the reissuance, as part of such series of Preferred Stock of the Surviving Corporation, of shares of Series A Preferred Stock of the Surviving Corporation that have been retired; and (ii) a number of shares of Series A Preferred Stock of the Surviving Corporation equal to the number of Outstanding ONS Series A Preferred Shares immediately prior to the Effective Time of the Merger have been retired; and (d) the Surviving Corporation Charter is to be amended to increase and restore to 15,000 the number of shares of Series A Preferred Stock that the Surviving Corporation is authorized to issue (such number of authorized shares of Series A Preferred Stock of the Surviving Corporation having been reduced by the Paragraph (c) Certification, in accordance with the Series A Certificate of Designations and Section 243 of the DGCL, as a result of the aforesaid retirement of shares of Series A Preferred Stock of the Surviving Corporation), by striking the number (which is less than 15,000) that appears in the one (1) paragraph resolution appearing at the top of the second page of the Series A Certificate of Designations (the "Series A Resolution") (to the extent that the number "15,000" in the Series A Resolution shall have been amended and changed to such lesser number by virtue of the Paragraph (c) Certification), and inserting the number "15,000" in lieu thereof; and (e) the Surviving Corporation Charter is to be amended by the Surviving Corporation's certification, in accordance with Section 243 of the DGCL (the "Paragraph (e) Certification"), that: (i) that certain "Certificate of Designations, Rights and Preferences of Series B 8% Cumulative Redeemable Convertible Preferred Stock" of ONS, filed with the Delaware Secretary of State on June 16, 1995 (the "Series B Certificate of Designations") prohibits the reissuance, as part of such series A-4 of Preferred Stock of the Surviving Corporation, of shares of Series B Preferred Stock of the Surviving Corporation that have been retired; and (ii) a number of shares of Series B Preferred Stock of the Surviving Corporation equal to the number of Outstanding ONS Series B Preferred Shares immediately prior to the Effective Time of the Merger have been retired; and (f) the Surviving Corporation Charter is to be amended to increase and restore to 5,000 the number of shares of Series B Preferred Stock that the Surviving Corporation is authorized to issue (such number of authorized shares of Series B Preferred Stock of the Surviving Corporation having been reduced by the Paragraph (e) Certification, in accordance with the Series B Certificate of Designations and Section 243 of the DGCL, as a result of the aforesaid retirement of shares of Series B Preferred Stock of the Surviving Corporation), by striking the number (which is less than 5,000) that appears in the one (1) paragraph resolution beginning at the bottom of the first page of the Series B Certificate of Designations and carrying over to the second page thereof (the "Series B Resolution") (to the extent that the number "5,000" in the Series B Resolution shall have been amended and changed to such lesser number by virtue of the Paragraph (e) Certification), and inserting the number "5,000" in lieu thereof. The Surviving Corporation Charter, as so amended, shall be the certificate of incorporation of the Surviving Corporation upon and after the Effective Time of the Merger, unless and until duly amended, altered, changed, repealed, and/or supplemented in accordance with the DGCL (which power and right to amend, alter, change, repeal, and/or supplement, at any time and from time to time after the Effective Time of the Merger, are hereby expressly reserved). 1.5 Bylaws of the Surviving Corporation. The bylaws of ONS as in effect immediately prior to the Effective Time of the Merger (the "ONS Bylaws") shall be and continue in full force and effect as the bylaws of the Surviving Corporation upon and after the Effective Time of the Merger, unless and until duly amended, altered, changed, repealed, and/or supplemented in accordance with the DGCL (which power and right to amend, alter, change, repeal, and/or supplement, at any time and from time to time after the Effective Time of the Merger, are hereby expressly reserved). 1.6 Directors of the Surviving Corporation. The respective numbers of members constituting the whole Board of Directors of ONS and each class thereof immediately prior to the Effective Time of the Merger shall be and continue as the respective numbers of members constituting the whole Board of Directors of the Surviving Corporation and each class thereof upon and after the Effective Time of the Merger, unless and until duly increased or decreased in accordance with the DGCL (which power and right to increase or decrease, at any time and from time to time after the Effective Time of the Merger, are hereby expressly reserved). Each person serving as a member of a particular class of the Board of Directors of ONS (the "ONS Board") immediately prior to the Effective Time of the Merger shall be and continue as a member of the same class of the Board of Directors of the Surviving Corporation upon and after the Effective Time of the Merger, until such person's successor is elected and qualified or until such person's earlier death, resignation, disqualification, or removal (which power and right to remove are hereby expressly reserved). 1.7 Officers of the Surviving Corporation. Each person serving as an officer of ONS immediately prior to the Effective Time of the Merger shall be and continue as an officer of the Surviving Corporation, holding the same office or offices, upon and after the Effective Time of the Merger, until such person's successor is appointed and qualified or until such person's earlier death, resignation, disqualification, or removal (which power and right to remove are hereby expressly reserved). 1.8 Further Assurances. At any time and from time to time upon and after the Effective Time of the Merger, as and when required or deemed desirable by the Surviving Corporation or its successors or assigns, there shall be executed, acknowledged, certified, sealed, delivered, filed, and/or recorded, in the name and on behalf of any and each Constituent Corporation, such deeds, contracts, consents, certificates, notices, and other documents and instruments, and there shall be done or taken or caused to be done or taken, in the name and on behalf of any and each Constituent Corporation, such further and other things and actions as shall be appropriate, necessary, or convenient to acknowledge, vest, effect, perfect, conform of record, or otherwise confirm the Surviving Corporation's (or its successors' or as- A-5 signs') right, title, and interest in and to, and possession of, all the property, interests, assets, rights, privileges, immunities, powers, franchises, and authority of each Constituent Corporation held immediately prior to the Effective Time of the Merger, and otherwise to carry out and effect the intent and purposes of this Agreement and the Merger. The officers and directors of the Surviving Corporation (or its successors or assigns), and each of them, upon and after the Effective Time of the Merger, are and shall be fully authorized, in the name and on behalf of each Constituent Corporation, to do and take and cause to be done and taken any and all such things and actions, and to execute, acknowledge, certify, seal, deliver, file, and/or record any and all such deeds, contracts, consents, certificates, notices, and other documents and instruments. ARTICLE II EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT CORPORATIONS 2.1 Effect on Capital Stock. Upon and as of the Effective Time of the Merger, by virtue of the Merger and without any action on the part of either of the Constituent Corporations or Newco, the holders of the respective shares, or any other person: (a) Conversion of ONS Shares. (i) Each of the Outstanding ONS Common Shares and each of the Treasury ONS Common Shares shall be changed and converted into the right to receive one (1) validly issued, fully paid, and nonassessable share of Newco Common Stock (such right to be exercised and deemed to have been exercised by the respective holders of such Outstanding ONS Common Shares and by ONS as to the Treasury ONS Common Shares, and such shares of Newco Common Stock to be issued and deemed to have been issued by Newco, automatically and immediately upon and as of the Effective Time of the Merger); such Outstanding ONS Common Shares shall no longer be outstanding and such Outstanding ONS Common Shares and such Treasury ONS Common Shares automatically shall be retired and resume the status of authorized and unissued shares of Common Stock of the Surviving Corporation; the capital of the Surviving Corporation shall be reduced as permitted under the DGCL by an amount equal to the capital theretofore represented by such Outstanding ONS Common Shares and such Treasury ONS Common Shares; and the capital of Newco in respect of such shares of Newco Common Stock shall be an amount equal to the aggregate par value thereof. (ii) Each of the Outstanding ONS Series A Preferred Shares shall be changed and converted into the right to receive one (1) validly issued, fully paid, and nonassessable share of Newco Series A Preferred Stock (such right to be exercised and deemed to have been exercised by the respective holders of such Outstanding ONS Series A Preferred Shares, and such shares of Newco Series A Preferred Stock to be issued and deemed to have been issued by Newco, automatically and immediately upon and as of the Effective Time of the Merger; with rights to accrued, accumulated, and unpaid dividends on each Outstanding ONS Series A Preferred Share (the "Series A Accumulated Dividends") being preserved, unimpaired, unchanged, and unaffected by such conversion and the Merger, such Series A Accumulated Dividends carrying over and pertaining to and being accrued, accumulated, and unpaid dividends on each such share of Newco Series A Preferred Stock, and each such share of Newco Series A Preferred Stock carrying and having such Series A Accumulated Dividends as accrued, accumulated, and unpaid dividends thereon, notwithstanding that such dividends shall have accrued and accumulated from a date prior to the issuance of such shares of Newco Series A Preferred Stock); such Outstanding ONS Series A Preferred Shares shall no longer be outstanding and automatically shall be retired and resume the status of authorized and unissued shares of Preferred Stock of the Surviving Corporation; the capital of the Surviving Corporation shall be reduced as permitted under the DGCL by an amount equal to the capital theretofore represented by such Outstanding ONS Series A Preferred Shares; and the capital of Newco in respect of such shares of Newco Series A Preferred Stock shall be an amount equal to the aggregate par value thereof. A-6 (iii) Each of the Outstanding ONS Series B Preferred Shares shall be changed and converted into the right to receive one (1) validly issued, fully paid, and nonassessable share of Newco Series B Preferred Stock (such right to be exercised and deemed to have been exercised by the respective holders of such Outstanding ONS Series B Preferred Shares, and such shares of Newco Series B Preferred Stock to be issued and deemed to have been issued by Newco, automatically and immediately upon and as of the Effective Time of the Merger; with rights to accrued, accumulated, and unpaid dividends on each Outstanding ONS Series B Preferred Share (the "Series B Accumulated Dividends") being preserved, unimpaired, unchanged, and unaffected by such conversion and the Merger, such Series B Accumulated Dividends carrying over and pertaining to and being accrued, accumulated, and unpaid dividends on each such share of Newco Series B Preferred Stock, and each such share of Newco Series B Preferred Stock carrying and having such Series B Accumulated Dividends as accrued, accumulated, and unpaid dividends thereon, notwithstanding that such dividends shall have accrued and accumulated from a date prior to the issuance of such shares of Newco Series B Preferred Stock); such Outstanding ONS Series B Preferred Shares shall no longer be outstanding and automatically shall be retired and resume the status of authorized and unissued shares of Preferred Stock of the Surviving Corporation; the capital of the Surviving Corporation shall be reduced as permitted under the DGCL by an amount equal to the capital theretofore represented by such Outstanding ONS Series B Preferred Shares; and the capital of Newco in respect of such shares of Newco Series B Preferred Stock shall be an amount equal to the aggregate par value thereof. (iv) Fractional Outstanding ONS Shares and fractional Treasury ONS Common Shares shall be changed and converted into the right to receive fractional shares of Newco stock at the same ratio (1:1) as whole Outstanding ONS Shares and whole Treasury ONS Common Shares and shall otherwise be treated the same as such whole shares for purposes hereof ("Outstanding ONS Shares" meaning all of the Outstanding ONS Common Shares and all of the Outstanding ONS Preferred Shares, collectively). (b) Conversion of Sub Shares. The Outstanding Sub Common Share shall be changed and converted into a number of validly issued, fully paid, and nonassessable shares of Common Stock of the Surviving Corporation which is equal to the number of Outstanding ONS Common Shares immediately prior to the Effective Time of the Merger, a number of validly issued, fully paid, and nonassessable shares of Series A Preferred Stock of the Surviving Corporation which is equal to the number of Outstanding ONS Series A Preferred Shares immediately prior to the Effective Time of the Merger, and a number of validly issued, fully paid, and nonassessable shares of Series B Preferred Stock of the Surviving Corporation which is equal to the number of Outstanding ONS Series B Preferred Shares immediately prior to the Effective Time of the Merger (such shares of Common Stock of the Surviving Corporation, such shares of Series A Preferred Stock of the Surviving Corporation, and such shares of Series B Preferred Stock of the Surviving Corporation to be issued and deemed to have been issued by the Surviving Corporation automatically and immediately upon and as of the Effective Time of the Merger); the capital of the Surviving Corporation in respect of such shares of Common Stock of the Surviving Corporation, such shares of Series A Preferred Stock of the Surviving Corporation, and such shares of Series B Preferred Stock of the Surviving Corporation shall be an amount equal to the aggregate par value thereof; and such Outstanding Sub Common Share shall no longer be outstanding and automatically shall be canceled and cease to exist. 2.2 Notification of Transfer Agent. Prior to the Closing Date, Newco and ONS shall notify their respective transfer agents of the conversions of shares of ONS stock and of shares of Sub stock pursuant to Section 2.1. 2.3 Stock Certificates. Upon and as of the Effective Time of the Merger, by virtue of the Merger and without any action on the part of either of the Constituent Corporations or Newco, the holders of the respective shares, or any other person: (a) Newco. The shares of Newco Common Stock and the shares of Newco Preferred Stock, which the Outstanding ONS Shares and the Treasury ONS Common Shares, respectively, shall have been converted into the right to receive, shall be represented and evidenced by the same stock A-7 certificates that previously represented and evidenced such Outstanding ONS Shares and such Treasury ONS Common Shares; and (b) ONS. The holder of the certificate that immediately prior to the Effective Time of the Merger evidenced the Outstanding Sub Common Share (the "Sub Common Stock Certificate") may, at such holder's option, surrender the same to the Surviving Corporation for cancellation, and such holder shall be entitled to receive from the Surviving Corporation in exchange therefor certificates representing and evidencing the number of shares of Common Stock of the Surviving Corporation, the number of shares of Series A Preferred Stock of the Surviving Corporation, and the number of shares of Series B Preferred Stock of the Surviving Corporation into which such holder's Outstanding Sub Common Share shall have been converted, and, until surrendered, the Sub Common Stock Certificate shall represent and evidence the number of shares of Common Stock of the Surviving Corporation, the number of shares of Series A Preferred Stock of the Surviving Corporation, and the number of shares of Series B Preferred Stock of the Surviving Corporation into which the Outstanding Sub Common Share theretofore represented and evidenced thereby shall have been converted. ARTICLE III ADDITIONAL AGREEMENTS 3.1 Directors and Officers of Newco Upon the Effective Time of the Merger. (a) Directors. As of the Effective Time of the Merger: (i) the whole Board of Directors of Newco shall be divided into the same number of classes into which the whole Board of Directors of ONS shall be divided immediately prior to the Effective Time of the Merger; (ii) the respective numbers of members constituting the whole Board of Directors of Newco and each class thereof shall be equal to the respective numbers of members constituting the whole Board of Directors of ONS and each class thereof immediately prior to the Effective Time of the Merger; and (iii) the Board of Directors of Newco (the "Newco Board") and each class thereof shall consist of the persons serving as members of the ONS Board and the corresponding classes thereof immediately prior to the Effective Time of the Merger. To that end, effective immediately prior to the Effective Time of the Merger, to the extent necessary to give effect to the intent of the preceding sentence: (i) the whole Board of Directors of Newco shall be divided into the same number of classes into which the whole Board of Directors of ONS is then divided; (ii) the respective numbers of members constituting the whole Board of Directors of Newco and each class thereof shall be increased or decreased, as the case may be, to numbers equal to the respective numbers of members then constituting the whole Board of Directors of ONS and each class thereof; and (iii) each person then serving as a member of the Newco Board shall be, and hereby is, removed, and each person then serving as a member of a class of the ONS Board shall be, and hereby is, elected as a member of the corresponding class of the Newco Board, to serve as such until such person's successor is elected and qualified or until such person's earlier death, resignation, disqualification, or removal (which power and right to remove are hereby expressly reserved). (b) Officers. As of the Effective Time of the Merger, the officers of Newco shall be the persons serving as officers of ONS immediately prior to the Effective Time of the Merger. To that end, effective immediately prior to the Effective Time of the Merger, to the extent necessary to give effect to the intent of the preceding sentence, each person then serving as an officer of Newco shall be, and hereby is, removed, and each person then serving as an officer of ONS shall be, and hereby is, appointed as an officer of Newco, to hold one (1) or more offices of Newco corresponding to the one (1) or more offices of ONS then held, until such person's successor is appointed and qualified or until such person's earlier death, resignation, disqualification, or removal (which power and right to remove are hereby expressly reserved). 3.2 Newco Certificate of Incorporation. (a) Newco Charter. As of the Effective Time of the Merger, the certificate of incorporation of Newco shall contain provisions identical to the ONS Charter (the "Newco Charter"). To that end, prior to the Effective Time of the Merger, to the extent permissible and to the extent necessary to A-8 give effect to the intent of the preceding sentence, the certificate of incorporation of Newco, as the same theretofore may have been amended, altered, changed, repealed, and/or supplemented, shall be duly amended, altered, changed, repealed, and/or supplemented, in accordance with the DGCL, and (subject to paragraph (b) of this Section) such Newco Charter, as so altered, changed, repealed, and/or supplemented, shall be and remain the certificate of incorporation of Newco upon and after the Effective Time of the Merger, unless and until duly amended, altered, changed, repealed, and/or supplemented in accordance with the DGCL (which power and right to amend, alter, change, repeal, and/or supplement, at any time and from time to time after the Effective Time of the Merger, are hereby expressly reserved). (b) Name Change; Newco Series C Preferred Stock. The Newco Charter shall be amended and supplemented (which amendment shall be adopted, approved, and declared advisable by the Newco Board and adopted and approved by ONS in its capacity as the sole stockholder of Newco prior to the Effective Time of the Merger, and which supplement shall be adopted and approved by the Newco Board prior to the Effective Time of the Merger, and which amendment and supplement are hereby adopted, approved, and declared advisable): (i) immediately following the Effective Time of the Merger, to change the name of Newco to "Orion Network Systems, Inc.," by striking Article FIRST thereof in its entirety and inserting in lieu thereof the following: "FIRST: The name of the Corporation is Orion Network Systems, Inc. (hereinafter called the 'Corporation')."; and (ii) as soon as practicable following the Effective Time of the Merger, to provide for the Newco Series C Preferred Stock. 3.3 Newco Bylaws. As of the Effective Time of the Merger, the bylaws of Newco shall contain provisions identical to the ONS Bylaws (the "Newco Bylaws"). To that end, prior to the Effective Time of the Merger, to the extent necessary to give effect to the intent of the preceding sentence, the bylaws of Newco, as the same theretofore may have been amended, altered, changed, repealed, and/or supplemented, shall be duly amended, altered, changed, repealed, and/or supplemented, in accordance with the DGCL, and such Newco Bylaws as so amended, altered, changed, repealed, and/or supplemented, shall be and remain the bylaws of Newco upon and after the Effective Time of the Merger, unless and until duly amended, altered, changed, repealed, and/or supplemented in accordance with the DGCL (which power and right to amend, alter, change, repeal, and/or supplement, at any time and from time to time after the Effective Time of the Merger, are hereby expressly reserved). 3.4 Consent. Each of ONS, Sub, and Newco shall promptly apply for or otherwise seek, and use its best efforts to obtain, all consents and approvals required to be obtained by it for consummation of the Merger. 3.5 ONS Stockholder Meeting; Sub Stockholder Written Consent. ONS shall call a special meeting of its stockholders (the "ONS Special Meeting") to be held as promptly as practicable after the date hereof for the purpose of voting upon, among other things, ratification of this Agreement (the parties understanding and acknowledging that it is contemplated that the Merger will be effected in accordance with Section 251(g) of the DGCL and that no vote of ONS stockholders adopting, approving, or authorizing this Agreement or the Merger will be required under the DGCL). Newco, in its capacity as the sole stockholder of Sub, as promptly as practicable after the date hereof, shall execute and deliver to Sub a written consent in lieu of a stockholder meeting adopting, approving, and authorizing this Agreement, in accordance with Section 228 of the DGCL. 3.6 Employee and Director ONS Stock Options. Upon and as of the Effective Time of the Merger and in connection with the Merger, to the fullest extent permitted by applicable law, Newco shall assume all of ONS's obligations, and ONS shall have no further obligations, with respect to any then-outstanding option to acquire shares of ONS Common Stock issued under ONS's 1987 Employee Stock Option Plan and Non-Employee Director Stock Option Plan that theretofore shall not have expired or been duly exercised by the holders thereof (each, if any, an "ONS Option"), and the due exercise of rights under A-9 any such option shall entitle the holder thereof to acquire, upon the same terms and conditions that were applicable under the corresponding ONS Option, a number of shares of Newco Common Stock identical to the number of shares of ONS Common Stock that were subject to such corresponding ONS Option (a "Newco Option"). ONS and Newco agree to take all corporate and other action as shall be necessary to effectuate the foregoing, and ONS shall use its best efforts to obtain, if required, prior to the Closing Date, such consent of each holder of an ONS Option as shall be necessary to effectuate the foregoing. Newco shall take all corporate and other action necessary to reserve and make available for issuance upon the due exercise of rights under the Newco Options a sufficient number of shares of Newco Common Stock, and as soon as practicable following the Effective Time of the Merger shall provide to the record holders of the Newco Options appropriate notice of such holder's rights thereunder. 3.7 Warrants. Upon and as of the Effective Time of the Merger and in connection with the Merger, to the fullest extent permitted by applicable law, Newco shall assume all of ONS's obligations, and ONS shall have no further obligations, with respect to any then-outstanding warrant or other right to purchase shares of ONS Common Stock that theretofore shall not have expired or been duly exercised by the holder thereof (each, if any, an "ONS Warrant"), and the due exercise of rights under any such warrant or other right shall entitle the holder thereof to acquire, upon the same terms and conditions that were applicable under the corresponding ONS Warrant, a number of shares of Newco Common Stock identical to the number of shares of ONS Common Stock that were subject to such corresponding ONS Warrant (a "Newco Warrant"). ONS and Newco agree to take all corporate and other action as shall be necessary to effectuate the foregoing, and ONS shall use its best efforts to obtain, if required, prior to the Closing Date, such consents of the holders of ONS Warrants as shall be necessary to effectuate the foregoing. Newco shall take all corporate and other action necessary to reserve and make available for issuance upon the exercise of rights under the Newco Warrants a sufficient number of shares of Newco Common Stock, and as soon as practicable following the Effective Time of the Merger shall provide to the record holders of the Newco Warrants appropriate notice of such holders' rights thereunder. 3.8 Outstanding Newco Common Share. Upon and as of the Effective Time of the Merger, ONS shall surrender to Newco the certificate representing the Outstanding Newco Common Share, and the Outstanding Newco Common Share automatically shall be retired and resume the status of an authorized and unissued share of Newco Common Stock, and the capital of Newco shall be reduced as permitted under the DGCL by an amount equal to the par value thereof. ARTICLE IV REPRESENTATIONS AND WARRANTIES 4.1 Representations and Warranties of ONS. ONS hereby represents and warrants: (a) Organization. It is duly organized, validly existing, and in good standing as a corporation under the laws of the State of Delaware. (b) Power and Authority. It has corporate power and authority to enter into, execute, deliver, and perform its obligations under this Agreement. (c) Capital Stock. The numbers of authorized shares of ONS Common Stock, ONS Preferred Stock, ONS Series A Preferred Stock, and ONS Series B Preferred Stock, the numbers of Outstanding ONS Common Shares, Outstanding ONS Series A Preferred Shares, and Outstanding ONS Series B Preferred Shares, and the number of Treasury ONS Common Shares are as set forth in paragraph A of the Recitals to this Agreement. 4.2 Representations and Warranties of Sub. Sub hereby represents and warrants: (a) Organization. It is duly organized, validly existing, and in good standing as a corporation under the laws of the State of Delaware. (b) Power and Authority. It has corporate power and authority to enter into, execute, deliver, and (subject to stockholder approval) perform its obligations under this Agreement. A-10 (c) Capital Stock. The number of authorized shares of Sub Common Stock, the number of Outstanding Sub Common Shares, and the number of shares of Sub Common Stock issued but not outstanding, are as set forth in paragraph B of the Recitals to this Agreement. 4.3 Representations and Warranties of Newco. Newco hereby represents and warrants: (a) Organization. It is duly organized, validly existing, and in good standing as a corporation under the laws of the State of Delaware. (b) Power and Authority. It has corporate power and authority to enter into, execute, deliver, and (subject to stockholder approval) perform its obligations under this Agreement. (c) Capital Stock. The numbers of authorized shares of Newco Common Stock, Newco Preferred Stock, Newco Series A Preferred Stock, and Newco Series B Preferred Stock, the numbers of Outstanding Newco Common Shares, outstanding shares of Newco Series A Preferred Stock, and outstanding shares of Newco Series B Preferred Stock, and the number of shares of Newco Common Stock issued but not outstanding, are, or prior to the Effective Time of the Merger will be, as set forth in paragraph C of the Recitals to this Agreement. ARTICLE V CONDITIONS PRECEDENT 5.1 Conditions to Each Party's Obligation to Effect the Merger. The respective obligations of each party under this Agreement shall be subject to the satisfaction at or prior to the Closing of the following conditions: (a) Stockholder Approvals. This Agreement shall have been approved and adopted or ratified, as the case may be, by the affirmative vote or written consent, as appropriate and as the case may be, of the holders of: (i) at least a majority of the votes of the Outstanding ONS Shares present in person or by proxy at the ONS Special Meeting and entitled to be voted hereon, voting together as a single class, with each Outstanding ONS Common Share entitled to one (1) vote and each Outstanding ONS Preferred Share entitled to one (1) vote for each whole share of ONS Common Stock issuable upon conversion of such Outstanding ONS Preferred Share as of the applicable date; (ii) the Outstanding Sub Common Share; and (iii) the Outstanding Newco Common Share. (b) Governmental Approvals. All authorizations, consents, orders, or approvals of, or declarations or filings with, or expiration of waiting periods imposed by, any administrative agency or commission or other governmental authority or instrumentality, domestic or foreign (a "Governmental Entity"), necessary for the consummation of the transactions contemplated by this Agreement, including, but not limited to, such requirements under applicable state securities laws and the Securities Exchange Act of 1934, as amended, shall have occurred or been filed or obtained, other than filings relating to the Merger or affecting Newco's ownership of ONS or any of its subsidiaries or any of their properties. (c) Form S-4. The Registration Statement on Form S-4 covering the registration of the Newco Common Stock, the Newco Series A Preferred Stock, and the Newco Series B Preferred Stock shall have become effective under the Securities Act of 1933, as amended, and shall not be the subject of any stop order or proceedings seeking a stop order, and the Proxy Statement/ Prospectus furnished to ONS stockholders regarding this Agreement, the Exchange Agreement, and the transactions contemplated hereby and thereby shall not at the Effective Time of the Merger be subject to any proceedings commenced or threatened by the Securities and Exchange Commission. (d) Legal Action. No temporary restraining order, preliminary or permanent injunction, or other order issued by any court of competent jurisdiction or other legal restraint or prohibition (an "Injunction") preventing the consummation of the Merger shall be in effect, nor shall any proceeding brought by any Governmental Entity seeking any of the foregoing be pending. In the event an Injunction shall have been issued, each party agrees to use its reasonable diligent efforts to have the Injunction lifted. A-11 (e) Statutes. No statute, rule, or regulation shall have been enacted by any Governmental Entity that would make the consummation of the Merger illegal. (f) Tax Opinion; ONS Board Determination. Ernst & Young shall have issued the Tax Opinion and the ONS Board shall have made a determination that ONS stockholders do not recognize gain or loss for United States federal income tax purposes. (g) Representations and Warranties. Each of the representations and warranties made by each party herein shall remain true, complete, and accurate at the Closing Date as if made on and as of the Closing Date. (h) The Exchange. The Exchange shall have occurred or be occurring concurrently with the Merger. ARTICLE VI TERMINATION, AMENDMENT AND WAIVER 6.1 Termination. This Agreement may be terminated at any time prior to the Effective Time of the Merger, whether before or after approval or ratification, as the case may be, by the stockholders of ONS, Sub, and Newco of this Agreement, the Merger, the Exchange Agreement, the Exchange, or matters presented in connection herewith or therewith: (a) by mutual written consent of the parties; or (b) by any party if any required approval of the stockholders of ONS, Sub, or Newco shall not have been obtained by April 30, 1997. When action is taken to terminate this Agreement pursuant to this Section, it shall be sufficient for such action to be authorized by the Board of Directors of the party taking such action and for such party then to notify in writing the other parties of such action. 6.2 Event of Termination. In the event of termination of this Agreement as provided in Section 6.1 hereof, this Agreement shall forthwith become void and there shall be no liability or obligation on the part of any party or its officers or directors to the other parties. 6.3 Expenses. All costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party incurring such expense. 6.4 Amendment. This Agreement may be amended by the parties hereto, by action taken by their respective Boards of Directors, at any time before or after ratification or approval, as the case may be, by the stockholders of ONS, Sub, or Newco of this Agreement, the Merger, the Exchange Agreement, the Exchange, or matters presented in connection herewith or therewith, but after any such stockholder approval, no amendment shall be made which under Section 251(d) of the DGCL would require the approval (or further approval) of stockholders without obtaining such further approval. This Agreement may not be amended except by an instrument in writing signed on behalf of each of the parties hereto. ARTICLE VII GENERAL PROVISIONS 7.1 Notices. All notices and other communications hereunder shall be in writing and shall be deemed given if delivered personally or mailed by registered or certified mail (return receipt requested) to the parties at the following addresses (or at such other address for a party as shall be specified by like notice): (a) If to Newco or Sub, to Orion Newco Services, Inc. 2440 Research Boulevard Suite 400 Rockville, Maryland 20850 A-12 (b) If to ONS, to Orion Network Systems, Inc. 2440 Research Boulevard Suite 400 Rockville, Maryland 20850 7.2 Severability. If any term or other provision of this Agreement is invalid, illegal, or incapable of being enforced by any rule of law or public policy, all other terms, conditions, and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner adverse to any party. Upon such determination that any term or other provision is invalid, illegal, or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner to the end that the transactions contemplated hereby are fulfilled to the extent possible. 7.3 Entire Agreement. This Agreement, including the Exhibits attached hereto (if any), constitutes the entire agreement among the parties regarding the subject matter hereof, and supersedes all prior agreements and undertakings, both written and oral, among the parties or any of them regarding such subject matter. 7.4 Assignment. This Agreement shall not be assigned by operation of law or otherwise. 7.5 Parties in Interest. This Agreement shall be binding upon and inure solely to the benefit of each party hereto, and nothing in this Agreement, except as otherwise expressly provided herein, is intended to or shall confer upon any other person any right, benefit, or remedy of any nature whatsoever under or by reason of this Agreement. 7.6 Counterparts. This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same Agreement, and shall become effective when one or more counterparts have been signed by each of the parties and delivered to the other parties, it being understood that all parties need not sign the same counterpart. 7.7 Governing Law. This Agreement shall be governed in all respects, including validity, interpretation, and effect, by the laws of the State of Delaware (without reference to conflict of laws rules thereof). 7.8 Agreement. Upon and after the Effective Time of the Merger, an executed counterpart of this Agreement shall be on file at an office of the Surviving Corporation, located at 2440 Research Boulevard, Suite 400, Rockville, Maryland 20850, and a copy of this Agreement shall be furnished by the Surviving Corporation, on request and without cost, to any stockholder of any Constituent Corporation. 7.9 Certificates of Secretaries. The Certificates of the respective Secretaries of the parties attached hereto are hereby incorporated by reference and are to be deemed on and part of this Agreement. A-13 IN WITNESS WHEREOF, Newco, Sub and ONS have caused this Agreement to be executed, acknowledged, and delivered by their respective officers thereunto duly authorized, all as of the date first written above. ORION NEWCO SERVICES, INC. By: ------------------------------- Name: ------------------------------ Title: ----------------------------- ORION MERGER COMPANY, INC. By: ------------------------------- Name: ------------------------------ Title: ----------------------------- ORION NETWORK SYSTEMS, INC. By: ------------------------------- Name: ------------------------------ Title: ----------------------------- A-14 CERTIFICATE OF THE SECRETARY OF ORION MERGER COMPANY, INC., A DELAWARE CORPORATION The undersigned, the Secretary of Orion Merger Company, Inc., a Delaware corporation ("Sub"), does hereby certify that the foregoing Plan and Agreement of Merger (the "Agreement") of Sub with and into Orion Network Systems, Inc., a Delaware corporation ("ONS"), by and among Sub, ONS, and Orion Newco Services, Inc., a Delaware corporation ("Newco"), after first having been duly adopted and approved by the Board of Directors of Sub and executed and acknowledged by Sub in accordance with Section 251 of the General Corporation Law of the State of Delaware (the "DGCL"), has been duly approved and adopted by the sole stockholder of Sub entitled to vote thereon in accordance with Section 251 of the DGCL, as of January 8, 1997, by written consent in accordance with Section 228 of the DGCL. This Certificate shall be attached to and deemed on and a part of the Agreement. IN WITNESS WHEREOF, the undersigned has executed this Certificate as of the 8th day of January, 1997. /s/ Richard H. Shay ----------------------------------- Richard H. Shay A-15 CERTIFICATE OF THE SECRETARY OF ORION NETWORK SYSTEMS, INC., A DELAWARE CORPORATION The undersigned, the Secretary of Orion Network Systems, Inc., a Delaware corporation ("ONS"), does hereby certify that the foregoing Plan and Agreement of Merger (the "Agreement") of Orion Merger Company, Inc., a Delaware corporation ("Sub"), with and into ONS, by and among Sub, ONS, and Orion Newco Services, Inc., a Delaware corporation ("Newco"), has been duly adopted and approved by the Board of Directors of ONS on January 8, 1997, pursuant to subsection (g) of Section 251 of the General Corporation Law of the State of Delaware (the "DGCL"), and that the conditions specified in the first sentence of said subsection (g) of Section 251 of the DGCL have been satisfied. This Certificate shall be attached to and deemed on and a part of the Agreement. IN WITNESS WHEREOF, the undersigned has executed this Certificate as of the 8th day of January, 1997. /s/ Richard H. Shay ----------------------------------- Richard H. Shay A-16 CERTIFICATE OF THE SECRETARY OF ORION NEWCO SERVICES, INC., A DELAWARE CORPORATION The undersigned, the Secretary of Orion Newco Services, Inc., a Delaware corporation ("Newco"), does hereby certify that the foregoing Plan and Agreement of Merger (the "Agreement") of Orion Merger Company, Inc., a Delaware corporation ("Sub"), with and into Orion Network Systems, Inc., a Delaware corporation ("ONS"), by and among Sub, ONS, and Newco, after first having been duly adopted and approved by the Board of Directors of Newco and executed and acknowledged by Newco, has been duly approved and adopted by the sole stockholder of Newco entitled to vote thereon, as of January 8, 1997. This Certificate shall be attached to and deemed on and a part of the Agreement. IN WITNESS WHEREOF, the undersigned has executed this Certificate as of the 8th day of January, 1997. /s/ Richard H. Shay ----------------------------------- Richard H. Shay A-17 ATTACHMENT B SECTION 351 EXCHANGE AGREEMENT AND PLAN OF CONVERSION AMONG INTERNATIONAL PRIVATE SATELLITE PARTNERS, L.P. ORION NETWORK SYSTEMS, INC., ORION SATELLITE CORPORATION, BRITISH AEROSPACE COMMUNICATIONS, INC. COM DEV SATELLITE COMMUNICATIONS LIMITED KINGSTON COMMUNICATIONS INTERNATIONAL LIMITED LOCKHEED MARTIN COMMERCIAL LAUNCH SERVICES, INC. MCN SAT US, INC. AND TRANS-ATLANTIC SATELLITE, INC. DATED AS OF JUNE, 1996 SECTION 351 EXCHANGE AGREEMENT AND PLAN OF CONVERSION THIS SECTION 351 EXCHANGE AGREEMENT AND PLAN OF CONVERSION (this "Agreement") is entered into as of June, 1996, between and among International Private Satellite Partners, L.P., a Delaware limited partnership ("Orion Atlantic"); Orion Network Systems, Inc., a Delaware corporation ("ONS"); Orion Satellite Corporation, a Delaware corporation ("OrionSat"); and each of the following entities that executes and delivers a signature page hereto on or before July 12, 1996: British Aerospace Communications, Inc., a Delaware corporation ("BAe"), COM DEV Satellite Communications Limited, a Canadian corporation ("COM DEV"), Kingston Communications International Limited, a company incorporated under the laws of England ("Kingston"), Lockheed Martin Commercial Launch Services, Inc., a Delaware corporation ("Lockheed Martin"), MCN Sat US, Inc., a Delaware corporation ("MCN Sat"), and Trans Atlantic Satellite, Inc., a Delaware corporation ("TA Sat") (collectively, the "Exchanging Partners"). WHEREAS, ONS and the Exchanging Partners (collectively, the "Limited Partners") collectively own limited partnership interests in Orion Atlantic; WHEREAS, OrionSat is the sole general partner of Orion Atlantic; WHEREAS, ONS and the Exchanging Partners desire to (i) form a new Delaware corporation to be named Orion Newco Services, Inc. ("Newco") substantially identical in all material respects (including with respect to certificate of incorporation, bylaws, capital structure, and similar matters) to ONS in the Newco Formation (as defined below); (ii) have a newly created subsidiary of Newco merge into ONS in a transaction in which all capital stock of ONS is exchanged for equivalent capital stock (common or preferred, as applicable, with the same relative rights and preferences) of Newco, and in which ONS becomes a wholly owned subsidiary of Newco in the Merger (as defined below); and (iii) have the Exchanging Partners transfer their limited partnership interests in Orion Atlantic to Newco in exchange for shares of a newly created class of Series C 6% Cumulative Convertible Redeemable Preferred Stock of Newco (the "Newco Preferred Stock") on the terms and conditions set forth herein in the Exchange (as defined below), all pursuant to Section 351 of the Internal Revenue Code of 1986, as amended (the "Code"); and WHEREAS, in connection with the transactions described in the prior paragraph, the Credit Facility Refinancing, Bond Offering, Bank Agreement Termination, Capacity Agreement Termination and Convertible Subordinated Debenture Offering (as defined below) will be pursued. The transactions contemplated by this Agreement are believed to be necessary to accomplish the Credit Facility Refinancing, Bond Offering, Bank Agreement Termination, Capacity Agreement Termination and Convertible Subordinated Debenture Offering, and all parties hereto, including the Exchanging Partners, which will be the stockholders of Newco immediately after completion of the Exchange, believe that they will benefit substantially from the Credit Facility Refinancing, Bond Offering, Bank Agreement Termination, Capacity Agreement Termination and Convertible Subordinated Debenture Offering. NOW, THEREFORE, in consideration of the foregoing and of the mutual covenants and agreements hereinafter set forth, the parties hereto hereby agree as follows: 1. DEFINITIONS For all purposes of this Agreement, certain capitalized terms specified in Exhibit A shall have the meanings set forth in that Exhibit A, except as otherwise expressly provided. 2. NEWCO FORMATION 2.1 FORMATION OF NEW CORPORATION The parties hereto shall form a new Delaware corporation to be named Orion Newco Services, Inc. which is substantially identical in all material respects to ONS (the "Newco Formation"). In particular, Newco shall have a certificate of incorporation and bylaws substantially identical in all material respects to those of ONS (modified to reflect the different name and Newco being a newly formed corporation). B-2 Pursuant to the certificate of incorporation of Newco, the board of directors of Newco shall duly adopt, authorize, execute and file Certificates of Designations, Rights and Preferences of Series A 8% Cumulative Redeemable Convertible Preferred Stock of Newco substantially identical in all material respects to the ONS Series A Preferred Stock (as defined below) and of Series B 8% Cumulative Redeemable Convertible Preferred Stock of Newco substantially identical in all material respects to the ONS Series B Preferred Stock (as defined below). 2.2 INITIAL OWNERSHIP OF NEWCO ONS shall be the initial stockholder of Newco, and shall own one share of Newco common stock. 2.3 REPLICATION OF ONS MANAGEMENT ONS shall take the steps necessary to make the management of Newco identical to the management of ONS, including with respect to directors and officers. 2.4 NEWCO FORMATION DOCUMENTS ONS shall cause all necessary documents (the "Newco Formation Documents") to effect the Newco Formation and other matters referred to in Sections 2.1, 2.2 and 2.3 to be prepared and circulated to the Exchanging Partners for review and comment. The Exchanging Partners agree to submit any comments on the Newco Formation Documents, consistent with the requirement that Newco be substantially identical in all material respects to ONS, within 10 Business Days after all Exchanging Partners have received the initial drafts of such documents and within five Business Days after receipt of subsequent drafts. ONS shall cause final drafts of the Newco Formation Documents to be prepared, consistent with the requirement that Newco be substantially identical in all material respects to ONS, and circulated to the Exchanging Partners. The Exchanging Partners shall have a period of five Business Days after all Exchanging Partners have received such final drafts to raise any objections to the contents of such documents, consistent with the requirement that Newco be substantially identical in all material respects to ONS, and the parties shall negotiate in good faith to resolve any such objections. The resolution of any such objections shall be reflected in the Newco Formation Documents, and such documents shall be finalized and implemented. ONS shall cause the Newco Formation Documents, as finalized and implemented, to be circulated to the Exchanging Partners. If the finalized Newco Formation Documents are not consistent with the requirement that Newco be substantially identical in all material respects to ONS and any discrepancies are not reasonably acceptable to the Exchanging Partners, each of the Exchanging Partners shall have the right to terminate this Agreement pursuant to the final paragraph of Section 13.1. If all of the Exchanging Partners shall not have terminated this Agreement pursuant to the final paragraph of Section 13.1 within a period of five Business Days after all Exchanging partners have received such finalized and implemented Newco Formation Documents, the "Newco Finalization Date" shall be deemed to have occurred on the last day of such period. 3. EXCHANGE OF INTERESTS 3.1 NEWCO PREFERRED STOCK Newco shall duly adopt, authorize, execute and file the Certificate of Designations, Rights and Preferences of Series C 6% Cumulative Redeemable Convertible Preferred Stock establishing the terms and relative rights and preferences of such series of Newco Preferred Stock in the form set forth as Exhibit B to this Agreement (the "Certificate of Designations") and authorize the issuance and sale to the Exchanging Partners of the aggregate number of shares of Newco Preferred Stock to be issued to the Exchanging Partners hereunder (and Newco shall authorize the issuance and sale of such additional shares of Newco Preferred Stock in an amount equal to the aggregate of the Adjustment Amounts referred to in Section 3.2(c) hereof). The Certificate of Designations shall be in full force and effect under the laws of the State of Delaware as of the Closing Date. B-3 3.2 TERMS OF EXCHANGE On the basis of the representations, warranties and agreements contained herein, and subject to the terms and conditions hereof, each of the Exchanging Partners hereby agrees to transfer to Newco at the Closing all of its limited partnership interests in Orion Atlantic (individually, an "LP Interest" and collectively the "LP Interests") and other rights relating thereto as specified below ("Other LP Rights") in exchange for shares of Newco Preferred Stock (collectively, the "Exchange"), as follows: (a) Transfers by the Exchanging Partners to Newco. (i) If BAe is an Exchanging Partner, BAe agrees to transfer to Newco at the Closing its 25.00% LP Interest; all of its rights and obligations under the Partnership Agreement, including all of its rights to receive distributions and allocations thereunder, and all other rights it may have as a limited partner of Orion Atlantic under applicable law; all of its rights and obligations under the Refund Agreement, including all of its rights to receive refunds thereunder; all of its rights and obligations under the Consent and Agreement, including all of its rights to transfer LP Interests thereunder; all of its rights and obligations under the Preferred Bidders Agreement; all of its rights under the Option Agreement; all of its rights under the Subscription Agreement; and all of its rights and obligations under the Agreement of Principles (collectively, the "BAe Exchange Assets"). (ii) If COM DEV is an Exchanging Partner, COM DEV agrees to transfer to Newco at the Closing its 4.17% LP Interest; all of its rights and obligations under the Partnership Agreement, including all of its rights to receive distributions and allocations thereunder, and all other rights it may have as a limited partner of Orion Atlantic under applicable law; all of its rights and obligations under the Refund Agreement, including all of its rights to receive refunds thereunder; all of its rights and obligations under the PPU Agreement, including all of its rights to receive repayment of amounts advanced thereunder and interest accrued on such advances; all of its rights and obligations under the Preferred Bidders Agreement; all of its rights under the Option Agreement; all of its rights under the Subscription Agreement; and all of its rights and obligations under the Agreement of Principles (collectively, the "COM DEV Exchange Assets"). (iii) If Kingston is an Exchanging Partner, Kingston agrees to transfer to Newco at the Closing its 4.17% LP Interest; all of its rights and obligations under the Partnership Agreement, including all of its rights to receive distributions and allocations thereunder, and all other rights it may have as a limited partner of Orion Atlantic under applicable law; all of its rights and obligations under the PPU Agreement, including all of its rights to receive repayment of amounts advanced thereunder and interest accrued on such advances, other than interest paid to Kingston under Section 3.2(d); all of its rights and obligations under the Preferred Bidders Agreement; all of its rights under the Option Agreement; all of its rights under the Subscription Agreement; and all of its rights and obligations under the Agreement of Principles (collectively, the "Kingston Exchange Assets"). The Kingston Sales Representative Agreements shall remain in full force without any modifications being effected by this Agreement, and Orion Atlantic, OrionSat and Kingston agree that even after the Closing and the transfer of the Kingston LP Interest to Newco, Kingston shall continue to be treated as if it were a limited partner of Orion Atlantic for purposes of payment of the Override Commissions under the Kingston Sales Representative Agreements only. (iv) If Lockheed Martin is an Exchanging Partner, Lockheed Martin agrees to transfer to Newco at the Closing its 8.33% LP Interest; all of its rights and obligations under the Partnership Agreement, including all of its rights to receive distributions and allocations thereunder, and all other rights it may have as a limited partner of Orion Atlantic under applicable law; all of its rights and obligations under the Refund Agreement, including all of its rights to receive refunds thereunder; all of its rights and obligations under the PPU Agreement, including all of its rights to receive repayment of amounts advanced thereunder and interest accrued on such advances; all of its rights and obligations under the Preferred Bidders Agreement; all of its B-4 rights under the Option Agreement; all of its rights under the Subscription Agreement; and all of its rights and obligations under the Agreement of Principles (collectively, the "Lockheed Martin Exchange Assets"). (v) If MCN Sat is an Exchanging Partner, MCN Sat agrees to transfer (or cause to be transferred) to Newco at the Closing its 8.33% LP Interest; all of its rights and obligations under the Partnership Agreement, including all of its rights to receive distributions and allocations thereunder, and all other rights it may have as a limited partner of Orion Atlantic under applicable law; all of the rights and obligations of its Affiliate, MCN Sat Service S.A., under the Refund Agreement, including all of such Affiliate's rights to receive refunds thereunder; all of its rights and obligations under the PPU Agreement, including all of its rights to receive repayment of amounts advanced thereunder and interest accrued on such advances; all of its rights and obligations under the Preferred Bidders Agreement; all of its rights under the Option Agreement; all of its rights under the Subscription Agreement; and all of its rights and obligations under the Agreement of Principles (collectively, the "MCN Sat Exchange Assets"). (All references herein to rights or obligations of MCN Sat shall include those which may still be retained by MMB, the transferor of MCN Sat's LP Interest.) The MCN Sat Sales Representative Agreements shall remain in full force without any modifications being effected by this Agreement, and Orion Atlantic, OrionSat and MCN Sat agree that even after the Closing and the transfer of the MCN Sat LP Interest to Newco, MCN Sat shall continue to be treated as if it were a limited partner of Orion Atlantic for purposes of payment of the Override Commissions under the MCN Sat Sales Representative Agreements only. (vi) If TA Sat is an Exchanging Partner, TA Sat shall transfer to Newco at the Closing its 8.33% LP Interest; all of its rights and obligations under the Partnership Agreement, including all of its rights to receive distributions and allocations thereunder, and all other rights it may have as a limited partner of Orion Atlantic under applicable law; all of its rights and obligations under the Refund Agreement, including all of its rights to receive refunds thereunder; all of its rights and obligations under the Preferred Bidders Agreement; all of its rights under the Option Agreement; all of its rights under the Subscription Agreement; and all of its rights and obligations under the Agreement of Principles (collectively, the "TA Sat Exchange Assets"). (b) Transfers by Newco to the Exchanging Partners. (i) If BAe is an Exchanging Partner, Newco shall transfer to BAe at the Closing, in exchange for the BAe Exchange Assets, 43,953 shares of Newco Preferred Stock, plus its respective Adjustment Amount, calculated as set forth in SECTION 3.2(c). (ii) If COM DEV is an Exchanging Partner, Newco shall transfer to COM DEV at the Closing, in exchange for the COM DEV Exchange Assets, 8,302 shares of Newco Preferred Stock, plus its respective Adjustment Amount, calculated as set forth in SECTION 3.2(c). (iii) If Kingston is an Exchanging Partner, Newco shall transfer to Kingston at the Closing, in exchange for the Kingston Exchange Assets, 10,222 shares of Newco Preferred Stock, plus its respective Adjustment Amount, calculated as set forth in SECTION 3.2(c) and PPU Interest Shares calculated as set forth in SECTION 3.2(d). (iv) If Lockheed Martin is an Exchanging Partner, Newco shall transfer to Lockheed Martin at the Closing, in exchange for the Lockheed Martin Exchange Assets, 17,143 shares of Newco Preferred Stock, plus its respective Adjustment Amount, calculated as set forth in SECTION 3.2(c). (v) If MCN Sat is an Exchanging Partner, Newco shall transfer to MCN Sat at the Closing, in exchange for the MCN Sat Exchange Assets, 15,746 shares of Newco Preferred Stock, plus its respective Adjustment Amount, calculated as set forth in SECTION 3.2(c). (vi) If TA Sat is an Exchanging Partner, Newco shall transfer to TA Sat at the Closing, in exchange for the TA Sat Exchange Assets, 12,426 shares of Newco Preferred Stock, plus its respective Adjustment Amount, calculated as set forth in SECTION 3.2(c). B-5 The number of shares of Newco Preferred Stock specified in this SECTION 3.2(b), in SECTIONS 3.2(c) and 3.2(d) shall be adjusted proportionately to reflect any subdivision, stock split, stock dividend, recapitalization, combination or reverse stock split of ONS capital stock or similar transaction by ONS between the date hereof and the Closing Date. (c) Adjustment Amounts. The numbers of shares of Newco Preferred Stock to be issued to the respective Exchanging Partners as listed in SECTION 3.2(b) shall be increased by the Adjustment Amount for such Exchanging Partner, calculated as set forth below. The "Adjustment Amount" for an Exchanging Partner shall equal (i) the sum of (A) the amounts paid by such Exchanging Partner for obligations (or an Affiliate of such Exchanging Partner) pursuant to the Capacity Agreement (as defined below) and which is subject to being refunded under the Refund Agreement, and by such Exchanging Partner pursuant to the Contingent Capacity Agreement (as defined below), in each case to which such Exchanging Partner (or an Affiliate of such Exchanging Partner) is a party, during the period from July 1, 1996 through the Closing Date (the "Adjustment Period"), plus (B) the amount of interest accrued with respect to funds advanced by such Exchanging Partner (or an Affiliate of such Exchanging Partner) other than Kingston (or an Affiliate of Kingston) pursuant to the PPU Agreement during the Adjustment Period, minus (ii) the product of the number of days in the Adjustment Period multiplied by the Tax Adjustment Factor for such Exchanging Partner, divided by (iii) $1,000. To the extent that amounts are due or payable from an Exchanging Partner or Affiliate under its Capacity Agreement or Contingent Capacity Agreement during the Adjustment Period, but are not actually paid prior to the Closing Date, such amounts shall not be included in clause (i)(A) of this paragraph. Similarly, to the extent that amounts are paid by an Exchanging Partner or Affiliate under its Capacity Agreement or Contingent Capacity Agreement during the Adjustment Period for obligations of such Exchanging Partner arising after the Closing, such amount shall be refunded to the Exchanging Partner at the Closing. Nothing in this paragraph shall affect the obligations of any Exchanging Partner to make any payment under its Capacity Agreement or Contingent Capacity Agreement during the Adjustment Period or otherwise, or affect the amount of interest accruing under the PPU Agreement. (d) Kingston Investment in PPU Interest Shares. Notwithstanding the exchange of Kingston Exchange Assets pursuant to SECTIONS 3.2(a)(iii) and 3.2(b)(iii), at the Closing Orion Atlantic shall pay to Kingston in cash the total interest accrued until Closing with respect to funds advanced by Kingston pursuant to the PPU Agreement (the "Total Accrued PPU Interest"). Kingston shall at the Closing invest an amount equal to the Total Accrued PPU Interest in shares of Newco Preferred Stock (the "PPU Interest Shares"). Since the amount to be paid to Kingston under this paragraph is the same as the amount to be invested by Kingston, Orion Atlantic shall pay the Total Accrued PPU Interest directly to Newco at the Closing. The total number of shares of Newco Preferred Stock to be issued to Kingston for its investment under this paragraph shall equal (i) the Total Accrued PPU Interest, minus (ii) the product of the number of days in the Adjustment Period multiplied by the Tax Adjustment Factor for such Exchanging Partner (to the extent Tax Adjustment Factor was not fully applied in (c) above), divided by (iii) $1,000. 3.3 ALLOCATION OF NEWCO PREFERRED STOCK The Newco Preferred Stock to be issued to each Exchanging Partner at the Closing shall be allocated among such Exchanging Partner's Exchange Assets as follows: first, to the rights under the PPU Agreement, including rights to receive repayment of amounts advanced thereunder and interest accrued on such advances, and the rights under the Refund Agreement, including rights to receive refunds thereunder, until such Exchanging Partner has received Newco Preferred Stock with a fair market value equal to such rights; and second, to such Exchanging Partner's LP Interest and other Exchange Assets. 4. MERGER 4.1 FORMATION OF SUBSIDIARY OF NEWCO Newco shall form a new Delaware corporation to be named Orion Merger Company, Inc. ("Merger Sub"), and Newco shall be the sole stockholder of Merger Sub. B-6 4.2 TERMS OF MERGER On the basis of the representations, warranties and agreements contained in a merger agreement, and subject to the terms and conditions hereof, at the Closing Merger Sub shall be merged into ONS pursuant to the Delaware General Corporation Law in a merger in which ONS shall be the surviving company and all of the assets, rights, property, liabilities and obligations of Merger Sub and ONS shall be vested in ONS as the surviving company (the "Merger"). Pursuant to the Merger, holders of all of the capital stock of ONS shall receive, as consideration for their capital stock of ONS, an identical number of shares of substantially identical capital stock (common or preferred, as applicable, with the same relative rights and preferences) of Newco. 4.3 TRANSFER OF CERTAIN CONTRACTS In connection with the Merger, all contracts and agreements relating to capital stock of ONS in effect at the Closing shall be replaced with contracts and agreements substantially equivalent in all material respects relating to the capital stock of Newco, including without limitation, all options, warrants and other rights to purchase capital stock and all contracts relating to registration rights, voting of shares, transfer of shares and similar matters. 4.4 MERGER DOCUMENTS ONS shall cause all necessary documents (the "Merger Documents") to effect the Merger and other matters referred to in Section 4 to be prepared and circulated to the Exchanging Partners for review and comment. The Exchanging Partners agree to submit any comments on the Merger Documents within 10 Business Days after receipt of the initial drafts of such documents and within five Business Days after receipt of subsequent drafts. ONS shall cause final drafts of the Merger Documents to be prepared and circulated to the Exchanging Partners. The Exchanging Partners shall have a period of five Business Days after receipt of such final drafts to raise any objections to the contents of such documents, and the parties shall negotiate in good faith to resolve any such objections. The resolution of any such objections shall be reflected in the Merger Documents, and such documents shall be put in final form for execution at the Closing. 5. ADDITIONAL UNDERTAKINGS AND COVENANTS ONS and OrionSat, jointly and severally on the one hand, and the Exchanging Partners, severally and not jointly on the other hand, hereby covenant and agree with each other as follows: 5.1 CONSENTS AND APPROVALS ONS and OrionSat shall take all measures reasonably necessary or advisable to secure such consents, authorizations and approvals of governmental authorities and of private persons or entities with respect to the transactions contemplated by this Agreement, and to the performance of all other obligations of such parties hereunder, as may be required by any applicable statute or regulation of the United States or any country, state or other jurisdiction or by any agreement of any kind whatsoever to which any of them is a party or by which any of them is bound and which are set forth on Schedule 7.3. Notwithstanding SECTIONS 6.4 and 7.3, subsequent to the execution of this Agreement and prior to the Closing Date, ONS, OrionSat and the Exchanging Partners shall take all measures reasonably necessary or advisable to secure such consents, authorizations and approvals of governmental authorities and of private persons or entities with respect to the transactions contemplated by this Agreement, and to the performance of all other obligations of such parties hereunder, as may be required by any applicable statute or regulation of the United States or any country, state or other jurisdiction or by any agreement of any kind whatsoever to which any of them is a party or by which any of them is bound. ONS, OrionSat and the Exchanging Partners shall (a) cooperate in the filing of all forms, notifications, reports and information, if any, required or reasonably deemed advisable pursuant to applicable statutes, rules, regulations or orders of any governmental or supragovernmental authority in connection with the transactions contemplated by this Agreement and (b) use their respective good faith efforts to cause any B-7 applicable waiting periods thereunder to expire and any objections to the transactions contemplated hereby to be withdrawn before the Closing. 5.2 APPROVAL BY STOCKHOLDERS OF ONS In addition to the consents and approvals referred to in Section 5.1 above, ONS shall take all measures reasonably necessary or advisable to secure all required consents of the stockholders of ONS (including the consent of holders of ONS' preferred stock) to the Merger, the Exchange and any related transactions requiring stockholder consent (collectively, with any required consent of ONS' preferred stockholders, the "ONS Stockholder Consent"). The parties acknowledge that in order to obtain the ONS Stockholder Consent, ONS will need to file a merger proxy statement with the United States Securities and Exchange Commission ("SEC"), revise the merger proxy statement in response to comments from the SEC, obtain approval of the SEC of the final version of the merger proxy statement before it is mailed to ONS stockholders, call a meeting of stockholders of ONS for approximately 30 days after such merger proxy statement is mailed to ONS stockholders and obtain the requisite stockholder vote at the meeting (such merger proxy statement, including all amendments thereto is referred to herein as the "Merger Proxy Statement"). The Exchanging Partners shall cooperate with ONS in preparing and filing the Merger Proxy Statement with the SEC and in obtaining SEC clearance of the Merger Proxy Statement, including supplying information on each Exchanging Partner which is reasonably necessary or advisable for ONS to include in the Merger Proxy Statement or to be provided to any government agency or authority pursuant to applicable statutes, rules, regulations or orders of any governmental or supragovernmental authority in connection with the Merger and other transactions contemplated by this Agreement; provided, however, that none of the Exchanging Partners shall be required to supply any confidential or proprietary information. ONS shall use its good faith efforts to cause the ONS Stockholder Consent to be obtained expeditiously and any objections of ONS Stockholders to the Merger and other transactions contemplated hereby to be withdrawn before the Closing. 5.3 REFINANCING OF CREDIT FACILITY; CANCELLATION OF CAPACITY AGREEMENTS It is presently contemplated that Newco, Orion Atlantic, ONS and OrionSat will, as of the Closing Date, complete a refinancing (the "Credit Facility Refinancing") of the indebtedness of Orion Atlantic outstanding under the Credit Agreement (the "Credit Facility") dated December 6, 1991 among Orion Atlantic, the Banks named therein (the "Lenders") and The Chase Manhattan Bank (National Association), as Agent ("Chase") using proceeds of an underwritten offering of notes or debentures of Newco to the public (a "Bond Offering"). The Credit Facility Refinancing is to effect the Capacity Agreement Termination and release of the Capacity Guarantees, as discussed (and defined) below in this SECTION 5.3. ONS shall use its good faith efforts to cause Newco to complete a Bond Offering on reasonable commercial terms. Notwithstanding the foregoing, the parties acknowledge and agree that the terms of a Bond Offering are likely to be determined in large part by the requirements of prospective investors in that Bond Offering, and that Newco and ONS reserve the right not to proceed with a Bond Offering if they determine that such Bond Offering would not be in the best interest of the stockholders of Newco or the stockholders of ONS (who would become stockholders of Newco in the Merger) generally, including the entities who would be becoming stockholders of Newco pursuant to the Exchange). ONS agrees to inform the Exchanging Partners periodically and in a timely fashion of the progress of the Bond Offering, including the terms being proposed by the underwriters thereof, and the Exchanging Partners may advise ONS of their views regarding the terms of the Bond Offering. Newco is to use the proceeds of the Bond Offering first for the Credit Facility Refinancing (including costs of such transaction and the costs of terminating the interest rate protection agreements entered into in connection with the Credit Facility), and if any proceeds remain, then for financing of a second satellite with coverage of the Atlantic Ocean region and Europe ("Orion 2") or for working capital. In connection with the Credit Facility Refinancing, Newco, Orion Atlantic, ONS, OrionSat and the Exchanging Partners shall take all measures reasonably necessary or advisable to cause the termination (the "Bank Agreement Termination"), concurrently with the completion of the Credit Facility Refinancing, of all agreements between or among the Lenders and Chase, on the one hand, and one or more of Newco, Orion Atlantic, OrionSat, ONS and the Exchanging Partners and/or their affiliates on the other B-8 hand, relating to the Credit Facility or the security or credit support thereof, including without limitation, in the case of each Exchanging Partner and/or their affiliates, a Consent and Agreement, an Assignment and Security Agreement and a Guarantee Agreement (the "Credit Facility Documents"). However, the previous sentence will not oblige the Exchanging Partners to incur any liability in connection with the Bank Agreement Termination. In connection with the Credit Facility Refinancing and the Bank Agreement Termination, Newco, Orion Atlantic, ONS, OrionSat and the Exchanging Partners shall take all measures reasonably necessary or advisable to cause the termination (the "Capacity Agreement Termination"), concurrently with the completion of the Credit Facility Refinancing and the Bank Agreement Termination, of all obligations under the Communications Satellite Capacity Agreements and the Contingent Communications Satellite Capacity Agreements between Orion Atlantic and each of the Exchanging Partners and/or their affiliates (the "Capacity Agreements" and the "Contingent Capacity Agreements," respectively) arising from and after the Capacity Agreement Termination, and all guarantees or other credit support of such obligations ("Capacity Guarantees"); provided, however, that (i) the Capacity Agreements of Kingston and MCN Sat Service S.A. (but not the associated Capacity Guarantees) shall remain in full force and effect, (ii) the Kingston Capacity Agreement shall be deemed amended, effective as of the Closing (and Kingston and Orion Atlantic shall execute and deliver such written documents evidencing such amendment as either may reasonably request), to reduce to 17 MHz the amount of capacity subject to the Kingston Capacity Agreement (of which 8 MHz shall be the capacity presently used by Kingston under the Kingston Capacity Agreement and of which 9 MHz shall be the capacity presently used by Kingston under one of the BAe Capacity Agreements), with an option (subject to availability) to increase the amount of capacity subject to the Kingston Capacity Agreement for use by Kingston in providing its network service products, but not for resale, up to a maximum of 27 MHz at the same rate and on the same terms and conditions as set forth in the Kingston Capacity Agreement, but (to the extent easily effected technically) without any obligation to take such capacity in 9 MHz units or any other pre-determined denomination, and (iii) the MCN Sat Service S.A. Capacity Agreement shall be deemed amended, effective as of the Closing (and MCN Sat Service S.A. and Orion Atlantic shall execute and deliver such written documents evidencing such amendment as either may reasonably request), to reduce to 18 MHz the amount of capacity subject thereto. 5.4 AMENDMENT AND RESTATEMENT OF PARTNERSHIP AGREEMENT The Partnership Agreement shall be amended and restated as of the Closing Date to read in its entirety as set forth in Exhibit C (the "Third Amended and Restated Partnership Agreement"), and each of ONS, OrionSat and the Exchanging Partners agree to execute, and deliver at the Closing, counterparts to the Third Amended and Restated Partnership Agreement. 5.5 REGISTRATION RIGHTS Concurrently with the Closing, Newco and each of the Exchanging Partners shall execute and deliver a Registration Rights Agreement in the form set forth as Exhibit D (the "Registrations Rights Agreement"). 5.6 ACCESS; INVESTIGATIONS BY THE EXCHANGING PARTNERS ONS shall, through the Closing Date, provide to representatives of the Exchanging Partners reasonable access to the offices, books, agreements and records of ONS and its Subsidiaries and Newco, and furnish to representatives of the Exchanging Partners such financial and operational data and other information with respect to the business and assets of ONS and its Subsidiaries and Newco as the Exchanging Partners may reasonably request. The Exchanging Partners agree at all times through the Closing Date to use reasonable efforts, at least as stringent as those employed by them with respect to their own confidential information, (a) to keep confidential all such information that is identified as being of a confidential nature, (b) not to use such confidential information on their own behalf, except in connection with the transactions contemplated hereby, or on behalf of any other person, firm or entity, and (c) not to disclose such confidential information to any third party (other than to the Exchanging B-9 Partners' various counsel, accountants and other consultants in connection with the transactions contemplated hereby) without ONS' advance written authorization; provided, however, that the Exchanging Partners shall have no such obligations with respect to confidential information that (i) was lawfully obtained by them not subject to restrictions of confidentiality; (ii) is a matter of public knowledge; or (iii) has been or is hereafter publicly disclosed other than by or through the Exchanging Partners. In the event this Agreement is terminated, the Exchanging Partners will return to ONS all documents and other materials furnished to any one or more of the Exchanging Partners relating to the transactions contemplated hereunder, whether obtained before or after the execution of this Agreement. In the event of a breach or threatened breach by the Exchanging Partners of the provisions of this SECTION 5.6 ONS shall be entitled to an injunction restraining such Exchanging Partners from disclosing, in whole or in part, such information. The Exchanging Partners investigation of the financial and operating data, assets, real property and other information with respect to the business and assets of ONS and its Subsidiaries and Newco shall in no way affect the obligations of ONS with respect to the agreements, representations, warranties, covenants and indemnification provisions set forth in this Agreement. 5.7 WAIVER OF RIGHT OF FIRST REFUSAL UNDER THE PARTNERSHIP AGREEMENT Pursuant to Section 13.09(b) of the Partnership Agreement, ONS, OrionSat and each of the Exchanging Partners hereby amend the Partnership Agreement, as of the date hereof, to the extent necessary to cause Section 10.04 thereof, which section contains the partners' right of first refusal with respect to the sale of limited partnership interests of Orion Atlantic, not to apply to the Exchange or any of the transactions referred to in this Agreement, and hereby waives any rights it may have under Section 10.04 of the Partnership Agreement, with respect to the Exchange or any of the transactions referred to in this Agreement. 5.8 CONVERTIBLE SUBORDINATED DEBENTURES It is presently contemplated that Newco will, as of the Closing Date, complete an offering (the "Convertible Subordinated Debenture Offering") of approximately $100 million of convertible subordinated debentures of Newco ("Convertible Subordinated Debentures"). ONS shall use its good faith efforts to cause Newco to complete the Convertible Subordinated Debenture Offering. Notwithstanding the foregoing, the parties acknowledge and agree that the terms of a Convertible Subordinated Debenture Offering are likely to be determined in large part by the requirements of prospective investors in Convertible Subordinated Debenture Offering, and that Newco and ONS reserve the right not to proceed with a Convertible Subordinated Debenture Offering if they determine that such Convertible Subordinated Debenture Offering would not be in the best interest of the stockholders of Newco or the stockholders of ONS (who would become stockholders of Newco in the Merger) generally, including the entities who would be becoming stockholders of Newco pursuant to the Exchange). ONS agrees to inform the Exchanging Partners periodically and in a timely fashion of the progress of the Convertible Subordinated Debenture Offering, including the terms being proposed by the underwriters or placement agents thereof, and the Exchanging Partners may advise ONS of their views regarding the terms of the Convertible Subordinated Debenture Offering. ONS intends for Newco to use BAe's $50 million expected payment for Convertible Subordinated Debentures and an additional $10 million of the proceeds of the offering for the financing of Orion 2. While not intended to be legally binding, BAe hereby confirms that it intends to purchase from Newco $50 million of Convertible Subordinated Debentures on substantially the same terms as the remainder of the offering of the Convertible Subordinated Debentures. 5.9 AGREEMENT REGARDING TRANSFER Concurrent with the Closing, each Exchanging Partner will enter into an agreement, in the form set forth as Exhibit E hereto, regarding the transfer of the shares of Newco Common Stock issuable upon conversion of the Newco Preferred Stock. 5.10 RELEASE OF CLAIMS Concurrently with the Closing, each of the parties hereto agrees to release and forever discharge each of the other parties hereto and each of their Affiliates from and after the Closing, from and against any and all rights, causes of action, claims, suits, obligations, liabilities, and demands whatsoever (other B-10 than those arising from fraud or misrepresentation), in law or in equity, whether presently known or unknown, to the fullest extent permitted by law by reason of, related to, or arising out of any one or more of the agreements referred to in Section 3.2 hereof (other than this Agreement). 5.11 LEGEND, REMOVAL Each certificate or instrument representing Newco Preferred Stock (or Newco Common Stock received upon the conversion thereof or as dividends thereon) shall be imprinted with a legend to the effect that the securities have not been registered under the Securities Act and may not be transferred or sold except pursuant to an effective registration under the Securities Act and applicable state securities laws or an available exemption from such registration. In connection with the transfer of any Newco Preferred Stock (or Newco Common Stock received upon the conversion thereof or as dividends thereon) other than pursuant to an effective registration statement filed by ONS, the holder thereof shall deliver written notice to Newco describing in reasonable detail the transfer or proposed transfer, together with an opinion of counsel which (to Newco's reasonable satisfaction) is knowledgeable in securities law matters to the effect that such transfer of such securities may be effected without registration of such securities under the Securities Act. Upon issuance of such opinion (to the extent it relates to Newco Preferred Stock) or acceptance of such opinion by Newco's transfer agent (to the extent it relates to Newco Common Stock), Newco shall promptly upon such contemplated transfer deliver or caused to be delivered new certificates for such securities which do not bear the Securities Act legend referred to above in this paragraph. If any Newco Preferred Stock (or Newco Common Stock received upon the conversion thereof or as dividends thereon) becomes eligible for sale pursuant to Rule 144(k), Newco shall, upon the request of the holder of such securities (together with the opinion referred to above in this paragraph, which shall state that the provisions of Rule 144(k) have been complied with), remove the legend referred to above in this paragraph from the certificates for such securities. 5.12 TAX-FREE STATUS No party hereto shall, nor shall any party hereto permit any of its affiliates to, take any action, or omit to take any required action, that would, or would be reasonably likely to, adversely affect the qualification of the Merger and the Exchange, taken together, as a tax-free transaction described in Code Section 351(a). Each party hereto shall, for all tax purposes, treat the Merger and the Exchange, taken together, as a tax-free transaction described in Code Section 351(a). 6. REPRESENTATIONS AND WARRANTIES OF EXCHANGING PARTNERS Each of the Exchanging Partners hereby severally represents and warrants to ONS as follows (provided that the representations and warranties in SECTION 6.8 are made solely by Lockheed Martin): 6.1 TITLE TO LP INTERESTS; OTHER LP RIGHTS Such Exchanging Partner is, and on the Closing Date will be, the lawful owner of the LP Interest of such Exchanging Partner, and such Exchanging Partner (or such Exchanging Partner's Affiliate, as the case may be), is and on the Closing Date will be, the lawful owner of such Exchanging Partner's (or Affiliate's) Other LP Rights, as listed in SECTION 3.2. Except as set forth below, such Exchanging Partner has, and on the Closing Date such Exchanging Partner will have, good, valid and marketable title, free and clear of all Encumbrances, to the LP Interest of such Exchanging Partner, and such Exchanging Partner (or such Exchanging Partner's Affiliate, as the case may be), has, and on the Closing Date will have, good, valid and marketable title, free and clear of all Encumbrances, to such Exchanging Partner's (or Affiliate's) Other LP Rights, as listed in SECTION 3.2, in each case with full right and lawful authority to transfer the LP Interest and Other LP Rights to Newco pursuant to this Agreement. Notwithstanding the foregoing, the parties acknowledge that the LP Interests and certain of the Other LP Rights are pledged to the Lenders under the Credit Facility Documentation, and that the LP Interests are pledged to Orion Atlantic under the respective Contingent Capacity Agreements. B-11 6.2 ORGANIZATION AND STANDING; CAPACITY Such Exchanging Partner is a corporation duly organized, validly existing and in good standing under the laws of its respective jurisdiction, and has the full corporate power and authority to carry on its business as currently conducted. Each Exchanging Partner has full legal right, capacity, power and authority (corporate or otherwise) to execute and deliver this Agreement and to consummate the transactions contemplated hereby. 6.3 AUTHORIZATION The execution, delivery and performance by the Exchanging Partner of this Agreement and all other documents contemplated hereby, the fulfillment of and the compliance with the respective terms and provisions hereof and thereof, and the consummation of the transactions contemplated hereby and thereby have been duly authorized by the Board of Directors of such Exchanging Partner (which authorization has not been modified or rescinded and is in full force and effect), and will not: (a) conflict with, or materially violate any provision of, any law having applicability to such Exchanging Partner or any of its Affiliates which is a party to any agreement with or relating to Orion Atlantic or any term or provision of the articles of incorporation or organization, or bylaws or operating agreement of such Exchanging Partner or any of such Affiliates, as applicable; or (b) conflict with, or result in any material breach of, or constitute a material default under, any agreement to which such Exchanging Partner or any of such Affiliates is a party or by which such Exchanging Partner or any of such Affiliates may be bound. 6.4 RESTRICTIONS AND CONSENTS Except for certain approvals which may be required by the Japanese government if TA Sat becomes an Exchanging Partner, there are no agreements, laws or other restrictions of any kind to which such Exchanging Partner is party or subject that would prevent or restrict the execution, delivery or performance of this Agreement. 6.5 BINDING OBLIGATION This Agreement constitutes a valid and binding obligation of such Exchanging Partner, enforceable in accordance with its terms. Each document to be executed by such Exchanging Partner pursuant hereto, when executed and delivered in accordance with the provisions hereof, will be a valid and binding obligation of such Exchanging Partner, enforceable in accordance with its terms. 6.6 TRANSFER OF TITLE At the Closing, Newco will acquire good, valid and marketable title to such Exchanging Partner's LP Interest and such Exchanging Partner's Other LP Rights, free and clear of all Encumbrances, other than those imposed by the terms of the Partnership Agreement and restrictions on resale contained in federal and state securities laws. 6.7 ACCREDITED INVESTORS Each Exchanging Partner and any Affiliate of such Exchanging Partner who will be receiving Newco Preferred Stock is an "accredited investor" as such term is defined in Rule 501 of the Securities Act. 6.8 NAME CHANGE OF LOCKHEED MARTIN Lockheed Martin only hereby represents and warrants that it was formerly named Martin Marietta Commercial Launch Services, Inc., that it is a limited partner of Orion Atlantic and a party to the agreements referred to in Section 3.2(a)(iv) and that it has provided evidence of its name change to the other parties hereto. 7. REPRESENTATIONS AND WARRANTIES OF ONS ONS hereby represents and warrants to the Exchanging Partners as follows: B-12 7.1 ORGANIZATION AND STANDING ONS is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, and has the full corporate power and authority to carry on its business as currently conducted. ONS has the full legal right, capacity, power and authority (corporate or otherwise) to execute and deliver this Agreement and the other documents called for herein and to consummate the transactions contemplated hereby. ONS is qualified as a foreign corporation in the State of Maryland, and in every other jurisdiction in which the failure to so qualify would have a Material Adverse Effect. 7.2 AUTHORIZATION The execution, delivery and performance by ONS of this Agreement and the other documents contemplated hereby, the fulfillment of and the compliance with the respective terms and provisions hereof and thereof, and the consummation of the transactions contemplated hereby and thereby have been duly authorized by the Board of Directors of ONS (which authorization has not been modified or rescinded and is in full force and effect), and will not: (a) conflict with, or materially violate any provision of, any law having applicability to ONS or any of its Affiliates or any term or provision of the articles of incorporation or organization, or bylaws or operating agreement of ONS, as applicable; or (b) conflict with, or result in any material breach of, or constitute a material default under, any agreement to which ONS or any of its Affiliates is a party or by which ONS or any of its Affiliates may be bound. 7.3 RESTRICTIONS AND CONSENTS Except for certain approvals which are set forth on Schedule 7.3, which ONS will use its reasonable efforts to obtain prior to Closing, there are no agreements, laws or other restrictions of any kind to which ONS is party or subject that would prevent or restrict the execution, delivery or performance of this Agreement. ONS has no reason to believe, as of the date hereof, that any of the conclusions reached in the memorandum from ONS's communications counsel previously circulated to the Exchanging Partners and attached hereto as Exhibit K indicating that the Exchange will not constitute a change of control of ONS that would require the consent of the U.S. Federal Communications Commission ("FCC"), or otherwise require the consent of that Commission, are incorrect in any material respect and will promptly notify each Exchanging Partner if ONS becomes aware of any reason why any such conclusions may become incorrect. If, notwithstanding such memorandum, such FCC consent is required, ONS will use its reasonable good faith efforts to obtain such consent prior to Closing. 7.4 BINDING OBLIGATION This Agreement constitutes, and the Registration Rights Agreement when executed will constitute, valid and binding obligations of ONS and Newco, as the case may be, enforceable in accordance with its terms. Each document to be executed by ONS or Newco pursuant hereto, when executed and delivered in accordance with the provisions hereof, will be a valid and binding obligation of ONS or Newco, enforceable in accordance with its terms. 7.5 ISSUANCE OF SHARES Upon consummation of the transactions contemplated by this Agreement at Closing, the Newco Preferred Stock will be duly and validly issued, fully paid and nonassessable and no personal liability attaches to the ownership thereof, and the Exchanging Partners will acquire the legal, valid and marketable title to the Newco Preferred Stock, free and clear of all Encumbrances, except as set forth in this Agreement. 7.6 CAPITALIZATION As of the date hereof, the authorized capital stock of ONS consists of 40,000,000 shares of ONS Common Stock and 1,000,000 shares of preferred stock, par value $.01 per share, of which 10,945,133 shares of ONS Common Stock, 13,961 shares of ONS Series A Preferred Stock and 4,211,001 shares of ONS Series B Preferred Stock are duly authorized and validly issued and outstanding, fully paid and B-13 nonassessable. ONS has no other class of stock authorized or outstanding. Options and warrants to purchase 1,396,851 shares of ONS Common Stock are outstanding on the date hereof, and when such options are exercised and the prescribed exercise price paid, the shares of ONS Common Stock issued with respect to such options will be duly authorized, validly issued, fully paid and nonassessable. Options to purchase 350.666 shares of ONS preferred stock are outstanding on the date hereof, the terms of which are to be substantially identical to the ONS Series A Preferred Stock and the ONS Series B Preferred Stock other than the conversion price. Except as set forth above, or in the certificates of designations of the ONS Series A Preferred Stock and ONS Series B Preferred Stock, as of the date hereof there are no existing options, warrants or rights to purchase or otherwise acquire from ONS capital stock of ONS of any class, no outstanding securities of ONS that are convertible into shares of capital stock of ONS of any class, and no options, warrants or rights to purchase from ONS any such convertible securities, and ONS has no outstanding contractual or other obligation to repurchase, redeem or otherwise acquire any outstanding shares of its capital stock. Upon the issuance of Newco Common Stock upon the conversion of the Newco Preferred Stock in accordance with the Certificate of Designations, such Newco Common Stock will be duly and validly issued, fully paid and non-assessable and no personal liability will attach to the ownership thereof. As of the Closing Date, Newco will have reserved out of its authorized but unissued shares of Newco Common Stock, solely for issue upon such conversion, the number of shares necessary for such purpose. As of the Closing Date, Newco will have sufficient authorized capital stock (including Newco Preferred Stock) to meet its obligations hereunder. The issued and outstanding shares of ONS capital stock have not been, and the Newco Preferred Stock to be issued to the Exchanging Partners hereunder (and Newco Common Stock issuable upon the conversion thereof) will not be, issued in violation of any preemptive or other rights of any person, whether arising by statute, under the Certificate of Incorporation or By-Laws of Newco or in any other manner. 7.7 NO LIABILITIES Except as set forth in the consolidated audited financial statements of ONS as of December 31, 1995, and for the period ended on such date (the "Current Financial Statements"), or included in the Disclosure Materials, there exist no material liabilities (whether contingent or absolute, matured or unmatured, known or unknown) of ONS or any Subsidiary. Immediately prior to the Closing, Newco will have no liabilities (other than de minimis liabilities relating to Newco's formation, any liabilities or obligations relating to transactions contemplated by this Agreement, and any liabilities for expenses relating to the Credit Facility Refinancing, Bond Offering, Bank Agreement Termination, Capacity Agreement Termination and Convertible Subordinated Debenture Offering). 7.8 TAXES ONS and each Subsidiary has filed or has caused to be filed (or has obtained extensions with respect to) all material federal, state and local tax returns which are required to be filed and has paid in full or accrued all material federal, state and local taxes, estimated taxes, interest, penalties, assessments and deficiencies assessed in connection with such returns. Neither ONS nor any Subsidiary is a party to any pending action or proceeding, and to the knowledge of ONS there is no action or proceeding threatened, by any governmental authority for assessment or collection of taxes, and no unresolved claim for assessment or collection of taxes has been asserted against ONS or any Subsidiary, which would have a Material Adverse Effect. 7.9 SUBSIDIARIES Schedule 7.9 hereto sets forth the name of each Subsidiary and ONS' ownership in such entity. Each Subsidiary is a corporation, or partnership, duly organized, validly existing and in good standing under the laws of its state of incorporation or organization, and each has the full corporate power and authority to carry on its business as it is now being conducted. Each Subsidiary is qualified in every jurisdiction in which the failure to so qualify would have a Material Adverse Effect. B-14 7.10 BOOKS AND RECORDS The books of account, stock record, minute books and other records of ONS and its Subsidiaries have been maintained in accordance with good business practices, and the matters contained therein are appropriately and accurately reflected in the Current Financial Statements. 7.11 LITIGATION Except as set forth in the Disclosure Materials and Schedule 7.11 regarding the Skydata matter, there are no material claims, actions, suits, proceedings or investigations pending or, to the knowledge of ONS, threatened or anticipated against, affecting or involving ONS or any Subsidiary or the transactions contemplated by this Agreement, at law or in equity, or before any court, arbitrator or governmental authority, domestic or foreign. Neither ONS nor any Subsidiary is operating under, subject to or in default with respect to any order, judgment, injunction or decree of any court, arbitrator or governmental authority, domestic or foreign that would have a Material Adverse Effect, except for orders of the Federal Communications Commission pertaining to the authority of ONS to conduct its operations, and with respect to such orders ONS is in full compliance. 7.12 SEC FILINGS Since August 1, 1995, all reports, proxy statements and registration statements required to be filed by ONS with the SEC pursuant to the Securities Act, and the Securities and Exchange Act of 1934, as amended (the "1934 Act"), have been timely filed with the SEC and complied in all material respects with the requirements of the Securities Act, the 1934 Act and the rules and regulations under the Securities Act and 1934 Act, and none of such reports, proxy statements or registration statements contained as of their respective dates any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. In addition, the Merger Proxy Statement insofar as it relates to ONS, as of the date of mailing of the Merger Proxy Statement by ONS to its stockholders and as of the date of the ONS stockholders meeting to which such Merger Proxy Statement relates, (i) will comply in all material respects with the provisions of the 1934 Act and the rules and regulations thereunder and (ii) except with respect to any information relating to the Exchanging Partners provided to ONS by the Exchanging Partners in writing specifically for use in the Merger Proxy Statement, will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. 7.13 TRANSACTIONS WITH EXCHANGING PARTNERS Neither ONS nor any of its Affiliates currently is a party to any transaction or agreement with any of the Exchanging Partners or their Affiliates relating to the Exchange, other than this Agreement and the agreements contemplated hereby, that has not been disclosed to each of the Exchanging Partners or otherwise publicly disclosed by ONS. 7.14 ABSENCE OF VIOLATIONS Neither ONS nor any of its Subsidiaries is in default under, nor has it breached, any material term or material provision of its Certificate of Incorporation or By-laws or any Material Contract. ONS and its Subsidiaries have complied with and are in full compliance with all Laws, where the failure to so comply would have a Material Adverse Effect. 8. RESTRICTED SECURITIES Each Exchanging Partner hereby severally represents, warrants and covenants to ONS as follows: 8.1 NO REGISTRATION UNDER THE SECURITIES ACT Such Exchanging Partner understands that the Newco Preferred Stock to be acquired by it under this Agreement, and the Newco Common Stock issuable upon the conversion thereof, have not been registered under the Securities Act, in reliance upon exemptions contained in the Securities Act or B-15 interpretations thereof, and cannot be offered for sale, sold or otherwise transferred unless subsequently so registered or qualify for exemption from registration under the Securities Act. The Newco Preferred Stock, and the Newco Common Stock issuable upon the conversion thereof, will not be offered for sale, sold or otherwise transferred by such Exchanging Partner without either registration or exemption from registration under the Securities Act. 8.2 ACQUISITION FOR INVESTMENT The Newco Preferred Stock being acquired under this Agreement by such Exchanging Partner is being acquired in good faith solely for such Exchanging Partner's own account, for investment and not with a view toward distribution within the meaning of the Securities Act. Such Exchanging Partner has, and at the time of Closing such Exchanging Partner will have, no present plan or intention to sell or otherwise dispose of the Newco Preferred Stock being acquired under this Agreement or any Newco Common Stock issuable upon the conversion of such Newco Preferred Stock; provided, however, that such Exchanging Partner may decide, from time to time, to sell some or all of such stock based upon a change in the investment policy of such Exchanging Partner and provided further, that this provision shall not restrict MCN Sat from transferring a portion of its Newco Preferred Stock to BAe. 8.3 EVALUATION OF MERITS AND RISKS OF INVESTMENT Such Exchanging Partner has such knowledge and experience in financial and business matters that such Exchanging Partner is capable of evaluating the merits and risks of its investment in the Newco Preferred Stock being acquired hereunder. Such Exchanging Partner understands and is able to bear any economic risks associated with such investment (including, without limitation, the necessity of holding the Newco Preferred Stock for an indefinite period of time, inasmuch as the Newco Preferred Stock have not been registered under the Securities Act). 8.4 REVIEW OF DOCUMENTS Such Exchanging Partner and its advisers, if any, have received, and have had a reasonable opportunity to review, the following documents (collectively, the "Disclosure Materials"): (i) Annual Report on Form 10-K for ONS for the fiscal year ended December 31, 1995; (ii) Quarterly Report on Form 10-Q for ONS for the fiscal quarter ended March 31, 1996; (iii) Proxy Statement of ONS relating to the Annual Meeting of Stockholders to be held on May 23, 1996; and (iv) Risk Factors Relating to Orion and Description of Capital Stock of Orion. 8.5 OPPORTUNITY TO REQUEST INFORMATION Such Exchanging Partner and its advisers, if any, have had a reasonable opportunity to ask questions of and receive information and answers from a person or persons acting on behalf of ONS concerning the transactions contemplated by this Agreement and all such questions have been answered and all such information has been provided to their full satisfaction. If this Agreement is not terminated on or before the Newco Finalization Date, such Exchanging Partner and its advisers, if any, as of the Newco Finalization Date, will have had a reasonable opportunity to ask questions of and receive information and answers from a person or persons acting on behalf of Newco concerning the transactions contemplated by this Agreement and all such questions will have been answered and all such information will have been provided to their full satisfaction. In making their investment, the Exchanging Partners will be relying solely on their review of the Disclosure Materials (other than any projections included therein, which are not being relied upon), the representations and warranties set forth herein, the Newco Formation Documents and the Merger Documents, and the documents made available for inspection and the answers to questions referred to in this SECTION 8.5. 9. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE EXCHANGING PARTNERS The obligations of each of the Exchanging Partners (and of Lockheed Martin, in the case of the condition in Section 9.8) under this Agreement are subject to the fulfillment, at or prior to the Closing, of each of the following conditions (other than those in SECTION 9.8, which are a condition only to the B-16 obligations of Lockheed Martin), and failure to satisfy any such condition shall excuse and discharge all obligations of each of the Exchanging Partners (and of Lockheed Martin only, in the case of failure of the condition in SECTION 9.8) to carry out the provisions of this Agreement, unless such failure is agreed to in writing by each of the Exchanging Partners (and of Lockheed Martin only, in the case of the condition in SECTION 9.8): 9.1 REPRESENTATIONS AND WARRANTIES The representations and warranties made by ONS in this Agreement shall be true and complete in all material respects when made, and on and as of the Closing Date as though such representations and warranties were made on and as of such date. 9.2 PERFORMANCE ONS and OrionSat shall have performed and complied in all material respects with all agreements and covenants required by this Agreement to be performed or complied with by ONS and/or OrionSat prior to the Closing Date. 9.3 DOCUMENTS AT CLOSING All documents required to be furnished by Newco, ONS and OrionSat to the Exchanging Partners prior to or at the Closing shall have been so furnished. 9.4 REFINANCING OF CREDIT FACILITY, CANCELLATION OF CAPACITY AGREEMENTS The Credit Facility Refinancing and Capacity Agreement Termination shall have been completed, other than any actions to be taken by such Exchanging Partner, and the documents effecting the Capacity Agreement Termination shall be substantially in the form of Exhibit H hereto or otherwise in form and substance reasonably satisfactory to each Exchanging Partner. Evidence of the completion of the Capacity Agreement Termination and Credit Facility Refinancing shall be the execution of Exhibit H by Chase and the unconditional delivery of the same at Closing. 9.5 CONSENTS ONS and OrionSat shall have received all material consents, authorizations and approvals of governmental, supragovernmental and private parties listed on Schedule 7.3 which are required to be obtained in order to consummate the transactions contemplated hereby. 9.6 REGISTRATION The Registration Rights Agreement shall have been executed and delivered by Newco. 9.7 SATELLITE CONTRACT ONS or one of its affiliates shall have entered into a satellite procurement contract (the "Orion 2 Satellite Contract") with Matra Marconi Space or an affiliate thereof ("Matra Marconi Space") for the construction and launch of Orion 2, ONS or one of its affiliates shall have given Matra Marconi Space notice to proceed under such contract and Amendment No. 10 between Matra Marconi Space and Orion Atlantic to the Second Amended and Restated Contract, dated September 26, 1991, as amended shall have become effective and Orion Atlantic shall not be in default under such Amendment No. 10. 9.8 LAUNCH SUB CONTRACT Lockheed Martin and Matra Marconi Space shall have entered into a subcontract to the Orion 2 Satellite Contract relating to the launch of Orion 2. 9.9 NEWCO FORMATION The Newco Formation Documents shall be consistent with the requirement that Newco be substantially identical in all material respects to ONS, or any discrepancies shall be reasonably acceptable to the Exchanging Partners (provided, however, that such condition shall be deemed to have been satisfied, B-17 and shall terminate, and be of no further force and effect, if this Agreement shall not have been terminated on or before the Newco Finalization Date); and the Newco Formation shall have occurred in accordance with SECTION 2. 9.10 MERGER The Merger shall have occurred, or shall occur concurrently with the Closing, in accordance with Section 4. 9.11 TAX OPINION The Exchanging Partners shall have received an opinion from Ernst & Young, LLP, tax advisors to Newco, in form and substance reasonably satisfactory to the Exchanging Partners, dated the Closing Date, which opinion may be based on appropriate representations of the parties hereto, in form and substance reasonably satisfactory to such tax advisors, to the effect that the Merger and the Exchange, taken together, will be a tax-free exchange described in Code Section 351(a). 10. CONDITIONS PRECEDENT TO OBLIGATIONS OF ONS AND ORIONSAT The obligations of ONS and OrionSat under this Agreement are subject to the fulfillment, at or prior to the Closing, of each of the following conditions, and failure to satisfy any such condition shall excuse and discharge all obligations of ONS and OrionSat to carry out the provisions of this Agreement, unless such failure is agreed to in writing by ONS and OrionSat: 10.1 REPRESENTATIONS AND WARRANTIES The representations and warranties made by the Exchanging Partners in this Agreement shall be true and complete in all material respects when made, and on and as of the Closing Date as though such representations and warranties were made on and as of such date, except for any changes expressly permitted by this Agreement. 10.2 PERFORMANCE The Exchanging Partners shall have performed and complied with all material agreements and covenants required by this Agreement to be performed or complied with prior to the Closing Date. 10.3 DOCUMENTS AT CLOSING All documents required to be furnished by the Exchanging Partners to ONS and OrionSat prior to or at the Closing shall have been so furnished. 10.4 CONSENTS The Exchanging Partners shall have received all material consents, authorizations and approvals of governmental, supragovernmental and private parties which are required to be obtained in order to consummate the transactions contemplated hereby. 10.5 REFINANCING OF CREDIT FACILITY, CANCELLATION OF CAPACITY AGREEMENTS The Credit Facility Refinancing, Bank Agreement Termination and Capacity Agreement Termination shall have been completed, other than any actions to be taken by ONS and OrionSat. 10.6 PARTNERSHIP AGREEMENT AMENDMENT The Partnership Agreement shall have been amended as contemplated by SECTION 5.4, other than due to any actions to be taken by ONS and OrionSat. B-18 10.7 CONSENTS OF THE ONS STOCKHOLDERS The ONS Stockholder Consent has been obtained for the Merger, the Exchange and any related transactions requiring stockholder consent. 10.8 COMPLETION OF FINANCING FOR A SECOND SATELLITE Newco shall have raised at least $100 million from the sale of Convertible Subordinated Debentures, not including any amounts representing or in satisfaction of any amounts due by ONS or Orion Atlantic to any Exchanging Partner or Affiliate thereof, and BAe shall have purchased at least $50 million of Convertible Subordinated Debentures from Newco. 10.9 SATELLITE CONTRACT ONS or one of its affiliates shall have entered into the Orion 2 Satellite Contract with Matra Marconi Space for the construction and launch of Orion 2. 10.10 NEWCO FORMATION The Newco Formation shall have occurred in accordance with SECTION 2. 10.11 MERGER The Merger shall have occurred, or be occurring concurrently with the Closing, in accordance with Section 4; and no ONS stockholder (or former stockholder of ONS, if the Merger already shall have occurred) shall have delivered to ONS a written notice of such stockholder's (or former stockholder's) intention, or otherwise indicated an intention, to dissent to the Merger or otherwise seek to exercise any right to sell to ONS, or obtain payment from ONS for, such stockholder's stock in ONS in lieu of such stock being converted in the Merger to stock of Newco. 11.0 CLOSING 11.1 CLOSINGS (a) Deposit into Escrow Simultaneously with execution and delivery of this Agreement, the Exchanging Partners are entering into an Escrow Agreement in the form attached as Exhibit J and depositing into escrow with one counsel selected by the Exchanging Partners (which may be counsel representing one or more of the Exchanging Partners in other capacities), acting as escrow agent, executed copies of each of the documents to be delivered by the Exchanging Partners to Newco, ONS or OrionSat at the Closing. Each of the parties hereto agrees to abide by the terms of such Escrow Agreement. (b) Closing Subject to the terms and conditions of this Agreement, the Closing shall take place at the offices of Hogan & Hartson L.L.P., 555 Thirteenth Street, N.W., Washington, D.C. 20004 on the Closing Date. 11.2 DELIVERIES BY THE EXCHANGING PARTNERS At or prior to the Closing, the Exchanging Partners shall deliver to Newco, ONS or OrionSat, as applicable, the following: (a) documents of transfer of partnership interests and substitution of limited partners with respect to the LP Interests being transferred to Newco pursuant to SECTION 2, in the form attached as Exhibit F; (b) documents transferring the rights included in the Other LP Rights, in the form attached as Exhibit G. B-19 (c) counterparts to the Third Amended and Restated Partnership Agreement duly executed by each of the Exchanging Partners; (d) a certified copy of the resolutions adopted by the Board of Directors of each of the Exchanging Partners authorizing the transactions contemplated by this Agreement; and (e) such other documents as Newco, ONS or OrionSat may reasonably request, including without limitation certificates of the officers of the Exchanging Partners as to the matters set forth in Sections 10.1 and 10.2. 11.3 DELIVERIES BY ONS AND NEWCO At or prior to the Closing, Newco, ONS or OrionSat, as applicable, shall deliver to the Exchanging Partners the following: (a) certificates representing the Newco Preferred Stock being issued to the Exchanging Partners pursuant to SECTION 2; (b) the Registration Rights Agreement, duly executed by Newco; (c) evidence in the form of the documents included as Exhibit H hereto, duly executed and delivered by all parties thereto other than Exchanging Partners, that the Capacity Termination Agreement has been effected and that the Capacity Guarantees have been terminated in their entirety; (d) a certified copy of the resolutions adopted by the Boards of Directors of Newco, ONS and OrionSat authorizing the transactions contemplated by this Agreement; (e) evidence of receipt of the ONS Stockholder Consent; (f) good standing certificates as of a date not more than fifteen days prior to the Closing Date issued by the Secretary of State of the State of Delaware with respect to Newco, ONS and OrionSat;( (g) opinion(s) of counsel to Newco and ONS, dated the Closing Date and addressed to the Exchanging Partners, substantially to the effect set forth on Exhibit I; (h) an agreement by Newco to be bound by the indemnity provisions of SECTION 12 (the "Newco Indemnity"); and (i) such other documents as the Exchanging Partners may reasonably request, including without limitation certificates of the officers of Newco and ONS as to the matters set forth in SECTIONS 9.1 and 9.2. 11.4 ORDER OF EFFECTIVENESS Of the documents being delivered by the Exchanging Partners at the Closing, the counterparts to the Third Amended and Restated Partnership Agreement duly executed by each of the Exchanging Partners shall be deemed delivered first, and upon signature by ONS and OrionSat the Third Amended and Restated Partnership Agreement shall be deemed in full force and effect, prior to delivery of the (i) documents of transfer of partnership interests and substitution of limited partners with respect to the LP Interests being transferred to Newco pursuant to SECTION 2, in the form attached as Exhibit F, and (ii) documents transferring the rights included in the Other LP Rights, in the form attached as Exhibit G. 12. SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION; REMEDIES 12.1 SURVIVAL OF REPRESENTATIONS All representations, warranties, covenants, indemnities and other agreements made by any party to this Agreement herein or pursuant hereto shall also be deemed made on and as of the Closing Date as though such representations, warranties, covenants, indemnities and other agreements were made on B-20 and as of such date, and all such representations, warranties, covenants, indemnities and other agreements shall survive the Closing and any investigation, audit or inspection at any time made by or on behalf of any party hereto, including the review of the Disclosure Materials under SECTION 8.4. 12.2 AGREEMENT OF NEWCO, ONS AND ORIONSAT TO INDEMNIFY Subject to the conditions and provisions of this SECTION 12.2, ONS and OrionSat jointly and severally shall (and Newco shall, pursuant to the Newco Indemnity) jointly and severally indemnify, defend and hold harmless each of the EP Indemnified Persons from and after the Closing Date against and in respect of all Claims asserted against, resulting to, imposed upon or incurred by any of the EP Indemnified Persons (whether such Claims are by, against or relate to Newco, ONS or OrionSat or any other party, including, without limitation, a governmental entity), directly or indirectly, by reason of or resulting from any of the following: (i) any of the matters with respect to which they would be obligated to indemnify the EP Indemnified Persons under Section 7.09(e) of the Partnership Agreement and which arose before or after the Closing Date, notwithstanding the Exchanging Partners ceasing to be limited partners of Orion Atlantic as of the Closing Date; or (ii) any Claims asserted by one or more of the Lenders or Chase, or their successors or assigns, arising from and after the Closing Date under (A) any of the Capacity Agreements, Contingent Capacity Agreements or Capacity Guarantees which are terminated on or prior to the Closing Date, (B) any agreements or other documents terminated or to be terminated in connection with the Bank Agreement Termination, or (C) this Agreement, in each case excluding any Claims arising from or relating to any breach of any representation or warranty, or noncompliance with any conditions or other agreements, given or made by any EP Indemnified Person under any of the agreements or documents referred to above in this paragraph or any document furnished by or on behalf of any EP Indemnified Person pursuant thereto. 12.3 CONDITIONS OF INDEMNIFICATION. The obligations and liabilities of Newco, ONS and OrionSat with respect to their respective indemnities pursuant to the Newco Indemnity and SECTION 12.2, resulting from any Claims, shall be subject to the following terms and conditions: 12.3.1. The party seeking indemnification (the "Indemnified Party") must give the other party or parties, as the case may be (the "Indemnifying Party"), notice of any such Claims promptly after the Indemnified Party receives notice thereof; provided that the failure to give such notice shall not affect the rights of the Indemnified Party hereunder except to the extent that the Indemnifying Party shall have suffered actual damage by reason of such failure. 12.3.2. The Indemnifying Party shall have the right to undertake, by counsel or other representatives of its own choosing, the defense of such Claims at the Indemnifying Party's risk and expense. 12.3.3. In the event that the Indemnifying Party shall elect not to undertake such defense, or, within a reasonable time after notice from the Indemnified Party of any such Claims, shall fail to defend, the Indemnified Party (upon further written notice to the Indemnifying Party) shall have the right to undertake the defense, compromise or settlement of such Claims, by counsel or other representatives of its own choosing, on behalf of and for the account and risk of the Indemnifying Party (subject to the right of the Indemnifying Party to assume defense of such Claims at any time prior to settlement, compromise or final determination thereof). In such event, the Indemnifying Party shall pay to the Indemnified Party, in addition to the other sums required to be paid hereunder, the costs and expenses incurred by the Indemnified Party in connection with such defense, compromise or settlement as and when such costs and expenses are so incurred. 12.3.4. Anything in this SECTION 12.3 to the contrary notwithstanding, (a) if there is a reasonable probability that Claims may materially and adversely affect the Indemnified Party other than as a result of money damages or other money payments, the Indemnified Party shall have the right, at its own cost B-21 and expense, to participate in the defense, compromise or settlement of the Claims, (b) the Indemnifying Party shall not, without the Indemnified Party's written consent, settle or compromise any Claims or consent to entry of any judgment which does not include as an unconditional term thereof the giving by the claimant or the plaintiff to the Indemnified Party of a release from all liability in respect of such Claims in form and substance satisfactory to the Indemnified Party, and (c) in the event that the Indemnifying Party undertakes defense of any Claims, the Indemnified Party, by counsel or other representative of its own choosing and at its sole cost and expense, shall have the right to consult with the Indemnifying Party and its counsel or other representatives concerning such Claims and the Indemnifying Party and the Indemnified Party and their respective counsel or other representatives shall cooperate with respect to such Claims and (d) in the event that the Indemnifying Party undertakes defense of any Claims, the Indemnifying Party shall have an obligation to keep the Indemnified Party informed of the status of the defense of such Claims and furnish the Indemnified Party with all documents, instruments and information that the Indemnified party shall reasonably request in connection therewith. 12.4 SPECIFIC PERFORMANCE; NO CONSEQUENTIAL DAMAGES In addition to any other remedies which the parties hereto may have at law or in equity, the parties hereto hereby acknowledge that the LP Interests, the Other LP Rights and the Newco Preferred Stock are unique, and that the harm to Newco, ONS and OrionSat, and the Exchanging Partners resulting from breaches by the other parties of their respective obligations cannot be adequately compensated by damages. Accordingly, the parties hereto agree that each party shall have the right to have all obligations, undertakings, agreements, covenants and other provisions of this Agreement specifically performed by the other parties, and that the parties hereto shall have the right to obtain an order or decree of such specific performance in any of the courts of the United States or of any state or other political subdivision thereof. Notwithstanding any other provision of this Agreement to the contrary, in no event shall remedies for breach of this Agreement include a party's incidental or consequential damages. 13. TERMINATION 13.1 TERMINATION This Agreement may be terminated at any time before the Closing Date under any one or more of the following circumstances: (a) by the mutual written consent of the parties hereto; or (b) by ONS and OrionSat or by the Exchanging Partners collectively or (as to a particular Exchanging Partner), by such Exchanging Partner, by written notice of termination to the other parties hereto, if the Closing has not occurred by January 30, 1997; provided, however, that the terminating party is not in breach of any obligations or agreements hereunder that are causing any of the conditions precedent to Closing not to be satisfied. In addition, following circulation by ONS to the Exchanging Partners of the finalized and implemented Newco Formation Documents, if the finalized and implemented Newco Formation Documents are not consistent with the requirement that Newco be substantially identical in all material respects to ONS, and any discrepancies are not reasonably acceptable to such Exchanging Partner(s), then this Agreement may be terminated at any time on or before the Newco Finalization Date by the Exchanging Partners collectively or (as to a particular Exchanging Partner), by such Exchanging Partner, by written notice of termination to the other parties hereto on or before the close of business on the Newco Finalization Date. 13.2 EFFECT OF TERMINATION In the event this Agreement is terminated as provided in this SECTION 13 (other than as to less than all the Exchanging Partners), this Agreement shall forthwith become wholly void and of no effect, and the parties shall be released from all future obligations hereunder; provided, however, that the obligations of the Exchanging Partners as to confidentiality provided in SECTION 5.6, and the provisions of B-22 SECTION 14.3 relating to the payment of expenses, shall not be extinguished but shall survive such termination; provided, further, however, that no party shall be relieved from its liabilities for breach of representations, warranties, obligations or agreements prior to termination of this Agreement. The parties hereto shall have any and all remedies to enforce such obligations provided at law or in equity (including, without limitation, specific performance). 14. MISCELLANEOUS 14.1 ADDITIONAL ACTIONS AND DOCUMENTS Each of the parties hereto hereby agrees to take or cause to be taken such further actions, to execute, deliver and file or cause to be executed, delivered and filed such further documents, and will obtain such consents, as may be necessary or as may be reasonably requested in order to fully effectuate the purposes, terms and conditions of this Agreement. 14.2 BROKER'S FEES OR LIABILITIES The fees and expenses of Salomon Brothers shall be borne by ONS. Except for such fees and expenses, each party agrees to indemnify, defend and hold harmless each of the other parties from and against any and all claims asserted against such parties for any unpaid liability to any broker, finder or agent for any brokerage fees, finders' fees or commissions, with respect to the transactions contemplated by this Agreement. 14.3 EXPENSES Subject to the provisions of SECTION 14.2, each party hereto shall pay its own expenses incident to this Agreement and the transactions contemplated hereunder. 14.4 ASSIGNMENT The Exchanging Partners shall have the right to assign their respective rights under the Agreement, in whole or in part, to any of their respective Affiliates or to designate any of their respective Affiliates to receive directly the Newco Preferred Stock to be acquired hereunder (in each case, to the extent permitted by applicable law). ONS, OrionSat and Orion Atlantic shall have the right to assign their rights under the Agreement, in whole or in part, to any of their respective Affiliates (to the extent permitted by applicable law). In no event shall the assignment by ONS, OrionSat, or any Exchanging Partner of its respective rights under this Agreement, whether before or after the Closing, release ONS, OrionSat, or any Exchanging Partner from its respective liabilities and obligations hereunder. 14.5 ENTIRE AGREEMENT; AMENDMENT This Agreement, including the Schedules, Exhibits and other documents referred to herein or furnished pursuant hereto constitute the entire agreement among the parties hereto with respect to the transactions contemplated herein and therein, and supersede all prior oral or written agreements, commitments or understandings with respect to the matters provided for herein and therein. No amendment or modification of this Agreement shall be valid or binding unless set forth in writing and duly executed and delivered by the party against whom enforcement of the amendment or modification is sought. 14.6 WAIVER No delay or failure on the part of any party hereto in exercising any right, power or privilege under this Agreement or under any other documents furnished in connection with or pursuant to this Agreement shall impair any such right, power or privilege or be construed as a waiver of any default or any acquiescence therein. No single or partial exercise of any such right, power or privilege shall preclude the further exercise of such right, power or privilege, or the exercise of any other right, power or B-23 privilege. No waiver shall be valid against any party hereto unless made in writing and signed by the party against whom enforcement of such waiver is sought and then only to the extent expressly specified therein. 14.7 CONSENT TO JURISDICTION This Agreement and the duties and obligations of ONS, OrionSat, the Exchanging Partners hereunder and under each of the documents referred to herein shall be enforceable against any of ONS, OrionSat, or one or more of the Exchanging Partners, as the case may be, in the courts of the United States and of the States of Maryland and Delaware. For such purpose, ONS, OrionSat and each of the Exchanging Partners hereby irrevocably submit to the non-exclusive jurisdiction of such courts, and agrees that all claims in respect of this Agreement and such other documents may be heard and determined in any of such courts. 14.8 SEVERABILITY If any part of any provision of this Agreement or any other agreement or document given pursuant to or in connection with this Agreement shall be invalid or unenforceable in any respect, such part shall be ineffective to the extent of such invalidity or unenforceability only, without in any way affecting the remaining parts of such provision or the remaining provisions of this Agreement. 14.9 GOVERNING LAW This Agreement, the rights and obligations of the parties hereto, and any claims or disputes relating thereto, shall be governed by and construed in accordance with the laws of the State of Delaware (excluding the choice of law rules thereof). 14.10 NOTICES All notices, demands, requests, or other communications which may be or are required to be given, served, or sent by any party to any other party pursuant to this Agreement shall be in writing and shall be hand delivered, sent by overnight courier or mailed by first-class, registered or certified mail, return receipt requested, postage prepaid, or transmitted by telegram, telecopy or telex, addressed as follows: (i) If to Orion Atlantic, ONS or OrionSat: 2440 Research Boulevard Suite 400 Rockville, Maryland 20817 Attn: Richard H. Shay, Esq. (ii) If to the Exchanging Partners, to each of the following who is an Exchanging Partner: British Aerospace Holding, Inc. 22070 Broderick Drive Sterling, Virginia 20166 Attn: Charles Gaba COM DEV Satellite Communications Limited 155 Sheldon Drive Cambridge, Ontario Canada N1R 7H6 Attn: David Belbeck B-24 Kingston Communications International Limited Telephone House Carr Lane Kingston-upon-Hull HU1 3RE England Attn: John Bailey Lockheed Martin Commercial Launch Services, Inc. Attention: Chester Wheeler Lockheed Martin Commercial Launch Services, Inc. P.O. Box 179 MSM DC-1400 Denver, Colorado 80201-0179 MCN Sat US, Inc. 37, Avenue Louis Breguet B.P.1 78146 V|felizy Villacoublay Cedex France Attn: Claude Goumy Trans-Atlantic Satellite, Inc. 1211 Avenue of the Americas 41st Floor New York, NY 10036 Attn: Ken Mori Each party may designate by notice in writing a new address to which any notice, demand, request or communication may thereafter be so given, served or sent. Each notice, demand, request, or communication which shall be hand delivered, sent, mailed, telecopied or telexed in the manner described above, or which shall be delivered to a telegraph company, shall be deemed sufficiently given, served, sent, received or delivered for all purposes at such time as it is delivered to the addressee (with the return receipt, the delivery receipt, or (with respect to a telecopy or telex) the answerback being deemed conclusive, but not exclusive, evidence of such delivery) or at such time as delivery is refused by the addressee upon presentation. 14.11 HEADINGS Section headings contained in this Agreement are inserted for convenience of reference only, shall not be deemed to be a part of this Agreement for any purpose, and shall not in any way define or affect the meaning, construction or scope of any of the provisions hereof. 14.12 EXECUTION IN COUNTERPARTS To facilitate execution, this Agreement may be executed in as many counterparts as may be required. It shall not be necessary that the signatures of, or on behalf of, each party, or that the signatures of all persons required to bind any party, appear on each counterpart; but it shall be sufficient that the signature of, or on behalf of, each party, or that the signatures of the persons required to bind any party, appear on one or more of the counterparts. All counterparts shall collectively constitute a single agreement. It shall not be necessary in making proof of this Agreement to produce or account for more than a number of counterparts containing the respective signatures of, or on behalf of, all of the parties hereto. 14.13 LIMITATION ON BENEFITS The covenants, undertakings and agreements set forth in this Agreement shall be solely for the benefit of, and shall be enforceable only by, the parties hereto and their respective successors, heirs, executors, administrators, legal representatives and permitted assigns, except that (i) the agreements set B-25 forth in SECTION 10 also shall be for the benefit of, and enforceable by, EP Indemnified Persons and their respective successors, heirs, executors, administrators, legal representatives or permitted assigns, and (ii) agreements relating to Affiliates of the Exchanging Partners named or referred to specifically herein also shall be for the benefit of, enforceable by and (to the extent permitted by law) enforceable against such Affiliates and their respective successors, heirs, executors, administrators, legal representatives or permitted assigns. 14.14 BINDING EFFECT Subject to any provisions hereof restricting assignment, this Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors, heirs, executors, administrators, legal representatives and assigns. B-26 IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement, or have caused this Agreement to be duly executed on their behalf, as of the day and year first above written. INTERNATIONAL PRIVATE SATELLITE PARTNERS, L.P. By: Orion Satellite Corporation, its general partner By: /s/ ------------------------------------ ORION NETWORK SYSTEMS, INC. By: /s/ ------------------------------------ ORION SATELLITE CORPORATION By: /s/ ------------------------------------ B-27 BRITISH AEROSPACE COMMUNICATIONS, INC. By: /s/ ------------------------------------ COM DEV SATELLITE COMMUNICATIONS LIMITED By: /s/ ------------------------------------ KINGSTON COMMUNICATIONS INTERNATIONAL LIMITED By: /s/ ------------------------------------ LOCKHEED MARTIN COMMERCIAL LAUNCH SERVICES, INC. By: /s/ ------------------------------------ MCN SAT US, INC. By: /s/ ------------------------------------ TRANS-ATLANTIC SATELLITE, INC. By: /s/ ------------------------------------ B-28 EXHIBIT A TO EXCHANGE AGREEMENT DEFINITIONS "Affiliate" means: (a) with respect to a person, any member of such person's family; (b) with respect to an entity, any officer, director, stockholder, partner or investor of or in such entity or of or in any Affiliate of such entity; and (c) with respect to a person or entity, any person or entity which directly or indirectly, through one or more intermediaries, Controls, is Controlled by, or is under common Control with such person or entity. "Agreement" means the Exchange Agreement, including each of the Schedules and Exhibits hereto. "Agreement of Principles" means the Agreement of Principles dated as of April 2, 1992, among Orion Atlantic, OrionSat, ONS and the Exchanging Partners. "BAe" means British Aerospace Communications, Inc., a Delaware corporation. "Business Day" means any day on which commercial banks in New York City are not required or authorized to close. "Certificate of Designations" means the Certificate of Designations, Rights and Preferences establishing the terms and relative rights and preferences of the Newco Preferred Stock in substantially the form set forth as Exhibit B to this Agreement. "Claims" means all demands, claims, actions or causes of action, assessments, losses, damages (including, without limitation, diminution in value), liabilities, costs and expenses, including, without limitation, interest, penalties and attorneys' fees and disbursements. "Closing" means the closing of the exchange of interests pursuant to the Agreement. "Closing Date" means such time and date as shall be as proposed by ONS not more than ten days after satisfaction or waiver of all the conditions specified in Sections 9 and 10. "COM DEV" means COM DEV Satellite Communications Limited, a Canadian corporation. "Consent and Agreement" means the Consent and Agreement effective as of December 20, 1991, among Orion Atlantic, OrionSat, ONS and the Exchanging Partners. "Control" means possession, directly or indirectly, of power to direct or cause the direction of management or policies (whether through ownership of voting securities, by agreement or otherwise). "Encumbrance" means any mortgage, lien, pledge, encumbrance, security interest, deed of trust, option, encroachment, reservation, order, decree, judgment, condition, restriction, charge, agreement, claim or equity of any kind. "EP Indemnified Persons' means the Exchanging Partners and their respective Affiliates, employees, representatives, agents, officers and directors. "Exhibit" means an exhibit attached to the Agreement. "Exchange Act" means the Exchange Act of 1934, as amended. "Kingston" means Kingston Communications International Limited, a company organized under the laws of England. "Kingston Sales Representative Agreements" means the Sales Representative Agreement dated as of June 30, 1994, between Orion Atlantic and a Kingston Affiliate, Kingston Satellite Systems Limited, as amended, and the Ground Operations Agreement dated as of June 30, 1994, between Orion Atlantic and Kingston, as amended. B-29 "Laws" means all foreign, federal, state and local statutes, laws, ordinances, regulations, rules, resolutions, orders, determinations, writs, injunctions, awards (including, without limitation, awards of any arbitrator), judgments and decrees applicable to the specified persons or entities and to the businesses and assets thereof (including, without limitation, Laws relating to securities registration and regulation; the sale, leasing, ownership or management of real property; employment practices, terms and conditions, and wages and hours; building standards, land use and zoning; safety, health and fire prevention; and environmental protection). "Limited Partner" means ONS and the Exchanging Partners as limited partners of Orion Atlantic. "LP Interest" means a limited partnership interest in Orion Atlantic. "Lockheed Martin" means Lockheed Martin Commercial Launch Services, Inc., a Delaware corporation. "Material Adverse Effect" means a material adverse effect on the business, results of operations, liabilities, properties, assets or financial condition of ONS and its Subsidiaries, taken as a whole, or a material adverse effect on the transactions contemplated by this Agreement. "Material Contract" means any contract, instrument, commitment or arrangement of ONS which ONS would be required to file with the SEC as an exhibit to a registration statement on Form S-1 pursuant to Item 601(b)(10) of Regulation S-K under the Securities Act. "MCN Sat" means MCN Sat US, Inc., a Delaware corporation. "MCN Sat Sales Representative Agreements" means the Sales Representative Agreement dated as of June 30, 1995 between Orion Atlantic and MCN Sat Service, S.A., as amended, and the Ground Operations Agreement dated as of June 30, 1995 between Orion Atlantic and MCN Sat Service, S.A., as amended. "Newco Common Stock" means shares of common stock, par value $.01 per share, of Newco. "Newco Preferred Stock" means shares of Series C 6% Cumulative Redeemable Convertible Preferred Stock of Newco, par value $.01 per share, having the rights and preferences set forth in the Certificate of Designations. "ONS" means ONS Network Systems, Inc., a Delaware corporation. "ONS Common Stock" means shares of common stock, par value $.01 per share, of ONS. "ONS Series A Preferred Stock" means the Series A 8% Cumulative Redeemable Convertible Preferred Stock of ONS. "ONS Series B Preferred Stock" means the Series B 8% Cumulative Redeemable Convertible Preferred Stock of ONS. "Orion Atlantic" means International Private Satellite Partners, L.P., a Delaware limited partnership. "Option Agreements" means the applicable Option Agreement effective as of December 20, 1991, among Orion Atlantic, OrionSat and each of the Exchanging Partners. "OrionSat" means Orion Satellite Corporation, a Delaware corporation. "Partnership Agreement" means the Second Amended and Restated Agreement of Limited Partnership of International Private Satellite Partners, L.P., as amended. "PPU Agreement" means the Preferred Participating Unit Agreements dated as of October 7, 1993, among Orion Atlantic, OrionSat, and each of ONS, COM DEV, Kingston, Lockheed Martin and MCN Sat. "Preferred Bidder Agreement" means the Preferred Bidder Agreement effective as of December 20, 1991, among Orion Atlantic, OrionSat, ONS and the Exchanging Partners. B-30 "Refund Agreement" means the Refund Agreement, dated December 31, 1994, among Orion Atlantic, OrionSat, ONS and certain of the Exchanging Partners. "SEC" means the U.S. Securities and Exchange Commission. "Section" means a Section (or a subsection) of the Agreement. "Securities Act" means the Securities Act of 1933, as amended, and all laws promulgated pursuant thereto or in connection therewith. "Subscription Agreement" means the Subscription Agreements effective as of December 20, 1991, between Orion Atlantic and each of the Exchanging Partners. "Subsidiary" means, with respect to any Person, any corporation, partnership, association or other business entity of which (i) if a corporation, a majority of the total voting power of shares of stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person or a combination thereof, or (ii) if a partnership, association or other business entity, a majority of the partnership or other similar ownership interest thereof is at the time owned or controlled, directly or indirectly, by any Person or one or more Subsidiaries of that person or a combination thereof. For purposes hereof, a Person or Persons shall be deemed to have a majority ownership interest in a partnership, association or other business entity if such Person or Persons shall be allocated a majority of partnership, association or other business entity gains or losses or shall be or control a general partner of such partnership, association or other business entity. Without limiting the foregoing, International Private Satellite Partners, L.P., a Delaware limited partnership, shall be deemed to be a Subsidiary of the Corporation for so long as the Corporation or any of its other Subsidiaries is the general partner thereof. "TA Sat" means Trans-Atlantic Satellite, Inc., a Delaware corporation. "Tax Adjustment Factor" means, with respect to (i) BAe, $11,634; (ii) COM DEV, $1,940; (iii) Kingston, $1,940; (iv) Lockheed Martin, $3,878; (v) MCN Sat, $3,878; and (vi) TA Sat, $3,878. B-31 FIRST AMENDMENT TO SECTION 351 EXCHANGE AGREEMENT AND PLAN OF CONVERSION THIS FIRST AMENDMENT TO SECTION 351 EXCHANGE AGREEMENT AND PLAN OF CONVERSION (this "Amendment") is entered into as of December, 1996, by and among International Private Satellite Partners, L.P., a Delaware limited partnership ("Orion Atlantic"); Orion Network Systems, Inc., a Delaware corporation ("ONS"); Orion Satellite Corporation, a Delaware corporation ("OrionSat"); and each of the following entities: British Aerospace Communications, Inc., a Delaware corporation, COM DEV Satellite Communications Limited, a Canadian corporation, Kingston Communications International Limited, a company incorporated under the laws of England, Lockheed Martin Commercial Launch Services, Inc., a Delaware corporation, MCN Sat US, Inc., a Delaware corporation, and Trans Atlantic Satellite, Inc., a Delaware corporation (collectively, the "Exchanging Partners") under the Section 351 Exchange Agreement and Plan of Conversion, dated as of June __, 1996, between and among Orion Atlantic, ONS, OrionSat and the Exchanging Partners (the "Exchange Agreement"). WHEREAS, Orion Atlantic, ONS and OrionSat are currently pursuing and will continue to pursue certain financing transactions that were contemplated by the Exchange Agreement, and the parties hereto desire to amend the Exchange Agreement to extend potentially the termination date to provide for the possibility that such financings will not be completed by January 30, 1997 and to refund certain payments. NOW, THEREFORE, for and in consideration of the foregoing and of the mutual covenants and agreements hereinafter set forth, the parties hereto agree as follows: 1. CLOSING TERMINATION DATE EXTENSION The first paragraph of Section 13.1(b) of the Exchange Agreement is hereby amended to read in its entirety as follows: (b) by ONS and OrionSat or by the Exchanging Partners collectively or (as to a particular Exchanging Partner), by such Exchanging Partner, by written notice of termination to the other parties hereto, if the Closing has not occurred by April 30, 1997 (the "Closing Termination Date"); provided, however, that the terminating party is not in breach of any obligations or agreements hereunder that are causing any of the conditions precedent to Closing not to be satisfied. 2. REFUND OF CERTAIN PAYMENTS Section 3.2(c) of the Exchange Agreement is hereby amended by adding, at the end thereof, the following: Notwithstanding the foregoing provisions of this Section 3.2(c), to the extent that amounts are paid by one or more Exchanging Partners (or Affiliates of such Exchanging Partners) (i) pursuant to the Capacity Agreements and which are subject to being refunded under the Refund Agreement ("Firm Capacity Payments") during the Adjustment Period for obligations of such Exchanging Partners (or Affiliates) arising after January 29, 1997 and prior to the Closing Date, and (ii) pursuant to the Contingent Capacity Agreements ("Contingent Capacity Payments") during the Adjustment Period for obligations of such Exchanging Partners (or Affiliates) arising after the date hereof and prior to the Closing Date (collectively, "Payments Subject to Refund"), then if (and only if) ONS or Newco completes a Bond Offering prior to the Closing Termination Date, (x) to the extent that the gross proceeds from the Bond Offering (excluding any amounts required to be set aside or pledged for the purpose of pre-funding interest payments) for ONS or Newco, plus the gross proceeds from the sale of Convertible Subordinated Debentures to BAe and Matra Marconi Space UK Limited ("Matra Marconi Space") or their Affiliates, exceeds the sum of (1) the amounts necessary to effect the Credit Facility Refinancing and all other obligations relating thereto or arising therefrom, including without limitation all principal and accrued interest due with respect to the Credit Facility and all breakage fees and costs arising from termination of the interest B-32 rate hedge relating to the Credit Facility, (2) $49.4 million, representing the proposed initial payments to be made by ONS or Newco under the Orion 2 Satellite Contract and related Orion 2 Option Agreement, (3) $13 million, representing the incentive payments that will be payable to Matra Marconi Space or its Affiliates with respect to Orion 1 upon or immediately following the Credit Facility Refinancing, (4) $3.5 million, representing the amounts that will be payable to STET upon or immediately following the Credit Facility Refinancing, (5) an amount reasonably determined by ONS or Newco to be necessary working capital for ONS or Newco to conduct operations following the Bond Offering and other transactions (not to exceed $10 million), and (6) the costs and expenses of the Bond Offering, the Convertible Subordinated Debenture financings and related transactions (not to exceed $14.3 million), the excess (the "Available Funds") shall be used to refund the amounts of the Payments Subject to Refund to the respective Exchanging Partners at the Closing (or, if such excess is not sufficient to refund all of the Payments Subject to Refund to the respective Exchanging Partners, the Available Funds shall be used first to refund Contingent Capacity Payments to the extent of such Available Funds, and second to refund Firm Capacity Payments to the extent of any remaining Available Funds, in each case with partial refunds to be made pro rata among the Exchanging Partners in proportion to their respective applicable Payments Subject to Refund), and amounts so refunded shall not be included in clause (i)(A) of this Section 3.2(c); and (y) any portions of the Payments Subject to Refund not so refunded to the respective Exchanging Partners at the Closing shall be included in clause (i)(A) of this Section 3.2(c) as part of the Adjustment Amounts of such Exchanging Partners. The refund of Available Funds shall be made at or within three business days after the Closing. ONS and Newco shall deliver to the Exchanging Partners simultaneously with such refund a certificate of their respective chief financial officers setting forth in reasonable detail all calculations or computations required or contemplated by this Section 3.2(c), including the amount and application of the Available Funds. ONS and Newco shall provide promptly, to any Exchanging Partner requesting the same, such additional detail supporting such calculations and computations and such back-up or supporting documentation as such Exchanging Partner may reasonably request. 3. TAX ADJUSTMENT Section 3.2(c)(ii) of the Exchange Agreement is hereby amended to read in its entirety as follows: (ii) the product of the number of days in the Adjustment Period through and including (but not beyond) January 29, 1997 multiplied by the Tax Adjustment Factor for such Exchanging Partner, divided by 4. SALE OF CONVERTIBLE SUBORDINATED DEBENTURES Notwithstanding the provisions of Section 5.8 of the Exchange Agreement contemplating that Newco will, as of the Closing Date, complete a Convertible Subordinated Debenture Offering of approximately $125 million, it is presently intended that the Convertible Subordinated Debenture Offering consist only of purchases of $50 million of Convertible Subordinated Debentures by BAe and $10 million of Convertible Subordinated Debentures by Matra Marconi Space, or Affiliates thereof. Accordingly, all references in the Exchange Agreement to the Convertible Subordinated Debenture Offering shall refer only to the $60 million of Convertible Subordinated Debentures to be purchased by BAe and Matra Marconi Space, or Affiliates thereof. While not intended to be legally binding, BAe hereby reconfirms that it or its Affiliates intend to purchase from Newco $50 million of Convertible Subordinated Debentures on terms being negotiated between BAe and ONS, and MCN Sat hereby confirms that Matra Marconi Space or its Affiliates intends to purchase from Newco $10 million of Convertible Subordinated Debentures on terms substantially the same as those ultimately agreed upon by BAe and ONS for the BAe investment. Section 10.8 of the Exchange Agreement is hereby amended to read in its entirety as follows:Newco shall have raised at least $60 million from the sale of Convertible Subordi- B-33 nated Debentures, including the sale of $50 million of Convertible Subordinated Debentures to BAe or its Affiliates and the sale of $10 million of Convertible Subordinated Debentures to Matra Marconi Space or its Affiliates. 5. ELIMINATION OF KINGSTON INVESTMENT IN PPU INTEREST SHARES Section 3.2(d) of the Exchange Agreement is hereby amended to delete such Section in its entirety; Section 3.2(a)(iii) of the Exchange Agreement is hereby amended to delete the language "other than interest paid to Kingston under Section 3.2(d)" in its entirety; Section 3.2(b)(iii) of the Exchange Agreement is hereby amended to delete the language "and PPU Interest Shares calculated as set forth in Section 3.2(d)" in its entirety; the last paragraph of Section 3.2(b) of the Exchange Agreement is hereby amended to replace the language "Section 3.2(b), in Sections 3.2(c) and 3.2(d)" with the language "Section 3.2(b) and in Section 3.2(c); and Section 3.2(c) of the Exchange Agreement is hereby amended to delete the language "other than Kingston (or an Affiliate of Kingston)" in its entirety. 6. ORION 2 SATELLITE CONTRACT Section 9.7 of the Exchange Agreement shall be amended to read in its entirety as follows: The Option Agreement, dated December 10, 1996, between Orion Atlantic and Matra Marconi Space ("Orion 2 Option Agreement"), shall be in full force and effect; Orion Atlantic shall not be in default thereunder; and Orion Atlantic shall have made all payments required to be made thereunder through the earlier of the Closing Date and March 31, 1997. Restated Amendment #10, dated December 10, 1996, to the Second Amended and Restated Purchase Contract, dated as of September 26, 1991, between Orion Atlantic and Matra Marconi Space, as amended, shall be in full force and effect, and Orion Atlantic shall not be in default thereunder. 7. MISCELLANEOUS 7(a) Defined Terms Capitalized terms used in this Amendment and not otherwise defined in this Amendment shall have the meanings provided for in the Exchange Agreement. 7(b)Governing Law This Amendment, the rights and obligations of the parties hereto, and any claims or disputes relating thereto, shall be governed by and construed in accordance with the same laws as govern the Exchange Agreement. 7(c)Counterparts To facilitate execution, this Amendment may be executed in as many counterparts as may be required; and it shall not be necessary that the signatures of, or on behalf of, each party, or that the signatures of all persons required to bind any party, appear on each counterpart; but it shall be sufficient that the signature of, or on behalf of, each party, or that the signatures of the persons required to bind any party, appear on one or more of the counterparts. All counterparts shall collectively constitute a single agreement. It shall not be necessary in making proof of this Amendment to produce or account for more than a number of counterparts containing the respective signatures of, or on behalf of, all of the parties hereto. 7(d) Facsimile Execution To facilitate execution, this Amendment may be executed through the use of facsimile transmission, and a counterpart of this Amendment that contains the facsimile signature of a party, which counterpart has been transmitted by facsimile transmission to each of the other parties hereto at such facsimile numbers as such other parties shall request, shall constitute an executed counterpart of this Amendment. B-34 7(e) Ratification The Exchange Agreement, as amended and modified by this First Amendment, is in all respects ratified and confirmed and the terms, covenants and agreements thereof shall be and remain in full force and effect. The parties executing this First Amendment agree that the Exchange Agreement, as amended and modified by this First Amendment, shall be remain valid and binding upon such parties, notwithstanding the failure of one or more Exchanging Partners to execute this First Amendment and notwithstanding any such non-executing Exchanging Partner seeking to terminate the Exchange Agreement as to such non-executing Exchanging Partner under Section 13.1(b) of the Exchange Agreement after January 30, 1997 and before April 30, 1997. 7(f) Effectiveness of the Amendment This First Amendment to Section 351 Exchange Agreement and Plan of Conversion is being made pursuant to Section 14.5 of the Exchange Agreement which provides that an amendment to the Exchange Agreement shall be valid and binding when set forth in writing and duly executed and delivered by the party against whom enforcement of the amendment is sought. The parties executing this First Amendment agree that this First Amendment shall be valid and binding upon such parties, notwithstanding the failure of one or more Exchanging Partners to execute this First Amendment. IN WITNESS WHEREOF, the undersigned have duly executed this Amendment, or have caused this Amendment to be duly executed on their behalf, as of the day and year first hereinabove set forth.INTERNATIONAL PRIVATE SATELLITE PARTNERS, L.P. INTERNATIONAL PRIVATE SATELLITE PARTNERS, L.P. By: Orion Satellite Corporation, its general partner By: /s/ ----------------------------------- ORION NETWORK SYSTEMS, INC. By: /s/ ----------------------------------- ORION SATELLITE CORPORATION By: /s/ ----------------------------------- B-35 BRITISH AEROSPACE COMMUNICATIONS, INC. By: /s/ ----------------------------------- COM DEV SATELLITE COMMUNICATIONS LIMITED By: /s/ ----------------------------------- KINGSTON COMMUNICATIONS INTERNATIONAL LIMITED By: /s/ ----------------------------------- LOCKHEED MARTIN COMMERCIAL LAUNCH SERVICES, INC. By: /s/ ----------------------------------- MCN SAT US, INC. By: /s/ ----------------------------------- TRANS-ATLANTIC SATELLITE, INC. By: /s/ ----------------------------------- B-36 ATTACHMENT C FORM OF CERTIFICATE OF DESIGNATIONS, RIGHTS AND PREFERENCES OF SERIES C 6% CUMULATIVE REDEEMABLE CONVERTIBLE PREFERRED STOCK OF ORION NEWCO SERVICES, INC. PURSUANT TO SECTION 151 OF THE GENERAL CORPORATION LAW OF THE STATE OF DELAWARE The undersigned DOES HEREBY CERTIFY that, pursuant to the authority contained in Article FOURTH of the Certificate of Incorporation of Orion Newco Services, Inc., a Delaware corporation (the "Corporation"), and in accordance with Section 151 of the General Corporation Law of the State of Delaware, the Board of Directors of the Corporation has authorized the creation of a series of Preferred Stock of the Corporation having the designation Series C 6% Cumulative Redeemable Convertible Preferred Stock and having the powers, rights and preferences, and the qualifications, limitations and restrictions thereof, as are set forth in Exhibit A hereto and made a part hereof and that the following resolution was duly adopted by the Board of Directors of the Corporation: RESOLVED, that a series of authorized Preferred Stock, par value $0.01 per share, of the Corporation be, and it hereby is, created; that the shares of such series shall be, and they hereby are, designated as "Series C 6% Cumulative Redeemable Convertible Preferred Stock;" that the number of shares constituting such series shall be, and it hereby is, fixed at _______,000; and that the powers, rights and preferences and the qualifications, limitations and restrictions thereof, of the shares of such series are as set forth in Exhibit A attached hereto and made a part hereof. IN WITNESS WHEREOF, the Corporation has caused its corporate seal to be hereunto affixed and this Certificate to be signed by its President and Chief Executive Officer and attested to by its Vice President, Corporate and Legal Affairs, and Secretary this day of , 1997. ORION NEWCO SERVICES, INC. By: ----------------------------------- [SEAL] Name: W. Neil Bauer Title: President/Chief Executive Officer ATTEST: - ------------------------------------- Name: Richard H. Shay, Esq. Title: Vice President, Corporate and Legal Affairs/Secretary SERIES C 6% CUMULATIVE REDEEMABLE CONVERTIBLE PREFERRED STOCK The following sections set forth the powers, rights and preferences, and the qualifications, limitations and restrictions thereof, of the Corporation's Series C 6% Cumulative Redeemable Convertible Preferred Stock. Capitalized terms used herein are defined in Section 10 below. Section 1. Dividends. 1A. General Obligation. Subject to the preferential rights of Series A Preferred Stock or Series B Preferred Stock ranking senior to the Preferred Stock, the record holders of Preferred Stock shall be entitled to receive dividends, when, as and if declared by the Corporation's board of directors (the "Board") and to the extent permitted under the General Corporation Law of Delaware, as amended, as provided in this Section 1, subject to paragraph 1F. Dividends shall accrue on a daily basis commencing on the Date of Issuance of each Preferred Share at the simple interest rate of 6% per annum of the Liquidation Value thereof, and shall be payable as provided in paragraph 1B. Dividends shall cease accruing upon the earliest to occur of (i) the date on which the Liquidation Value of such Preferred Share is paid, (ii) the date on which such Preferred Share is converted into shares of Common Stock hereunder, or (iii) the Maturity Date. Such dividends shall accrue whether or not they have been declared and whether or not there are net profits, surplus or other funds of the Corporation legally available for the payment of dividends. 1B. Payment of Dividends. Subject to the provisions of paragraph 1A and paragraph 1F, dividends shall be payable, in arrears, following each Dividend Reference Date within twenty days after such Dividend Reference Date. The amount of the dividend on each share of Preferred Stock payable following each Dividend Reference Date shall equal the aggregate amount of all accrued and unpaid dividends on such share of Preferred Stock from the Prior Dividend Date (or, in the case of the first dividend paid with respect to such share, the Date of Issuance of such Preferred Share) through such Dividend Reference Date. To the extent any dividend is not paid within twenty days after a Dividend Reference Date, all dividends which have accrued and remain unpaid on each outstanding Preferred Share through such Dividend Reference Date shall be accumulated and shall remain accumulated dividends with respect to such Preferred Share until the date paid. No interest, dividend or sum of money in lieu of interest, shall be payable in respect of any dividend payment or payments that may be accrued and unpaid. 1C. Distribution of Partial Dividend Payments. Except in connection with redemptions or repurchases pursuant to paragraph 3A or 3B below, if at any time the Corporation pays less than the total amount of dividends then accrued with respect to the Preferred Stock such payment shall be distributed ratably among the holders thereof based upon the aggregate accrued but unpaid dividends on the Preferred Shares held by each such holder and such payment shall be applied first to dividends which have accrued on such Preferred Shares during the period since the latest preceding Dividend Reference Date and second to reduce any previously accumulated dividends with respect to such Preferred Shares. 1D. Payment of Dividends in Common Stock. Except as specifically provided herein, the Corporation shall pay all dividends with respect to the Preferred Stock (including, in the case of a redemption, any amount equal to accrued and unpaid dividends constituting a portion of the Redemption Price) in fully paid and non-assessable shares of Common Stock. The number of shares of Common Stock distributable in a dividend on each share of Preferred Stock shall be equal to the quotient obtained by dividing (a) the amount of such dividend, as determined under paragraph 1B, by (b) the higher of (i) the Market Price of the Common Stock on the Dividend Reference Date immediately preceding the dividend payment and (ii) the Series A/B Dilution Price. When the Corporation pays a dividend to the holders of Preferred Stock, the Corporation shall provide each holder of Preferred Stock with a calculation of the aggregate number of shares of Common Stock payable in such dividend, including the computation of the Market Price. If any fractional interest in a share of Common Stock would, except for the provisions of this sentence, be deliverable upon payment of any dividend in shares of Common Stock, the Corporation, in lieu of delivering the fractional share therefor, shall pay an amount to the holder thereof equal to the Market Price of such fractional interest, calculated as set forth above in this paragraph 1D. C-2 1E. Dividends on Junior Securities. The Corporation shall not declare and pay any dividends on Junior Securities unless all accrued and unpaid dividends on the Preferred Stock have been paid in full. 1F. Certain Withholding Provisions. Notwithstanding any other provision of Section 1, and without limiting the generality of the Board's power and authority with respect to the declaration and payment of dividends, the Board shall have and may exercise the power and authority to provide that the receipt by each record holder of Preferred Shares entitled thereto of any dividend paid by the Corporation as declared on the issued and outstanding Preferred Shares shall be subject to the condition (the "Tax Payment Condition") that the Corporation receive, at or prior to the time for payment of such dividend (the "Payment Time"), from or on behalf of such record holder, payment in full of the taxes, fees, duties, assessments, or other amounts, if any (the "Tax"), that the Corporation is required under applicable law to pay or withhold in connection with the declaration and payment to such record holder of such dividend. If the Tax Payment Condition applies and has been satisfied, or has been duly waived by the Corporation, at or prior to the Payment Time, at the Payment Time the Corporation shall pay such dividend to such record holder. If the Tax Payment Condition applies but has not been satisfied, and has not been duly waived by the Corporation, at or prior to the Payment Time, at the Payment Time the Corporation shall pay the dividend to which such record holder is entitled by irrevocably depositing and setting aside such dividend with the Secretary of the Corporation as escrow holder (the "Escrow Holder"). Upon the Escrow Holder's receipt, from or on behalf of such record holder, of payment in full of the Tax, plus any interest, penalty, or additional amount to be paid or withheld as a result of the passage of time from and after the Payment Time (the "Escrow Termination Time"), the Escrow Holder shall release such dividend to such record holder and shall release such Tax, and such additional amount if any, to the Corporation. If such dividend is paid in shares of Common Stock and is not received at or prior to the Payment Time by the record holder of Preferred Shares entitled to payment thereof, then (notwithstanding any provision hereof to the contrary) until the Escrow Termination Time (and only until such time, whether or not the dividend has been released by the Escrow Holder), such record holder shall not be entitled to vote such shares of Common Stock for any purpose, to receive payment of dividends or other distributions on such shares of Common Stock, or to exercise any other rights or privileges in respect of such shares of Common Stock, and the Escrow Holder shall have no right to vote such shares of Common Stock or to exercise any other right or privilege in respect thereof (whether in accordance with the wishes or directions of such record holder or otherwise), but the Escrow Holder shall receive and hold in escrow until the Escrow Termination Time together with such shares of Common Stock any dividends paid or other distributions made on such shares of Common Stock and at the Escrow Termination Time shall release such dividends paid or other distributions made on such shares of Common Stock, if any, along with such shares of Common Stock. Section 2. Liquidation. Subject to the provisions of Section 2 of each of the Series A Certificate and the Series B Certificate: upon any Liquidation, each holder of Preferred Stock shall be entitled to be paid, before any distribution or payment is made upon any Junior Securities, an amount in cash equal to the greater of (a) the aggregate Liquidation Value (plus an amount equal to all accrued and unpaid dividends) of all shares of Preferred Stock held by such holder or (b) the amount which would be distributed with respect to the shares of Common Stock (including fractional shares for purposes of this calculation) into which such shares of Preferred Stock are convertible (assuming conversion of all outstanding Preferred Stock) immediately prior to the record date for such distribution (or, if there is no such record date, then the date as of which the holders of Common Stock entitled to such distribution are determined), and the holders of Preferred Stock shall not be entitled to any further payment; and if upon any such Liquidation the Corporation's assets to be distributed among the holders of the Preferred Stock are insufficient to permit payment to such holders of the aggregate amount which they are entitled to be paid, then the entire assets to be distributed shall be distributed ratably among such holders based upon the aggregate Liquidation Value (plus all accrued and unpaid dividends) of the Preferred Shares held by each such holder. Prior to such Liquidation, the Corporation shall (to the extent permitted by law) declare for payment all accrued and unpaid dividends with respect to the Preferred Stock, which dividends shall be payable in cash notwithstanding the provisions of paragraph 1D. (Payment of the greater of the amounts specified in clauses (a) and (b) of this Section 2 in respect of such Preferred Shares shall constitute C-3 payment of such declared dividends.) The Corporation shall mail written notice of such Liquidation, not less than 60 days prior to the payment date stated therein, to each record holder of Preferred Stock. Section 3. Redemptions. 3A. Redemption at the Maturity Date. At the Maturity Date the Corporation shall redeem all of the Preferred Shares then outstanding for a price equal to the Redemption Price. The Corporation shall pay the Redemption Price for the Preferred Shares within thirty (30) days after the Maturity Date (or such later date upon which the certificates evidencing the Preferred Shares are surrendered to the Corporation). 3B. Redemption at the Option of the Corporation. At any time after the Initial Redemption Date, or, if prior to the Initial Redemption Date, immediately prior to the consummation of any consolidation, merger or sale in which the successor entity or purchasing entity is other than the Corporation, to the extent that it has funds legally sufficient therefor, the Corporation may redeem all or, subject to the last sentence of this paragraph, a portion of the Preferred Shares then outstanding for the Redemption Price. The number of Preferred Shares to be redeemed from each holder thereof in a partial redemption pursuant to this paragraph 3B shall be the number of Preferred Shares determined by multiplying the total number of Preferred Shares to be redeemed by a fraction, the numerator of which shall be the total Redemption Price of Preferred Shares then held by such holder and the denominator of which shall be the aggregate Redemption Price of Preferred Shares then outstanding. 3C. Redemption Payment. For each Preferred Share which is to be redeemed, the Corporation shall be obligated to pay the Redemption Price to the holder thereof on the Redemption Date or such later date upon which occurs the surrender by such holder at the Corporation's principal office of the certificate representing such Preferred Share. Subject to the provisions of paragraph 4C of the Series A Certificate and paragraph 4C of the Series B Certificate, if the funds of the Corporation legally available for payment of the cash portion of the Redemption Price of Preferred Shares on any Redemption Date are insufficient to pay the cash portion of the Redemption Price for the total number of Preferred Shares to be redeemed on such date, those funds which are legally available shall be used to redeem the maximum possible number of such Preferred Shares ratably among the holders of the Preferred Shares to be redeemed based upon the aggregate Redemption Price of the Preferred Shares held by each such holder and the remaining Preferred Shares called for redemption will remain outstanding; and at any time thereafter when additional funds of the Corporation are legally available for the redemption of Preferred Shares, such funds shall immediately be used to redeem the balance of the Preferred Shares which the Corporation has become obligated to redeem on any Redemption Date but which it has not redeemed. Payment of the Redemption Price in respect of such Preferred Shares shall extinguish all rights to dividends that are accrued and unpaid as of the Redemption Date with respect to the Preferred Shares which are redeemed on such Redemption Date. 3D. Notice of Redemption. The Corporation shall mail written notice of each redemption of any Preferred Stock to each record holder of Preferred Stock not more than 60 nor less than 30 days prior to the date on which such redemption is to be made specifying (a) the number of shares of Preferred Stock to be redeemed by the Corporation and (b) the Redemption Date. Upon mailing any such notice of redemption, the Corporation shall become obligated to redeem the total number of Preferred Shares specified in such notice at the time of redemption specified therein and upon the surrender on or before such time of the certificates representing such Preferred Shares. If one or more holders of Preferred Shares being redeemed shall fail to surrender the certificates representing such Preferred Shares by the Redemption Date, the Corporation shall pay the Redemption Price by irrevocably depositing or setting aside the required amount to be paid promptly upon surrender of such certificates. Such deposit or set aside shall be deemed payment of the Redemption Price to the holder for whom it is deposited or set aside. In case fewer than the total number of Preferred Shares represented by any certificate are redeemed, a new certificate representing the number of unredeemed Preferred Shares shall be issued to the holder thereof without cost to such holder within three Business Days after surrender of the certificate representing the redeemed Preferred Shares. C-4 3E. Dividends after Redemption Date. No Preferred Share that is redeemed is entitled to any dividends accruing after the Redemption Date. On the Redemption Date of any Preferred Share, all rights of the holder of such Preferred Share shall cease, and such Preferred Share shall be deemed to be no longer outstanding. 3F. Redeemed or Otherwise Acquired Preferred Shares. Any Preferred Shares which are redeemed, converted or otherwise acquired by the Corporation thereupon shall be retired. All such shares shall upon their retirement become authorized but unissued shares of preferred stock of the Corporation and may not be reissued as Preferred Stock but may be reissued as part of a new series of preferred stock to be created by resolution or resolutions of the board of directors, subject to the conditions or restrictions on issuance set forth in the certificate of incorporation of the Corporation. Section 4. Voting Rights. The holders of the Preferred Stock shall be entitled to notice of all stockholders meetings in accordance with the Corporation's bylaws, and except as otherwise required by law, the holders of the Preferred Stock shall be entitled to vote on all matters submitted to the stockholders for a vote together with the holders of the Common Stock voting together as a single class with each share of Common Stock entitled to one vote per share, and each Preferred Share (including fractional shares) entitled to one vote for each whole share of Common Stock that would be issuable upon conversion of such Preferred Share at the time the vote is taken. Section 5. Conversion. 5A. Conversion Procedure. (i) At any time and from time to time after the issuance thereof, any holder of Preferred Stock may convert all or any of the Preferred Shares (including any fraction of a Preferred Share) held by such holder into a number of shares of Common Stock equal to the sum of: (a) the number of shares of Common Stock computed by multiplying the number of Preferred Shares to be converted by the Liquidation Value of a Preferred Share, and dividing the result by the Conversion Price then in effect, plus (b) the number of shares of Common Stock that would be payable if all accrued but unpaid dividends were declared and paid on the Preferred Shares to be converted. For purposes of determining the amount of dividends payable or that would be payable with respect to a conversion under Section 5, the date for determining the Market Price shall be the Business Day immediately preceding the date on which conversion is deemed to have been effected. (ii) Each conversion of Preferred Stock shall be deemed to have been effected as of the close of business on the date on which the certificate or certificates representing the Preferred Shares to be converted have been surrendered at the principal office of the Corporation, together with written notice of the holder's desire to convert such Preferred Shares. At such time as such conversion has been effected, the rights of the holder of such Preferred Shares as such holder shall cease, and the Person or Persons in whose name or names any certificate or certificates for shares of Common Stock are to be issued upon such conversion shall be deemed to have become the holder or holders of record of the shares of Common Stock represented thereby, which Common Stock shall be deemed to have been issued as of such time. Issuance of Common Stock by the Corporation to effect any conversion shall extinguish all rights to dividends that are accrued and unpaid as of the date on which conversion is to be made with respect to the Preferred Shares which are to be converted on such date. (iii) The conversion rights of any Preferred Share subject to redemption hereunder shall terminate on the Redemption Date for such Preferred Share unless the Corporation has failed to pay to the holder thereof the Redemption Price thereof. (iv) Notwithstanding any other provision hereof, if a conversion of any Preferred Shares is to be made in connection with a Public Offering or prior to a redemption, such conversion may, at the election of the holder of such Preferred Shares, be conditioned upon the consummation of the Public Offering or the redemption occurring on or before a specified date, in which case C-5 such conversion shall not be deemed to be effective until the consummation of the Public Offering or unless the redemption occurs on or before the specified date. (v) As soon as possible after a conversion has been effected (but in any event within three Business Days in the case of subparagraph (a) below), the Corporation shall deliver to the converting holder: (a) a certificate or certificates representing the number of shares of Common Stock issuable by reason of such conversion in such name or names and such denomination or denominations as the converting holder has specified; (b) payment of the amount payable under subparagraph (viii) below with respect to such conversion; and (c) a certificate representing any Preferred Shares which were represented by the certificate or certificates delivered to the Corporation in connection with such conversion but which were not converted. (vi) The issuance of certificates for shares of Common Stock upon conversion of Preferred Stock shall be made without charge to the holders of such Preferred Stock for any issuance tax in respect thereof or other cost incurred by the Corporation in connection with such conversion and the related issuance of shares of Common Stock. (vii) The Corporation shall not close its books against the transfer of Preferred Stock or of Common Stock issued or issuable upon conversion of Preferred Stock in any manner which interferes with the timely conversion of Preferred Stock. The Corporation shall assist and cooperate (but the Corporation shall not be required to expend substantial efforts or funds) with any holder of Preferred Shares required to make any governmental filings or obtain any governmental approval prior to or in connection with any conversion of Preferred Shares hereunder (including, without limitation, making any filings required to be made by the Corporation). (viii) If any fractional interest in a share of Common Stock would, except for the provisions of this subparagraph, be deliverable upon any conversion of shares of a holder's Preferred Stock, the Corporation, in lieu of delivering the fractional share therefor, shall pay an amount to the holder thereof equal to the Market Price of such fractional interest as of the Business Day immediately preceding the date of conversion. (ix) The Corporation shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of issuance upon the conversion of the Preferred Stock, not less than the number of shares of Common Stock issuable upon the conversion of all outstanding Preferred Stock which may then be exercised. All shares of Common Stock which are so issuable shall, when issued, be duly and validly issued, fully paid and nonassessable and free from all taxes, liens and charges. The Corporation shall take all such actions as may be necessary to ensure that all such shares of Common Stock may be so issued without violation of any applicable law or governmental regulation or any requirements of any domestic securities exchange upon which shares of Common Stock may be listed (except for official notice of issuance which shall be immediately delivered by the Corporation upon each such issuance). 5B. Subdivision or Combination of Common Stock. If the Corporation at any time subdivides (by any stock split, stock dividend, recapitalization or otherwise) the outstanding shares of one or more classes of Common Stock into a greater number of shares, the Conversion Price (and the Trigger Price and Series A/B Dilution Price) in effect immediately prior to such subdivision shall be proportionately reduced, and if the Corporation at any time combines (by reverse stock split or otherwise) the outstanding shares of one or more classes of Common Stock into a smaller number of shares, the Conversion Price (and the Trigger Price and Series A/B Dilution Price) in effect immediately prior to such combination shall be proportionately increased. C-6 5C. Reorganization, Reclassification, Consolidation, Merger or Sale. In connection with any Reorganization, (i) the holders of Preferred Stock shall thereafter have the right to acquire and receive, in lieu of or in addition to (as the case may be) the shares of Common Stock immediately theretofore acquirable and receivable upon the conversion of such holder's Preferred Stock, such shares of stock, securities, cash or other assets (or, if not practicably attainable, the reasonable equivalent thereof) as such holder would have received in connection with such Reorganization if such holder had converted its Preferred Stock immediately prior to such Reorganization, and (ii) dividends and amounts in respect of dividends hereunder payable in shares of Common Stock prior to such Reorganization shall be payable, in lieu of each share of Common Stock, in such shares of stock, securities, cash or other assets (or reasonable equivalent thereof) as the holder of one share of Common Stock received in connection with such Reorganization. The Corporation shall make appropriate provisions to ensure that the requirements of the previous sentence are effected. In each such case, the Corporation shall also make appropriate provisions to ensure that the provisions of this Section 5 and Sections 6 and 7 shall thereafter be applicable to the Preferred Stock. 5D. Notices. (i) Immediately upon any adjustment of the Conversion Price, the Corporation shall give written notice thereof to all holders of Preferred Stock, setting forth in reasonable detail and certifying the calculation of such adjustment. (ii) The Corporation shall give written notice to all holders of Preferred Stock at least 20 days prior to the date on which the Corporation closes its books or fixes a record date (a) with respect to any dividend or distribution upon Common Stock, (b) with respect to any pro rata subscription offer to holders of Common Stock or (c) for determining rights to vote with respect to any Liquidation or Reorganization. 5E. Mandatory Conversion. The Corporation may require, by written notice to all holders of Preferred Stock, the conversion of all of the outstanding Preferred Stock into a number of shares of Common Stock equal to the sum of: (a) the number of shares of Common Stock computed by multiplying the number of Preferred Shares to be converted by the Liquidation Value of a Preferred Share, and dividing the result by the applicable Conversion Price then in effect, plus (b) the number of shares of Common Stock that would be payable if all accrued but unpaid dividends were declared and paid on the Preferred Shares to be converted; provided that the Closing Price of the Common Stock (adjusted proportionately for stock dividends, stock splits, combinations, and similar changes in the Common Stock occurring after the Closing) on at least twenty (20) of the thirty (30) latest trading days preceding the date of the Corporation's notice has been greater than or equal to the Conversion Price. If the Corporation shall require the conversion of the Preferred Stock under this Section 5E within two years from the Initial Date of Issuance, then the number of shares of Common Stock into which the shares of Preferred Stock are converted shall be increased by the number of shares of Common Stock that would be payable if the Corporation were immediately to declare and pay all dividends that in the absence of conversion would have accrued on such shares of Preferred Stock over the six-month period immediately following the date of conversion; provided, however, that the total dividends and amounts in respect of dividends paid on the Preferred Stock after the Date of Issuance thereof, including any additional amounts in respect of dividends paid as a result of a required conversion under this Section 5E, shall not be less than the amount of dividends that would have accrued on all outstanding shares of the Preferred Stock for one full year following the Initial Date of Issuance. Any conversion of shares of Preferred Stock under this Paragraph 5E shall be effected and be deemed to have been effected as of the close of business on the date on which the Corporation provides written notice of such conversion to the holders of such shares of Preferred Stock (the "Mandatory Conversion Time"), and as of the Mandatory Conversion Time, the rights of the holders of the converted shares of Preferred Stock, as such, shall cease and terminate, such converted shares of Preferred Stock shall be retired in accordance with paragraph 3F, the shares of Common Stock into which such shares of Preferred Stock are converted shall be issued and deemed to have been issued, the certificate(s) that theretofore represented shares of Preferred Stock thereafter shall represent the number of shares of Common Stock into which the shares of Preferred Stock theretofore represented thereby shall C-7 have been converted, and the holder of any such certificate, upon the surrender thereof to the Corporation, shall be entitled to receive from the Corporation a new certificate representing the number of shares of Common Stock into which the shares of Preferred Stock theretofore represented thereby shall have been converted. 5F. Effect on Conversion Price of Certain Events. (i) General. In order to prevent dilution of the conversion rights granted under this Section 5, the Conversion Price shall be subject to adjustment from time to time pursuant to this paragraph 5F. (ii) Adjustment of Conversion Price. If and whenever on or after the Date of Issuance the Corporation issues or sells, or in accordance with this paragraph 5F is deemed to have issued or sold, other than in an Excluded Issuance, any share of Common Stock for a consideration per share less than the Trigger Price in effect immediately prior to such time (a "Dilutive Event"), then forthwith upon such issue or sale in the Dilutive Event the Conversion Price shall be reduced by multiplying the Conversion Price in effect immediately before the Dilutive Event by a fraction, the numerator of which is the number of shares of Common Stock that are Outstanding on an As-Converted Basis (as defined below) immediately before the Dilutive Event plus the number of shares of Common Stock that could be purchased at the Trigger Price at the time of the Dilutive Event for the aggregate consideration paid or payable upon the sale or issuance of Common Stock in the Dilutive Event, and the denominator of which is the number of shares of Common Stock that are Outstanding on an As-Converted Basis immediately before the Dilutive Event plus the number of shares that are acquired or to be acquired upon the sale or issuance of the Common Stock in the Dilutive Event. For purposes of this paragraph 5F(ii), "Outstanding on an As-Converted Basis" immediately before the Dilutive Event means the sum of (i) all Common Stock issued and outstanding immediately before the Dilutive Event plus (ii) all Common Stock issuable upon the exercise of Options or conversion of Convertible Securities outstanding immediately before the Dilutive Event (other than Preferred Stock). (iii) Issuance of Rights or Options. If the Corporation in any manner grants any Options and the price per share for which shares of Common Stock are issuable upon the exercise of any such Option is less than the Trigger Price in effect immediately prior to the time of the granting of such Option, then such shares of Common Stock shall be deemed to have been issued and sold by the Corporation at the time of the granting of such Options for such price per share and the Conversion Price shall be adjusted in accordance with paragraph 5F(ii) above. For purposes of this paragraph, the "price per share" for which shares of Common Stock are issuable upon the exercise of any Option shall be equal to the sum of the amounts of consideration (if any) received or receivable by the Corporation with respect to such shares of Common Stock upon the granting of the Option and upon exercise of the Option. No further adjustment of the Conversion Price shall be made upon the actual issue of such Common Stock upon the exercise of such Options. (iv) Issuance of Convertible Securities. If the Corporation in any manner issues or sells any Convertible Security (or Options to purchase any Convertible Security) and the price per share for shares of Common Stock that are issuable upon conversion or exchange thereof is less than the Trigger Price in effect immediately prior to the time of such issue or sale (or the granting of such Option), then such shares of Common Stock shall be deemed to have been issued and sold by the Corporation at the time of the issuance or sale of such Convertible Securities (or the granting of such Option) for such price per share and the Conversion Price shall be adjusted in accordance with paragraph 5F(ii) above. For the purposes of this paragraph, the "price per share" for which shares of Common Stock are issuable upon conversion or exchange of any Convertible Security (or exercise of any Option therefor) shall be equal to the sum of the amounts of consideration (if any) received or receivable by the Corporation upon the issuance of the Convertible Security (or such Option) and upon the conversion or exchange of such Convertible Security (or exercise of such Option). No further adjustment of the Conversion C-8 Price shall be made upon the actual issue of such Common Stock upon conversion or exchange of any Convertible Security, and if any such issue or sale of such Convertible Security is made upon exercise of any Options for which adjustments of the Conversion Price had been or are to be made pursuant to other provisions of this Section 5, no further adjustment of the Conversion Price shall be made by reason of such issue or sale. (v) Change in Option Price or Conversion Rate. If the purchase price provided for in any Option, the additional consideration (if any) payable upon the issue, conversion or exchange of any Convertible Security, or the rate at which any Convertible Security is convertible into or exchangeable for Common Stock change at any time, any Conversion Price previously adjusted with respect to such Option or Convertible Security and in effect at the time of such change shall be readjusted to the Conversion Price which would have been in effect at such time had such Option or Convertible Security originally provided for such changed purchase price, additional consideration or changed conversion rate, as the case may be, at the time initially granted, issued or sold. (vi) Treatment of Expired Options and Unexercised Convertible Securities. Upon the expiration of any Option or the termination of any right to convert or exchange any Convertible Security without the exercise of any such Option or right, any Conversion Price then in effect hereunder shall be adjusted to the Conversion Price which would have been in effect at the time of such expiration or termination had such Option or Convertible Security, to the extent outstanding immediately prior to such expiration or termination, never been issued. (vii) Calculation of Consideration Received. If any Common Stock, Option or Convertible Security is issued or sold or deemed to have been issued or sold for cash, the consideration received therefor shall be deemed to be the amount received by the Corporation therefor. In case any Common Stock, Options or Convertible Securities are issued or sold for a consideration other than cash, the amount of the consideration other than cash received by the Corporation shall be the fair value of such consideration, except where such consideration consists of securities, in which case the amount of consideration received by the Corporation shall be the Market Price thereof as of the date of receipt. If any Common Stock, Option or Convertible Security is issued to the owners of the non-surviving entity in connection with any merger in which the Corporation is the surviving corporation, the amount of consideration therefor shall be deemed to be the fair value of such portion of the assets and business of the non-surviving entity as is attributable to such Common Stock, Options or Convertible Securities, as the case may be. The fair value of any consideration other than cash and securities shall be as determined in good faith by the Board of Directors of the Corporation. (viii) Integrated Transactions. In case any Option is issued in connection with the issue or sale of other securities of the Corporation, together comprising one integrated transaction in which no specific consideration is allocated to such Option by the parties thereto, the Option shall be deemed to have been issued for a consideration of $.01. (ix) Treasury Shares. For purposes of calculating under this paragraph 5F the number of shares of Common Stock outstanding at any given time, the number of shares of Common Stock outstanding at such time does not include shares owned or held by or for the account of the Corporation or any subsidiary thereof, and the disposition of any shares so owned or held shall be considered an issue or sale of Common Stock. (x) De Minimis Adjustments. Notwithstanding any other provisions of this Section 5, the Corporation shall not be required to make any adjustment of the Conversion Price unless such adjustment would require an increase or decrease of at least one percent (1%) in the Conversion Price as then in effect. Any lesser adjustment shall be carried forward and shall be made no later than the time of, and together with, the next subsequent adjustment which, together with any adjustment or adjustments so carried forward, shall amount to an increase or decrease of at least one percent (1%) of the Conversion Price as then in effect. If any action would require adjustment of the Conversion Price pursuant to more than one subparagraph of this C-9 paragraph 5F, only one adjustment shall be made as determined in good faith by the Board of Directors of the Corporation. Section 6. Liquidating Dividends. If the Corporation declares or pays a Liquidating Dividend upon the Common Stock, then the Corporation shall pay to the holders of Preferred Stock at the time of payment thereof the Liquidating Dividend which would have been paid to such holders had such Preferred Stock been converted immediately prior to the record date fixed for determining the stockholders entitled to receive payment of such Liquidating Dividend, or, if no record date is fixed, the date as of which the record holders of Common Stock entitled to such dividends are to be determined. Section 7. Purchase Rights. If at any time the Corporation grants, issues or sells any Purchase Rights pro rata to the record holders of any class of Common Stock, then each holder of Preferred Stock shall be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which such holder would have acquired if such holder had held the number of shares of Common Stock acquirable upon conversion of such holder's Preferred Shares immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights. Section 8. Registration of Transfer. The Corporation shall keep at its principal office a register for the registration of issuances and transfers of Preferred Stock. Upon the surrender of any certificate representing Preferred Stock at such place, the Corporation shall, at the request of the record holder of such certificate, execute and deliver (at the Corporation's expense) a new certificate or certificates in exchange therefor representing in the aggregate the number of Preferred Shares represented by the surrendered certificate. Each such new certificate shall be registered in such name and shall represent such number of Preferred Shares as is requested by the holder of the surrendered certificate and shall be substantially identical in form to the surrendered certificate, and dividends shall accrue on the Preferred Stock represented by such new certificate from the date to which dividends have been fully paid on such Preferred Stock represented by the surrendered certificate. Section 9. Replacement. Upon receipt of evidence reasonably satisfactory to the Corporation (an affidavit of the registered holder shall be satisfactory) of the ownership and the loss, theft, destruction or mutilation of any certificate evidencing Preferred Shares, and in the case of any such loss, theft or destruction, upon receipt of indemnity reasonably satisfactory to the Corporation (provided that if the holder is a financial institution or other institutional investor, its own agreement shall be satisfactory), or, in the case of any such mutilation upon surrender of such certificate, the Corporation shall (at its expense) execute and deliver in lieu of such certificate a new certificate of like kind representing the number of Preferred Shares represented by such lost, stolen, destroyed or mutilated certificate and dated the date of such lost, stolen, destroyed or mutilated certificate, and dividends shall accrue on the Preferred Stock represented by such new certificate from the date to which dividends have been fully paid on the Preferred Shares represented by such lost, stolen, destroyed or mutilated certificate. Section 10. Definitions. "Bond Offering" means an underwritten offering of notes or debentures of the Corporation to the public, with or without Options, primarily for the purpose of refinancing the indebtedness of International Private Satellite Partners, L.P. ("Orion Atlantic") outstanding under the Credit Agreement dated December 6, 1991 among Orion Atlantic, the Banks named therein and The Chase Manhattan Bank (National Association), as Agent. "Business Day" means a day on which banks are generally open for business in New York City. "Closing" means ______ ___, 1997. C-10 "Closing Price" of each share of Common Stock or other security means the composite closing price of the sales of the Common Stock or such other security on all securities exchanges on which such security may at the time be listed (as reported in The Wall Street Journal), or, if there has been no sale on any such exchange on any day, the average of the highest bid and lowest asked prices of the Common Stock or such other security on all such exchanges at the end of such day, or, if such security is not so listed, the closing price (or last price, if applicable) of sales of the Common Stock or such other security in the Nasdaq National Market (as reported in The Wall Street Journal) on such day, or if such security is not quoted in the Nasdaq National Market but is traded over-the-counter, the average of the highest bid and lowest asked prices on such day in the over-the-counter market as reported by the National Quotation Bureau Incorporated, or any similar successor organization. "Common Stock" means, collectively, the Corporation's common stock, par value $0.01 per share, and any capital stock of any class of the Corporation hereafter authorized which is not limited to a fixed sum or percentage of par or stated value in respect to the rights of the holders thereof to participate in dividends or in the distribution of assets upon any Liquidation of the Corporation; and if there is a change such that the securities issuable upon conversion of the Preferred Stock are issued by an entity other than the Corporation or there is a change in the class of securities so issuable, then the term "Common Stock" shall mean one share of the security issuable upon conversion of the Preferred Stock if such security is issuable in shares, or shall mean the smallest unit in which such security is issuable if such security is not issuable in shares. "Conversion Price" shall mean, with respect to any Series C Share, $17.50 (subject to adjustment as provided in Section 5 for events occurring after its Date of Issuance). "Convertible Securities" means any stock or other securities of the Corporation convertible into or exchangeable for Common Stock. "Convertible Subordinated Debenture Offering" means an offering of convertible subordinated debentures of the Corporation to the public, which debentures would be convertible into Common Stock. "Corporation" means Orion Newco Services, Inc., a Delaware corporation. "Date of Issuance," with respect to any Preferred Share, means the date on which the Corporation initially issues such Preferred Share, regardless of the number of times transfer of such Preferred Share is made on the stock records maintained by or for the Corporation and regardless of the number of certificates which may be issued to evidence such Preferred Share. "Dividend Reference Date" mean [___________] of each year, commencing __________, 1997, and each of the following: (i) the date on which the Liquidation Value of such Preferred Share is paid, (ii) the date on which such Preferred Share is converted into shares of Common Stock hereunder, and (iii) the Maturity Date. "Excluded Issuance" means the issue or sale of (i) shares of Common Stock in respect of any transaction described in paragraph 5B (including without limitation any stock split, stock dividend or recapitalization), (ii) shares of Common Stock by the Corporation pursuant to the exercise of Options and Convertible Securities outstanding immediately prior to the Closing at exercise prices that are greater than or equal to the respective exercise prices in effect as of Closing (as adjusted pursuant to the terms of such securities to give effect to stock dividends or stock splits or a combination of shares in connection with a recapitalization, merger, consolidation or other reorganization occurring after the Closing), (iii) up to an aggregate of 150,000 shares of Common Stock by the Corporation for any purpose, (iv) Options to acquire Common Stock by the Corporation pursuant to a resolution of, or a stock option plan approved by a resolution of, the Board of Directors of the Corporation (or the compensation committee thereof) to the Corporation's employees or directors, (v) shares of Common Stock, Options or Convertible Securities (or shares of Common Stock pursuant to the exercise of Options and Convertible Securities) as part of or in connection with a Bond Offering or a Convertible Subordinated Debenture Offering. "Initial Date of Issuance" means the Date of Issuance of the first share of Preferred Stock to be issued. C-11 "Initial Redemption Date" means the earlier of (i) the close of business on ______, 1999. [two years from the Date of Issuance] or (ii) the effective date of a Reorganization. "Junior Securities" means Common Stock and any other capital stock or other equity securities issued by the Corporation, whether currently existing or hereafter authorized or issued (other than Series A Preferred or Series B Preferred or any other series of preferred stock of the Corporation issued pursuant to an option granted to purchasers of Series A Preferred in connection with the initial issuances of Series A Preferred by the Corporation). "Liquidation" means the liquidation, dissolution or winding up of the Corporation; provided, however, that neither the consolidation or merger of the Corporation into or with any other entity or entities, nor the sale or transfer by the Corporation of all or any part of its assets, nor the reduction of the capital stock of the Corporation, shall be deemed to be a liquidation, dissolution or winding up of the Corporation. "Liquidating Dividend" means a dividend upon the Common Stock payable otherwise than in cash out of legally available funds (determined in accordance with generally accepted accounting principles, consistently applied) except for a stock dividend payable in shares of Common Stock. "Liquidation Value" of any Preferred Share shall be equal to $1,000. "Market Price" of each share of Common Stock or other security means, with respect to a specified date, the Closing Price of such share or other security, averaged over a period of the 20 consecutive Business Days prior to such date. If during this period such security is not listed on any securities exchange, quoted in the Nasdaq National Market, or quoted in the over-the-counter market, the Market Price will be the fair value of such shares of Common Stock or security determined by agreement between the Corporation and the holders of a majority of the outstanding Preferred Shares. If such parties are unable to reach agreement within a reasonable period of time, the fair value of such security shall be determined by an independent appraiser experienced in valuing such type of consideration jointly selected by the Corporation and the holders of a majority of the outstanding Preferred Shares. The determination of such appraiser shall be final and binding upon the parties, and the fees and expenses of such appraiser shall be borne by the Corporation. "Maturity Date" means the close of business on ______ __, 2022. [25 years from the Date of Issuance] "Options" means any options, warrants or rights to subscribe for or to purchase Common Stock or any Convertible Securities. "Person" means an individual, a partnership, a corporation, an association, a joint stock company, a limited liability company, a trust, a joint venture, an unincorporated organization and a governmental entity or any department, agency or political subdivision thereof. "Preferred Share" means a share of Series C Preferred. "Preferred Stock" means the Series C Preferred. "Prior Dividend Date" means, with respect to a Dividend Reference Date, the previous Dividend Reference Date following which dividends were paid on shares of Preferred Stock hereunder (or, if there is no such previous Dividend Reference Date, the Date of Issuance). "Public Offering" means any offering by the Corporation of its equity securities to the public pursuant to an effective registration statement under the Securities Act of 1933, as then in effect, or any comparable statement under any similar federal statute then in force; provided, that "Public Offering" shall not include an offering made in connection with a business acquisition or combination or an employee benefit plan. "Purchase Rights" means any Options, Convertible Securities or rights to purchase stock, warrants, securities or other property. "Redemption Date" means the date on which the Redemption Price of a Preferred Share is paid to the holder thereof. C-12 "Redemption Price" means the Liquidation Value of such Preferred Share, payable in cash, plus an amount equal to all accrued and unpaid dividends thereon, payable in shares of Common Stock pursuant to paragraph 1D. "Reorganization" means any recapitalization, reorganization, reclassification, consolidation, merger, sale of all or substantially all of the Corporation's assets to another Person or other transaction which is effected in such a manner that holders of Common Stock are entitled to receive (either directly or upon subsequent liquidation) stock, securities or assets with respect to or in exchange for Common Stock. "Series A Certificate" means the Certificate of Designations, Rights and Preferences for the Series A Preferred. "Series B Certificate" means the Certificate of Designations, Rights and Preferences for the Series B Preferred. "Series A Preferred" means the Corporation's Series A 8% Cumulative Redeemable Convertible Preferred Stock, par value $.01 per share. "Series B Preferred" means the Corporation's Series B 8% Cumulative Redeemable Convertible Preferred Stock, par value $.01 per share. "Series C Preferred" means the Corporation's Series C 6% Cumulative Redeemable Convertible Preferred Stock, par value $.01 per share. "Series A/B Dilution Price" means, at any time, the conversion price for the Series B Preferred as then in effect under the Series B Certificate. "Series A Share" means a share of Series A Preferred. "Series B Share" means a share of Series B Preferred. "Series C Share" means a share of Series C Preferred. "Trigger Price" shall mean, with respect to any Series C Share, $14.00 (subject to adjustment as provided in Section 5B for events occurring after its Date of Issuance). Section 11. Amendment and Waiver. No amendment, modification or waiver shall be binding or effective with respect to any provision hereof without the prior affirmative vote or written consent of the holders of a majority of the Preferred Shares outstanding at the time such action is taken; provided, however, that without the prior affirmative vote or written consent of each holder individually holding at least 51% of the Preferred Stock then outstanding, no such action shall change (i) the rate at which or the manner in which dividends on the Preferred Stock accrue or the form of consideration in which such dividends are payable or the times at which such dividends become payable or the amount payable on redemption of the Preferred Stock or the times at which redemption of Preferred Stock is to occur, (ii) any Conversion Price of the Preferred Stock or the number of shares or class of stock into which the Preferred Stock is convertible, (iii) the priority of payment of dividends to the Preferred Stock, (iv) the Liquidation Value, (v) the voting rights of the Preferred Stock, (vi) the rights of the Preferred Stock upon a reorganization, (vii) the provisions for mandatory conversion of the Preferred Stock, (viii) the rights of holders of the Preferred Stock to acquire Purchase Rights, or (ix) the percentage required to approve any change in this Section 11. Section 12. Notices. Except as otherwise expressly provided hereunder, all notices referred to herein shall be in writing and shall be delivered by registered or certified mail, return receipt requested and postage prepaid, or by reputable overnight courier service, charges prepaid, and shall be deemed to have been given when so mailed or sent (i) to the Corporation, at its principal executive offices and (ii) to any stockholder, at such holder's address as it appears in the stock records of the Corporation (unless otherwise indicated by any such holder). C-13 ATTACHMENT D SALOMON BROTHERS December 10, 1996 Orion Network Systems, Inc. 2440 Research Boulevard Suite 400 Rockville, MD 20850 Dear Sirs: You have requested our opinion, as investment bankers, as to the fairness, from a financial point of view, to Orion Network Systems, Inc. ("Orion"), of the consideration to be paid by Orion in connection with the Exchange (as defined below). Pursuant to a Section 351 Exchange Agreement and Plan of Conversion (the "Exchange Agreement") with Orion Satellite Corporation, a Delaware corporation that is a wholly owned subsidiary of Orion ("OrionSat") and the sole general partner of International Private Satellite Partners, L.P., a Delaware limited partnership ("Orion Atlantic"), and each of the existing limited partners of Orion Atlantic other than Orion (the "Exchanging Partners"), Orion has agreed, among other things, to have Orion Newco Services, Inc., a newly formed Delaware corporation with a certificate of incorporation, bylaws, capital structure (before the issuance of the Newco Preferred Stock defined below) and management substantially identical in all material respects to those of Orion ("Orion Newco"), issue 121,988 shares of Orion Newco's Series C 6% Cumulative Redeemable Convertible Preferred Stock (the "Newco Preferred Stock") in exchange for the Exchanging Partners' limited partnership interests in Orion Atlantic and other rights relating thereto (the "Exchange"). The Exchange is intended to qualify as tax-free under Section 351 of the Internal Revenue Code of 1986, as amended. As a result of the Exchange, Orion Newco will become the owner of all the partnership interests in Orion Atlantic (through Orion Newco and Orion as limited partners and OrionSat as the sole general partner of Orion Atlantic). In addition, Orion Newco will acquire certain rights currently held by the Exchanging Partners, including rights to receive repayment of various advances (aggregating approximately $37.6 million at September 30, 1996) made to Orion Atlantic. The 121,988 shares of Newco Preferred Stock expected to be issued in the Exchange will be convertible into approximately 6.9971 million (assuming a closing of the Exchange as of January 30, 1997; the number of shares will increase if the closing occurs after that date) shares of common stock, par value $.01 per share, of Orion Newco ("Orion Newco Common Stock"). We understand that concurrently with, and as a condition to, the consummation of the Exchange, (i) Orion Newco intends to consummate financings (the "Financings") consisting of (a) notes and warrants with expected net proceeds of approximately $250 million to refinance the indebtedness of Orion Atlantic outstanding under the existing Credit Agreement dated December 6, 1991 among Orion Atlantic, the banks named therein and Chase Manhattan Bank (National Association), as agent (the "Orion 1 Credit Facility"), and to release Orion's and the Exchanging Limited Partners' (including their respective affiliates) existing commitments and guarantees supporting the Orion 1 Credit Facility, (b) the issuance and sale of approximately $50 million of Orion Newco's convertible subordinated debentures to British Aerospace Public Limited Company, an affiliate of one of the Exchanging Partners and (c) the execution by Orion or one of its affiliates of an amendment to the satellite procurement contract with Matra Marconi Space U.K. Limited for the Orion 2 satellite, which was entered into in July 1996 and is expected to include an agreement by the manufacturer to commence construction of the Orion 2 satellite based upon a $40 million initial payment, and (ii) a wholly-owned subsidiary of Orion Newco will be merged with and into Orion in a tax-free reorganization (the "Merger"). We have not been asked to express an opinion, and we do not express any opinion, with regard to the Financings or the Merger. D-1 In arriving at our opinion, we have reviewed certain publicly available business and financial information relating to Orion, as well as certain other information, including financial projections, provided to us by Orion. We have discussed the past and current operations and financial condition and prospects of Orion and Orion Atlantic with members of the respective senior management of such entities. We have also considered such other information, financial studies, analyses, investigations and financial, economic, market and trading criteria which we deemed relevant. We have assumed and relied on the accuracy and completeness of the information reviewed by us for the purpose of this opinion and we have not assumed any responsibility for independent verification of such information or for any independent evaluation or appraisal of the assets of Orion or Orion Atlantic. With respect to Orion's and Orion Atlantic's financial projections, we have assumed that they have been reasonably prepared on bases reflecting the best currently available estimates and judgments of Orion's and Orion Atlantic's management, as the case may be, as to the future financial performance of such entity, and while we express no opinion with respect to such forecasts or the assumptions on which they are based, we have relied on management's assumption that the Financings will occur concurrently with the Exchange. Our opinion is necessarily based upon business, market, economic and other conditions as they exist on, and can be evaluated as of, the date of this letter and does not address Orion's underlying business decision to effect the Exchange or constitute a recommendation to any holder of Orion common stock as to how such holder should vote with respect to the Merger or the Exchange. Our opinion as expressed below does not imply any conclusion as to the likely trading range for the Orion Newco Common Stock following the consummation of the Exchange, which may vary depending on, among other factors, changes in interest rates, dividend rates, market conditions, general economic conditions and other factors that generally influence the price of securities. We have acted as financial advisor to the Board of Directors of Orion in connection with the Exchange and will receive a fee for our services, part of which was paid upon execution by Orion of the engagement agreement with respect to the Exchange, part of which is payable upon the initial submission of this opinion and the remainder of which is payable upon consummation of the Financings. In the ordinary course of our business, we actively trade the securities of Orion for our own account and for the accounts of customers and, accordingly, may at any time hold a long or short position in such securities. Based upon and subject to the foregoing, it is our opinion as investment bankers that, as of the date hereof, the consideration to be paid in the Exchange is fair, from a financial point of view, to Orion. Very truly yours, SALOMON BROTHERS INC D-2 PART II INFORMATION NOT REQUIRED IN PROXY STATEMENT/PROSPECTUS ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS The Company's Certificate of Incorporation provides that its directors will not be liable for monetary damages for breach of the directors' fiduciary duty of care to the Company and its stockholders. This provision in the Certificate of Incorporation does not eliminate the duty of care, and in appropriate circumstances equitable remedies such as an injunction or other forms of non-monetary relief would remain available under Delaware law. In accordance with the requirements of Delaware law, as amended, the Certificate of Incorporation provide that the Company's directors would remain subject to liability for monetary damages (i) for any breach of their duty of loyalty to the corporation or its shareholders, (ii) for acts or omissions not in good faith or involving intentional misconduct or knowing violation of law, (iii) under Section 174 of the Delaware Code for approval of an unlawful dividend or an unlawful stock purchase or redemption and (iv) for any transaction from which the director derived an improper personal benefit. This provision also does not affect a director's responsibilities under any other laws, such as the federal securities laws or state or federal environmental laws. The Company's Certificate of Incorporation also provides that, except as expressly prohibited by law, the Company shall indemnify any person who was or is a party (or threatened to be made a party) to any threatened, pending or completed action, suit or proceeding by reason of the fact that such person is or was a director or officer of the Company (or is or was serving at the request of the Company as a director or officer of another enterprise), against expenses, liabilities and losses (including attorney's fees), judgments, fines and amounts paid or to be paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding if such person acted in good faith and a manner such person reasonably believed to be in or not opposed to the best interests of the Company, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful. Such indemnification shall not be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the Company unless (and only to the extent that) the Delaware Court of Chancery or the court in which such action or suit was brought determines that, in view of all circumstances of the case, such person is fairly and reasonably entitled to indemnity. Section 145 of the General Corporation Law of the State of Delaware, as amended, empowers a corporation incorporated under that statute to indemnify its directors, officers, employees and agents and its former directors, officers, employees and agents and those who serve in such capacities with another enterprise at its request against expenses, as well as judgments, fines and settlements in nonderivative lawsuits, actually and reasonably incurred by them in connection with the defense of any action, suit or proceeding in which they or any of them were or are made parties or are threatened to be made parties by reason of their serving or having served in such capacity. The power to indemnify shall only exist where such officer, director, employee or agent has acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the corporation and, in the case of a criminal action, where such person had no reasonable cause to believe his conduct was unlawful. However, in an action or suit by or in the right of the corporation, unless a court shall determine to the contrary, where such a person has been adjudged liable to the corporation, the corporation shall have no power of indemnification. Indemnity is mandatory to the extent a claim, issue or matter has been successfully defended. Indemnification is not deemed exclusive of any other rights to which those indemnified may be entitled, under any by-law, agreement, vote of stockholders or otherwise. A Delaware corporation also has the power to purchase and maintain insurance on behalf of the persons it has the power to indemnify, whether or not indemnity against such liability would be allowed under the statute. Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended (the "Securities Act"), may be permitted to directors, officers and controlling persons of the Company pursuant to the foregoing provision or otherwise, the Company has been advised that, in the opinion of the II-1 Securities and Exchange Commission, such indemnification is against public policy as expressed in the Securities Act and therefore unenforceable. In the event that a claim for indemnification against such liabilities is asserted by such person in connection with the offering of the Securities (other than for the payment by the corporation of expenses incurred or paid by a director, officer or controlling person of the corporation in the successful defense of any action, suit or proceeding), the either corporation will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of the issue. The Company has insurance policies which will insure directors and officers against damages from actions and claims incurred in the course of their duties and will insure the corporations against expenses incurred in defending lawsuits arising from certain alleged acts of the directors and officers. ITEM 21. EXHIBITS
Exhibit Number Description 2.1 Agreement and Plan of Merger dated January 8, 1997, by and among Orion Network Systems, Inc., Orion Newco Services, Inc. and Orion Merger Co, Inc. (Included as Attachment A to the Proxy Statement/Prospectus which is a part of this Registration Statement.). 3.1 Form of Restated Certificate of Incorporation of Orion Newco Services, Inc. 3.2 Bylaws of Orion Newco Services, Inc. 3.3 Certificate of Incorporation of Orion Network Systems, Inc. (Incorporated by reference to exhibit number 3.1 in Registration Statement No. 33-80518 on Form S-1 of Orion Network Systems, Inc.) 3.4 Bylaws of Orion Network Systems, Inc. (Incorporated by reference to exhibit number 3.2 in Registration Statement No. 33-80518 on Form S-1 of Orion Network Systems, Inc.) 4.1 Forms of Warrant issued by Orion. (Incorporated by reference to exhibit number 4.1 in Registration Statement No. 33-80518 on Form S-1 of Orion Network Systems, Inc.) 4.2 Forms of Warrant issued by Orion to holders of Preferred Stock. (Incorporated by reference to exhibit number 4.2 in Registration Statement No. 33-80518 on Form S-1 of Orion Network Systems, Inc.) 4.3 Forms of Certificates of Designation of Series A 8% Cumulative Redeemable Convertible Preferred Stock, Series B 8% Cumulative Redeemable Convertible Preferred Stock and Series C 6% Cumulative Redeemable Convertible Preferred Stock. 4.4 Forms of Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock Certificates of Orion. 4.5 Form of Common Stock Certificate of Orion. 4.6 Form of Warrant issued to DACOM Corp. 4.7 Debenture Purchase Agreement, dated January 13, 1997, among Orion Network Systems, Inc., Orion Newco Services, Inc., and each of British Aerospace Holdings, Inc. and Matra Marconi Space UK Limited. 5.1 Opinion of Hogan & Hartson L.L.P. 8.1 Opinion of Ernst & Young L.L.P. with respect to certain tax matters. II-2 10.1 Second Amended and Restated Purchase Agreement, dated September 26, 1991, ("Satellite Contract") by and between OrionSat and British Aerospace PLC and the First Amendment, dated as of September 15, 1992, Second Amendment, dated as of November 9, 1992, Third Amendment, dated as of March 12, 1993, Fourth Amendment, dated as of April 15, 1993, Fifth Amendment, dated as of September 22, 1993, Sixth Amendment, dated as of April 6, 1994, Seventh Amendment, dated as of August 9, 1994, Eighth Amendment, dated as of December 8, 1994, and Amendment No. 9 dated October 24, 1995, thereto. [CONFIDENTIAL TREATMENT HAS BEEN GRANTED FOR PORTIONS OF THESE DOCUMENTS.] (Incorporated by reference to exhibits number 10.13 and 10.14 in Registration Statement No. 33-80518 on Form S-1 of Orion Network Systems, Inc.) 10.2 Restated Amendment No. 10, dated December 10, 1996, between Orion Atlantic and Matra Marconi Space, to the Second Amended and Restated Purchase Agreement, dated September 26, 1991 by and between OrionSat and British Aerospace PLC (which contract and prior exhibits thereto were incorporated by reference as exhibit number 10.1). 10.3 Ground Support System Agreement, dated as of August 2, 1991, by and between Orion Atlantic and Telespazio S.p.A. [CONFIDENTIAL TREATMENT HAS BEEN GRANTED FOR PORTIONS OF THIS DOCUMENT.] (Incorporated by reference to exhibit number 10.25 in Registration Statement No. 33-80518 on Form S-1 of Orion Network Systems, Inc.) 10.4 Italian Facility and Services Agreement, dated as of August 2, 1991, by and between OrionSat and Telespazio S.p.A. as amended by the amendment thereto, dated March 19, 1994. [CONFIDENTIAL TREATMENT HAS BEEN GRANTED FOR PORTIONS OF THESE DOCUMENTS.] (Incorporated by reference to exhibit number 10.26 in Registration Statement No. 33-80518 on Form S-1 of Orion Network Systems, Inc.) 10.5 Contract for a Satellite Control System, dated December 7, 1992, by and between Orion Atlantic, Telespazio S.p.A. and Martin Marietta Corporation. [CONFIDENTIAL TREATMENT HAS BEEN GRANTED FOR PORTIONS OF THIS DOCUMENT.] (Incorporated by reference to exhibit number 10.31 in Registration Statement No. 33-80518 on Form S-1 of Orion Network Systems, Inc.) 10.6 Credit Agreement, dated as of November 23, 1993, by and between Orion Atlantic, OrionSat and General Electric Capital Corporation ("GECC"). [CONFIDENTIAL TREATMENT HAS BEEN GRANTED FOR PORTIONS OF THIS DOCUMENT.] (Incorporated by reference to exhibit number 10.32 in Registration Statement No. 33-80518 on Form S-1 of Orion Network Systems, Inc.) 10.7 Security Agreement, dated as of November 23, 1993, by and between Orion Atlantic, OrionSat and GECC. (Incorporated by reference to exhibit number 10.33 in Registration Statement No. 33-80518 on Form S-1 of Orion Network Systems, Inc.) 10.8 Assignment and Security Agreement, dated as of November 23, 1993, by and between Orion Atlantic, OrionSat and GECC. (Incorporated by reference to exhibit number 10.34 in Registration Statement No. 33-80518 on Form S-1 of Orion Network Systems, Inc.) 10.9 Consent and Agreement, dated as of November 23, 1993, by and between Orion Atlantic, Martin Marietta Corporation and GECC. (Incorporated by reference to exhibit number 10.35 in Registration Statement No. 33-80518 on Form S-1 of Orion Network Systems, Inc.) 10.10 Deed of Trust, dated as of November 23, 1993, by and between Orion Atlantic, W. Allen Ames, Jr. and Michael J. Schwel, as Trustees, and GECC. (Incorporated by reference to exhibit number 10.37 in Registration Statement No. 33-80518 on Form S-1 of Orion Network Systems, Inc.) 10.11 Lease Agreement, dated as of November 23, 1993, by and between OrionNet, Inc. and Orion Atlantic, as amended by an Amendment, dated January 3, 1995. [CONFIDENTIAL TREATMENT HAS BEEN GRANTED FOR PORTIONS OF THESE DOCUMENTS.] (Incorporated by reference to exhibit number 10.38 in Registration Statement No. 33-80518 on Form S-1 of Orion Network Systems, Inc.) II-3 10.12 Note for Interim Loans, dated as of November 23, 1993, by and between Orion Atlantic and GECC. (Incorporated by reference to exhibit number 10.42 in Registration Statement No. 33-80518 on Form S-1 of Orion Network Systems, Inc.) 10.13 Sales Representation Agreement and Ground Operations Service Agreement, each dated as of May 1, 1994 and June 30, 1994, by and between each of OrionNet, Inc. and Kingston Communications, respectively, and Orion Atlantic, as amended by side agreements, dated May 1, 1994, July 12, 1994 and February 1, 1995. [CONFIDENTIAL TREATMENT HAS BEEN GRANTED FOR PORTIONS OF THESE DOCUMENTS.] (Incorporated by reference to exhibit number 10.43 in Registration Statement No. 33-80518 on Form S-1 of Orion Network Systems, Inc.) 10.14 Lease Agreement, dated as of October 2, 1992, by and between OrionNet and Research Grove Associates, as amended by Amendment No. 1, dated March 26, 1993, Amendment No. 2, dated August 23, 1993, and Amendment No. 3, dated December 20, 1993. (Incorporated by reference to exhibit number 10.38 in Registration Statement No. 33-80518 on Form S-1 of Orion Network Systems, Inc.) 10.15 Sales Representation Agreement and Ground Operations Service Agreement, dated as of June 30, 1995, by and between MCN Sat Service, S.A. and Orion Atlantic. [CONFIDENTIAL TREATMENT HAS BEEN GRANTED FOR PORTIONS OF THIS DOCUMENT.] (Incorporated by reference to exhibit number 10.69 in Orion's Registration Statement No. 33-80518 on Form S-1.) 10.16 Volume Purchase Agreement, dated January 18, 1995, by and between the Company and Dornier GmbH. [CONFIDENTIAL TREATMENT HAS BEEN GRANTED FOR PORTIONS OF THIS DOCUMENT.] (Incorporated by reference to exhibit number 10.66 in Registration Statement No. 33-80518 on Form S-1 of Orion Network Systems, Inc.) 10.17 Product Development, License and Marketing Agreement, dated January 18, 1995, by and between the Company and Dornier GmbH. [CONFIDENTIAL TREATMENT HAS BEEN GRANTED FOR PORTIONS OF THIS DOCUMENT.] (Incorporated by reference to exhibit number 10.65 in Orion's Registration Statement No. 33-80518 on Form S-1.) 10.18 Sales Representation Agreement, dated as of June 8, 1995, by and between Nortel Dasa Network Systems GmbH & Co. KG and Orion Atlantic. [CONFIDENTIAL TREATMENT HAS BEEN GRANTED FOR PORTIONS OF THIS DOCUMENT.] (Incorporated by reference to exhibit number 10.70 in Registration Statement No. 33-80518 on Form S-1 of Orion Network Systems, Inc.) 10.19 Orion 2 Spacecraft Purchase Contract, dated July 31, 1996, between Orion Atlantic and Matra Marconi Space. [CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS DOCUMENT.] 10.20 Orion's Amended and Restated 1987 Stock Option Plan as amended. (Incorporated by reference to exhibit number 10.23 in Registration Statement No. 33-80518 on Form S-1 of Orion Network Systems, Inc.) 10.21 Purchase Contract, dated December 4, 1991, by and between OrionNet, Inc., Shenandoah Valley Leasing Company and MCI Telecommunications Corporation. [CONFIDENTIAL TREATMENT HAS BEEN GRANTED FOR PORTION OF THIS DOCUMENT.] (Incorporated by reference to exhibit number 10.30 in Registration Statement No. 33-80518 on Form S-1 of Orion Network Systems, Inc.) 10.22 Amended and Restated Partnership Agreement of Orion Financial Partnership, dated as of April 15, 1994, by and between OrionNet and Computer Leasing Inc. ("CLI"). (Incorporated by reference to exhibit number 10.44 in Registration Statement No. 33-80518 on Form S-1 of Orion Network Systems, Inc.) 10.23 Continuing Guaranty, dated as of April 15, 1994, of the Company of the obligations of OrionNet Finance Corporation. (Incorporated by reference to exhibit number 10.45 in Registration Statement No. 33-80518 on Form S-1 of Orion Network Systems, Inc.) II-4 10.24 Release of Continuing Guaranty, dated as of December 29, 1994, by the Orion Financial Partnership. (Incorporated by reference to exhibit number 10.46 in Registration Statement No. 33-80518 on Form S-1 of Orion Network Systems, Inc.) 10.25 Confirmation of Continuing Guaranty, dated as of December 29, 1994, of the Company of the obligation of OFC. (Incorporated by reference to exhibit number 10.47 in Registration Statement No. 33-80518 on Form S-1 of Orion Network Systems, Inc.) 10.26 Continuing Guarantee, dated as of December 29, 1994, by Lessor Capital Funding Limited Partnership in favor of Orion Financial Partnership. (Incorporated by reference to exhibit number 10.48 in Registration Statement No. 33-80518 on Form S-1 of Orion Network Systems, Inc.) 10.27 Master Lease Agreement, dated as of April 15, 1994, by and between OrionNet and Orion Financial Partnership. (Incorporated by reference to exhibit number 10.49 in Registration Statement No. 33-80518 on Form S-1 of Orion Network Systems, Inc.) 10.28 Collateral Assignment and Pledge and Security Agreement, dated April 22, 1994, by and between CLI and Orion Financial Partnership. (Incorporated by reference to exhibit number 10.50 in Registration Statement No. 33-80518 on Form S-1 of Orion Network Systems, Inc.) 10.29 Purchase Agreement, dated as of April 22, 1994, by and between OrionNet and Orion Financial Partnership. (Incorporated by reference to exhibit number 10.51 in Registration Statement No. 33-80518 on Form S-1 of Orion Network Systems, Inc.) 10.30 Stock Purchase Agreement, dated as of April 29, 1994, by and between the Company and SS/L. (Incorporated by reference to exhibit number 10.53 in Registration Statement No. 33-80518 on Form S-1 of Orion Network Systems, Inc.) 10.31 Registration Rights Agreement, dated as of April 29, 1994, by and between the Company and SS/L. (Incorporated by reference to exhibit number 10.54 in Registration Statement No. 33-80518 on Form S-1 of Orion Network Systems, Inc.) 10.32 Purchase Agreement, dated as of June 17, 1994, by and between the Company, CIBC, Fleet and Chisholm. (Incorporated by reference to exhibit number 10.55 in Registration Statement No. 33-80518 on Form S-1 of Orion Network Systems, Inc.) 10.33 Stockholders Agreement, dated as of June 17, 1994, by and between the Company, CIBC, Fleet, Chisholm and certain principal stockholders of the Company. (Incorporated by reference to exhibit number 10.56 in Registration Statement No. 33-80518 on Form S-1 of Orion Network Systems, Inc.) 10.34 Registration Rights Agreement, dated as of June 17, 1994, by and between the Company, CIBC, Fleet and Chisholm. (Incorporated by reference to exhibit number 10.57 in Registration Statement No. 33-80518 on Form S-1 of Orion Network Systems, Inc.) 10.35 Purchase Agreement, dated as of June 19, 1995, by and among the Company, CIBC, Fleet and an affiliate of Fleet. (Incorporated by reference to exhibit number 10.58 in Registration Statement No. 33-80518 on Form S-1 of Orion Network Systems, Inc.) 10.36 Definitive Agreement, dated April 26, 1990, by and between Orion Asia Pacific and the Republic of the Marshall Islands and a Stock Option Agreement related thereto. [CONFIDENTIAL TREATMENT HAS BEEN GRANTED FOR PORTIONS OF THESE DOCUMENTS.] (Incorporated by reference to exhibit number 10.60 in Registration Statement No. 33-80518 on Form S-1 of Orion Network Systems, Inc.) 10.37 Option Agreement, dated December 10, 1996, by and between Orion Atlantic and Matra Marconi Space. [CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS DOCUMENT.] 10.38 Memorandum of Agreement for the Procurement of Orion 2 Spacecraft, dated December 10, 1996, by and between Orion Atlantic and Matra Marconi Space. [CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS DOCUMENT.] II-5 10.39 TT&C Earth Station Agreement, dated as of November 11, 1996, by and between Orion Asia Pacific and DACOM Corp. [CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS DOCUMENT.] 10.40 Joint Investment Agreement, dated as of November 11, 1996, by and between Orion Asia Pacific and DACOM Corp. [CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS DOCUMENT.] 10.41 Orion Network Systems, Inc. Employee Stock Purchase Plan (Incorporated by reference to exhibit number 4.4 in Registration Statement No. 333-19021 on Form S-8 of Orion Network Systems, Inc.) 10.42 Orion Network Systems, Inc. 401(k) Profit Sharing Plan (Incorporated by reference to exhibit number 4.5 in Registration Statement No. 333-19021 on Form S-8 of Orion Network Systems, Inc.) 10.43 Orion Network Systems, Inc. Non-Employee Director Stock Option Plan 10.44 Exchange Agreement dated June __, 1996 among Orion Network Systems, Orion Atlantic, OrionSat and the Limited Partners (Incorporated by reference to exhibit 10 in Current Report on Form 8-K dated December 20, 1995, of Orion Network Systems, Inc.) 10.45 First Amendment to Exchange Agreement dated December ___, 1996 among Orion Network Systems, Orion Atlantic, OrionSat and the Limited Partners. 10.46 Redemption Agreement dated November 21, 1995, by and between STET and Orion Atlantic, the promissory notes delivered thereunder and Instrument of Redemption relating thereto (Incorporated by reference to exhibit number 10.1 in Current Report on Form 8-K dated November 21, 1995 of Orion Network Systems, Inc.) 10.47 IPSP-Telecom Italia Agreement dated November 21, 1995, by and between Telecom Italia and Orion Atlantic. [CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS DOCUMENT.] (Incorporated by reference to exhibit number 10.2 in Current Report on Form 8-K dated November 21, 1995 of Orion Network Systems, Inc.) 10.48 Indemnity Agreement dated November 21, 1995, by and among Telecom Italia, Orion Atlantic, Orion and STET (Incorporated by reference to exhibit number 10.3 in Current Report on Form 8-K dated November 21, 1995 of Orion Network Services, Inc.) 10.49 Subscription Agreement dated November 21, 1995, by and between Orion and Orion Atlantic, and the promissory note delivered thereunder (Incorporated by reference to exhibit number 10.5 in Current Report on Form 8-K dated November 21, 1995 of Orion Network Systems, Inc.). 10.50 First Amendment to the Italian Facility and Services Agreement dated November 21, 1995, by and between Orion Atlantic and Nuova Telespazio (Incorporated by reference to exhibit number 10.7 in Current Report on Form 8-K dated November 21, 1995 of Orion Network Systems, Inc.). 10.51 Registration Rights Agreement, dated January 13, 1997, by and among Orion Newco Services, Inc., British Aerospace Holdings, Inc., and Matra Marconi Space UK Limited. 21.1 List of subsidiaries of Orion. 23.1 Consent of Ernst & Young LLP. 23.2 Consent of Hogan & Hartson L.L.P. (included in their opinion filed as Exhibit 5.1). 23.3 Consent of Salomon Brothers Inc. 24.1 Powers of Attorney (included on the signature pages of the Registration Statement). 99.1 Orders of FCC regarding OrionSat. (Incorporated by reference to exhibit number 99.1 in Registration Statement No. 33-80518 on Form S-1 of Orion Network Systems, Inc.). 99.2 Opinion of Salomon Brothers Inc.
II-6 ITEM 22. UNDERTAKINGS The undersigned registrant hereby undertakes: (a)(1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement; (i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii) To reflect in the prospectus any facts or events arising after the effective date of the Registration Statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the Registration Statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20 percent change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement; (iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement; (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (b) to respond to requests for information that is incorporated by reference into the prospectus pursuant to Item 4, 10(b), 11, or 13 of this Form, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of the registration statement through the date of responding to the request. (c) to supply by means of post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in the registration statement when it became effective. II-7 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Rockville, State of Maryland, on the 14th day of January, 1997. ` ORION NEWCO SERVICES, INC. By: /s/ W. Neil Bauer -------------------------------- W. Neil Bauer President POWER OF ATTORNEY Know all Men by These Presents, that each individual whose signature appears below constitutes and appoints W. Neil Bauer and David J. Frear, and each of them, his true and lawful attorney-in-fact and agent, with power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Registration Statement, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in- fact and agents, or any of them, or their, his or her substitutes or substitute, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement has been signed below by the following persons in the capacities and on the dates indicated.
Signature Title Date --------- ----- ---- /s/ W. Neil Bauer - ------------------------------- President and Director January 14, 1997 W. Neil Bauer (Principal Executive Officer) /s/ David J. Frear - ------------------------------- Vice President, Chief Financial January 14, 1997 David J. Frear Officer and Director (Principal Financial Officer and Principal Accounting Officer) /s/ Richard H. Shay - -------------------------------- Secretary and Director January 14, 1997 Richard H. Shay
II-8 As filed with the Securities and Exchange Commission on January ___, 1997 Registration No. 333-_______ ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 --------------- EXHIBITS to FORM S-4 REGISTRATION STATEMENT Under THE SECURITIES ACT OF 1933 --------------- ORION NEWCO SERVICES, INC. (Exact name of Registrant as specified in its charter) ================================================================================ EXHIBIT INDEX Exhibit Page Number Description Number - ------ ----------- ------ 2.1 Agreement and Plan of Merger dated January 8, 1997, by and among Orion Network Systems, Inc., Orion Newco Services, Inc. and Orion Merger Co, Inc. (Included as Attachment A to the Proxy Statement/Prospectus which is a part of this Registration Statement.). 3.1 Form of Restated Certificate of Incorporation of Orion Newco * Services, Inc. 3.2 Bylaws of Orion Newco Services, Inc. * 3.3 Certificate of Incorporation of Orion Network Systems, Inc. (Incorporated by reference to exhibit number 3.1 in Registration Statement No. 33-80518 on Form S-1 of Orion Network Systems, Inc.) 3.4 Bylaws of Orion Network Systems, Inc. (Incorporated by reference to exhibit number 3.2 in Registration Statement No. 33-80518 on Form S-1 of Orion Network Systems, Inc.) 4.1 Forms of Warrant issued by Orion. (Incorporated by reference to * exhibit number 4.1 in Registration Statement No. 33-80518 on Form S-1 of Orion Network Systems, Inc.) 4.2 Forms of Warrant issued by Orion to holders of Preferred Stock. * (Incorporated by reference to exhibit number 4.2 in Registration Statement No. 33-80518 on Form S-1 of Orion Network Systems, Inc.) 4.3 Forms of Certificates of Designation of Series A 8% Cumulative * Redeemable Convertible Preferred Stock, Series B 8% Cumulative Redeemable Convertible Preferred Stock and Series C 6% Cumulative Redeemable Convertible Preferred Stock. 4.4 Forms of Series A Preferred Stock, Series B Preferred Stock and * Series C Preferred Stock Certificates of Orion. 4.5 Form of Common Stock Certificate of Orion. * 4.6 Form of Warrant issued to DACOM Corp. * 4.7 Note Purchase Agreement with British Aerospace and Matra Marconi * Space 5.1 Opinion of Hogan & Hartson L.L.P. 8.1 Opinion of Ernst & Young L.L.P. with respect to certain tax matters * 10.1 Second Amended and Restated Purchase Agreement, dated September 26, 1991, ("Satellite Contract") by and between OrionSat and British Aerospace PLC and the First Amendment, dated as of September 15, 1992, Second Amendment, dated as of November 9, 1992, Third Amendment, dated as of March 12, 1993, Fourth Amendment, dated as of April 15, 1993, Fifth Amendment, dated as of September 22, 1993, Sixth Amendment, dated as of April 6, 1994, Seventh Amendment, dated as of August 9, 1994, Eighth Amendment, dated as of December 8, 1994, and Amendment No. 9 dated October 24, 1995, thereto. [CONFIDENTIAL TREATMENT HAS BEEN GRANTED FOR PORTIONS OF THESE DOCUMENTS.] (Incorporated by reference to exhibits number 10.13 and Exhibit Page Number Description Number - ------ ----------- ----- 10.14 in Registration Statement No. 33-80518 on Form S-1 of Orion * Network Systems, Inc.) 10.2 Restated Amendment No. 10, dated December 10, 1996, between Orion * Atlantic and Matra Marconi Space, to the Second Amended and Restated Purchase Agreement, dated September 26, 1991 by and between OrionSat and British Aerospace PLC (which contract and prior exhibits thereto were incorporated by reference as exhibit number 10.1). [CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS DOCUMENT.] 10.3 Ground Support System Agreement, dated as of August 2, 1991, by and * between Orion Atlantic and Telespazio S.p.A. [CONFIDENTIAL TREATMENT HAS BEEN GRANTED FOR PORTIONS OF THIS DOCUMENT.] (Incorporated by reference to exhibit number 10.25 in Registration Statement No. 33-80518 on Form S-1 of Orion Network Systems, Inc.) 10.4 Italian Facility and Services Agreement, dated as of August 2, 1991, * by and between OrionSat and Telespazio S.p.A. as amended by the amendment thereto, dated March 19, 1994. [CONFIDENTIAL TREATMENT HAS BEEN GRANTED FOR PORTIONS OF THESE DOCUMENTS.] (Incorporated by reference to exhibit number 10.26 in Registration Statement No. 33-80518 on Form S-1 of Orion Network Systems, Inc.) 10.5 Contract for a Satellite Control System, dated December 7, 1992, by * and between Orion Atlantic, Telespazio S.p.A. and Martin Marietta Corporation. [CONFIDENTIAL TREATMENT HAS BEEN GRANTED FOR PORTIONS OF THIS DOCUMENT.] (Incorporated by reference to exhibit number 10.31 in Registration Statement No. 33-80518 on Form S-1 of Orion Network Systems, Inc.) 10.6 Credit Agreement, dated as of November 23, 1993, by and between * Orion Atlantic, OrionSat and General Electric Capital Corporation ("GECC"). [CONFIDENTIAL TREATMENT HAS BEEN GRANTED FOR PORTIONS OF THIS DOCUMENT.] (Incorporated by reference to exhibit number 10.32 in Registration Statement No. 33-80518 on Form S-1 of Orion Network Systems, Inc.) 10.7 Security Agreement, dated as of November 23, 1993, by and between * Orion Atlantic, OrionSat and GECC. (Incorporated by reference to exhibit number 10.33 in Registration Statement No. 33-80518 on Form S-1 of Orion Network Systems, Inc.) 10.8 Assignment and Security Agreement, dated as of November 23, 1993, by * and between Orion Atlantic, OrionSat and GECC. (Incorporated by reference to exhibit number 10.34 in Registration Statement No. 33-80518 on Form S-1 of Orion Network Systems, Inc.) 10.9 Consent and Agreement, dated as of November 23, 1993, by and between * Orion Atlantic, Martin Marietta Corporation and GECC. (Incorporated by reference to exhibit number 10.35 in Registration Statement No. 33-80518 on Form S-1 of Orion Network Systems, Inc.) Exhibit Page Number Description Number - ------ ----------- ----- 10.10 Deed of Trust, dated as of November 23, 1993, by and between Orion * Atlantic, W. Allen Ames, Jr. and Michael J. Schwel, as Trustees, and GECC. (Incorporated by reference to exhibit number 10.37 in Registration Statement No. 33-80518 on Form S-1 of Orion Network Systems, Inc.) 10.11 Lease Agreement, dated as of November 23, 1993, by and between * OrionNet, Inc. and Orion Atlantic, as amended by an Amendment, dated January 3, 1995. [CONFIDENTIAL TREATMENT HAS BEEN GRANTED FOR PORTIONS OF THESE DOCUMENTS.] (Incorporated by reference to exhibit number 10.38 in Registration Statement No. 33-80518 on Form S-1 of Orion Network Systems, Inc.) 10.12 Note for Interim Loans, dated as of November 23, 1993, by and * between Orion Atlantic and GECC. (Incorporated by reference to exhibit number 10.42 in Registration Statement No. 33-80518 on Form S-1 of Orion Network Systems, Inc.) 10.13 Sales Representation Agreement and Ground Operations Service * Agreement, each dated as of May 1, 1994 and June 30, 1994, by and between each of OrionNet, Inc. and Kingston Communications, respectively, and Orion Atlantic, as amended by side agreements, dated May 1, 1994, July 12, 1994 and February 1, 1995. [CONFIDENTIAL TREATMENT HAS BEEN GRANTED FOR PORTIONS OF THESE DOCUMENTS.] (Incorporated by reference to exhibit number 10.43 in Registration Statement No. 33-80518 on Form S-1 of Orion Network Systems, Inc.) 10.14 Lease Agreement, dated as of October 2, 1992, by and between * OrionNet and Research Grove Associates, as amended by Amendment No. 1, dated March 26, 1993, Amendment No. 2, dated August 23, 1993, and Amendment No. 3, dated December 20, 1993. (Incorporated by reference to exhibit number 10.38 in Registration Statement No. 33-80518 on Form S-1 of Orion Network Systems, Inc.) 10.15 Sales Representation Agreement and Ground Operations Service * Agreement, dated as of June 30, 1995, by and between MCN Sat Service, S.A. and Orion Atlantic. [CONFIDENTIAL TREATMENT HAS BEEN GRANTED FOR PORTIONS OF THIS DOCUMENT.] (Incorporated by reference to exhibit number 10.69 in Orion's Registration Statement No. 33-80518 on Form S-1.) 10.16 Volume Purchase Agreement, dated January 18, 1995, by and between * the Company and Dornier GmbH. [CONFIDENTIAL TREATMENT HAS BEEN GRANTED FOR PORTIONS OF THIS DOCUMENT.] (Incorporated by reference to exhibit number 10.66 in Registration Statement No. 33-80518 on Form S-1 of Orion Network Systems, Inc.) 10.17 Product Development, License and Marketing Agreement, dated January * 18, 1995, by and between the Company and Dornier GmbH. [CONFIDENTIAL TREATMENT HAS BEEN GRANTED FOR PORTIONS OF THIS DOCUMENT.] (Incorporated by reference to exhibit number 10.65 in Orion's Registration Statement No. 33-80518 on Form S-1.) Exhibit Page Number Description Number - ------ ----------- ----- 10.18 Sales Representation Agreement, dated as of June 8, 1995, by and * between Nortel Dasa Network Systems GmbH & Co. KG and Orion Atlantic. [CONFIDENTIAL TREATMENT HAS BEEN GRANTED FOR PORTIONS OF THIS DOCUMENT.] (Incorporated by reference to exhibit number 10.70 in Registration Statement No. 33-80518 on Form S-1 of Orion Network Systems, Inc.) 10.19 Orion 2 Spacecraft Purchase Contract, dated July 31, 1996, between * Orion Atlantic and Matra Marconi Space. [CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS DOCUMENT.] 10.20 Orion's Amended and Restated 1987 Stock Option Plan as amended. * (Incorporated by reference to exhibit number 10.23 in Registration Statement No. 33-80518 on Form S-1 of Orion Network Systems, Inc.) 10.21 Purchase Contract, dated December 4, 1991, by and between OrionNet, * Inc., Shenandoah Valley Leasing Company and MCI Telecommunications Corporation. [CONFIDENTIAL TREATMENT HAS BEEN GRANTED FOR PORTION OF THIS DOCUMENT.] (Incorporated by reference to exhibit number 10.30 in Registration Statement No. 33-80518 on Form S-1 of Orion Network Systems, Inc.) 10.22 Amended and Restated Partnership Agreement of Orion Financial * Partnership, dated as of April 15, 1994, by and between OrionNet and Computer Leasing Inc. ("CLI"). (Incorporated by reference to exhibit number 10.44 in Registration Statement No. 33-80518 on Form S-1 of Orion Network Systems, Inc.) 10.23 Continuing Guaranty, dated as of April 15, 1994, of the Company of * the obligations of OrionNet Finance Corporation. (Incorporated by reference to exhibit number 10.45 in Registration Statement No. 33-80518 on Form S-1 of Orion Network Systems, Inc.) 10.24 Release of Continuing Guaranty, dated as of December 29, 1994, by * the Orion Financial Partnership. (Incorporated by reference to exhibit number 10.46 in Registration Statement No. 33-80518 on Form S-1 of Orion Network Systems, Inc.) 10.25 Confirmation of Continuing Guaranty, dated as of December 29, 1994, * of the Company of the obligation of OFC. (Incorporated by reference to exhibit number 10.47 in Registration Statement No. 33-80518 on Form S-1 of Orion Network Systems, Inc.) 10.26 Continuing Guarantee, dated as of December 29, 1994, by Lessor * Capital Funding Limited Partnership in favor of Orion Financial Partnership. (Incorporated by reference to exhibit number 10.48 in Registration Statement No. 33-80518 on Form S-1 of Orion Network Systems, Inc.) 10.27 Master Lease Agreement, dated as of April 15, 1994, by and between * OrionNet and Orion Financial Partnership. (Incorporated by reference to exhibit number 10.49 in Registration Statement No. 33-80518 on Form S-1 of Orion Network Systems, Inc.) 10.28 Collateral Assignment and Pledge and Security Agreement, dated April * 22, 1994, by and between CLI and Orion Financial Partnership. Exhibit Page Number Description Number - ------ ----------- ----- (Incorporated by reference to exhibit number 10.50 in Registration Statement No. 33-80518 on Form S-1 of Orion Network Systems, Inc.) 10.29 Purchase Agreement, dated as of April 22, 1994, by and between * OrionNet and Orion Financial Partnership. (Incorporated by reference to exhibit number 10.51 in Registration Statement No. 33-80518 on Form S-1 of Orion Network Systems, Inc.) 10.30 Stock Purchase Agreement, dated as of April 29, 1994, by and between * the Company and SS/L. (Incorporated by reference to exhibit number 10.53 in Registration Statement No. 33-80518 on Form S-1 of Orion Network Systems, Inc.) 10.31 Registration Rights Agreement, dated as of April 29, 1994, by and * between the Company and SS/L. (Incorporated by reference to exhibit number 10.54 in Registration Statement No. 33-80518 on Form S-1 of Orion Network Systems, Inc.) 10.32 Purchase Agreement, dated as of June 17, 1994, by and between the * Company, CIBC, Fleet and Chisholm. (Incorporated by reference to exhibit number 10.55 in Registration Statement No. 33-80518 on Form S-1 of Orion Network Systems, Inc.) 10.33 Stockholders Agreement, dated as of June 17, 1994, by and between * the Company, CIBC, Fleet, Chisholm and certain principal stockholders of the Company. (Incorporated by reference to exhibit number 10.56 in Registration Statement No. 33-80518 on Form S-1 of Orion Network Systems, Inc.) 10.34 Registration Rights Agreement, dated as of June 17, 1994, by and * between the Company, CIBC, Fleet and Chisholm. (Incorporated by reference to exhibit number 10.57 in Registration Statement No. 33-80518 on Form S-1 of Orion Network Systems, Inc.) 10.35 Purchase Agreement, dated as of June 19, 1995, by and among the * Company, CIBC, Fleet and an affiliate of Fleet. (Incorporated by reference to exhibit number 10.58 in Registration Statement No. 33-80518 on Form S-1 of Orion Network Systems, Inc.) 10.36 Definitive Agreement, dated April 26, 1990, by and between Orion * Asia Pacific and the Republic of the Marshall Islands and a Stock Option Agreement related thereto. [CONFIDENTIAL TREATMENT HAS BEEN GRANTED FOR PORTIONS OF THESE DOCUMENTS.] (Incorporated by reference to exhibit number 10.60 in Registration Statement No. 33-80518 on Form S-1 of Orion Network Systems, Inc.) 10.37 Option Agreement, dated December 10, 1996, by and between Orion * Atlantic and Matra Marconi Space. [CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS DOCUMENT.] 10.38 Memorandum of Agreement for the Procurement of Orion 2 Spacecraft, * dated December 10, 1996, by and between Orion Atlantic and Matra Marconi Space. [CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS DOCUMENT.] 10.39 TT&C Earth Station Agreement, dated as of November 11, 1996, by and * Exhibit Page Number Description Number - ------ ----------- ----- between Orion Asia Pacific and DACOM Corp. [CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS DOCUMENT.] 10.40 Joint Investment Agreement, dated as of November 11, 1996, by and * between Orion Asia Pacific and DACOM Corp. [CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS DOCUMENT.] 10.41 Orion Network Systems, Inc. Employee Stock Purchase Plan * (Incorporated by reference to exhibit number 4.4 in Registration Statement No. 333-19021 on Form S-8 of Orion Network Systems, Inc.) 10.42 Orion Network Systems, Inc. 401(k) Profit Sharing Plan (Incorporated * by reference to exhibit number 4.5 in Registration Statement No. 333-19021 on Form S-8 of Orion Network Systems, Inc.) 10.43 Orion Network Systems, Inc. Non-Employee Director Stock Option Plan 10.44 Exchange Agreement dated June __, 1996 among Orion Network Systems, * Orion Atlantic, OrionSat and the Limited Partners (Incorporated by reference to exhibit 10 in Current Report on Form 8-K dated December 20, 1995, of Orion Network Systems, Inc.) 10.45 First Amendment to Exchange Agreement dated December ___, 1996 among Orion Network Systems, Orion Atlantic, OrionSat and the Limited Partners. 10.46 Redemption Agreement dated November 21, 1995, by and between STET and Orion Atlantic, the promissory notes delivered thereunder and Instrument of Redemption relating thereto (Incorporated by reference to exhibit number 10.1 in Current Report on Form 8-K dated November 21, 1995 of Orion Network Systems, Inc.) 10.47 IPSP-Telecom Italia Agreement dated November 21, 1995, by and between Telecom Italia and Orion Atlantic. [CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS DOCUMENT.] (Incorporated by reference to exhibit number 10.2 in Current Report on Form 8-K dated November 21, 1995 of Orion Network Systems, Inc.) 10.48 Indemnity Agreement dated November 21, 1995, by and among Telecom Italia, Orion Atlantic, Orion and STET (Incorporated by reference to exhibit number 10.3 in Current Report on Form 8-K dated November 21, 1995 of Orion Network Services, Inc.) 10.49 Subscription Agreement dated November 21, 1995, by and between Orion and Orion Atlantic, and the promissory note delivered thereunder (Incorporated by reference to exhibit number 10.5 in Current Report on Form 8-K dated November 21, 1995 of Orion Network Systems, Inc.). 10.50 First Amendment to the Italian Facility and Services Agreement dated November 21, 1995, by and between Orion Atlantic and Nuova Telespazio (Incorporated by reference to exhibit number 10.7 in Current Report on Form 8-K dated November 21, 1995 of Orion Network Systems, Inc.). Exhibit Page Number Description Number - ------ ----------- ----- 10.51 Cancellation of Consulting Agreement dated November 16, 1995, by and between Orion Atlantic and Nuova Telespazio (Incorporated by reference to exhibit number 10.8 in Current Report on Form 8-K dated November 21, 1995 of Orion Network Systems, Inc.). 12.1 Statement Regarding Computation of Ratio of Earnings to Fixed Charges. 21.1 List of subsidiaries of Orion. 23.1 Consent of Ernst & Young LLP 23.2 Consent of Hogan & Hartson L.L.P. (included in their opinion filed * as Exhibit 5.1). 23.3 Consent of Salomon Brothers Inc. 24.1 Powers of Attorney (included on the signature pages of the Registration Statement). 99.1 Orders of FCC regarding OrionSat. (Incorporated by reference to * exhibit number 99.1 in Registration Statement No. 33-80518 on Form S-1 of Orion Network Systems, Inc.). 99.2 Opinion of Salomon Brothers Inc. EX-3.1 2 EXHIBIT 3.1 RESTATED CERTIFICATE OF INCORPORATION OF ORION NEWCO SERVICES, INC. Orion Newco Services, Inc., a corporation organized and existing under the General Corporation Law of the State of Delaware (the "Corporation"), does hereby certify that: 1. The present name of the Corporation is Orion Newco Services, Inc. The Corporation was originally incorporated under the same name, and its original certificate of incorporation was filed with the Secretary of State of the State of Delaware on June 26, 1996. 2. This Restated Certificate of Incorporation restates and integrates and further amends the certificate of incorporation of the Corporation (the "Certificate of Incorporation"), and has been duly adopted in accordance with Sections 242 and 245 of the General Corporation Law of the State of Delaware (the "DGCL"). 3. The text of the Certificate of Incorporation is hereby restated and integrated and further amended to read in its entirety as set forth on Exhibit A attached hereto and incorporated herein by this reference. IN WITNESS WHEREOF, the Corporation has caused this Certificate to be duly executed and acknowledged in accordance with Section 103 of the DGCL. ORION NEWCO SERVICES, INC. By: ----------------------- Name: --------------------- Title: -------------------- RESTATED CERTIFICATE OF INCORPORATION OF ORION NEWCO SERVICES, INC. FIRST: The name of the Corporation is Orion Newco Services, Inc. (hereinafter called the "Corporation"). SECOND: The registered office of the Corporation in the State of Delaware is 1209 Orange Street, Wilmington, Delaware 19801, County of New Castle. The name of the Corporation's registered agent at said address is The Corporation Trust Company. THIRD: The purpose of the Corporation is to engage in any lawful acts or activities for which corporations may be organized under the General Corporation Law of Delaware. FOURTH: The total number of shares of all classes of stock that the Corporation shall have authority to issue is Forty-One Million (41,000,000) shares, consisting of Forty Million (40,000,000) shares of common stock, par value $.01 per share, and One Million (1,000,000) shares of preferred stock, par value $.01 per share. A. Common Stock. Each holder of shares of common stock shall be entitled to one vote for each share of common stock held of record on all matters on which the holders of common stock are entitled to vote. There shall be no cumulative voting rights for the election of directors. B. Preferred Stock. The Board of Directors is authorized, subject to limitations prescribed by the Delaware General Corporation Law and the provisions of this Article FOURTH to provide, by resolution or resolutions from time to time adopted without further stockholder approval, and filing a Certificate pursuant to the applicable provision of the Delaware General Corporation Law, for the issuance of the shares of Preferred Stock in series, to establish from time to time the number of shares to be included in each such series, and to fix the designation, powers, preferences and such rights of the shares of each such series and the qualifications, limitations and restrictions thereof. The authority of the Board of Directors with respect to each series shall include, but not be limited to, determination of the following: 1. The number of shares constituting that series and the distinctive designation of that series. 1 2. The dividend rate on the shares of that series, whether dividends shall be cumulative, and, if so, from which date or dates, and the relative rights of priority, if any, of payment of dividends on shares of that series; 3. Whether that series shall have voting rights, in addition to the voting rights provided by law, and, if so, the terms of such voting rights; 4. Whether that series shall have conversion privileges, and, if so, the terms and conditions of such conversion, including provision for adjustment of the conversion rate in such events as the Board of Directors shall determine; 5. Whether or not the shares of that series shall be redeemable, and, if so, the terms and conditions of such redemption, including the dates upon or after which they shall be redeemable, and the amount per share payable in case of redemption, which amount may vary under different conditions and at different redemption dates; 6. Whether that series shall have a sinking fund for the redemption or purchase of shares of that series, and, if so, the terms and amount of such sinking fund; 7. The rights of the shares of that series in the event of voluntary or involuntary liquidation, dissolution or winding up of the Corporation, and the relative rights of priority, if any, of payment of shares of that series; and 8. Any other relative rights, preferences and limitations of that series. FIFTH: The name and mailing address of the incorporator (the "Incorporator") are Daniel M. Pattarini, 555 Thirteenth Street, NW, Washington, D.C. 20004. The powers of the Incorporator shall terminate upon the filing of this Certificate of Incorporation, and the names and mailing addresses of the persons who are to serve as the directors of the Corporation until the first annual meeting of the stockholders of the Corporation or until their successors are elected and qualified are as follows: NAME MAILING ADDRESS W. Neil Bauer 2440 Research Boulevard Rockville, MD 20850 2 David J. Frear 2440 Research Boulevard Rockville, MD 20850 Richard H. Shay 2440 Research Boulevard Rockville, MD 20850 SIXTH: The authorized number of directors of this corporation shall be not less than 3 and not more than 15. The number of directors within this range shall be stated in the Corporation's Bylaws, as may be amended from time to time. When the number of directors is changed the Board of Directors shall determine the class or classes to which the increased or decreased number of directors shall be apportioned; provided that the directors in each class shall be as nearly equal in number as possible. No decrease in the number of directors shall have the effect of shortening the term of any incumbent director. Effective as of the annual meeting of stockholders in 1997, the Board of Directors shall be divided into three classes, designated as Class I, Class II, and Class III, as nearly equal in number as possible, and the term of office of directors of one class shall expire at each annual meeting of stockholders, and in all cases until their successors shall be elected and shall qualify, or until their earlier resignation, removal from office, death or incapacity. The initial term of office of Class I shall expire at the annual meeting of stockholders in 1998, that of Class II shall expire at the annual meeting in 1999, and that of Class III shall expire at the annual meeting in 2000, and in all cases as to each director until his successor shall be elected and shall qualify, or until his earlier resignation, removal from office, death or incapacity. Subject to the foregoing, at each annual meeting of stockholders the successors to the class of directors whose term shall then expire shall be elected to hold office for a term expiring at the third succeeding annual meeting and until their successors shall be elected and qualified. The directors remaining in office acting by a majority vote, although less than a quorum, or by a sole remaining director, are hereby expressly delegated the power to fill any vacancies in the Board of Directors, however occurring, whether by an increase in the number of directors, death, resignation, retirement, disqualification, removal from office or otherwise, and any director so chosen shall hold office until the next election of the class for which such director shall have been chosen and until his successor shall have been elected and qualified, or until his earlier resignation, removal from office death or incapacity. 3 SEVENTH: In furtherance and not in limitation of the powers conferred by the laws of the State of Delaware, the Board of Directors of the Corporation is expressly authorized and empowered to adopt, amend and repeal bylaws of the Corporation. EIGHTH: No director of the Corporation shall be liable to the Corporation or its stockholders for monetary damages for breach or fiduciary duty as a director, provided that nothing contained in this Article EIGHTH shall eliminate or limit the liability of a director (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the Delaware General Corporation Law, or (iv) for any transaction from which the director derived an improper personal benefit. NINTH: The Corporation reserves the right at any time and from time to time, to amend, alter, change or repeal any provision contained in this Certificate of Incorporation and other provisions authorized by the laws of the State of Delaware at the time in force may be added or inserted, in the manner now or hereafter prescribed by law, except that Articles FOURTH, FIFTH, TENTH, ELEVENTH, TWELFTH, THIRTEENTH, FOURTEENTH and this Article NINTH may not be altered, amended, or repealed except by the affirmative vote of at least two-thirds (2/3) of the shares entitled to vote thereon and the affirmative vote of the Board of Directors; and all rights, preferences and privileges of whatsoever nature conferred upon stockholders, directors or any other persons whomsoever by and pursuant to this Certificate of Incorporation in its present form or as hereafter amended are granted subject to the rights reserved in this Article NINTH. TENTH: Notwithstanding any other provision of this Certificate of Incorporation to the contrary, outstanding shares of stock of the Corporation shall always be subject to redemption by the Corporation, by action of the Board of Directors, if in the judgment of the Board of Directors such action should be taken, pursuant to Section 151(b) of the Delaware General Corporation Law or any other applicable provision of law, to the extent necessary to prevent the loss or secure the reinstatement of any license or franchise from any governmental agency held by the Corporation or any of its subsidiaries to conduct any portion of the business of the Corporation or any of its subsidiaries, which license or franchise is conditioned upon some or all of the holders of the Corporation's stock possessing prescribed qualifications. The terms and conditions of such redemption shall be as follows: (a) the redemption price of the shares to be redeemed pursuant to this Article TENTH shall be determined by the Board of Directors and shall be at least equal to the lesser of (i) the Redemption Value or (ii) if such stock was purchased by such Disqualified Holders within one year 4 of the Redemption Date, such Disqualified Holder's purchase price for such shares; (b) the redemption price of such shares may be paid in cash, Redemption Securities or any combination thereof; (c) if less than all the shares held by Disqualified Holders are to be redeemed, the shares to be redeemed shall be selected in such manner as shall be determined by the Board of Directors, which may include selection first of the most recently purchased shares thereof, selection by lot or selection in any other manner determined by the Board of Directors; (d) at least 30 days' written notice of the Redemption Date shall be given to the record holders of the shares selected to be redeemed (unless waived in writing by any such holder), provided that the Redemption Date may be the date on which written notice shall be given to record holders if the cash or Redemption Securities necessary to effect the redemption shall have been deposited in trust for the benefit of such record holders and subject to immediate withdrawal by them upon surrender of the stock certificates of their shares to be redeemed; (e) from and after the Redemption Date, any and all rights of whatever nature which may be held by the owners of shares selected for redemption (including without limitation any rights to vote or participate in dividends declared on stock of the same class or series as such shares) shall cease and terminate and such owners shall thenceforth be entitled only to receive the cash or Redemption Securities payable upon redemption; and (f) such other terms and conditions as the Board of Directors shall determine. For purposes of this Article TENTH: (i) "Disqualified Holder" shall mean any holder of shares of stock of the Corporation whose holding of such stock, either individually or when taken together with the holding of shares of stock of the Corporation by any other holders, may result, in the judgment of the Board of Directors, in the loss of, or the failure to secure the reinstatement of, any license or franchise from any governmental agency held by the Corporation on any of its subsidiaries to conduct any portion of the business of the Corporation or any of its subsidiaries. 5 (ii) "Redemption Value" of a share of the Corporation's stock of any class or series shall mean the average Closing Price for such a share for each of the 45 most recent days on which shares of stock of such class or series shall have been traded preceding the day on which notice of redemption shall be given pursuant to paragraph (d) of this Article TENTH; provided, however, that if shares of stock of such class or series are not traded on any securities exchange or in the over-the-counter market, "Redemption Value" shall be determined by the Board of Directors in good faith. "Closing Price" on any day means the reported closing sales price or, in case no such sale takes place, the average of the reported closing bid and asked prices on the principal United States securities exchange registered under the Securities Exchange Act of 1934 on which such stock is listed, or, if such stock is not listed on any such exchange, the highest closing sales price or bid quotation for such stock on the National Association of Securities Dealers, Inc. Automated Quotations System or any system then in use, or if no such prices or quotations are available, the fair market value on the day in question as determined by the Board of Directors in good faith. (iii) "Redemption Date" shall mean the date fixed by the Board of Directors for the redemption of any shares of stock of the Corporation pursuant to this Article TENTH. (iv) "Redemption Securities" shall mean any debt or equity securities of the Corporation, any of its subsidiaries or any other corporation, or any combination thereof, having such terms and conditions (including, without limitation, in the case of debt securities, repayment over a period of up to thirty years, or a longer period) as shall be approved by the Board of Directors and which, together with any cash to be paid as part of the redemption price, in the opinion of any nationally recognized investment banking firm selected by the Board of Directors (which may be a firm which provides other investment banking, brokerage or other services to the Corporation), has a value, at the time notice of redemption is given pursuant to paragraph (d) of this Article, at least equal to the price required to be paid pursuant to paragraph (a) of this Article TENTH (assuming, in the case of Redemption Securities to be publicly traded, such Redemption Securities were fully distributed and subject only to normal trading activity). 6 ELEVENTH: Control Share Acquisitions A. Control Shares. As used in this Article ELEVENTH, "control share" means shares of the Corporation that would have voting power that when added to all the other shares of the Corporation owned by a person or in respect to which that person may exercise or direct the exercise of voting power, would entitle that person, immediately after acquisition of the shares (directly or indirectly, alone or as part of a group), to exercise or direct the exercise of the voting power of the Corporation in the election of directors within any of the following ranges of voting power: (1) One-fifth or more but less that a third of all voting power. (2) One-third or more but less than a majority of all voting power. (3) A majority or more of all voting power. B. Control Share Acquisition. 1. As used in this Article ELEVENTH, "control share acquisition" means the acquisition (directly or indirectly) by any person of ownership of, or the power to direct the exercise of voting power with respect to, issued and outstanding control shares. 2. For purposes of this Article ELEVENTH, shares acquired within ninety (90) days or shares acquired pursuant to a plan to make a control share acquisition are considered to have been acquired in the same acquisition. 3. For purposes of this Article ELEVENTH, a person who acquires shares in the ordinary course of business for the benefit of others in good faith and not for the purpose of circumventing this Article ELEVENTH has voting power only of shares in respect of which that person would be able to exercise or direct the vote without further instruction from others. 4. The acquisition of any shares of the Corporation does not constitute a control share acquisition if the acquisition is consummated in any of the following circumstances: (1) Before April 1, 1992. (2) Pursuant to a binding contract existing before April 1, 1992. 7 (3) Pursuant to the laws of descent and distribution. (4) Pursuant to the satisfaction of a pledge or other security interest created in good faith and not for the purpose of circumventing this Article ELEVENTH. (5) Pursuant to a merger or plan of share exchange if the Corporation is a party to the agreement of merger of plan of share exchange. (6) Pursuant to a tender or exchange offer that is made pursuant to an agreement to which the Corporation is a party. (7) Directly from the Corporation, or from any of its wholly owned subsidiaries. 5. The acquisition of any shares of the Corporation in good faith and not for the purpose of circumventing this Article ELEVENTH by or from (1) any person whose voting rights had previously been authorized by stockholders in compliance with this Article ELEVENTH, or (2) any person whose previous acquisition of shares of the Corporation would have constituted a control share acquisition but for the circumstances specified in the paragraph above, does not constitute a control share acquisition, unless the acquisition entitles the person (directly or indirectly, alone or as a part of a group) to exercise or direct the exercise of voting power of the Corporation in the election of directors in excess of the voting power otherwise authorized. C. Interested Shares. As used in this Article ELEVENTH, "interested shares" mean the shares of the Corporation in respect of which any of the following persons may exercise or direct the exercise of the voting power of the Corporation in the election of directors: (1) An acquiring person or member of a group with respect to a control share acquisition. (2) Any officer of the Corporation. (3) Any employee of the Corporation who is also a director of the Corporation. D. Acquiring Person Statement. Any person who proposes to make or has made a control share acquisition may at the person's election deliver an 8 acquiring person statement to the Corporation at the Corporation's principal office. The acquiring person statement must set forth all of the following: (1) The identity of the acquiring person and each other member of any group of which the person is a part for purposes of determining control shares. (2) A statement that the acquiring person statement is given pursuant to this Article ELEVENTH. (3) The number of shares of the Corporation owned (directly or indirectly) by the acquiring person and each other member of the group. (4) The range of voting power under which the control share acquisition falls or would, if consummated, fall. (5) If the control share acquisition has not taken place: (a) a description in reasonable detail of the terms of the proposed control share acquisition; and (b) representations of the acquiring person, together with a statement in reasonable detail of the facts upon which they are based, that the proposed control share acquisition, if consummated, will not be contrary to law and that the acquiring person has the financial capacity to make to proposed control share acquisition. E. Special Meeting of Stockholders. 1. If the acquiring person so requests at the time of delivery of an acquiring person statement and gives an undertaking to pay the Corporation's expenses of a special meeting, within ten (10) days thereafter, the directors of the Corporation shall call a special meeting of the stockholders of the Corporation for the purpose of considering the voting rights to be accorded to the shares acquired or to be acquired in the control share acquisition. 2. Unless the acquiring person agrees in writing to another date, the special meeting of the stockholders shall be held within fifty (50) days after the receipt by the Corporation of the request. 3. If no request is made, the voting rights to be accorded the shares acquired in the control share 9 acquisition shall be presented at the next special or annual meeting of stockholders. 4. If the acquiring person so requests in writing at the time of the delivery of the acquiring person statement, the special meeting must not be held sooner than thirty (30) days after the receipt by the Corporation of the acquiring person's statement. F. Notice. ------ 1. If a special meeting is requested, notice of the special meeting of stockholders shall be given as promptly as reasonably practicable by the Corporation to all stockholders of record as of the record date set for the meeting, whether or not entitled to vote at the meeting. 2. Notice of the special or annual stockholder meeting at which the voting rights are to be considered must include or be accompanied by both of the following: (1) a copy of the acquiring person statement delivered to the Corporation pursuant to this Article ELEVENTH. (2) A statement by the Board of the Directors of the Corporation, authorized by its directors, of its position or recommendation, or that it is taking no position or making no recommendation, with respect to the proposed control share acquisition. G. Voting Rights. ------------- 1. Control shares acquired in a control share acquisition have the same voting rights as were accorded the shares before the control share acquisition only to the extent granted by resolutions approved by the stockholders of the Corporation. 2. To be adopted under this section, the resolutions shall be approved by a majority of all the votes which could be cast in a vote on the election of directors by all the outstanding shares other than interested shares. Interested shares shall not be entitled to vote on the matter, and in determining whether a quorum exists, all interested shares shall be disregarded. For the purpose of this subsection, the interested share shall be determined as of the record date for determining the stockholders entitled to vote at the meeting. H. Redemption. ---------- 10 1. Control shares acquired in a control share acquisition with respect to which no acquiring person statement has been filed with the Corporation may, at any time during the period ending sixty (60) days after the last acquisition of control shares by the acquiring person, be subject to redemption by the Corporation at the redemption price specified in paragraph 3 of this subsection. 2. Control shares acquired in a control share acquisition are not subject to redemption after an acquiring person statement has been filed unless the shares are not accorded full voting rights by the stockholders as provided above. 3. The redemption price for shares to be redeemed under this section shall be the number of such shares multiplied by the dollar amount (rounded to the nearest cent) equal to the average per share price, including any brokerage commissions, transfer taxes and soliciting dealer's fees, paid by the acquiring person for such shares. The Corporation may rely conclusively on public announcements by, or filings with the Securities and Exchange Commission by, the acquiring person as to the prices so paid. I. Dissenters Rights. ----------------- 1. In the event control shares acquired in a control share acquisition are accorded full voting rights and the acquiring person has acquired control shares with a majority or more of all voting power, all shareholders of the Corporation, other than the acquiring person, have the right to dissent from the granting of voting rights and to demand payment of the fair value of their shares under Section 262 of the Delaware General Corporation Law as though such granting of voting rights were a corporate action described in paragraph (b) of Section 262, except that the provisions of subsection (1) of paragraph (b) of Section 262 shall not be applicable. 2. For purposes of this section "fair value" of shares under Section 262 of the Delaware General Corporation Law shall in no event be less than the highest price per share paid in the control share acquisition, as adjusted for any subsequent stock dividends or reverse stock splits or similar changes. TWELFTH: Certain Business Combinations A. Vote Required for Certain Business Combinations. ----------------------------------------------- 1. Higher Vote for Certain Business Combinations. In addition to any affirmative vote required by law or this Certificate of Incorporation, and except as otherwise 11 expressly provided in subsection B of this Article TWELFTH: (a) any merger or consolidation of the Corporation or any Subsidiary (as hereinafter defined) with (i) any Interested Stockholder (as hereinafter defined) or (ii) any other corporation (whether or not itself an Interested Stockholder) which is, or after such merger or consolidation would be, an Affiliate (as hereinafter defined) of an Interested Stockholder; or (b) any sale, lease, exchange, mortgage, pledge, transfer or other disposition (in one transaction or a series of transactions) to or with any Interested Stockholder or any Affiliate of any Interested Stockholder of any assets of the Corporation or any Subsidiary having an aggregate Fair Market Value (as hereinafter defined) of $1,000,000 or more, or (c) the issuance or transfer by the Corporation or any Subsidiary (in one transaction or a series of transactions) of any securities of the Corporation or any Subsidiary to any Interested Stockholder or any Affiliate of any Interested Stockholder in exchange for cash, securities or other property (or a combination thereof) having an aggregate Fair Market Value of $1,000,000 or more; or (d) the adoption of any plan or proposal for the liquidation or dissolution of the Corporation proposed by or on behalf of an Interested Stockholder or any Affiliate of any Interested Stockholder; or (e) any reclassification of securities (including any reverse stock split), or recapitalization of the Corporation, or any merger or consolidation of the Corporation with any of its Subsidiaries or any other transaction (whether or not with or into or otherwise involving an Interested Stockholder) which has the effect, directly or indirectly, of increasing the proportionate share of the outstanding shares of any class of equity or convertible securities of the Corporation or any Subsidiary which is directly or 12 indirectly owned by any Interested Stockholder or any Affiliate of any Interested Stockholder; shall require the affirmative vote of (A) the holders of at least a majority of the voting power of the then outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors (the "Voting Stock"), voting together as a single class and (B) the holders of at least a majority of the Voting Stock, voting together as a single class, excluding for purposes of calculating both the affirmative vote and the number of outstanding shares of Voting Stock all shares of Voting Stock of which the beneficial owner is an Interested Stockholder or any Affiliate of an Interested Stockholder referred to in clauses (a) through (e) in this paragraph 1. Such affirmative vote shall be required notwithstanding the fact that no vote may be required, or that a lesser percentage may be specified, by law. 2. "Definition of "Business Combination." The term "Business Combination" as used in this Article TWELFTH shall mean any transaction which is referred to in any one or more of clauses (a) through (e) of paragraph 1 of this subsection A. B. When Higher Vote is Not Required. The provisions of subsection A of this Article TWELFTH shall not be applicable to any particular Business Combination, and such Business Combination shall require only such affirmative vote as is required by law and any other provision of this Certificate of Incorporation, if all of the conditions specified in either of the following paragraphs 1 and 2 are met: 1. Approval by Continuing Directors. The Business Combination shall have been approved by a majority of the Continuing Directors (as hereinafter defined). 2. Price and Procedure Requirements. All of the following conditions shall have been met: (a) The aggregate amount of the cash and the Fair Market Value (as hereinafter defined) as of the date of the consummation of the Business Combination of consideration other than cash to be received per 13 share by holders of common stock in such Business Combination shall be at least equal to the highest of the following: (i) (if applicable) the highest per share price (including any brokerage commissions, transfer taxes and soliciting dealers' fees) paid by the Interested Stockholder for any shares of common stock acquired by it (A) within the two-year period immediately prior to the first public announcement of the proposal of the Business Combination (the "Announcement Date") or (B) in the transaction in which it became an Interested Stockholder, whichever is higher; or (ii) the Fair Market Value per share of common stock on the Announcement Date or on the date on which the Interested Stockholder became an Interested Stockholder (such latter date is referred to in this Article TWELFTH as the "Determination Date"), whichever is higher. (b) The aggregate amount of the cash and the Fair Market Value as of the date of the consummation of the Business Combination of consideration other than cash to be received per share by holders of shares of any other class of outstanding Voting Stock shall be at least equal to the highest of the following (it being intended that the requirements of this paragraph 2(b) shall be required to be met with respect to every class of outstanding Voting Stock, whether or not the Interested Stockholder has previously acquired any shares of a particular class of Voting Stock): (i) (if applicable) the highest per share price (including any brokerage commissions, transfer taxes and soliciting dealers' fees) paid by the Interested Stockholder for any shares of such class of Voting Stock acquired by it (A) within the two-year period immediately prior to the Announcement Date or (B) in the transaction in which it became an Interested Stockholder, whichever is higher; 14 (ii) (if applicable) the highest preferential amount per share to which the holders of shares of such class of Voting Stock are entitled in the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation; and (iii) The Fair Market Value per share of such class of Voting Stock on the Announcement Date or on the Determination Date, whichever is higher. (c) The consideration to be received by holders of a particular class of Voting Stock (including common stock) in the Business Combination shall be in cash or in the same form as the Interested Stockholder has previously paid for shares of such Voting Stock. If the Interested Stockholder has paid for shares of any class of Voting Stock with varying forms of consideration, the form of consideration for such Voting Stock shall be either cash or the form used to acquire the largest number of shares of such Voting Stock previously acquired by it. (d) After such Interested Stockholder has become an Interested Stockholder and prior to the consummation of such Business Combination: (i) there shall have been (A) no reduction in the annual rate of dividends paid on the capital stock (except as necessary to reflect any subdivision of the capital stock), except as approved by a majority of the Continuing Directors, and (B) an increase in such annual rate of dividends as necessary to reflect any reclassification (including any reverse stock split), recapitalization, reorganization or any similar transaction which has the effect of reducing the number of outstanding shares of common stock, unless the failure so to increase such annual rate is approved by a majority of the Continuing Directors; and (ii) such Interested Stockholder shall have not become the beneficial owner of any additional shares of Voting Stock except as part of the transaction which results in such Interested Stockholder becoming an Interested Stockholder. 15 (e) After such Interested Stockholder has become an Interested Stockholder, such Interested Stockholder shall not have received the benefit, directly or indirectly (except proportionately as a stockholder), of any loans, advances, guarantees, pledges or other financial assistance or any tax credits or other tax advantages provided by the Corporation, whether in anticipation of or in connection with such Business Combination or otherwise. (f) A proxy or information statement describing the proposed Business Combination and complying with the requirements of the Securities Exchange Act of 1934 (the "Exchange Act") and the rules and regulations thereunder (or any subsequent provisions replacing such Act, rules or regulations) shall be mailed to public stockholders of the Corporation at least 20 days prior to the consummation of such Business Combination (whether or not such proxy or information statement is required to be mailed pursuant to such Act or subsequent provisions). C. Certain Definitions. For the purposes of this Article TWELFTH: 1. A "person" shall mean any individual, firm, corporation or other entity. 2. "Interested Stockholder" shall mean any person (other than the Corporation or any Subsidiary) who or which: (a) is the beneficial owner, directly or indirectly, of more than 20% of the voting power of the outstanding Voting Stock; or (b) is an Affiliate of the Corporation and at any time within the two-year period immediately prior to the date in question was the beneficial owner, directly or indirectly, of 20% or more of the voting power of the then outstanding Voting Stock; or (c) is an assignee of or has otherwise succeeded to any shares of Voting Stock which were at any time within the two-year period immediately prior to the 16 date in question beneficially owned by any Interested Stockholder, if such assignment or succession shall have occurred in the course of a transaction or series of transactions not involving a public offering within the meaning of the Securities Act of 1933. 3. A person shall be a "beneficial owner" of any Voting Stock: (a) which such person or any of its Affiliates or Associates (as hereinafter defined) beneficially owns, directly or indirectly; or (b) which such person or any of its Affiliates or Associates has (i) the right to acquire (whether such right is exercisable immediately or only after the passage of time), pursuant to any agreement, arrangement or understanding or upon the exercise of conversion rights, exchange rights, warrants or options, or otherwise, or (ii) the right to vote pursuant to any agreement, arrangement or understanding; or (c) which are beneficially owned, directly or indirectly, by any other person with which such person or any of its Affiliates or Associates has any agreement, arrangement or understanding for the purpose of acquiring, holding, voting or disposing of any shares of Voting Stock. 4. For the purposes of determining whether a person is an Interested Stockholder pursuant to paragraph 2 of this subsection C, the number of shares of Voting Stock deemed to be outstanding shall include shares deemed owned through application of paragraph 3 of this subsection C but shall not include any other shares of Voting Stock which may be issuable pursuant to any agreement, arrangement or understanding, or upon exercise of conversion rights, warrants or options, or otherwise. 5. "Affiliate" or "Associate" shall have the respective meanings ascribed to such terms in Rule l2b-2 of the General Rules and Regulations under the Exchange Act. 17 6. "Subsidiary" means any corporation of which a majority of any class of equity security is owned, directly or indirectly, by the Corporation; provided, however, that for the purposes of the definition of Interested Stockholder set forth in paragraph 2 of this subsection C, the term "Subsidiary" shall mean only a corporation of which a majority of each class of equity security is owned, directly or indirectly, by the Corporation. 7. "Continuing Director" means any member of the Board of Directors of the Corporation who is unaffiliated with the Interested Stockholder and was a member of the Board of Directors of the Corporation prior to the time that the Interested Stockholder became an Interested Stockholder, and any successor of a Continuing Director who is unaffiliated with the Interested Stockholder and is recommended to succeed a Continuing Director by a majority of Continuing Directors then on the Board of Directors of the Corporation. 8. "Fair Market Value" means: (a) in the case of stock, the highest closing sale price during the 30-day period immediately preceding the date in question of a share of such stock on the principal United States securities exchange registered under the Exchange Act on which such stock is listed, or, if such stock is not listed on any such exchange, the highest closing bid quotation with respect to a share of such stock during the 30-day period preceding the date in question on the National Association of Securities Dealers, Inc. Automated Quotations System or any system then in use, or if no such quotations are available, the fair market value on the date in question of a share of such stock as determined by the Board of Directors of the Corporation in good faith; and (b) In the case of property other than cash or stock, the fair market value of such property on the date in question as determined by the Board of Directors of the Corporation in good faith. 18 D. Powers of the Board of Directors. A majority of the directors of the Corporation shall have the power and duty to determine for the purposes of this Article TWELFTH, on the basis of information known to them after reasonable inquiry, (1) whether a person is an Interested Stockholder, (2) the number of shares of Voting Stock beneficially owned by any person, (3) whether a person is an Affiliate or Associate of another, and (4) whether the assets which are the subject of any Business Combination have, or the consideration to be received for the issuance or transfer of securities by the Corporation or any Subsidiary in any Business Combination has an aggregate Fair Market Value of $1,000,000 or more. E. No Effect on Fiduciary Obligations of Interested Stockholders. Nothing contained in this Article TWELFTH shall be construed to relieve any Interested Stockholder from any fiduciary obligation imposed by law. THIRTEENTH: Indemnification. A. Authorization of Indemnification. Each person who was or is a party or is threatened to be made a party to or is involved in any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative and whether by or in the right of the corporation or otherwise (a "proceeding"), by reason of the fact that he or she, or a person of whom he or she is the legal representative, is or was a director or officer of the corporation or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to an employee benefit plan, shall be (and shall be deemed to have a contractual right to be) indemnified and held harmless by the corporation (and any successor to the corporation by merger or otherwise) to the fullest extent authorized by, and subject to the conditions and (except as provided herein) procedures set forth in the Delaware General Corporation Law, as the same exists or may hereafter be amended (but any such amendment shall not be deemed to limit or prohibit the rights of indemnification hereunder for past acts or omissions of any such person insofar as such amendment limits or prohibits the indemnification rights that said law permitted the corporation to provide prior to such amendment), against all expenses, liabilities and losses (including attorney's fees, judgments, fines, ERISA taxes or penalties and amounts paid or to be paid in settlement) reasonably incurred or suffered by such person in connection therewith; provided, however, that the corporation shall indemnify any such person seeking indemnification in connection with a proceeding (or part thereof) initiated by such person (except for a suit or action pursuant to subsection B only if such proceeding (or part thereof) was authorized by the board of directors of the corporation. 19 Persons who are not directors or officers of the corporation may be similarly indemnified in respect of such service to the extent authorized at any time by the board of directors of the corporation. The indemnification conferred in this subsection A also shall include the right to be paid by the corporation (and such successor) the expenses (including attorney's fees) incurred in the defense of or other involvement in any such proceeding in advance of its final disposition (including in the case of a director or former director expenses of separate legal counsel, up to a maximum of $50,000, but only in the event that the director or former director as the indemnified party reasonably determines, assuming an outcome unfavorable to such indemnified party, that there is a reasonable probability that such proceeding may materially and adversely affect such indemnified party, or that there may be legal defenses available to such indemnified party that are different from or in addition to those available to the corporation); provided, however, that, if and to the extent the Delaware General Corporation Law requires, the payment of such expenses (including attorney's fees) incurred by a director or officer in advance of the final disposition of a proceeding shall be made only upon delivery to the corporation of an undertaking by or on behalf of such director or officer to repay all amounts so paid in advance if it shall ultimately be determined that such director or officer is not entitled to be indemnified under this subsection A or otherwise; and provided further, that, such expenses incurred by other employees and agents may be so paid in advance upon such terms and conditions, if any, as the board of directors deems appropriate. B. Right of Claimant to Bring Action against the Corporation. If a claim under subsection A of this section is not paid in full by the corporation within sixty days after a written claim has been received by the corporation, the claimant may at any time thereafter bring an action against the corporation to recover the unpaid amount of the claim and, if successful in whole or in part, the claimant shall be entitled to be paid also the expenses of prosecuting such action. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in connection with any proceeding in advance of its final disposition where the required undertaking, if any is required, has been tendered to the corporation) that the claimant has not met the standards of conduct which make it permissible under the Delaware General Corporation Law for the corporation to indemnify the claimant for the amount claimed or is otherwise not entitled to indemnification under subsection A of this section but the burden of proving such defense shall be on the corporation. The failure of the corporation (in the manner provided under the Delaware General Corporation Law) to have made a determination prior to or after the commencement of such action that indemnification of the claimant is proper in the circumstances because he or she has met the applicable standard of conduct set forth in the Delaware General Corporation Law shall not be a defense to the action or create a presumption that the claimant has not met the applicable standard of conduct. An actual determination by the corporation (in the manner provided under the Delaware 20 General Corporation Law) after the commencement of such action that the claimant has not met such applicable standard of conduct shall not be a defense to the action, but shall create a presumption that the claimant has not met the applicable standard of conduct. C. Non-exclusivity. The rights to indemnification and advance payment of expenses provided by subsection A of this section shall not be deemed exclusive of any other rights to which those seeking indemnification and advance payment of expenses may be entitled under any bylaw, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his or her official capacity and as to action in another capacity while holding such office. D. Survival of Indemnification. The indemnification and advance payment of expenses and rights thereto provided by, or granted pursuant to, subsection A of this section shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the personal representatives, heirs, executors and administrators of such person. E. Insurance. The corporation shall have power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise, against any liability asserted against such person or incurred by such person in any such capacity, or arising out of such person's status as such, and related expenses, whether or not the corporation would have the power to indemnify such person against such liability under the provisions of the Delaware General Corporation Law. 21 FOURTEENTH: Any actions required or permitted to be taken by the stockholders must be effected at a duly called annual or special meeting of such stockholders and may not be effected by any consent in writing by such stockholders. IN WITNESS WHEREOF, the undersigned, being the Incorporator hereinabove named, for the purpose of forming a corporation pursuant to the Delaware General Corporation Law, hereby certifies that the facts hereinabove stated are truly set forth, and accordingly executes this Certificate of Incorporation this 26th day of June, 1996. Incorporator By: -------------------------------- 22 EX-3.2 3 EXHIBIT 3.2. BYLAWS OF ORION NEWCO SERVICES, INC. 1. Offices. ------- 1.1 Registered Office. The registered office of the corporation shall be in the City of Wilmington, County of New Castle, State of Delaware, and the registered agent in charge thereof shall be The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, Delaware 19801. 1.2 Other Offices. The corporation may also have offices at such other places, both within and without the State of Delaware, as the board of directors may from time to time determine or the business of the corporation may require. 2. Meetings of Stockholders. 2.1 Place of Meetings. All meetings of the stockholders for the election of directors shall be held in the City of Washington, District of Columbia, at such place as may be fixed from time to time by the board of directors, or at such other place, within or without the State of Delaware, as shall be designated from time to time by the board of directors and stated in the notice of the meeting or in a duly executed waiver of notice thereof. Meetings of stockholders for any other purpose may be held at such time and place, within or without the State of Delaware, as shall be stated in the notice of the meeting or in a duly executed waiver of notice thereof. 2.2 Annual Meetings. Annual meetings of stockholders, commencing with the year 1997, shall be held on the first Thursday of May, if not a legal holiday, and if a legal holiday, then on the next secular day following, at 10:00 a.m., or at such other date and time as shall be designated from time to time by the board of directors and stated in the notice of the meeting or in a duly executed waiver of notice thereof, at which stockholders shall elect a board of directors and transact such other business as may properly be brought before the meeting. 2.3 Special Meetings. Special meetings of the stockholders, for any purpose or purposes, unless otherwise prescribed by statute or by the certificate of incorporation, may be called by the board of directors or by the president, and shall be called by the president or secretary at the request in writing of two or more stockholders owning at least 35% in amount of the entire capital stock of the corporation issued and outstanding and entitled to vote if no special meeting of stockholders has been called and held at the request of stockholders within the six months preceding such written request. Such request shall include a statement of the purpose or purposes of the proposed meeting. 2.4 Notice of Meetings. Written notice of the annual meeting, stating the place, date and hour of the meeting, shall be given to each stockholder entitled to vote at such meeting not less than ten nor more than sixty days before the date of the meeting. Written notice of a special meeting of stockholders, stating the place, date and hour of the meeting and the purpose or purposes for which the meeting is called, shall be given to each stockholder entitled to vote at such meeting not less than ten nor more than sixty days before the date of the meeting. 2.5 Business at Special Meetings. Business transacted at any special meeting of stockholders shall be limited to the purposes stated in the notice. 2.6 List of Stockholders. The officer who has charge of the stock ledger of the corporation shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order and showing the address of each stockholder and the number of shares registered in the name of each stockholder. -2- Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. The stock ledger shall be the only evidence as to who are the stockholders entitled to examine the stock ledger, the list required by this section or the books of the corporation, or to vote in person or by proxy at any meeting of stockholders. 2.7 Quorum at Meetings. Except as otherwise provided by statute or by the certificate of incorporation, the holders of a majority of the stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business. If, however, such quorum shall not be present or represented at any such meeting of the stockholders, the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time to another time and place, without notice other than announcement at the meeting of such other time and place. At the adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the original meeting. If the adjournment is for more than thirty days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. 2.8 Voting and Proxies. Unless otherwise provided in the certificate of incorporation, and subject to the provisions of Section 6.4 of these Bylaws, each -3- stockholder shall be entitled to one vote on each matter, in person or by proxy, for each share of the corporation's capital stock having voting power which is held by such stockholder. No proxy shall be voted or acted upon after three years from its date, unless the proxy provides for a longer period. A duly executed proxy shall be irrevocable if it states that it is irrevocable and if, and only as long as, it is coupled with an interest sufficient in law to support an irrevocable power. A proxy may be made irrevocable regardless of whether the interest with which it is coupled is an interest in the stock itself or an interest in the corporation generally. 2.9 Required Vote. When a quorum is present at any meeting of stockholders, all matters shall be determined, adopted and approved by the vote (which need not be by ballot) of the holders of a majority of the stock having voting power, present in person or represented by proxy, unless the proposed action is one upon which, by express provision of statutes or of the certificate of incorporation, a different vote is specified and required, in which case such express provision shall govern and control the decision of such question. Notwithstanding the foregoing, candidates for election as members of the board of directors who receive the highest number of votes, up to the number of directors to be chosen, shall stand elected, and an absolute majority of the votes cast shall not be a prerequisite to the election of any candidate to the board of directors. 2.10. Stockholder Actions. Any action required or permitted to be taken by the stockholders must be effected at a duly called annual or special meeting of such stockholders and may not be effected by any consent in writing by such stockholders. 2.11. Nominating Committee. Only persons who are nominated in accordance with the procedures set forth in this Section 2.11 shall be eligible for election as directors. Nominations of persons for election to the Board of Directors of the corporation may be made at a meeting of stockholders by or at the direction -4- of the Board of Directors or by any stockholder of the corporation entitled to vote for the election of directors at the meeting who complies with the notice procedures set forth in this Section 2.11. Such nominations, other than those made by or at the direction of the Board of Directors, shall be made pursuant to timely notice in writing to the Secretary of the Corporation. To be timely, a stockholder's notice shall be delivered to or mailed and received at the principal executive offices of the corporation not less than 50 days nor more than 90 days prior to the meeting; provided, however, that in the event that less than 60 days' notice or prior public disclosure of the date of the meeting is given or made to stockholders, notice by the stockholder to be timely must be so received not later than the close of business on the 10th day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made. Such stockholder's notice shall set forth (a) as to each person whom the stockholder proposes to nominate for election or re-election as a director, (i) the name, age, business address and residence address of such person, (ii) the principal occupation or employment of such person, (iii) the class and number of shares of the corporation which are beneficially owned by such person, and (iv) any other information relating to such person that is required to be disclosed in solicitations of proxies for election of directors, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (including without limitation such person's written consent to being named in the proxy statement as a nominee and to serving as a director if elected); and (b) as to the stockholder giving the notice (i) the name and address, as they appear on the corporation's books, of such stockholder and (ii) the class and number of shares of the corporation which are beneficially owned by such stockholder. At the request of the Board of Directors, any person nominated by the Board of Directors for election as a director shall furnish to the Secretary of the Corporation that information required to be set -5- forth in a stockholder's notice of nomination which pertains to the nominee. No later than the tenth day following the date of receipt of a stockholder nomination submitted pursuant to this Section 2.11, the president of the corporation shall, if the facts warrant, determine and notify in writing the stockholder making such nomination that such nomination was not made in accordance with the time limits and/or other procedures prescribed by the Bylaws. If no such notification is mailed to such stockholder within such ten-day period, such nomination shall be deemed to have been made in accordance with the provisions of this Section 2.11. No person shall be eligible for election as a director of the corporation unless nominated in accordance with the procedures set forth in this Section 2.11. 2.12. Business at Annual Meeting. At an annual meeting of the stockholders, only such business shall be conducted as shall have been properly brought before the meeting. To be properly brought before an annual meeting, business must be (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors, (b) otherwise properly brought before the meeting by or at the direction of the Board of Directors, or (c) otherwise properly brought before the meeting by a stockholder. For business to be properly brought before an annual meeting by a stockholder, the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation. To be timely, a stockholder's notice must be delivered to or mailed and received at the principal executive offices of the corporation not less than 50 days nor more than 90 days prior to the meeting; provided, however, that in the event that less than 60 days' notice or prior public disclosure of the date of the meeting is given or made to stockholders, notice by the stockholder to be timely must be so received not later than the close of business on the 10th day following the day on which such notice of the date of the annual meeting was mailed or such public disclosure was made. A stockholder's notice to the Secretary shall set forth -6- as to each matter the stockholder proposes to bring before the annual meeting (a) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (b) the name and address, as they appear on the corporation's books, of the stockholder proposing such business, (c) the class and number of shares of the corporation which are beneficially owned by the stockholder, and (d) any material interest of the stockholder in such business. No later than the tenth day following the date of receipt of a shareholder notice pursuant to this Section 2.12, the president of the corporation shall, if the facts warrant, determine and notify in writing the stockholder submitting such notice that such notice was not made in accordance with the time limits and/or other procedures prescribed by the Bylaws. If no such notification is mailed to such shareholder within such ten-day period, such stockholder notice containing a matter of business shall be deemed to have been made in accordance with the provisions of this Section 2.12. Notwithstanding anything in these Bylaws to the contrary, no business shall be conducted at an annual meeting except in accordance with the procedures set forth in this Section 2.12. 3. Directors. --------- 3.1 Powers. The business and affairs of the corporation shall be managed by or under the direction of the board of directors, which may exercise all such powers of the corporation and do all such lawful acts and things as are not by statute or by the certificate of incorporation or by these Bylaws directed or required to be exercised or done by the stockholders. 3.2. Number and Election. The number of directors which shall constitute the whole board shall be eleven members and shall be divided into three -7- classes as specified or determined pursuant to the Certificate of Incorporation of the corporation as in effect from time to time. 3.3. Vacancies. Vacancies and newly created directorships resulting from any increase in the authorized number of directors shall be filled in the manner specified in the Certificate of Incorporation of the corporation as in effect from time to time. 3.4 Place of Meetings. The board of directors of the corporation may hold meetings, both regular and special, either within or without the State of Delaware. 3.5 First Meeting of Each Board. The first meeting of each newly elected board of directors shall be held at such time and place as shall be specified in a notice given as hereinafter provided for special meetings of the board of directors, or as shall be specified in a written waiver of notice signed by all of the directors. 3.6 Regular Meetings. Regular meetings of the board of directors may be held without notice at such time and at such place as shall from time to time be determined by the board of directors. 3.7 Special Meetings. Special meetings of the board may be called by the president on one day's notice to each director, either personally or by telephone, by mail or by telegram; special meetings shall be called by the chairman or secretary in like manner and on like notice on the written request of one-third of the total number of directors. 3.8 Quorum and Vote at Meetings. At all meetings of the board, one director if a board of one director is authorized, or such greater number of directors as is not less than a majority of the total number of directors, shall constitute a quorum for the transaction of business. The vote of a majority of the directors present at any meeting at which there is a quorum shall be the act of the board of -8- directors, except as may be otherwise specifically provided by statute or by the certificate of incorporation. If a quorum shall not be present at any meeting of the board of directors, the directors present thereat may adjourn the meeting to another time and place, without notice other than announcement at the meeting of such other time and place. 3.9 Telephone Meetings. Members of the board of directors or any committee designated by the board may participate in a meeting of such board or committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to this section shall constitute presence in person at such meeting. 3.10 Action Without Meeting. Unless otherwise restricted by the certificate of incorporation or these Bylaws, any action required or permitted to be taken at any meeting of the board of directors or of any committee thereof may be taken without a meeting, if all members of the board or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the board of directors or committee. 3.11 Committees of Directors. The board of directors may by resolution passed by a majority of the whole board, designate one or more committees, each committee to consist of one or more of the directors of the corporation. The board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. If a member of a committee shall be absent from any meeting, or disqualified from voting thereat, the remaining member or members present and not disqualified from voting, whether or not such member or members constitute a quorum, may, by unanimous vote, appoint another member of the board of directors to act at the meeting in the place of such absent or disqualified -9- member. Any such committee, to the extent provided in the resolution of the board of directors, shall have and may exercise all the powers and authority of the board of directors in the management of the business and affairs of the corporation, and may authorize the seal of the corporation to be affixed to all papers which may require it; but no such committee shall have the power or authority in reference to amending the certificate of incorporation (except that a committee may, to the extent authorized in the resolution or resolutions providing for the issuance of shares of stock adopted by the board of directors pursuant to Section 151(a) of the General Corporation Law of the State of Delaware (hereinafter the "GCL"), fix any of the preferences or rights of such shares relating to dividends, redemption, dissolution, any distribution of assets of the corporation or the conversion into, or the exchange of such shares for, shares of any other class or classes or any other series of the same or any other class or classes of stock of the corporation), adopting an agreement of merger or consolidation pursuant to Sections 251 or 252 of the GCL, recommending to the stockholders the sale, lease or exchange of all or substantially all of the corporation's property and assets, recommending to the stockholders a dissolution of the corporation or a revocation of a dissolution, or amending the Bylaws of the corporation; and, unless otherwise expressly provided in the resolution, no such committee shall have the power or authority to declare a dividend, to authorize the issuance of stock, or to adopt a certificate of ownership and merger pursuant to Section 253 of the GCL. Such committee or committees shall have such name or names as may be determined from time to time by resolution adopted by the board of directors. Unless otherwise specified in the resolution of the board of directors designating the committee, at all meetings of each such committee of directors, a majority of the total number of members of the committee shall constitute a quorum for the transaction of business, and the vote of a majority of the members of the -10- committee present at any meeting at which there is a quorum shall be the act of the committee. Each committee shall keep regular minutes of its meetings and report the same to the board of directors, when required. 3.12 Compensation of Directors. Unless otherwise restricted by the certificate of incorporation, the board of directors shall have the authority to fix the compensation of directors. The directors may be paid their expenses, if any, of attendance at each meeting of the board of directors and may be paid a fixed sum for attendance at each meeting of the board of directors or a stated salary as director. No such payment shall preclude any director from serving the corporation in any other capacity and receiving compensation therefor. Members of special or standing committees may be paid like compensation for attending committee meetings. 4. Notices of Meetings. ------------------- 4.1 Notice Procedure. Whenever, whether under the provisions of any statute or of the certificate of incorporation or of these Bylaws, notice is required to be given to any director or stockholder, such requirement shall not be construed to require the giving of personal notice. Such notice may be given in writing, by mail, addressed to such director or stockholder, at his address as it appears on the records of the corporation, with postage thereon prepaid, and such notice shall be deemed to be given at the time when the same is deposited in the United States mail. Notice to directors may also be given by telex, telegram or telephone. 4.2 Waivers of Notice. Whenever the giving of any notice is required by statute, the certificate of incorporation or these Bylaws, a waiver thereof, in writing, signed by the person or persons entitled to said notice, whether before or after the event as to which such notice is required, shall be deemed equivalent to -11- notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders, directors or members of a committee of directors need be specified in any written waiver of notice, unless so required by the certificate of incorporation, by statute or by these Bylaws. 5. Officers. -------- 5.1 Positions. The officers of the corporation shall be a president and a secretary, and such other officers as the board of directors may appoint, including one or more vice presidents, a treasurer, assistant secretaries and assistant treasurers, who shall exercise such powers and perform such duties as shall be determined from time to time by the board. Any number of offices may be held by the same person, unless the certificate of incorporation or these Bylaws otherwise provide; provided, however, that in no event shall the president and the secretary be the same person. 5.2 Appointment. The officers of the corporation shall be chosen by the board of directors at its first meeting after each annual meeting of stockholders. 5.3 Compensation. The compensation of all officers of the corporation shall be fixed by the board of directors. 5.4 Term of Office. The officers of the corporation shall hold office until their successors are chosen and qualify or until their earlier resignation or removal. Any officer may resign at any time upon written notice to the corporation. Any officer elected or appointed by the board of directors may be -12- removed at any time, with or without cause, by the affirmative vote of a majority of the board of directors. Any vacancy occurring in any office of the corporation shall be filled by the board of directors. All officers of the corporation shall be required to retire at the end of the month during which they attain 65 years of age. 5.5 Fidelity Bonds. The corporation may secure the fidelity of any or all of its officers or agents by bond or otherwise. 5.6 Chairman. The chairman shall preside at all meetings of the stockholders and board of directors and shall be ex officio a member of all standing committees of the board of directors. 5.7 President. The president shall be the chief executive officer of the corporation, shall be ex officio a member of all standing committees, shall assume all responsibility for the management and operation of the business of the corporation, and shall ensure that all orders and resolutions of the board of directors are carried into effect. The president shall have the authority to execute bonds, mortgages and other contracts requiring a seal, under the seal of the corporation, except where required or permitted by law to be otherwise signed and executed and except where the signing and execution thereof shall be expressly delegated by the board of directors to some officer or agent of the corporation. 5.8 Vice Chairman or Vice Presidents. If the directors shall appoint one or more vice presidents, such vice chairman or vice presidents shall perform such duties and have such powers as may be vested in such vice presidents by the board of directors or by the president. One of such vice presidents may be designated the chief operating officer of the corporation and have general management of the day-to-day operations of the corporation, subject to the authority of the president. -13- 5.9 Secretary. The secretary shall attend all meetings of the board of directors and all meetings of the stockholders, and shall record all the proceedings of the meetings of the stockholders and of the board of directors in a book to be kept for that purpose, and shall perform like duties for the standing committees, when required. The secretary shall give, or cause to be given, notice of all meetings of the stockholders and special meetings of the board of directors, and shall perform such other duties as may be prescribed by the board of directors or by the president, under whose supervision the secretary shall be. The secretary shall have custody of the corporate seal of the corporation, and the secretary, or an assistant secretary, shall have authority to affix the same to any instrument requiring it, and when so affixed it may be attested by the signature of the secretary or by the signature of such assistant secretary. The board of directors may give general authority to any other officer to affix the seal of the corporation and to attest the affixing by such officer's signature. The secretary or an assistant secretary may also attest all instruments signed by the president or any vice president. 5.10 Assistant Secretary. The assistant secretary, or if there be more than one, the assistant secretaries in the order determined by the board of directors (or if there shall have been no such determination, then in the order of their election), shall, in the absence of the secretary or in the event of the secretary's inability or refusal to act, perform the duties and exercise the powers of the secretary, and shall perform such other duties and have such other powers as the board of directors may from time to time prescribe. 5.11 Treasurer. --------- 5.11.1 Duties. The treasurer shall have the custody of the corporate funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the corporation, and shall deposit all moneys -14- and other valuable effects in the name and to the credit of the corporation in such depositories as may be designated by the board of directors. The treasurer shall disburse the funds of the corporation as ordered by the board of directors, taking proper vouchers for such disbursements, and shall render to the president, and to the board of directors at its regular meetings, or when the board of directors so requires, an account of all transactions as treasurer and of the financial condition of the corporation. 5.11.2 Bond. If required by the board of directors, the treasurer shall give the corporation a bond in such sum and with such surety or sureties as shall be satisfactory to the board of directors for the faithful performance of the duties of the treasurer's office and for the restoration to the corporation, in case of the treasurer's death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind, in the treasurer's possession or under the treasurer's control and belonging to the corporation. 5.12 Assistant Treasurer. The assistant treasurer, or if there shall be more than one, the assistant treasurers in the order determined by the board of directors (or if there shall have been no such determination, then in the order of their election), shall, in the absence of the treasurer or in the event of the treasurer's inability or refusal to act, perform the duties and exercise the powers of the treasurer, and shall perform such other duties and have such other powers as the board of directors may from time to time prescribe. 6. Capital Stock. ------------- 6.1 Certificates of Stock; Uncertificated Shares. The shares of the corporation shall be represented by certificates, provided that the board of directors may provide by resolution or resolutions that some or all of any or all classes or series of the corporation's stock shall be uncertificated shares. Any such -15- resolution shall not apply to shares represented by a certificate until such certificate is surrendered to the corporation. Notwithstanding the adoption of such a resolution by the board of directors, every holder of stock represented by certificates and upon request every holder of uncertificated shares shall be entitled to have a certificate signed by, or in the name of the corporation by the president or vice president, and by the treasurer and/or assistant treasurer, or the secretary or an assistant secretary of such corporation representing the number of shares registered in certificate form. Any or all the signatures on the certificate may be facsimile. In case any officer, transfer agent or registrar whose signature or facsimile signature appears on a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if such person were such officer, transfer agent or registrar at the date of issue. 6.2 Lost Certificates. The board of directors may direct a new certificate or certificates of stock or uncertificated shares to be issued in place of any certificate or certificates theretofore issued by the corporation and alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming that the certificate of stock has been lost, stolen or destroyed. When authorizing such issuance of a new certificate or certificates, the board of directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate or certificates, or such owner's legal representative, to advertise the same in such manner as the board shall require and/or to give the corporation a bond, in such sum as the board may direct, as indemnity against any claim that may be made against the corporation on account of the certificate alleged to have been lost, stolen or destroyed or on account of the issuance of such new certificate or uncertificated shares. -16- 6.3 Transfers. The transfer of stock and certificates that represent the stock and the transfer of uncertificated shares shall be effected in accordance with the laws of the State of Delaware. Any restriction on the transfer of a security imposed by the corporation shall be noted conspicuously on the security. 6.4 Fixing Record Date. In order that the corporation may determine the stockholders entitled to notice of, or to vote at, any meeting of stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the board of directors may fix, in advance, a record date, which shall not be more than sixty nor less than ten days before the date of such meeting, nor more than sixty days prior to any other action. A determination of stockholders of record entitled to notice of, or to vote at, a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the board of directors may fix a new record date for the adjourned meeting. 6.5 Registered Stockholders. The corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, to receive notifications, to vote as such owner, and to exercise all the rights and powers of an owner; and the corporation shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of the State of Delaware. -17- 7. Indemnification. --------------- Indemnification of certain persons by the corporation shall be as specified in or determined pursuant to the Certificate of Incorporation of the Corporation as is in effect from time to time. 8. General Provisions. ------------------ 8.1 Dividends. Dividends upon the capital stock of the corporation, subject to the provisions of the certificate of incorporation and the laws of the State of Delaware, may be declared by the board of directors at any regular or special meeting. Subject to the provisions of the General Corporation Law of the State of Delaware, such dividends may be paid either out of surplus, as defined in the General Corporation Law of the State of Delaware, or in the event that there shall be no such surplus, out of the net profits for the fiscal year in which the dividend is declared and/or the preceding fiscal year. Dividends may be paid in cash, in property, or in shares of the corporation's capital stock, subject to the provisions, if any, of the certificate of incorporation. 8.2 Reserves. The directors of the corporation may set apart, out of the funds of the corporation available for dividends, a reserve or reserves for any proper purpose and may abolish any such reserve. 8.3 Execution of Instruments. All checks or demands for money and notes of the corporation shall be signed by such officer or officers or such other person or persons as the board of directors may from time to time designate. 8.4 Fiscal Year. The fiscal year of the corporation shall be fixed by resolution of the board of directors. 8.5 Seal. The corporate seal shall have inscribed thereon the name of the corporation, the year of its organization and the words "Corporate Seal, -18- Delaware". The seal may be used by causing it or a facsimile thereof to be impressed or affixed or otherwise reproduced. Section 9. Amendments. These Bylaws may be altered, amended or repealed and new bylaws may be adopted by a majority of the Board of Directors, except that Sections 2.3, 2.10, 2.11, 2.12, 3.2, 3.3 and this Section 9 may not be altered, amended, or repealed except by at the affirmative vote of at least two-thirds the shares entitled to vote thereon or the affirmative vote of the Board of Directors. * * * * -19- EX-4.3 4 EXHIBIT 4.3 CERTIFICATE OF DESIGNATIONS, RIGHTS AND PREFERENCES OF SERIES A 8% CUMULATIVE REDEEMABLE CONVERTIBLE PREFERRED STOCK OF ORION NEWCO SERVICES, INC. - -------------------------------------------------------------------------------- Pursuant to Section 151 of the General Corporation Law of the State of Delaware - -------------------------------------------------------------------------------- The undersigned DOES HEREBY CERTIFY that, pursuant to the authority contained in Article FOURTH of the Certificate of Incorporation of Orion Newco Services, Inc., a Delaware corporation (the "Corporation"), and in accordance with Section 151 of the General Corporation Law of the State of Delaware, the Board of Directors of the Corporation has authorized the creation of Series A 8% Cumulative Redeemable Convertible Preferred Stock having the designations, rights and preferences as are set forth in Exhibit A hereto and made a part hereof and that the following resolution was duly adopted by the Board of Directors of the Corporation: RESOLVED, that a series of authorized Preferred Stock, par value $.01 per share, of the Corporation be, and it hereby is, created; that the shares of such series shall be, and they hereby are, designated as "Series A 8% Cumulative Redeemable Convertible Preferred Stock"; that the number of shares constituting such series shall be, and it hereby is, 15,000; and that the designations, rights and preferences of the shares of such series are as set forth in Exhibit A attached hereto and made a part hereof. IN WITNESS WHEREOF, the Corporation has caused its corporate seal to be hereunto affixed and this Certificate to be signed by its President and Chief Executive Officer and attested to by its Vice President, Corporate and Legal Affairs, and Secretary this ____ day of __________, 199__. ORION NEWCO SERVICES, INC. By: ------------------------------ [SEAL] Name: W. Neil Bauer Title: President/Chief Executive Officer ATTEST: - ----------------------------------------- Name: Richard H. Shay, Esq. Title: Vice President, Corporate and Legal Affairs/Secretary - 2 - EXHIBIT A SERIES A 8% CUMULATIVE REDEEMABLE CONVERTIBLE PREFERRED STOCK --------------------------- The following sections set forth the designations, rights and preferences of the Corporation's Series A Preferred. Capitalized terms used herein are defined in Section 12 below. Section 1. Dividends. --------- 1A. General Obligation. When and as declared by the Corporation's board of directors and to the extent permitted under the General Corporation Law of Delaware, the Corporation shall pay preferential dividends to the holders of the Preferred Stock as provided in this Section 1. Except as otherwise provided herein, dividends on each Preferred Share shall accrue on a daily basis at the rate of 8% per annum of the sum of the Liquidation Value thereof plus all accumulated and unpaid dividends thereon, from and including the Date of Issuance of such Preferred Share to and including the date on which the Liquidation Value of such Preferred Share (plus all accrued and unpaid dividends thereon) is paid or the date on which such Preferred Share is converted into shares of Common Stock hereunder. Such dividends shall accrue whether or not they have been declared and whether or not there are profits, surplus or other funds of the Corporation legally available for the payment of dividends. 1B. Dividend Reference Dates. To the extent not paid on a Dividend Reference Date, with the initial Dividend Reference Date being February 28, 1997, all dividends which have accrued on each Preferred Share outstanding since the latest preceding Dividend Reference Date (or the Date of Issuance of such Preferred Share, if later) ending upon each such Dividend Reference Date, and, in the case of each Preferred Share outstanding that was issued upon the Old ONS Preferred Share Conversion, all dividends that were accrued, accumulated, and unpaid at the time of the Old ONS Preferred Share Conversion on the Old ONS Preferred Share that was converted into such Preferred Share, shall be accumulated and shall remain accumulated dividends with respect to such Preferred Share until paid. 1C. Distribution of Partial Dividend Payments. Except in connection with redemptions or repurchases (i) pursuant to paragraph 4A or 4B below, (ii) in compliance with paragraph 4H below, or (iii) as provided in the Purchase Agreement, if at any time the Corporation pays less than the total amount of dividends then accrued with respect to the Preferred Stock, such payment shall be distributed ratably among the holders thereof based upon the aggregate accrued but unpaid dividends on the Preferred Shares held by each such holder and such payment shall be applied first to dividends which have accrued on such Preferred Shares during the period since the latest preceding Dividend Reference Date and second to reduce any accumulated dividends with respect to such Preferred Shares. Section 2. Liquidation. ----------- Upon any Liquidation, each holder of Preferred Stock shall be entitled to be paid, before any distribution or payment is made upon any Junior Securities, an amount in cash equal to the greater of (a) the aggregate Liquidation Value (plus all accrued and unpaid dividends) of all shares of Preferred Stock held by such holder or (b) the amount which would be distributed with respect to the shares of Common Stock (including fractional shares for purposes of this calculation) into which such shares of Preferred Stock are convertible (assuming conversion of all outstanding Preferred Stock) immediately prior to the record date for such distribution (or, if there is no such record date, then the date as of which the holders of Common Stock entitled to such distribution are determined); and the holders of Preferred Stock shall not be entitled to any further payment. If upon any such Liquidation the Corporation's assets to be distributed among the holders of the Preferred Stock are insufficient to permit payment to such holders of the aggregate amount which they are entitled to be paid, then the entire assets to be distributed shall be distributed ratably among such holders based upon the aggregate Liquidation Value (plus all accrued and unpaid dividends) of the Preferred Shares held by each such holder. Prior to such Liquidation, the Corporation shall declare for payment all accrued and unpaid dividends with respect to the Preferred Stock. (Payment of the greater of the amounts specified in clauses (a) and (b) of this Section 2 in respect of such Preferred Shares shall constitute payment of such declared dividends.) The Corporation shall mail written notice of such Liquidation, not less than 60 days prior to the payment date stated therein, to each record holder of Preferred Stock. Section 3. [Reserved.] -------- Section 4. Redemptions. ----------- 4A. Redemption at Option of Corporation. ----------------------------------- (i) The Corporation may at any time redeem all or, subject to paragraph 4E below, any of the Preferred Shares then outstanding at the Redemption Price, provided that no redemption pursuant to this paragraph 4A shall be for Preferred Shares with an aggregate Liquidation Value of less than $1,000,000 (or such lesser number of Preferred Shares then outstanding). -2- (ii) The Corporation may in connection with a Reorganization redeem all or any of the Preferred Shares then outstanding at the Redemption Price, payable at the time of the consummation of the Reorganization as follows: (a) first, in Freely Tradeable Securities in an amount not to exceed the lesser of (1) the Redemption Price of such Preferred Shares and (2) the amount of Freely Tradeable Securities that, if such holder had converted such Preferred Shares into Common Stock immediately prior to such Reorganization, would have been issued to such holder in connection with such Reorganization in respect of such shares of Common Stock; and (b) second, the balance of the Redemption Price (if any) in cash. Notwithstanding paragraph 4H hereof, if the Corporation seeks the consent of the holders of Preferred Stock to any Reorganization under subparagraph 3D(iv) of the Purchase Agreement, and the affirmative consent of the holders required thereunder is not obtained, the Corporation may redeem at or prior to the time of the consummation of such Reorganization and pursuant to this paragraph 4A(ii), all (but not less than all) of the Preferred Shares held by those holders that did not affirmatively consent to such transaction. 4B. Redemptions at the Option of the Holder. --------------------------------------- At any time after the fifth anniversary of the Closing, subject to subparagraph 4B(ii) below, each holder of Preferred Stock may request redemption of all or a portion of the Preferred Shares owned by such holder for a price equal to the Redemption Price. Within five Business Days after receipt of such request, the Corporation shall give written notice to all other holders of Preferred Stock, and such other holders may request redemption of their Preferred Shares by delivering written notice to the Corporation within 10 Business Days after receipt of the Corporation's notice. The Corporation shall pay the Redemption Price of all Preferred Shares whose redemption has been duly requested pursuant to this paragraph 4B within 30 days after its receipt of the initial request for such redemption. Notwithstanding the above, the Corporation shall not be obligated pursuant to this paragraph 4B to redeem any Preferred Share initially issued to a Small Business Investment Company licensed by the U.S. Small Business Administration before the fifth anniversary of the Date of Issuance of such Preferred Share, provided that all such outstanding Preferred Shares shall be counted as held by their holders for purposes of all pro rata and other calculations. (ii) Notwithstanding the provisions of subparagraph 4B(i) above, the Corporation shall not be obligated to repurchase, pursuant to this paragraph -3- 4B: (a) on a cumulative basis, (x) before the sixth anniversary of the Closing, a number of shares of Preferred Stock in excess of one-third of all shares of Preferred Stock issued by the Corporation at any time (for purposes of such calculation, taking into account both repurchases under this paragraph 4B and repurchases under paragraph 6A of the Purchase Agreement), and (y) before the seventh anniversary of the Closing, a number of shares of Preferred Stock in excess of two-thirds of all shares of Preferred Stock issued by the Corporation at any time (for purposes of such calculation, taking into account both repurchases under this paragraph 4B and repurchases under paragraph 6A of the Purchase Agreement) (and at no time shall any initial holder and its transferees be entitled to sell shares of Preferred Stock to the Corporation pursuant to this paragraph 4B to the extent that the aggregate number of such shares of Preferred Stock sold by such Persons at or before that time pursuant to this paragraph 4B or pursuant to paragraph 6A of the Purchase Agreement (limited in the case of a transferee to shares of Preferred Stock acquired directly or indirectly from, or acquired in respect of Preferred Stock acquired directly or indirectly from, such initial holder) would, on a cumulative basis, exceed an amount equal to (I) the maximum cumulative number of shares which the Corporation may be required to redeem under this subparagraph 4B(ii)(a) at such time, multiplied by (II) a fraction (x) the numerator of which is the aggregate number, without duplication, of shares of Preferred Stock issued by the Corporation at any time that was held by such holders (limited in the case of a transferee to shares of Preferred Stock acquired directly or indirectly from, or acquired in respect of Preferred Stock acquired directly or indirectly from, such initial holder), and (y) the denominator of which is the aggregate number, without duplication, of shares of Preferred Stock issued by the Corporation at any time); and (b) for a period of 180 days after the date the Corporation redeems shares of Preferred Stock pursuant to paragraph 4B(i), any shares of Preferred Stock pursuant to a request for redemption under paragraph 4B(i) that is requested subsequent to, and not as part of, such prior redemption. 4C. Redemption Payment. For each Preferred Share which is to be redeemed (and except as otherwise provided in paragraph 4A(ii) above), the Corporation shall be obligated on the Redemption Date to pay to the holder thereof (upon surrender by such holder at the Corporation's principal office of the certificate representing such Preferred Share) an amount in immediately available funds equal to the Redemption Price of such Preferred Share. If the funds of the Corporation legally available for redemption of Preferred Shares on any Redemption Date are insufficient to redeem the total number of Preferred Shares to be redeemed on such date, those funds which are legally available shall be used to -4- redeem the maximum possible number of Preferred Shares ratably among the holders of the Preferred Shares to be redeemed based upon the aggregate Redemption Price of the Preferred Shares held by each such holder and the remaining Preferred Shares will remain outstanding. At any time thereafter when additional funds of the Corporation are legally available for the redemption of Preferred Shares, such funds shall immediately be used to redeem the balance of the Preferred Shares which the Corporation has become obligated to redeem on any Redemption Date but which it has not redeemed. In connection with any redemption of Preferred Stock pursuant to this Section 4, the Corporation shall declare for payment all dividends that are accrued and unpaid as of the Redemption Date with respect to the Preferred Shares which are to be redeemed on such Redemption Date. (Payment of the Redemption Price in respect of such Preferred Shares shall constitute payment of such declared dividends.) 4D. Notice of Redemption. The Corporation shall mail written notice of each redemption of any Preferred Stock to each record holder thereof not more than 60 nor less than 30 days prior to the date on which such redemption is to be made in the case of a redemption pursuant to paragraph 4A, and not less than 5 Business Days prior to the date on which such redemption is to be made in the case of a redemption pursuant to paragraph 4B. Upon mailing any such notice of redemption, the Corporation shall become obligated to redeem the total number of Preferred Shares specified in such notice at the time of redemption specified therein. In case fewer than the total number of Preferred Shares represented by any certificate are redeemed, a new certificate representing the number of unredeemed Preferred Shares shall be issued to the holder thereof without cost to such holder within three Business Days after surrender of the certificate representing the redeemed Preferred Shares. 4E. Determination of the Number of Each Holder's Preferred Shares to be Redeemed. The number of Preferred Shares to be redeemed from each holder thereof in redemptions pursuant to paragraph 4A(i) shall be the number of Preferred Shares determined by multiplying the total number of Preferred Shares to be redeemed by a fraction, the numerator of which shall be the total Redemption Price of Preferred Shares then held by such holder and the denominator of which shall be the aggregate Redemption Price of Preferred Shares then outstanding. 4F. Dividends After Redemption Date. No Preferred Share is entitled to any dividends accruing after the Redemption Date. On the Redemption Date of any Preferred Share, all rights of the holder of such Preferred Share shall cease, and such Preferred Share shall not be deemed to be outstanding. 4G. Redeemed or Otherwise Acquired Preferred Shares. Any Preferred Shares which are redeemed or otherwise acquired by the Corporation thereupon shall be retired. All such shares shall upon their retirement become authorized but unissued shares of preferred stock of the Corporation and may not -5- be reissued as Preferred Stock but may be reissued as part of a new series of preferred stock to be created by resolution or resolutions of the board of directors, subject to the conditions or restrictions on issuance set forth in the certificate of incorporation of the Corporation. 4H. Other Redemptions or Acquisitions. Neither the Corporation nor any Subsidiary shall redeem or otherwise acquire any Preferred Stock, except as expressly authorized herein or pursuant to the Purchase Agreement or pursuant to a purchase offer made pro rata to all holders of Preferred Stock on the basis of the aggregate Redemption Price of the Preferred Shares owned by each such holder. Section 5. Voting Rights. ------------- The holders of the Preferred Stock shall be entitled to notice of all stockholders meetings in accordance with the Corporation's bylaws, and except as otherwise required by law, the holders of the Preferred Stock shall be entitled to vote on all matters submitted to the stockholders for a vote together with the holders of the Common Stock voting together as a single class with each share of Common Stock entitled to one vote per share, and each Preferred Share (including fractional shares) entitled to one vote for each share of Common Stock that would be issuable upon conversion of such Preferred Share at the time the vote is taken. Section 6. Conversion. ---------- 6A. Conversion Procedure. -------------------- (i) At any time and from time to time after the issuance thereof, any holder of Preferred Stock may convert all or any of the Preferred Shares (including any fraction of a Preferred Share) held by such holder into a number of shares of Common Stock computed by multiplying the number of Preferred Shares to be converted by the Liquidation Value and dividing the result by the Conversion Price then in effect. (ii) Each conversion of Preferred Stock shall be deemed to have been effected as of the close of business on the date on which the certificate or certificates representing the Preferred Shares to be converted have been surrendered at the principal office of the Corporation. At such time as such conversion has been effected, the rights of the holder of such Preferred Shares as such holder shall cease, all accrued and unpaid dividends on such Preferred Shares shall be deemed to have been forfeited immediately prior to such conversion, and the Person or Persons in whose name or names any certificate or certificates for shares of Common Stock are to be issued upon such conversion shall be deemed to have become the holder or holders of record of the shares of Common Stock represented thereby. -6- (iii) The conversion rights of any Preferred Share subject to redemption hereunder shall terminate on the Redemption Date for such Preferred Share unless the Corporation has failed to pay to the holder thereof the Redemption Price thereof. (iv) Notwithstanding any other provision thereof, if a conversion of any Preferred Shares is to be made in connection with a Public Offering, such conversion may, at the election of the holder of such Preferred Shares, be conditioned upon the consummation of the Public Offering, in which case such conversion shall not be deemed to be effective until the consummation of the Public Offering. (v) As soon as possible after a conversion has been effected (but in any event within five Business Days in the case of subparagraph (a) below), the Corporation shall deliver to the converting holder: (a) a certificate or certificates representing the number of shares of Common Stock issuable by reason of such conversion in such name or names and such denomination or denominations as the converting holder has specified; (b) payment of the amount payable under subparagraph (viii) below with respect to such conversion; and (c) a certificate representing any Preferred Shares which were represented by the certificate or certificates delivered to the Corporation in connection with such conversion but which were not converted. (vi) The issuance of certificates for shares of Common Stock upon conversion of Preferred Stock shall be made without charge to the holders of such Preferred Stock for any issuance tax in respect thereof or other cost incurred by the Corporation in connection with such conversion and the related issuance of shares of Common Stock. (vii) The Corporation shall not close its books against the transfer of Preferred Stock or of Common Stock issued or issuable upon conversion of Preferred Stock in any manner which interferes with the timely conversion of Preferred Stock. The Corporation shall assist and cooperate (but the Corporation shall not be required to expend substantial efforts or funds) with any holder of Preferred Shares required to make any governmental filings or obtain any governmental approval prior to or in connection with any conversion of Preferred Shares hereunder (including, without limitation, making any filings required to be made by the Corporation). -7- (viii) If any fractional interest in a share of Common Stock would, except for the provisions of this subparagraph, be deliverable upon any conversion of a holder's Preferred Stock, the Corporation, in lieu of delivering the fractional share therefor, shall pay an amount to the holder thereof equal to the Market Price of such fractional interest as of the date of conversion. (ix) The Corporation shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of issuance upon the conversion of the Preferred Stock or exercise of the Warrants, such number of shares of Common Stock issuable upon the conversion of all outstanding Preferred Stock and exercise of all outstanding Warrants which may then be exercised. All shares of Common Stock which are so issuable shall, when issued, be duly and validly issued, fully paid and nonassessable and free from all taxes, liens and charges. The Corporation shall take all such actions as may be necessary to ensure that all such shares of Common Stock may be so issued without violation of any applicable law or governmental regulation (excluding Investment Regulations) or any requirements of any domestic securities exchange upon which shares of Common Stock may be listed (except for official notice of issuance which shall be immediately delivered by the Corporation upon each such issuance). 6B. Conversion Price. ---------------- (i) In order to prevent dilution of the conversion rights granted under this subdivision, the Conversion Price shall be subject to adjustment from time to time pursuant to this Section 6. (ii) If and whenever on or after the Date of Issuance of any Preferred Share the Corporation issues or sells, or in accordance with paragraph 6C is deemed to have issued or sold, other than in an Excluded Issuance, any share of Common Stock for a consideration per share less than the Conversion Price in effect immediately prior to such time with respect to any such Preferred Share, then forthwith upon such issue or sale the Conversion Price of such Preferred Share shall be reduced to the lowest net price per share at which any such share of Common Stock has been issued or sold or is deemed to have been issued or sold. 6C. Effect on Conversion Price of Certain Events. Solely for purposes of determining the adjusted Conversion Price under paragraph 6B, the following shall be applicable: (i) Issuance of Rights or Options. If the Corporation in any manner grants any Options and the lowest price per share for which any one share of Common Stock is issuable upon the exercise of any such Option or upon conversion or exchange of any Convertible Security is less than any Conversion Price in effect immediately prior to the time of the granting of such Option, then such share of Common Stock shall be deemed to have been issued and sold by the Corporation at -8- the time of the granting of such Options for such price per share and such Conversion Price shall be adjusted in accordance with paragraph 6B(ii) above. For purposes of this paragraph, the "lowest price per share for which any one share of Common Stock is issuable" shall be equal to the sum of the lowest amounts of consideration (if any) received or receivable by the Corporation with respect to any one share of Common Stock upon the granting of the Option, upon exercise of the Option and upon conversion or exchange of the Convertible Security. No further adjustment of such Conversion Price shall be made upon the actual issue of such Common Stock or of such Convertible Security upon the exercise of such Options or upon the actual issue of such Common Stock upon conversion or exchange of such Convertible Security. (ii) Issuance of Convertible Securities. If the Corporation in any manner issues or sells any Convertible Security and the lowest price per share for which any one share of Common Stock is issuable upon conversion or exchange thereof is less than any Conversion Price in effect immediately prior to the time of such issue or sale, then such share of Common Stock shall be deemed to have been issued and sold by the Corporation at the time of the issuance or sale of such Convertible Securities for such price per share and such Conversion Price shall be adjusted in accordance with paragraph 6B(ii) above. For the purposes of this paragraph, the "lowest price per share for which any one share of Common Stock is issuable" shall be equal to the sum of the lowest amounts of consideration (if any) received or receivable by the Corporation with respect to any one share of Common Stock upon the issuance of the Convertible Security and upon the conversion or exchange of such Convertible Security. No further adjustment of such Conversion Price shall be made upon the actual issue of such Common Stock upon conversion or exchange of any Convertible Security, and if any such issue or sale of such Convertible Security is made upon exercise of any Options for which adjustments of such Conversion Price had been or are to be made pursuant to other provisions of this Section 6, no further adjustment of such Conversion Price shall be made by reason of such issue or sale. (iii) Change in Option Price or Conversion Rate. If the purchase price provided for in any Option, the additional consideration (if any) payable upon the issue, conversion or exchange of any Convertible Security, or the rate at which any Convertible Security is convertible into or exchangeable for Common Stock change at any time, any Conversion Price previously adjusted with respect to such Option or Convertible Security and in effect at the time of such change shall be readjusted to the Conversion Price which would have been in effect at such time had such Option or Convertible Security originally provided for such changed purchase price, additional consideration or changed conversion rate, as the case may be, at the time initially granted, issued or sold. (iv) Treatment of Expired Options and Unexercised Convertible Securities. Upon the expiration of any Option or the termination of any right to -9- convert or exchange any Convertible Security without the exercise of any such Option or right, any Conversion Price then in effect hereunder shall be adjusted to the Conversion Price which would have been in effect at the time of such expiration or termination had such Option or Convertible Security, to the extent outstanding immediately prior to such expiration or termination, never been issued. (v) Calculation of Consideration Received. If any Common Stock, Option or Convertible Security is issued or sold or deemed to have been issued or sold for cash, the consideration received there for shall be deemed to be the amount received by the Corporation therefor. In case any Common Stock, Options or Convertible Securities are issued or sold for a consideration other than cash, the amount of the consideration other than cash received by the Corporation shall be the fair value of such consideration, except where such consideration consists of securities, in which case the amount of consideration received by the Corporation shall be the Market Price thereof as of the date of receipt. If any Common Stock, Option or Convertible Security is issued to the owners of the non-surviving entity in connection with any merger in which the Corporation is the surviving corporation, the amount of consideration there for shall be deemed to be the fair value of such portion of the assets and business of the non-surviving entity as is attributable to such Common Stock, Options or Convertible Securities, as the case may be. The fair value of any consideration other than cash and securities shall be determined jointly by the Corporation and the holders of 70% of the outstanding Preferred Shares. If such parties are unable to reach agreement within a reasonable period of time, the fair value of such consideration shall be determined by an independent appraiser experienced in valuing such type of consideration jointly selected by the Corporation and the holders of 70% of the outstanding Preferred Shares. The determination of such appraiser shall be final and binding upon the parties, and the fees and expenses of such appraiser shall be borne by the Corporation. (vi) Integrated Transactions. In case any Option is issued in connection with the issue or sale of other securities of the Corporation, together comprising one integrated transaction in which no specific consideration is allocated to such Option by the parties thereto, the Option shall be deemed to have been issued for a consideration of $.01. (vii) Treasury Shares. The number of shares of Common Stock outstanding at any given time does not include shares owned or held by or for the account of the Corporation or any Subsidiary, and the disposition of any shares so owned or held shall be considered an issue or sale of Common Stock. (viii) Record Date. If the Corporation fixes a record date for determining the holders of Common Stock entitled (a) to receive a dividend or other distribution payable in Common Stock, Options or in Convertible Securities or (b) to subscribe for or purchase Common Stock, Options or Convertible Securities, then such record date shall be deemed to be the date of the issue or sale of the shares of -10- Common Stock deemed to have been issued or sold upon the declaration of such dividend or upon the making of such other distribution or the date of the granting of such right of subscription or purchase, as the case may be. 6D. Subdivision or Combination of Common Stock. If the Corporation at any time subdivides (by any stock split, stock dividend, recapitalization or otherwise) one or more classes of its outstanding shares of Common Stock into a greater number of shares, any Conversion Price in effect immediately prior to such subdivision shall be proportionately reduced, and if the Corporation at any time combines (by reverse stock split or otherwise) one or more classes of its outstanding shares of Common Stock into a smaller number of shares, any Conversion Price in effect immediately prior to such combination shall be proportionately increased. 6E. Reorganization, Reclassification, Consolidation, Merger or Sale. In connection with any Organic Change, the Corporation shall make appropriate provisions (in form and substance reasonably satisfactory to the holders of 70% of the Preferred Shares then outstanding) to insure that each of the holders of Preferred Stock shall thereafter have the right to acquire and receive, in lieu of or in addition to (as the case may be) the shares of Common Stock immediately theretofore acquirable and receivable upon the conversion of such holder's Preferred Stock, such shares of stock, securities or assets as such holder would have received in connection with such Organic Change if such holder had converted its Preferred Stock immediately prior to such Organic Change. In each such case, the Corporation shall also make appropriate provisions (in form and substance reasonably satisfactory to the holders of 70% of the Preferred Shares then outstanding) to insure that the provisions of this Section 6 and Sections 7 and 8 hereof shall thereafter be applicable to the Preferred Stock (including, in the case of any such consolidation, merger or sale in which the successor entity or purchasing entity is other than the Corporation, an immediate adjustment of the Conversion Price to the value for the Common Stock reflected by the terms of such consolidation, merger or sale, and a corresponding immediate adjustment in the number of shares of Common Stock acquirable and receivable upon conversion of Preferred Stock, if the value so reflected is less than the Conversion Price in effect immediately prior to such consolidation, merger or sale). 6F. Certain Events. If any event occurs of the type contemplated by the provisions of this Section 6 but not expressly provided for by such provisions (including, without limitation, the granting of stock appreciation rights, phantom stock rights or other rights with equity features), then the Corporation's board of directors shall make an appropriate adjustment in each Conversion Price so as to protect the rights of the holders of Preferred Stock; provided that no such adjustment shall increase any Conversion Price as otherwise determined pursuant to this Section 6 or decrease the number of shares of Conversion Stock issuable upon conversion of each share of Preferred Stock. -11- 6G. Notices. ------- (i) Immediately upon any adjustment of any Conversion Price, the Corporation shall give written notice thereof to all holders of Preferred Stock, setting forth in reasonable detail and certifying the calculation of such adjustment. (ii) The Corporation shall give written notice to all holders of Preferred Stock at least 20 days prior to the date on which the Corporation closes its books or fixes a record date (a) with respect to any dividend or distribution upon Common Stock, (b) with respect to any pro rata subscription offer to holders of Common Stock or (c) for determining rights to vote with respect to any Organic Change or Liquidation. (iii) The Corporation shall also give written notice to holders of Preferred Stock at least 20 days prior to the date on which any Organic Change shall take place. 6H. Mandatory Conversion. The Corporation may require by written notice to all holders of Preferred Stock, the conversion of all of the outstanding Preferred Stock, at the then applicable Conversion Price or Prices, at any time after the second anniversary of the Closing, provided that (a) the Closing Price of the Common Stock (adjusted proportionately for stock dividends, stock splits, combinations, and similar changes in the Common Stock occurring after the Closing) on at least 30 of the 45 latest trading days preceding the date of the Corporation's notice has been greater than (i) $12.50 per share, if such notice is delivered prior to the last day of the 30th month after Closing, (ii) $15.62 per share, if such notice is delivered after the last day of the 30th month after Closing but prior to the third anniversary of the Closing, or (iii) $18.75 per share, if such notice is delivered on or after the third anniversary of the Closing, (b) the number of Public Float Securities outstanding exceeds 20% of the number of shares of Common Stock outstanding on a "fully diluted" basis (i.e., after giving effect to the exercise, exchange and conversion of all rights, options, warrants and convertible securities that are, directly or indirectly, exercisable or exchangeable for, or convertible into, Common Stock, determined without regard to any vesting limitations or restrictions on exercise, exchange or conversion), and (c) the holders of the Preferred Stock are not then subject to (and will not, as a result of such exercise, become subject to) any agreement restricting the sale of the Common Stock issued upon the conversion of the Preferred Stock. Section 7. Liquidating Dividends. --------------------- If the Corporation declares or pays a Liquidating Dividend upon the Common Stock, then the Corporation shall pay to the holders of Preferred Stock at the time of payment thereof the Liquidating Dividends which would have been paid -12- on the shares of Common Stock had such Preferred Stock been converted immediately prior to the record date fixed for determining the stockholders entitled to receive payment of such Liquidating Dividend, or, if no record date is fixed, the date as of which the record holders of Common Stock entitled to such dividends are to be determined. Section 8. Purchase Rights. --------------- If at any time the Corporation grants, issues or sells any Purchase Rights pro rata to the record holders of any class of Common Stock, then each holder of Preferred Stock shall be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which such holder could have acquired if such holder had held the number of shares of Common Stock acquirable upon conversion of such holder's Preferred Shares immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights. Section 9. Consequences of Certain Events of Noncompliance. ----------------------------------------------- (i) If an Event of Noncompliance of the type described in subparagraph (ii) of the definition of Event of Noncompliance has occurred and has continued for a period of 30 days and is continuing or any other Event of Noncompliance has occurred and is continuing, the annual dividend rate on the Preferred Stock shall increase immediately by an increment of two percentage points. Thereafter, until such time as no Event of Noncompliance exists, the annual dividend rate shall increase automatically at the end of each succeeding 90-day period by an additional increment of two percentage points (but in no event shall the annual dividend rate exceed 14%). Any increase of the dividend rate resulting from the operation of this paragraph shall terminate as of the close of business on the date on which no Event of Noncompliance exists, subject to subsequent increases pursuant to this paragraph. (ii) If both (a) either (1) an Event of Noncompliance of the type described in subparagraph (i) or (iii) of the definition of Event of Noncompliance has occurred and is continuing, or (2) an Event of Noncompliance of the type described in subparagraph (ii) or (iv) of the definition of Event of Noncompliance has occurred and has continued for a period of 60 days and is continuing and (b) the holder or holders of 70% of the Preferred Stock then outstanding have given written notice to the Corporation of their intent to exercise their rights under this paragraph (ii) in connection with such Event of Noncompliance (which notice may be given at any time after the occurrence of such Event of Noncompliance) and 30 days have lapsed since the date such notice was given, then the holder or holders of 70% of the Preferred Stock then outstanding shall have the option to demand (by written notice delivered to the Corporation at any time thereafter until such time as -13- there is no Event of Noncompliance in existence) redemption of all or any portion of the Preferred Stock owned by such holder or holders at a price per Preferred Share equal to the Liquidation Value thereof (plus all accrued and unpaid dividends thereon). The Corporation shall give prompt written notice of such election to the other holders of Preferred Stock (but in any event within five days after receipt of the initial demand for redemption), and each such other holder shall have the option to demand redemption of all or any portion of such holder's Preferred Stock by giving written notice thereof to the Corporation within seven days after receipt of the Corporation's notice. The Corporation shall redeem all Preferred Stock as to which rights under this paragraph have been exercised within 15 days after receipt of the initial demand for redemption. (iii) If any Event of Noncompliance exists, each holder of Preferred Stock shall also have any other rights which such holder is entitled to under any contract or agreement at any time and any other rights which such holder may have pursuant to applicable law. Section 10. Registration of Transfer. ------------------------ The Corporation shall keep at its principal office a register for the registration of Preferred Stock. Upon the surrender of any certificate representing Preferred Stock at such place, the Corporation shall, at the request of the record holder of such certificate, execute and deliver (at the Corporation's expense) a new certificate or certificates in exchange therefor representing in the aggregate the number of Preferred Shares represented by the surrendered certificate. Each such new certificate shall be registered in such name and shall represent such number of Preferred Shares as is requested by the holder of the surrendered certificate and shall be substantially identical in form to the surrendered certificate, and dividends shall accrue on the Preferred Stock represented by such new certificate from the date to which dividends have been fully paid on such Preferred Stock represented by the surrendered certificate. Section 11. Replacement. ----------- Upon receipt of evidence reasonably satisfactory to the Corporation (an affidavit of the registered holder shall be satisfactory) of the ownership and the loss, theft, destruction or mutilation of any certificate evidencing Preferred Shares of any series of Preferred Stock, and in the case of any such loss, theft or destruction, upon receipt of indemnity reasonably satisfactory to the Corporation (provided that if the holder is a financial institution or other institutional investor, its own agreement shall be satisfactory), or, in the case of any such mutilation upon surrender of such certificate, the Corporation shall (at its expense) execute and deliver in lieu of such certificate a new certificate of like kind representing the number of Preferred Shares of such series represented by such lost, stolen, destroyed or mutilated certificate and dated the date of such lost, stolen, destroyed -14- or mutilated certificate, and dividends shall accrue on the Preferred Stock represented by such new certificate from the date to which dividends have been fully paid on such lost, stolen, destroyed or mutilated certificate. Section 12. Definitions. ----------- "Business Day" means a day on which banks are generally open for business in New York City. "Closing" has the meaning given such term in the Purchase Agreement. "Closing Price" of each share of Common Stock or other security means the composite closing price of the sales of the Common Stock or such other security on all securities exchanges on which such security may at the time be listed (as reported in The Wall Street Journal), or, if there has been no sale on any such exchange on any day, the average of the highest bid and lowest asked prices of the Common Stock or such other security on all such exchanges at the end of such day, or, if such security is not so listed, the closing price (or last price, if applicable) of sales of the Common Stock or such other security in the Nasdaq National Market (as reported in The Wall Street Journal) on such day, or if such security is not quoted in the Nasdaq National Market but is traded over-the-counter, the average of the highest bid and lowest asked prices on such day in the over-the-counter market as reported by the National Quotation Bureau Incorporated, or any similar successor organization. "Common Stock" means, collectively, the Corporation's common stock, par value $0.01 per share, and any capital stock of any class of the Corporation hereafter authorized which is not limited to a fixed sum or percentage of par or stated value in respect to the rights of the holders thereof to participate in dividends or in the distribution of assets upon any Liquidation of the Corporation; and if there is a change such that the securities issuable upon conversion of the Preferred Stock are issued by an entity other than the Corporation or there is a change in the class of securities so issuable, then the term "Common Stock" shall mean one share of the security issuable upon conversion of the Preferred Stock if such security is issuable in shares, or shall mean the smallest unit in which such security is issuable if such security is not issuable in shares. "Conversion Price" shall mean, with respect to any Series A Share, $6.25 (subject to adjustment as provided in Section 6 for events occurring after the Closing). "Convertible Security" means any stock or other securities of the Corporation convertible into or exchangeable for Common Stock. -15- "Corporation" means Orion Newco Services, Inc., a Delaware corporation. "Date of Issuance," with respect to any Preferred Share, means the date on which the Corporation initially issues such Preferred Share, regardless of the number of times transfer of such Preferred Share is made on the stock records maintained by or for the Corporation and regardless of the number of certificates which may be issued to evidence such Preferred Share. "Dividend Reference Dates" mean August 31, November 30, February 28 and May 31 of each year. "Excluded Issuance" means the issue or sale of (i) shares of Common Stock in respect of any transaction described in paragraph 6D or pursuant to the Old ONS Merger Agreement, (ii) up to an aggregate of 2,203,960 shares of Common Stock by the Corporation pursuant to the exercise of Options and Convertible Securities outstanding immediately prior to the Closing at exercise prices that are greater than or equal to the respective exercise prices in effect as of Closing (as adjusted pursuant to the terms of such securities to give effect to stock dividends or stock splits or a combination of shares in connection with a recapitalization, merger, consolidation or other reorganization occurring after the Closing), (iii) up to an aggregate of 150,000 shares of Common Stock by the Corporation for any purpose, or (iv) Options to acquire Common Stock by the Corporation pursuant to a resolution of, or a stock option plan approved by a resolution of, the Board of Directors of the Corporation (or the compensation committee thereof) to the Corporation's employees, the per share exercise price of which is greater than or equal to the fair market value of a share of Common Stock at the time such Option is issued, as determined by the Board of Directors of the Corporation (or the compensation committee thereof). "Event of Noncompliance" means and shall be deemed to have occurred if: (i) the Corporation fails to make any redemption payment with respect to the Preferred Stock which it is obligated to make hereunder, whether or not such payment is legally permissible or is prohibited by any agreement to which the Corporation is subject; (ii) the Corporation breaches or otherwise fails to perform or observe any other covenant or agreement set forth herein or in the Purchase Agreement; provided, first, that no Event of Noncompliance shall be deemed to have occurred under this subparagraph (ii) if the Corporation reasonably establishes that the Event of Noncompliance is not material to the financial condition, operating results, operations or assets of the Corporation and its Subsidiaries, taken as a whole, or to any holder's investment in the Preferred -16- Stock; and provided, second, that, so long as the Corporation commences promptly and continues to exercise reasonable and diligent efforts to cure the Event of Noncompliance (if cure is possible) within a reasonable time after its occurrence, the applicable grace periods set forth in paragraph (i) and in clause (a) of paragraph (ii) of Section 9 shall be extended with respect to such Event of Noncompliance for a period of time equal to the period during which such efforts are continuing; (iii) any representation, warranty or certification by or on behalf of the Corporation contained in the Purchase Agreement or required to be furnished to any holder of Preferred Stock pursuant to the Purchase Agreement is false or misleading in any material respect on the date made; provided, however, that any Event of Noncompliance under this clause (iii) resulting from the delivery of a certification that is made in good faith but is false or misleading shall be deemed to be cured from and after the date a certification correcting the earlier false or misleading certification is delivered to the holders of the Preferred Stock, which delivery shall occur promptly after the facts or events that caused such earlier certification to be false or misleading become known to the Corporation; or (iv) the Corporation or any Subsidiary makes an assignment for the benefit of creditors or admits in writing its inability to pay its debts generally as they become due; or an order, judgment or decree is entered adjudicating the Corporation or any Subsidiary bankrupt or insolvent; or any order for relief with respect to the Corporation or any Subsidiary is entered under the Federal Bankruptcy Code; or the Corporation or any Subsidiary petitions or applies to any tribunal for the appointment of a custodian, trustee, receiver or liquidator of the Corporation or any Subsidiary or of any substantial part of the assets of the Corporation or any Subsidiary, or commences any proceeding (other than a proceeding for the voluntary liquidation and dissolution of a Subsidiary) relating to the Corporation or any Subsidiary under any bankruptcy, reorganization, arrangement, insolvency, readjustment of debt, dissolution or liquidation law of any jurisdiction; or any such petition or application is filed, or any such proceeding is commenced, against the Corporation or any Subsidiary and either (a) the Corporation or any such Subsidiary by any act indicates its approval thereof, consent thereto or acquiescence therein or (b) such petition, application or proceeding is not dismissed within 60 days. "Freely Tradeable Securities" has the meaning given such term in the Purchase Agreement. "Fundamental Change" has the meaning given such term in the Purchase Agreement. -17- "Investment Regulations" means, as applicable, Title III of the Small Business Investment Act of 1958, as amended, and the regulations promulgated thereunder, Regulation Y (Title 12, Code of Federal Regulations, Part 225) under Section 5(b) of the Bank Holding Company Act of 1956, as amended, or other similar laws or regulations governing a regulated Person's investment authority. "Junior Securities" means Common Stock and any other capital stock or other equity securities issued by the Corporation, whether currently existing or hereafter authorized or issued. "Liquidation" means the liquidation, dissolution or winding up of the Corporation; provided, however, that neither the consolidation or merger of the Corporation into or with any other entity or entities, nor the sale or transfer by the Corporation of all or any part of its assets, nor the reduction of the capital stock of the Corporation, shall be deemed to be a liquidation, dissolution or winding up of the Corporation. "Liquidating Dividend" means a dividend upon the Common Stock payable otherwise than in cash out of earnings or earned surplus (determined in accordance with generally accepted accounting principles, consistently applied) except for a stock dividend payable in shares of Common Stock. "Liquidation Value" of any Preferred Share shall be equal to $1,000. "Market Price" of each share of Common Stock or other security means the Closing Price of such share or other security, averaged over a period of 21 days consisting of the day as of which the Market Price is being determined and the 20 consecutive Business Days prior to such day. If during this period such security is not listed on any securities exchange, quoted in the Nasdaq National Market, or quoted in the over-the-counter market, the Market Price will be the fair value of such security determined by agreement between the Company and the holders of 70% of the outstanding Preferred Shares. If such parties are unable to reach agreement within a reasonable period of time, the fair value of such security shall be determined by an independent appraiser experienced in valuing such type of consideration jointly selected by the Corporation and the holders of 70% of the outstanding Preferred Shares. The determination of such appraiser shall be final and binding upon the parties, and the fees and expenses of such appraiser shall be borne by the Corporation. "Old ONS" Orion Network Systems, Inc., a Delaware Corporation incorporated in 1982. "Old ONS Merger Agreement" means the Agreement and Plan of 2Merger dated as of January 8, 1997, by and among the Corporation, Old ONS and Orion Merger Company, Inc. -18- "Old ONS Preferred Share" means one (1) share of the series of the preferred stock of Old ONS having the designation "Series A 8% Cumulative Redeemable Convertible Preferred Stock," as set forth in that certain "Certificate of Designations, Rights and Preferences of Series A 8% Cumulative Redeemable Convertible Preferred Stock of Orion Network Systems, Inc." filed with the Secretary of State of the State of Delaware on June 17, 1994. "Old ONS Preferred Share Conversion" means the conversion of Old ONS Preferred Shares into the right to receive Preferred Shares, pursuant to the Old ONS Merger Agreement. "Options" means any right or option to subscribe for or to purchase Common Stock or any Convertible Securities. "Organic Change" means any recapitalization, reorganization, reclassification, consolidation, merger, sale of all or substantially all of the Corporation's assets to another Person or other transaction which is effected in such a manner that holders of Common Stock are entitled to receive (either directly or upon subsequent liquidation) stock, securities or assets with respect to or in exchange for Common Stock. "Person" means an individual, a partnership, a corporation, an association, a joint stock company, a limited liability company, a trust, a joint venture, an unincorporated organization and a governmental entity or any department, agency or political subdivision thereof. "Preferred Share" means a share of Preferred Stock. "Preferred Stock" means the Series A Preferred. "Public Float Securities" means, as of any date of determination, those shares of the Corporation's Common Stock that (i) previously have been sold to the public in an offering registered under the Securities Act or through a broker, dealer or market maker under Rule 144 of the Securities Act, (ii) are listed for trading on a "national securities exchange" (within the meaning of the Securities Exchange Act of 1934, as amended) or quoted on the "National Market System" or "National List" published by the National Association of Securities Dealers Automated Quotations System or any successor list, and (iii) are held by Persons other than the Corporation or any of its "affiliates" (within the meaning of Rule 144 under the Securities Act). "Public Offering" means any offering by the Corporation of its equity securities to the public pursuant to an effective registration statement under the Securities Act of 1933, as then in effect, or any comparable statement under any -19- similar federal statute then in force; provided, that "Public Offering" shall not include an offering made in connection with a business acquisition or combination or an employee benefit plan. "Purchase Agreement" means the Purchase Agreement, dated as of June 17, 1994, by and among Old ONS and certain investors, as such agreement may from time to time be amended in accordance with its terms, the performance of Old ONS's obligations under which the Corporation has assumed pursuant to an agreement dated as of _______, 199__, by and among Old ONS, the Corporation, and such investors. "Purchase Rights" mean any Options, Convertible Securities or rights to purchase stock, warrants, securities or other property. "Redemption Date" means the date on which Price of a Preferred Share is paid to the holder thereof. "Redemption Price" means, with respect to any Preferred Share being redeemed, the Liquidation Value of such Preferred Share plus all accrued and unpaid dividends thereon. "Reorganization" means any merger or consolidation of the Corporation with any Person where both (i) either (a) the Corporation is not the surviving corporation, (b) the terms of the Preferred Stock are altered in any respect, or (c) the Preferred Stock is exchanged for cash, securities or other property, and (ii) such merger or consolidation does not constitute a Fundamental Change. "Securities Act" means the Securities Act of 1933, as amended. "Series A Preferred" means the Corporation's Series A 8% Cumulative Redeemable Convertible Preferred Stock, par value $.01 per share. "Series A Share" means a share of Series A Preferred. "Subsidiary" means, with respect to any Person, corporation, partnership, association or other business entity of which (i) if a corporation, a majority of the total voting power of shares of stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person or a combination thereof, or (ii) if a partnership, association or other business entity, a majority of the partnership or other similar ownership interest thereof is at the time owned or controlled, directly or indirectly, by any Person or one or more Subsidiaries of that person or a combination thereof. For purposes hereof, a Person or Persons shall be -20- deemed to have a majority ownership interest in a partnership, association or other business entity if such Person or Persons shall be allocated a majority of partnership, association or other business entity gains or losses or shall be or control a general partner of such partnership, association or other business entity. Without limiting the foregoing, International Private Satellite Partners, L.P., a Delaware limited partnership, shall be deemed to be a Subsidiary of the Corporation for so long as the Corporation or any of its other Subsidiaries is the general partner thereof. "Warrants" means the Common Stock purchase warrants issued pursuant to the Purchase Agreement (whether at the Closing or thereafter pursuant to paragraph ID or Section 7 thereof) and any warrant issued in exchange, substitution or replacement thereof. Section 13. Amendment and Waiver. -------------------- No amendment, modification or waiver shall be binding or effective with respect to any provision of Sections 1 to 13 hereof without the prior written consent of the holders of 70% of the Preferred Shares outstanding at the time such action is taken; provided, that no such action shall change (i) the rate at which or the manner in which dividends on the Preferred Stock accrue or the times at which such dividends become payable or the amount payable on redemption of the Preferred Stock or the times at which redemption of Preferred Stock is to occur, without the prior written consent of the holders of at least 90% of the Preferred Shares then outstanding, (ii) any Conversion Price of the Preferred Stock or the number of shares or class of stock into which the Preferred Stock is convertible, without the prior written consent of the holders of at least 90% of the Preferred Stock then outstanding or (iii) the percentage required to approve any change in clauses (i) and (ii) above, without the prior written consent of the holders of at least 90% of the Preferred Stock then outstanding. Section 14. Notices. ------- Except as otherwise expressly provided hereunder, all notices referred to herein shall be in writing and shall be delivered by registered or certified mail, return receipt requested and postage prepaid, or by reputable overnight courier service, charges prepaid, and shall be deemed to have been given when so mailed or sent (i) to the Corporation, at its principal executive offices and (ii) to any stockholder, at such holder's address as it appears in the stock records of the Corporation (unless otherwise indicated by any such holder). -21- CERTIFICATE OF DESIGNATIONS, RIGHTS AND PREFERENCES OF SERIES B 8% CUMULATIVE REDEEMABLE CONVERTIBLE PREFERRED STOCK OF ORION NEWCO SERVICES, INC. - -------------------------------------------------------------------------------- Pursuant to Section 151 of the General Corporation Law of the State of Delaware - -------------------------------------------------------------------------------- The undersigned DOES HEREBY CERTIFY that, pursuant to the authority contained in Article FOURTH of the Certificate of Incorporation of Orion Newco Services, Inc., a Delaware corporation (the "Corporation"), and in accordance with Section 151 of the General Corporation Law of the State of Delaware, the Board of Directors of the Corporation has authorized the creation of Series B 8% Cumulative Redeemable Convertible Preferred Stock having the designations, rights and preferences as are set forth in Exhibit A hereto and made a part hereof and that the following resolution was duly adopted by the Board of Directors of the Corporation: RESOLVED, that a series of authorized Preferred Stock, par value $.01 per share, of the Corporation be, and it hereby is, created; that the shares of such series shall be, and they hereby are, designated as "Series B 8% Cumulative Redeemable Convertible Preferred Stock"; that the number of shares constituting such series shall be, and it hereby is, 5,000; and that the designations, rights and preferences of the shares of such series are as set forth in Exhibit A attached hereto and made a part hereof. IN WITNESS WHEREOF, the Corporation has caused its corporate seal to be hereunto affixed and this Certificate to be signed by its President and Chief Executive Officer and attested to by its Vice President, Corporate and Legal Affairs, and Secretary this ____ day of __________, 199__. ORION NEWCO SERVICES, INC. By: ------------------------------ [SEAL] Name: W. Neil Bauer Title: President/Chief Executive Officer ATTEST: - --------------------------------------------- Name: Richard H. Shay, Esq. Title: Vice President, Corporate and Legal Affairs/Secretary -2- EXHIBIT A --------- SERIES B 8% CUMULATIVE REDEEMABLE CONVERTIBLE PREFERRED STOCK The following sections set forth the designations, rights and preferences of the Corporation's Series B Preferred. Capitalized terms used herein are defined in Section 12 below. Section 1. Dividends. --------- 1A. General Obligation. When and as declared by the Corporation's board of directors and to the extent permitted under the General Corporation Law of Delaware, the Corporation shall pay preferential dividends to the holders of the Preferred Stock as provided in this Section 1. Except as otherwise provided herein, dividends on each Preferred Share shall accrue on a daily basis at the rate of 8% per annum of the sum of the Liquidation Value thereof plus all accumulated and unpaid dividends thereon, from and including the Date of Issuance of such Preferred Share to and including the date on which the Liquidation Value of such Preferred Share (plus all accrued and unpaid dividends thereon) is paid or the date on which such Preferred Share is converted into shares of Common Stock hereunder. Such dividends shall accrue whether or not they have been declared and whether or not there are profits, surplus or other funds of the Corporation legally available for the payment of dividends. 1B. Dividend Reference Dates. To the extent not paid on a Dividend Reference Date, with the initial Dividend Reference Date being February 28, 1997, all dividends which have accrued on each Preferred Share outstanding since the latest preceding Dividend Reference Date (or the Date of Issuance of such Preferred Share, if later) ending upon each such Dividend Reference Date, and, in the case of each Preferred Share outstanding that was issued upon the Old ONS Preferred Share Conversion, all dividends that were accrued, accumulated, and unpaid at the time of the Old ONS Preferred Share Conversion on the Old ONS Preferred Share that was converted into such Preferred Share, shall be accumulated and shall remain accumulated dividends with respect to such Preferred Share until paid. 1C. Distribution of Partial Dividend Payments. Except in connection with redemptions or repurchases (i) pursuant to paragraph 4A or 4B below, (ii) in compliance with paragraph 4H below, or (iii) as provided in the Purchase Agreement, if at any tide the Corporation pays less than the -3- total amount of dividends then accrued with respect to the Preferred Stock such payment shall be distributed ratably among the holders thereof based upon the aggregate accrued but unpaid dividends on the Preferred Shares held by each such holder and such payment shall be applied first to dividends which have accrued on such Preferred Shares during the period since the latest preceding Dividend Reference Date and second to reduce any accumulated dividends with respect to such Preferred Shares. Section 2. Liquidation. ----------- Subject to the provisions of Section 2 of the Series A Certificate: upon any Liquidation, each holder of Preferred Stock shall be entitled to be paid, before any distribution or payment is made upon any Junior Securities, an amount in cash equal to the greater of (a) the aggregate Liquidation Value (plus all accrued and unpaid dividends) of all shares of Preferred Stock held by such holder or (b) the amount which would be distributed with respect to the shares of Common Stock (including fractional shares for purposes of this calculation) into which such shares of Preferred Stock are convertible (assuming conversion of all outstanding Preferred Stock) immediately prior to the record date for such distribution (or, if there is no such record date, then the date as of which the holders of Common Stock entitled to such distribution are determined), and the holders of Preferred Stock shall not be entitled to any further payment; and if upon any such Liquidation the Corporation's assets to be distributed among the holders of the Preferred Stock are insufficient to permit payment to such holders of the aggregate amount which they are entitled to be paid, then the entire assets to be distributed shall be distributed ratably among such holders based upon the aggregate Liquidation Value (plus all accrued and unpaid dividends) of the Preferred Shares held by each such holder. Prior to such Liquidation, the Corporation shall declare for payment all accrued and unpaid dividends with respect to the Preferred Stock. (Payment of the greater of the amounts specified in clauses (a) and (b) of this Section 2 in respect of such Preferred Shares shall constitute payment of such declared dividends.) The Corporation shall mail written notice of such Liquidation, not less than 60 days prior to the payment date stated therein, to each record holder of Preferred Stock. Section 3. [Reserved.] -------- Section 4. Redemptions. ----------- 4A. Redemption at Option of Corporation. ----------------------------------- (i) The Corporation may at any time redeem all or, subject to paragraph 4E below, any of the Preferred Shares then outstanding at the Redemption Price, provided that no redemption pursuant to this paragraph 4A shall be for Preferred Shares with an aggregate Liquidation Value of less -4- than $1,000,000 (less the aggregate liquidation value of any Series A Shares being redeemed) or such lesser number of Preferred Shares then outstanding. (ii) The Corporation may in connection with a Reorganization redeem all or any of the Preferred Shares then outstanding at the Redemption Price, payable at the time of the consummation of the Reorganization as follows: (a) first, in Freely Tradeable Securities in an amount not to exceed the lesser of (1) the Redemption Price of such Preferred Shares and (2) the amount of Freely Tradeable Securities that, if such holder had converted such Preferred Shares into Common Stock immediately prior to such Reorganization, would have been issued to such holder in connection with such Reorganization in respect of such shares of Common Stock; and (b) second, the balance of the Redemption Price (if any) in cash. Notwithstanding paragraph 4H hereof, if the Corporation seeks the consent of the holders of Preferred Stock to any Reorganization under subparagraph 3D(iv) of the Purchase Agreement, and the affirmative consent of the holders required thereunder is not obtained, the Corporation may redeem at or prior to the time of the consummation of such Reorganization and pursuant to this paragraph 4A(ii), all (but not less than all) of the Preferred Shares held by those holders that did not affirmatively consent to such transaction. 4B. Redemptions at the Option of the Holder. --------------------------------------- (i) At any time after the fifth anniversary of the Closing, subject to subparagraph 4B(ii) below, each holder of Preferred Stock may request redemption of all or a portion of the Preferred Shares owned by such holder for a price equal to the Redemption Price. Within five Business Days after receipt of such request (or of any similar request under paragraph 4B(i) of the Series A Certificate), the Corporation shall give written notice to all other holders of Preferred Stock, and such other holders may request redemption of their Preferred Shares by delivering written notice to the Corporation within 10 Business Days after receipt of the Corporation's notice. The Corporation shall pay the Redemption Price of all Preferred Shares whose redemption has been duly requested pursuant to this paragraph 4B within 30 days after its receipt of the initial request for such redemption. Notwithstanding the above, the Corporation shall not be obligated pursuant to this paragraph 4B to redeem any Preferred Share initially issued to a Small Business Investment Company licensed by the U.S. Small Business Administration before the fifth anniversary of the Date -5- of Issuance of such Preferred Share, provided that all such outstanding Preferred Shares shall be counted as held by their holders for purposes of all pro rata and other calculations. (ii) Notwithstanding the provisions of subparagraph 4B(i) above, the Corporation shall not be obligated to repurchase, pursuant to this paragraph 4B: (a) on a cumulative basis, (x) before the sixth anniversary of the Closing, a number of shares of Preferred Stock, which when taken together with the number of Series A Shares similarly repurchased, exceeds one-third of all shares of Series A Preferred and Series B Preferred issued by the Corporation at any time (for purposes of such calculation, taking into account both repurchases under this paragraph 4B, repurchases under paragraph 4B of the Series A Certificate and repurchases under paragraph 6A of the Purchase Agreement), and (y) before the seventh anniversary of the Closing, a number of shares of Preferred Stock, which when taken together with the number of Series A Shares similarly repurchased, exceeds two-thirds of all shares of Series A Preferred and Series B Preferred issued by the Corporation at any time (for purposes of such calculation, taking into account both repurchases under this paragraph 4B, repurchases under paragraph 4B of the Series A Certificate and repurchases under paragraph 6A of the Purchase Agreement) (and at no time shall any initial holder and its transferees be entitled to sell shares of Preferred Stock to the Corporation pursuant to this paragraph 4B to the extent that the aggregate number of shares of Series A Preferred and Series B Preferred sold by such Persons at or before that time pursuant to this paragraph 4B, pursuant to paragraph 4B of the Series A Certificate or pursuant to paragraph 6A of the Purchase Agreement (limited in the case of a transferee to shares of Series A Preferred and Series B Preferred acquired directly or indirectly from, or acquired in respect of Series A Preferred or Series B Preferred acquired directly or indirectly from, such initial holder) would, on a cumulative basis, exceed an amount equal to (I) the maximum cumulative number of shares which the Corporation may be required to redeem under this subparagraph 43(ii) (a) at such time, multiplied by (II) a fraction (x) the numerator of which is the aggregate number, without duplication, of shares of Series A Preferred and Series B Preferred issued by the Corporation at any time that was held by such holders (limited in the case of a transferee to shares of Series A Preferred and Series B Preferred acquired directly or indirectly from, or acquired in respect of Series A Preferred and Series B Preferred acquired directly or indirectly from, such initial holder), and (y) the denominator of which is the aggregate number, without duplication, of -6- shares of Series A Preferred and Series B Preferred issued by the Corporation at any time); and (b) for a period of 180 days after the date the Corporation redeems shares of Series B Preferred pursuant to paragraph 4B(i) (or Series A Preferred pursuant to paragraph 4B(i) of the Series A Certificate), any shares of Preferred Stock pursuant to a request for redemption under paragraph 4B(i) that is requested subsequent to, and not as part of, such prior redemption. 4C. Redemption Payment. For each Preferred Share which is to be redeemed (and except as otherwise provided in paragraph 4A(ii) above), the Corporation shall be obligated on the Redemption Date to pay to the holder thereof (upon surrender by such holder at the Corporations principal office of the certificate representing such Preferred Share) an amount in immediately available funds equal to the Redemption Price of such Preferred Share. Subject to the provisions of paragraph 4C of the Series A Certificate: if the funds of the Corporation legally available for redemption of Preferred Shares on any Redemption Date are insufficient to redeem the total number of Preferred Shares to be redeemed on such date, those funds which are legally available shall be used to redeem the maximum possible number of Preferred Shares ratably among the holders of the Preferred Shares to be redeemed based upon the aggregate Redemption Price of the Preferred Shares held by each such holder and the remaining Preferred Shares will remain outstanding; and at any time thereafter when additional funds of the Corporation are legally available for the redemption of Preferred Shares, such funds shall immediately be used to redeem the balance of the Preferred Shares which the Corporation has become obligated to redeem on any Redemption Date but which it has not redeemed. In connection with any redemption of Preferred Stock pursuant to this Section 4, the Corporation shall declare for payment all dividends that are accrued and unpaid as of the Redemption Date with respect to the Preferred Shares which are to be redeemed on such Redemption Date. (Payment of the Redemption Price in respect of such Preferred Shares shall constitute payment of such declared dividends.) 4D. Notice of Redemption. The Corporation shall mail written notice of each redemption of any Series A Preferred or Series B Preferred to each record holder of Preferred Stock not more than 60 nor less than 30 days prior to the date on which such redemption is to be made in the case of a redemption pursuant to paragraph 4A (or paragraph 4A of the Series A Certificate), and not less than 5 Business Days prior to the date on which such redemption is to be made in the case of a redemption pursuant to paragraph 4B (or paragraph 4B of the Series A Certificate). Upon mailing any such notice of redemption, the Corporation shall become obligated to -7- redeem the total number of Preferred Shares specified in such notice at the time of redemption specified therein. In case fewer than the total number of Preferred Shares represented by any certificate are redeemed, a new certificate representing the number of unredeemed Preferred Shares shall be issued to the holder thereof without cost to such holder within three Business Days after surrender of the certificate representing the redeemed Preferred Shares. 4E. Determination of the Number of Each Holder's Preferred Shares to be Redeemed. The number of Preferred Shares to be redeemed from each holder thereof in redemptions pursuant to paragraph 4A(i) shall be the number of Preferred Shares determined by multiplying the total number of Preferred Shares to be redeemed by a fraction, the numerator of which shall be the total Redemption Price of Preferred Shares then held by such holder and the denominator of which shall be the aggregate Redemption Price of Preferred Shares then outstanding. 4F. Dividends after Redemption Date. No Preferred Share is entitled to any dividends accruing after the Redemption Date. On the Redemption Date of any Preferred Share, all rights of the holder of such Preferred Share shall cease, and such Preferred Share shall not be deemed to be outstanding. 4G. Redeemed or Otherwise Acquired Preferred Shares. Any Preferred Shares which are redeemed or otherwise acquired by the Corporation thereupon shall be retired. All such shares shall upon their retirement become authorized but unissued shares of preferred stock of the Corporation and may not be reissued as Preferred Stock but may be reissued as part of a new series of preferred stock to be created by resolution or resolutions of the board of directors, subject to the conditions or restrictions on issuance set forth in the certificate of incorporation of the Corporation. 4H. Other Redemptions or Acquisitions. Neither the Corporation nor any Subsidiary shall redeem or otherwise acquire any Preferred Stock, except as expressly authorized herein or pursuant to the Purchase Agreement or pursuant to a purchase offer made pro rata to all holders or Preferred Stock on the basis of the aggregate Redemption Price of the Preferred Shares owned by each such holder. Section 5 Voting Rights. ------------- The holders of the Preferred Stock shall be entitled to notice of all stockholders meetings in accordance with the Corporation's bylaws, and except as otherwise required by law, the holders of the Preferred Stock shall be entitled to vote on all matters submitted to the stockholders for a vote together with the holders of the Common Stock voting together as a single -8- class with each share of Common Stock entitled to one vote per share, and each Preferred Share (including fractional shares) entitled to one vote for each share of Common Stock that would be issuable upon conversion of such Preferred Share at the time the vote is taken. Section 6. Conversion. ---------- 6A. Conversion Procedure. -------------------- (i) At any time and from time to time after the issuance thereof, any holder of Preferred Stock may convert all or any of the Preferred Shares (including any fraction of a Preferred Share) held by such holder into a number of shares of Common Stock computed by multiplying the number of Preferred Shares to be converted by the Liquidation Value and dividing the result by the applicable Conversion Price then in effect. (ii) Each conversion of Preferred Stock shall be deemed to have been effected as of the close of business on the date on which the certificate or certificates representing the Preferred Shares to be converted have been surrendered at the principal office of the Corporation. At such time as such conversion has been effected, the rights of the holder of such Preferred Shares as such holder shall cease, all accrued and unpaid dividends on such Preferred Shares shall be deemed to have been forfeited immediately prior to such conversion, and the Person or Persons in whose name or names any certificate or certificates for shares of Common Stock are to be issued upon such conversion shall be deemed to have become the holder or holders of record of the shares of Common Stock represented thereby. (iii) The conversion rights of any Preferred Share subject to redemption hereunder shall terminate on the Redemption Date for such Preferred Share unless the Corporation has failed to pay to the holder thereof the Redemption Price thereof. (iv) Notwithstanding any other provision hereof, if a conversion of any Preferred Shares is to be made in connection with a Public Offering, such conversion may, at the election of the holder of such Preferred Shares, be conditioned upon the consummation of the Public Offering, in which case such conversion shall not be deemed to be effective until the consummation of the Public Offering (v) As soon as possible after a conversion has been effected (but in any event within five Business Days in the case of subparagraph (a) below), the Corporation shall deliver to the converting holder: (a) a certificate or certificates representing the number of shares of Common Stock issuable by reason of such conversion in such name -9- or names and such denomination or denominations as the converting holder has specified; (b) payment of the amount payable under subparagraph (viii) below with respect to such conversion; and (c) a certificate representing any Preferred Shares which were represented by the certificate or certificates delivered to the Corporation in connection with such conversion but which were not converted. (vi) The issuance of certificates for shares of Common Stock upon conversion of Preferred Stock shall be made without charge to the holders of such Preferred Stock for any issuance tax in respect thereof or other cost incurred by the Corporation in connection with such conversion and the related issuance of shares of Common Stock. (vii) The Corporation shall not close its books against the transfer of Preferred Stock or of Common Stock issued or issuable upon conversion of Preferred Stock in any manner which interferes with the timely conversion of Preferred Stock. The Corporation shall assist and cooperate (but the Corporation shall not be required to expend substantial efforts or funds) with any holder of Preferred Shares required to make any governmental filings or obtain any governmental approval prior to or in connection with any conversion of Preferred Shares hereunder (including, without limitation, making any filings required to be made by the Corporation). (viii) If any fractional interest in a share of Common Stock would, except for the provisions of this subparagraph, be deliverable upon any conversion of a holder's Preferred Stock, the Corporation, in lieu of delivering the fractional share therefor, shall pay an amount to the holder thereof equal to the Market Price of such fractional interest as of the date of conversion. (ix) The Corporation shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of issuance upon the conversion of the Preferred Stock or exercise of the Warrants, such number of shares of Common Stock issuable upon the conversion of all outstanding Preferred Stock and exercise of all outstanding Warrants which may then be exercised. All shares of Common Stock which are so issuable shall, when issued, be duly and validly issued, fully paid and nonassessable and free from all taxes, liens and charges. The Corporation shall take all such actions as may be necessary to ensure that all such shares of Common Stock may be so issued without violation of any applicable law or governmental regulation (excluding Investment Regulations) or any requirements of any domestic securities exchange upon -10- which shares of Common Stock may be listed (except for official notice of issuance which shall be immediately delivered by the Corporation upon each such issuance). 6B. Conversion Price. ---------------- (i) In order to prevent dilution of the conversion rights granted under this subdivision, the Conversion Price shall be subject to adjustment from time to time pursuant to this Section 6. (ii) If and whenever on or after the Date of Issuance of any Preferred Share the Corporation issues or sells, or in accordance with paragraph 6C is deemed to have issued or sold, other than in an Excluded Issuance, any share of Common Stock for a consideration per share less than the Conversion Price in effect immediately prior to such time with respect to any such Preferred Share, then forthwith upon such issue or sale the Conversion Price of such Preferred Share shall be reduced to the lowest net price per share at which any such share of Common Stock has been issued or sold or is deemed to have been issued or sold. 6C. Effect on Conversion Price of Certain Events. Solely for purposes of determining the adjusted Conversion Price under paragraph 6B, the following shall be applicable: (i) Issuance of Rights or Options. If the Corporation in any manner grants any Options and the lowest price per share for which any one share of Common Stock is issuable upon the exercise of any such Option or upon conversion or exchange of any Convertible Security is less than any Conversion Price in effect immediately prior to the time of the granting of such Option, then such share of Common Stock shall be deemed to have been issued and sold by the Corporation at the time of the granting of such Options for such price per share and such Conversion Price shall be adjusted in accordance with paragraph 6B(ii) above. For purposes of this paragraph, the "lowest price per share for which any one share of Common Stock is issuable" shall be equal to the sum of the lowest amounts of consideration (if any) received or receivable by the Corporation with respect to any one share of Common Stock upon the granting of the Option, upon exercise of the Option and upon conversion or exchange of the Convertible Security. No further adjustment of such Conversion Price shall be made upon the actual issue of such Common Stock or of such Convertible Security upon the exercise of such Options or upon the actual issue of such Common Stock upon conversion or exchange of such Convertible Security. (ii) Issuance of Convertible Securities. If the Corporation in any manner issues or sells any Convertible Security and the lowest price per share for which any one share of Common Stock is issuable upon conversion -11- or exchange thereof is less than any Conversion Price in effect immediately prior to the time of such issue or sale, then such share of Common Stock shall be deemed to have been issued and sold by the Corporation at the time of the issuance or sale of such Convertible Securities for such price per share and such Conversion Price shall be adjusted in accordance with paragraph 6B(ii) above. For the purposes of this paragraph, the "lowest price per share for which any one share of Common Stock is issuable" shall be equal to the sum of the lowest amounts of consideration (if any) received or receivable by the Corporation with respect to any one share of Common Stock upon the issuance of the Convertible Security and upon the conversion or exchange of such Convertible Security. No further adjustment of such Conversion Price shall be made upon the actual issue of such Common Stock upon conversion or exchange of any Convertible Security, and if any such issue or sale of such Convertible Security is made upon exercise of any Options for which adjustments of such Conversion Price had been or are to be made pursuant to other provisions of this Section 6, no further adjustment of such Conversion Price shall be made by reason of such issue or sale. (iii) Change in Option Price or Conversion Rate. If the purchase price provided for in any Option, the additional consideration (if any) payable upon the issue, conversion or exchange of any Convertible Security, or the rate at which any Convertible Security is convertible into or exchangeable for Common Stock change at any time, any Conversion Price previously adjusted with respect to such Option or Convertible Security and in effect at the time of such change shall be readjusted to the Conversion Price which would have been in effect at such time had such Option or Convertible Security originally provided for such changed purchase price, additional consideration or changed conversion rate, as the case may be, at the time initially granted, issued or sold. (iv) Treatment of Expired Options and Unexercised Convertible Securities. Upon the expiration of any Option or the termination of any right to convert or exchange any Convertible Security without the exercise of any such Option or right, any Conversion Price then in effect hereunder shall be adjusted to the Conversion Price which would have been in effect at the time of such expiration or termination had such Option or Convertible Security, to the extent outstanding immediately prior to such expiration or termination, never been issued. (v) Calculation of Consideration Received. If any Common Stock, Option or Convertible Security is issued or sold or deemed to have been issued or sold for cash, the consideration received therefor shall be deemed to be the amount received by the Corporation therefor. In case any Common Stock, Options or Convertible Securities are issued or sold for a consideration other than cash, the amount of the consideration other than -12- cash received by the Corporation shall be the fair value of such consideration, except where such consideration consists of securities, in which case the amount of consideration received by the Corporation shall be the Market Price thereof as of the date of receipt. If any Common Stock, Option or Convertible Security is issued to the owners of the non-surviving entity in connection with any merger in which the Corporation is the surviving corporation, the amount of consideration therefor shall be deemed to be the fair value of such portion of the assets and business of the non-surviving entity as is attributable to such Common Stock, Options or Convertible Securities, as the case may be. The fair value of any consideration other than cash and securities shall be determined jointly by the Corporation and the holders of 70% of the outstanding Preferred Shares. If such parties are unable to reach agreement within a reasonable period of time, the fair value of such consideration shall be determined by an independent appraiser experienced in valuing such type of consideration jointly selected by the Corporation and the holders of 70% of the outstanding Preferred Shares. The determination of such appraiser shall be final and binding upon the parties, and the fees and expenses of such appraiser shall be borne by the Corporation. (vi) Integrated Transactions. In case any Option is issued in connection with the issue or sale of other securities of the Corporation, together comprising one integrated transaction in which no specific consideration is allocated to such Option by the parties thereto, the Option shall be deemed to have been issued for a consideration of $.01. (vii) Treasury Shares. The number of shares of Common Stock outstanding at any given time does not include shares owned or held by or for the account of the Corporation or any Subsidiary, and the disposition of any shares so owned or held shall be considered an issue or sale of Common Stock. (viii) Record Date. If the Corporation fixes a record date for determining the holders of Common Stock entitled (a) to receive a dividend or other distribution payable in Common Stock, Options or in Convertible Securities or (b) to subscribe for or purchase Common Stock, Options or Convertible Securities, then such record date shall be deemed to be the date of the issue or sale of the shares of Common Stock deemed to have been issued or sold upon the declaration of such dividend or upon the making of such other distribution or the date of the granting of such right of subscription or purchase, as the case may be. 6D. Subdivision or Combination of Common Stock. If the Corporation at any time subdivides (by any stock split, stock dividend, recapitalization or otherwise) one or more classes of its outstanding shares of -13- Common Stock into a greater number of shares, any Conversion Price in effect immediately prior to such subdivision shall be proportionately reduced, and if the Corporation at any time combines (by reverse stock split or otherwise) one or more classes of its outstanding shares of Common Stock into a smaller number of shares, any Conversion Price in effect immediately prior to such combination shall be proportionately increased. 6E. Reorganization, Reclassification, Consolidation, Merger or Sale. In connection with any Organic Change, the Corporation shall make appropriate provisions (in form and substance reasonably satisfactory to the holders of 70% of the Preferred Shares then outstanding) to insure that each of the holders of Preferred Stock shall thereafter have the right to acquire and receive, in lieu of or in addition to (as the case may be) the shares of Common Stock immediately theretofore acquirable and receivable upon the conversion of such holder's Preferred Stock, such shares of stock, securities or assets as such holder would have received in connection with such Organic Change if such holder had converted its Preferred Stock immediately prior to such Organic Change. In each such case, the Corporation shall also make appropriate provisions (in form and substance reasonably satisfactory to the holders of 70% of the Preferred Shares then outstanding) to insure that the provisions of this Section 6 and Sections 7 and 8 hereof shall thereafter be applicable to the Preferred Stock (including, in the case of any such consolidation, merger or sale in which the successor entity or purchasing entity is other than the Corporation, an immediate adjustment of the Conversion Price to the value for the Common Stock reflected by the terms of such consolidation, merger or sale, and a corresponding immediate adjustment in the number of shares of Common Stock acquirable and receivable upon conversion of Preferred Stock, if the value so reflected is less than the Conversion Price in effect immediately prior to such consolidation, merger or sale). 6F. Certain Events. If any event occurs of the type contemplated by the provisions of this Section 6 but not expressly provided for by such provisions (including, without limitation, the granting of stock appreciation rights, phantom stock rights or other rights with equity features), then the Corporation's board of directors shall make an appropriate adjustment in each Conversion Price so as to protect the rights of the holders of Preferred Stock; provided that no such adjustment shall increase any Conversion Price as otherwise determined pursuant to this Section 6 or decrease the number of shares of Conversion Stock issuable upon conversion of each share of Preferred Stock. -14- 6G. Notices. ------- (i) Immediately upon any adjustment of the Conversion Price, the Corporation shall give written notice thereof to all holders of Preferred Stock, setting forth in reasonable detail and certifying the calculation of such adjustment. (ii) The Corporation shall give written notice to all holders of Preferred Stock at least 20 days prior to the date on which the Corporation closes its books or fixes a record date (a) with respect to any dividend or distribution upon Common Stock, (b) with respect to any pro rata subscription offer to holders of Common Stock or (c) for determining rights to vote with respect to any Organic Change or Liquidation. (iii) The Corporation shall also give written notice to the holders of Preferred Stock at least 20 days prior to the date on which any Organic Change shall take place. 6H. Mandatory Conversion. The Corporation may require by written notice to all holders of Preferred Stock, the conversion of all of the outstanding Preferred Stock at the then applicable Conversion Price, at any time after the second anniversary of the Closing, provided that (a) the Closing Price of the Common Stock (adjusted proportionately for stock dividends, stock splits, combinations, and similar changes in the Common Stock occurring after the Closing) on at least 30 of the 45 latest trading days preceding the date of the Corporation's notice has been greater than (i) $12.50 per share, if such notice is delivered prior to the last day of the 30th month after Closing, (ii) $15.62 per share, if such notice is delivered after the last day of the 30th month after Closing but prior to the third anniversary of the Closing, or (iii) $18.75 per share, if such notice is delivered on or after the third anniversary of the Closing, (b) the number of Public Float Securities outstanding exceeds 20% of the number of shares of Common Stock outstanding on a "fully-diluted" basis (i.e., after giving effect to the exercise, exchange arid conversion of all rights, options, warrants and convertible securities that are, directly or indirectly, exercisable or exchangeable for, or convertible into, Common Stock, determined without regard to any vesting limitations or restrictions on exercise, exchange or conversion), and (c) the holders of the Preferred Stock are not then subject to (and will not, as a result of such exercise, become subject to) any agreement restricting the sale of the Common Stock issued upon the conversion of the Preferred Stock. Section 7. Liquidation Dividends. --------------------- If the Corporation declares or pays a Liquidating Dividend upon the Common Stock, then the Corporation shall pay to the holders of Preferred Stock at the time of payment thereof the Liquidating Dividends which would -15- have been paid on the shares of Common Stock had such Preferred Stock been converted immediately prior to the record date fixed for determining the stockholders entitled to receive payment of such Liquidating Dividend, or, if no record date is fixed, the date as of which the record holders of Common Stock entitled to such dividends are to be determined. Section 8. Purchase Rights. --------------- If at any time the Corporation grants, issues or sells any Purchase Rights pro rata to the record holders of any class of Common Stock, then each holder of Preferred Stock shall be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which such holder could have acquired if such holder had held the number of shares of Common Stock acquirable upon conversion of such holder's Preferred Shares immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights. Section 9. Consequences of Certain Events of Noncompliance. ----------------------------------------------- (i) If an Event of Noncompliance of the type described in subparagraph (ii) of the definition of Event of Noncompliance has occurred and has continued for a period of 30 days and is continuing or any other Event of Noncompliance has occurred and is continuing, the annual dividend rate on the Preferred Stock shall increase immediately by an increment of two percentage points, Thereafter, until such time as no Event of Noncompliance exists, the annual dividend rate shall increase automatically at the end of each succeeding 90-day period by an additional increment of two percentage points (but in no event shall the annual dividend rate exceed 14%). Any increase of the dividend rate resulting from the operation of this paragraph shall terminate as of the close of business on the date on which no Event of Noncompliance exists, subject to subsequent increases pursuant to this paragraph. (ii) If both (a) either (1) an Event of Noncompliance of the type described in subparagraph (i) or (iii) of the definition of Event of Noncompliance has occurred and is continuing, or (2) an Event of Noncompliance of the type described in subparagraph (ii) or (iv) of the definition of Event of Noncompliance has occurred and has continued for a period of 60 days and is continuing and (b) the holder or holders of 70% of the Preferred Stock then outstanding have given written notice to the Corporation of their intent to exercise their rights under this paragraph (ii) in connection with such Event of Noncompliance (which notice may be given at any time after the occurrence of such Event of Noncompliance) and 30 days -16- have lapsed since the date such notice was given, then the holder or holders of 70% of the Preferred Stock then outstanding shall have the option to demand (by written notice delivered to the Corporation at any time thereafter until such time as there is no Event of Noncompliance in existence) redemption of all or any portion of the Preferred Stock owned by such holder or holders at a price per Preferred Share equal to the Liquidation Value thereof (plus all accrued and unpaid dividends thereon). The Corporation shall give prompt written notice of such election (or of any similar election under paragraph 9(ii) of the Series A Certificate) to the other holders of Preferred Stock (but in any event within five days after receipt of the initial demand for redemption), and each such other holder shall have the option to demand redemption of all or any portion of such holder's Preferred Stock by giving written notice thereof to the Corporation within seven days after receipt of the Corporation's notice. The Corporation shall redeem all Preferred Stock as to which rights under this paragraph have been exercised within 15 days after receipt of the initial demand for redemption. (iii) If any Event of Noncompliance exists, each holder of Preferred Stock shall also have any other rights which such holder is entitled to under any contract or agreement at any time and any other rights which such holder may have pursuant to applicable law. Section 10. Registration of Transfer. ------------------------ The Corporation shall keep at its principal office a register for the registration of Preferred Stock. Upon the surrender of any certificate representing Preferred Stock at such place, the Corporation shall, at the request of the record holder of such certificate, execute and deliver (at the Corporation's expense) a new certificate or certificates in exchange therefor representing in the aggregate the number of Preferred Shares represented by the surrendered certificate. Each such new certificate shall be registered in such name and shall represent such number of Preferred Shares as is requested by the holder of the surrendered certificate and shall be substantially identical in form to the surrendered certificate, and dividends shall accrue on the Preferred Stock represented by such new certificate from the date to which dividends have been fully paid on such Preferred Stock represented by the surrendered certificate. Section 11. Replacement. ----------- Upon receipt of evidence reasonably satisfactory to the Corporation (an affidavit of the registered holder shall be satisfactory) of the ownership and the loss, theft, destruction or mutilation of any certificate evidencing Preferred Shares of any series of Preferred Stock, and in the case of any such loss, theft or destruction, upon receipt of indemnity reasonably -17- satisfactory to the Corporation (provided that if the holder is a financial institution or other institutional investor, its own agreement shall be satisfactory), or, in the case of any such mutilation upon surrender of such certificate, the Corporation shall (at its expense) execute and deliver in lieu of such certificate a new certificate of like kind representing the number of Preferred Shares of such series represented by such lost, stolen, destroyed or mutilated certificate and dated the date of such lost, stolen, destroyed or mutilated certificate, and dividends shall accrue on the Preferred Stock represented by such new certificate from the date to which dividends have been fully paid on such lost, stolen, destroyed or mutilated certificate. Section 12. Definitions. ----------- "Business Day" means a day on which banks are generally open for business in New York City. "Closing" means June 17, 1994. "Closing Price" of each share of Common Stock or other security means the composite closing price of the sales of the Common Stock or such other security on all securities exchanges on which such security may at the time be listed (as reported in The Wall Street Journal), or, if there has been no sale on any such exchange on any day, the average of the highest bid and lowest asked prices of the Common Stock or such other security on all such exchanges at the end of such day, or, if such security is not so listed, the closing price (or last price, if applicable) of sales of the Common Stock or such other security in the Nasdaq National Market (as reported in The Wall Street Journal) on such day, or if such security is not quoted in the Nasdaq National Market but is traded over-the-counter, the average of the highest bid and lowest asked prices on such day in the over-the-counter market as reported by the National Quotation Bureau Incorporated, or any similar successor organization. "Common Stock" means, collectively, the Corporation's common stock, par value $0.01 per share, and any capital stock of any class of the Corporation hereafter authorized which is not limited to a fixed sum or percentage of par or stated value in respect to the rights of the holders thereof to participate in dividends or in the distribution of assets upon any Liquidation of the Corporation; and if there is a change such that the securities issuable upon conversion of the Preferred Stock are issued by an entity other than the Corporation or there is a change in the class of securities so issuable, then the term "Common Stock" shall mean one share of the security issuable upon conversion of the Preferred Stock if such security is issuable in shares, or shall mean the smallest unit in which such security is issuable if such security is not issuable in shares. -18- "Conversion Price" shall mean, with respect to any Series B Share, $7.50 (subject to adjustment as provided in Section 6 for events occurring after its Date of Issuance). "Convertible Security" means any stock or other securities of the Corporation convertible into or exchangeable for Common Stock. "Corporation" means Orion Newco Services, Inc. a Delaware corporation. "Date of Issuance," with respect to any Preferred Share, means the date on which the Corporation initially issues such Preferred Share, regardless of the number of times transfer of such Preferred Share is made on the stock records maintained by or for the Corporation and regardless of the number of certificates which may be issued to evidence such Preferred Share. "Dividend Reference Dates" mean August 31, November 30, February 28 and May 31 of each year. "Excluded Issuance" means the issue or sale of (i) shares of Common Stock in respect of any transaction described in paragraph 6D or pursuant to the Old ONS Merger Agreement, (ii) up to an aggregate of 2,203,960 shares of Common Stock by the Corporation pursuant to the exercise of Options and Convertible Securities outstanding immediately prior to the Closing at exercise prices that are greater than or equal to the respective exercise prices in effect as of Closing (as adjusted pursuant to the terms of such securities to give effect to stock dividends or stock splits or a combination of shares in connection with a recapitalization, merger, consolidation or other reorganization occurring after the Closing), (iii) up to an aggregate of 150,000 shares of Common Stock by the Corporation for any purpose, or (iv) Options to acquire Common Stock by the Corporation pursuant to a resolution of, or a stock option plan approved by a resolution of, the Board of Directors of the Corporation (or the compensation committee thereof) to the Corporation's employees, the per share exercise price of which is greater than or equal to the fair market value of a share of Common Stock at the time such Option is issued, as determined by the Board of Directors of the Corporation (or the compensation committee thereof). "Event of Noncompliance" means and shall be deemed to have occurred if: (i) the Corporation fails to make any redemption payment with respect to the Preferred Stock which it is obligated to make hereunder, whether or not such payment is legally permissible or is prohibited by any agreement to which the Corporation is subject; -19- (ii) the Corporation breaches or otherwise fails to perform or observe any other covenant or agreement set forth herein or in the Purchase Agreement; provided, first, that no Event of Noncompliance shall be deemed to have occurred under this subparagraph (ii) if the Corporation reasonably establishes that the Event of Noncompliance is not material to the financial condition, operating results, operations or assets of the Corporation and its Subsidiaries, taken as a whole, or to any holder's investment in the Preferred Stock; and provided, second, that, so long as the Corporation commences promptly and continues to exercise reasonable and diligent efforts to cure the Event of Noncompliance (if cure is possible) within a reasonable time after its occurrence, the applicable grace periods set forth in paragraph (i) and in clause (a) of paragraph (ii) of Section 9 shall be extended with respect to such Event of Noncompliance for a period of time equal to the period during which such efforts are continuing; (iii) any representation, warranty or certification by or on behalf of the Corporation contained in the Purchase Agreement or required to be furnished to any holder of Preferred Stock pursuant to the Purchase Agreement is false or misleading in any material respect on the date made; provided, however, that any Event of Noncompliance under this clause (iii) resulting from the delivery of a certification that is made in good faith but is false or misleading shall be deemed to be cured from and after the date a certification correcting the earlier false or misleading certification is delivered to the holders of the Preferred Stock, which delivery shall occur promptly after the facts or events that caused such earlier certification to be false or misleading become known to the Corporation; or (iv) the Corporation or any Subsidiary makes an assignment for the benefit of creditors or admits in writing its inability to pay its debts generally as they become due; or an order, judgment or decree is entered adjudicating the Corporation or any Subsidiary bankrupt or insolvent; or any order for relief with respect to the Corporation or any Subsidiary is entered under the Federal Bankruptcy Code; or the Corporation or any Subsidiary petitions or applies to any tribunal for the appointment of a custodian, trustee, receiver or liquidator of the Corporation or any Subsidiary or of any substantial part of the assets of the Corporation or any Subsidiary, or commences any proceeding (other than a proceeding for the voluntary liquidation and dissolution of a Subsidiary) relating to the Corporation or any Subsidiary under any bankruptcy, reorganization, arrangement, insolvency, readjustment of debt, dissolution or liquidation law of any jurisdiction; or any such petition or application -20- is filed, or any such proceeding is commenced, against the Corporation or any Subsidiary and either (a) the Corporation or any such Subsidiary by any act indicates its approval thereof, consent thereto or acquiescence therein or (b) such petition, application or proceeding is not dismissed within 60 days. "Freely Tradeable Securities" has the meaning given such term in the Purchase Agreement. "Fundamental Change" has the meaning given such term in the Purchase Agreement. "Investment Regulations" means, as applicable, Title III of the Small Business Investment Act of 1958, as amended, and the regulations promulgated thereunder, regulation Y (Title 12, Code of Federal Regulations, Part 225) under Section 5(b) of the Bank Holding Company Act of 1956, as amended, or other similar laws or regulations governing a regulated Person's investment authority. "Junior Securities" means Common Stock and any other capital stock or other equity securities issued by the Corporation, whether currently existing or hereafter authorized or issued (other than Series A Preferred). "Liquidation" means the liquidation, dissolution or winding up of the Corporation; provided, however, that neither the consolidation or merger of the Corporation into or with any other entity or entities, nor the sale or transfer by the Corporation of all or any part of its assets, nor the reduction or the capital stock of the Corporation, shall be deemed to be a liquidation, dissolution or winding up of the Corporation. Liquidating Dividend" means a dividend upon the Common Stock payable otherwise than in cash out of earnings or earned surplus (determined in accordance with generally accepted accounting principles, consistently applied) except for a stock dividend payable in shares of Common Stock. "Liquidation Value" of any Preferred Share shall be equal to $1,000. "Market Price" of each share of Common Stock or other security means the Closing Price of such share or other security, averaged over a period of 21 days consisting of the day as of which the Market Price is being determined and the 20 consecutive Business Days prior to such day. If during this period such security is not listed on any securities exchange, quoted in the Nasdaq National Market, or quoted in the over-the-counter market, the Market Price will be the fair value of such security determined -21- by agreement between the Company and the holders of 70% of the outstanding Preferred Shares. If such parties are unable to reach agreement within a reasonable period of time, the fair value of such security shall be determined by an independent appraiser experienced in valuing such type of consideration jointly selected by the Corporation and the holders of 70% of the outstanding Preferred Shares. The determination of such appraiser shall be final and binding upon the parties, and the fees and expenses of such appraiser shall be borne by the Corporation. "Old ONS" means Orion Network Systems, Inc., a Delaware Corporation incorporated in 1982. "Old ONS Merger Agreement" means the Agreement and Plan of Merger dated as of January 8, 1997, by and among the Corporation, Old ONS and Orion Merger Company, Inc. "Old ONS Preferred Share" means one (1) share of the series of the preferred stock of Old ONS having the designation "Series B 8% Cumulative Redeemable Convertible Preferred Stock," as set forth in that certain "Certificate of Designations, Rights and Preferences of Series B 8% Cumulative Redeemable Convertible Preferred Stock of Orion Network Systems, Inc." filed with the Secretary of State of the State of Delaware on June 16, 1995. "Old ONS Preferred Share Conversion" means the conversion of Old ONS Preferred Shares into the right to receive Preferred Shares, pursuant to the Old ONS Merger Agreement. "Options" means any right or option to subscribe for or to purchase Common Stock or any Convertible Securities. "Organic Change" means any recapitalization, reorganization, reclassification, consolidations, merger, sale of all or substantially all of the Corporation's assets to another Person or other transaction which is effected in such a manner that holders of Common Stock are entitled to receive (either directly or upon subsequent liquidation) stock, securities or assets with respect to or in exchange for Common Stock. "Person" means an individual, a partnership, a corporation, an association, a joint stock company, a limited liability company, a trust, a joint venture, an unincorporated organization and a governmental entity or any department, agency or political subdivision thereof. "Preferred Share" means a share of Series B Preferred. -22- "Preferred Stock" means the Series B Preferred. "Public Float Securities" means, as of any date of determination, those shares of the Corporation's Common Stock that (i) previously have been sold to the public in an offering registered under the Securities Act or through a broker, dealer or market maker under Rule 144 of the Securities Act, (ii) are listed for trading on a "national securities exchange" (within the meaning of the Securities Exchange Act of 1934, as amended) or quoted on the "National Market System" or "National List" published by the National Association of Securities Dealers Automated Quotations System or any successor list, and (iii) are held by Persons other than the Corporation or any of its "affiliates" (within the meaning of Rule 144 under the Securities Act). "Public Offering" means any offering by the Corporation of its equity securities to the public pursuant to an effective registration statement under the Securities Act of 1933, as then in effect, or any comparable statement under any similar federal statute then in force; provided, that "Public Offering" shall not include an offering made in connection with a business acquisition or combination or an employee benefit plan. "Purchase Agreement" means the Purchase Agreement, dated as of June 15, 1995, by and among Old ONS and certain investors, as such agreement may from time to time be amended in accordance with its terms, the performance of Old ONS's obligations under which the Corporation has assumed pursuant to an agreement dated as of ___________, 199__, by and among Old ONS, the Corporation, and such investors. "Purchase Rights" mean any Options, Convertible Securities or rights to purchase stock, warrants, securities or other property. "Redemption Date" means the date on which the Redemption Price of a Preferred Share is paid to the holder thereof. "Redemption Price" means, with respect to any Preferred Share being redeemed, the Liquidation Value of such Preferred Share plus all accrued and unpaid dividends thereon. "Reorganization" means any merger or consolidation of the Corporation with any Person where both (i) either (a) the Corporation is not the surviving corporation, (b) the terms of the Preferred Stock are altered in any respect, or (c) the Preferred Stock is exchanged for cash, securities or other property, and (ii) such merger or consolidation does not constitute a Fundamental Change. "Securities Act" means the Securities Act of 1933, as amended. -23- "Series A Certificate" means the Certificate of Designations, Rights and Preferences for the Series A Preferred. "Series A Preferred" means the Corporation's Series A 8% Cumulative Redeemable Convertible Preferred Stock, par value $.01 per share. "Series B Preferred" means the Corporation's Series B 8% Cumulative Redeemable Convertible Preferred Stock, par value $.01 per share. "Series A Share" means a share of Series A Preferred. "Series B Share" means a share of Series B Preferred. "Subsidiary" means, with respect to any Person, any corporation, partnership, association or other business entity of which (i) if a corporation, a majority of the total voting power of shares of stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person or a combination thereof, or (ii) if a partnership, association or other business entity, a majority of the partnership or other similar ownership interest thereof is at the time owned or controlled, directly or indirectly, by any Person or one or more Subsidiaries of that person or a combination thereof. For purposes hereof, a Person or Persons shall be deemed to have a majority ownership interest in a partnership, association or other business entity if such Person or Persons shall be allocated a majority of partnership, association or other business entity gains or losses or shall be or control a general partner of such partnership, association or other business entity. Without limiting the foregoing, International Private Satellite Partners, L.P., a Delaware limited partnership, shall be deemed to be a Subsidiary of the Corporation for so long as the Corporation or any of its other Subsidiaries is the general partner thereof. "Warrants" means the Common Stock purchase warrants issued pursuant to the Purchase Agreement (whether at the Closing or thereafter pursuant to paragraph ID or Section 7 thereof) and any warrant issued in exchange, substitution or replacement thereof. Section 13. Amendment and Waiver. -------------------- No amendment, modification or waiver shall be binding or effective with respect to any provision of Sections 1 to 13 hereof without the prior written consent of the holders of 70% of the Preferred Shares outstanding at the time such action is taken; provided, that no such action -24- shall change (i) the rate at which or the manner in which dividends on the Preferred Stock accrue or the times at which such dividends become payable or the amount payable on redemption of the Preferred Stock or the times at which redemption of Preferred Stock is to occur, without the prior written consent of the holders of at least 90% of the Preferred Shares then outstanding, (ii) any Conversion Price of the Preferred Stock or the number of shares or class of stock into which the Preferred Stock is convertible, without the prior written consent of the holders of at least 90% of the Preferred Stock then outstanding or (iii) the percentage required to approve any change in clauses (i) and (ii) above, without the prior written consent of the holders of at least 90% of the Preferred Stock then outstanding. Section 14. Notices. ------- Except as otherwise expressly provided hereunder, all notices referred to herein shall be in writing and shall be delivered by registered or certified mail, return receipt requested and postage prepaid, or by reputable overnight courier service, charges prepaid, and shall be deemed to have been given when so mailed or sent (i) to the Corporation, at its principal executive offices and (ii) to any stockholder, at such holder's address as it appears in the stock records of the Corporation (unless otherwise indicated by any such holder). -25- EXHIBIT B CERTIFICATE OF DESIGNATIONS, RIGHTS AND PREFERENCES OF SERIES C 6% CUMULATIVE REDEEMABLE CONVERTIBLE PREFERRED STOCK OF ORION NEWCO SERVICES, INC. - -------------------------------------------------------------------------------- Pursuant to Section 151 of the General Corporation Law of the State of Delaware - -------------------------------------------------------------------------------- The undersigned DOES HEREBY CERTIFY that, pursuant to the authority contained in Article FOURTH of the Certificate of Incorporation of Orion Newco Services, Inc., a Delaware corporation (the "Corporation"), and in accordance with Section 151 of the General Corporation Law of the State of Delaware, the Board of Directors of the Corporation has authorized the creation of a series of Preferred Stock of the Corporation having the designation Series C 6% Cumulative Redeemable Convertible Preferred Stock and having the powers, rights and preferences, and the qualifications, limitations and restrictions thereof, as are set forth in Exhibit A hereto and made a part hereof and that the following resolution was duly adopted by the Board of Directors of the Corporation: RESOLVED, that a series of authorized Preferred Stock, par value $0.01 per share, of the Corporation be, and it hereby is, created; that the shares of such series shall be, and they hereby are, designated as "Series C 6% Cumulative Redeemable Convertible Preferred Stock;" that the number of shares constituting such series shall be, and it hereby is, fixed at _______,000; and that the powers, rights and preferences and the qualifications, limitations and restrictions thereof, of the shares of such series are as set forth in Exhibit A attached hereto and made a part hereof. IN WITNESS WHEREOF, the Corporation has caused its corporate seal to be hereunto affixed and this Certificate to be signed by its President and Chief Executive Officer and attested to by its Vice President, Corporate and Legal Affairs, and Secretary this ____ day of __________, 1996. ORION NEWCO SERVICES, INC. By: ------------------------------ [SEAL] Name: W. Neil Bauer Title: President/Chief Executive Officer ATTEST: - ----------------------------------------- Name: Richard H. Shay, Esq. Title: Vice President, Corporate and Legal Affairs/Secretary -2- EXHIBIT A --------- SERIES C 6% CUMULATIVE REDEEMABLE CONVERTIBLE PREFERRED STOCK The following sections set forth the powers, rights and preferences, and the qualifications, limitations and restrictions thereof, of the Corporation's Series C 6% Cumulative Redeemable Convertible Preferred Stock. Capitalized terms used herein are defined in Section 10 below. Section 1. Dividends. --------- 1A. General Obligation. Subject to the preferential rights of Series A Preferred Stock or Series B Preferred Stock ranking senior to the Preferred Stock, the record holders of Preferred Stock shall be entitled to receive dividends, when, as and if declared by the Corporation's board of directors (the "Board") and to the extent permitted under the General Corporation Law of Delaware, as amended, as provided in this Section 1, subject to paragraph 1F. Dividends shall accrue on a daily basis commencing on the Date of Issuance of each Preferred Share at the simple interest rate of 6% per annum of the Liquidation Value thereof, and shall be payable as provided in paragraph 1B. Dividends shall cease accruing upon the earliest to occur of (i) the date on which the Liquidation Value of such Preferred Share is paid, (ii) the date on which such Preferred Share is converted into shares of Common Stock hereunder, or (iii) the Maturity Date. Such dividends shall accrue whether or not they have been declared and whether or not there are net profits, surplus or other funds of the Corporation legally available for the payment of dividends. 1B. Payment of Dividends. Subject to the provisions of paragraph 1A and paragraph 1F, dividends shall be payable, in arrears, following each Dividend Reference Date within twenty days after such Dividend Reference Date. The amount of the dividend on each share of Preferred Stock payable following each Dividend Reference Date shall equal the aggregate amount of all accrued and unpaid dividends on such share of Preferred Stock from the Prior Dividend Date (or, in the case of the first dividend paid with respect to such share, the Date of Issuance of such Preferred Share) through such Dividend Reference Date. To the extent any dividend is not paid within twenty days after a Dividend Reference Date, all dividends which have accrued and remain unpaid on each outstanding Preferred Share through such Dividend Reference Date shall be accumulated and shall remain accumulated dividends with respect to such Preferred Share until the date paid. No interest, dividend or sum of money in lieu of interest, shall be payable in respect of any dividend payment or payments that may be accrued and unpaid. 1C. Distribution of Partial Dividend Payments. Except in connection with redemptions or repurchases pursuant to paragraph 3A or 3B below, if at any time the Corporation pays less than the total amount of dividends then accrued with respect to the Preferred Stock such payment shall be distributed ratably among the holders thereof based upon the aggregate accrued but unpaid dividends on the Preferred Shares held by each such holder and such payment shall be applied first to dividends which have accrued on such Preferred Shares during the period since the latest preceding Dividend Reference Date and second to reduce any previously accumulated dividends with respect to such Preferred Shares. 1D. Payment of Dividends in Common Stock. Except as specifically provided herein, the Corporation shall pay all dividends with respect to the Preferred Stock (including, in the case of a redemption, any amount equal to accrued and unpaid dividends constituting a portion of the Redemption Price) in fully paid and non-assessable shares of Common Stock. The number of shares of Common Stock distributable in a dividend on each share of Preferred Stock shall be equal to the quotient obtained by dividing (a) the amount of such dividend, as determined under paragraph 1B, by (b) the higher of (i) the Market Price of the Common Stock on the Dividend Reference Date immediately preceding the dividend payment and (ii) the Series A/B Dilution Price. When the Corporation pays a dividend to the holders of Preferred Stock, the Corporation shall provide each holder of Preferred Stock with a calculation of the aggregate number of shares of Common Stock payable in such dividend, including the computation of the Market Price. If any fractional interest in a share of Common Stock would, except for the provisions of this sentence, be deliverable upon payment of any dividend in shares of Common Stock, the Corporation, in lieu of delivering the fractional share therefor, shall pay an amount to the holder thereof equal to the Market Price of such fractional interest, calculated as set forth above in this paragraph 1D. 1E. Dividends on Junior Securities. The Corporation shall not declare and pay any dividends on Junior Securities unless all accrued and unpaid dividends on the Preferred Stock have been paid in full. 1F. Certain Withholding Provisions. Notwithstanding any other provision of Section 1, and without limiting the generality of the Board's power and authority with respect to the declaration and payment of dividends, the Board shall have and may exercise the power and authority to provide that the receipt by each record holder of Preferred Shares entitled thereto of any dividend paid by the Corporation as declared on the issued and outstanding Preferred Shares shall be subject to the condition (the "Tax Payment Condition") that the Corporation receive, at or prior to the time for payment of such dividend (the "Payment Time"), from or on behalf of such record holder, payment in full of the taxes, fees, duties, assessments, or other amounts, if any (the "Tax"), that the Corporation is required under applicable law to pay or withhold in connection with the declaration and payment to such record holder of such dividend. If the Tax Payment Condition -2- applies and has been satisfied, or has been duly waived by the Corporation, at or prior to the Payment Time, at the Payment Time the Corporation shall pay such dividend to such record holder. If the Tax Payment Condition applies but has not been satisfied, and has not been duly waived by the Corporation, at or prior to the Payment Time, at the Payment Time the Corporation shall pay the dividend to which such record holder is entitled by irrevocably depositing and setting aside such dividend with the Secretary of the Corporation as escrow holder (the "Escrow Holder"). Upon the Escrow Holder's receipt, from or on behalf of such record holder, of payment in full of the Tax, plus any interest, penalty, or additional amount to be paid or withheld as a result of the passage of time from and after the Payment Time (the "Escrow Termination Time"), the Escrow Holder shall release such dividend to such record holder and shall release such Tax, and such additional amount if any, to the Corporation. If such dividend is paid in shares of Common Stock and is not received at or prior to the Payment Time by the record holder of Preferred Shares entitled to payment thereof, then (notwithstanding any provision hereof to the contrary) until the Escrow Termination Time (and only until such time, whether or not the dividend has been released by the Escrow Holder), such record holder shall not be entitled to vote such shares of Common Stock for any purpose, to receive payment of dividends or other distributions on such shares of Common Stock, or to exercise any other rights or privileges in respect of such shares of Common Stock, and the Escrow Holder shall have no right to vote such shares of Common Stock or to exercise any other right or privilege in respect thereof (whether in accordance with the wishes or directions of such record holder or otherwise), but the Escrow Holder shall receive and hold in escrow until the Escrow Termination Time together with such shares of Common Stock any dividends paid or other distributions made on such shares of Common Stock and at the Escrow Termination Time shall release such dividends paid or other distributions made on such shares of Common Stock, if any, along with such shares of Common Stock. Section 2. Liquidation. ----------- Subject to the provisions of Section 2 of each of the Series A Certificate and the Series B Certificate: upon any Liquidation, each holder of Preferred Stock shall be entitled to be paid, before any distribution or payment is made upon any Junior Securities, an amount in cash equal to the greater of (a) the aggregate Liquidation Value (plus an amount equal to all accrued and unpaid dividends) of all shares of Preferred Stock held by such holder or (b) the amount which would be distributed with respect to the shares of Common Stock (including fractional shares for purposes of this calculation) into which such shares of Preferred Stock are convertible (assuming conversion of all outstanding Preferred Stock) immediately prior to the record date for such distribution (or, if there is no such record date, then the date as of which the holders of Common Stock entitled to such distribution are determined), and the holders of Preferred Stock shall not be entitled to any further payment; and if upon any such Liquidation the Corporation's assets to be distributed among the holders of the Preferred Stock are insufficient to permit -3- payment to such holders of the aggregate amount which they are entitled to be paid, then the entire assets to be distributed shall be distributed ratably among such holders based upon the aggregate Liquidation Value (plus all accrued and unpaid dividends) of the Preferred Shares held by each such holder. Prior to such Liquidation, the Corporation shall (to the extent permitted by law) declare for payment all accrued and unpaid dividends with respect to the Preferred Stock, which dividends shall be payable in cash notwithstanding the provisions of paragraph 1D. (Payment of the greater of the amounts specified in clauses (a) and (b) of this Section 2 in respect of such Preferred Shares shall constitute payment of such declared dividends.) The Corporation shall mail written notice of such Liquidation, not less than 60 days prior to the payment date stated therein, to each record holder of Preferred Stock. Section 3. Redemptions. ----------- 3A. Redemption at the Maturity Date. At the Maturity Date the Corporation shall redeem all of the Preferred Shares then outstanding for a price equal to the Redemption Price. The Corporation shall pay the Redemption Price for the Preferred Shares within thirty (30) days after the Maturity Date (or such later date upon which the certificates evidencing the Preferred Shares are surrendered to the Corporation). 3B. Redemption at the Option of the Corporation. At any time after the Initial Redemption Date, or, if prior to the Initial Redemption Date, immediately prior to the consummation of any consolidation, merger or sale in which the successor entity or purchasing entity is other than the Corporation, to the extent that it has funds legally sufficient therefor, the Corporation may redeem all or, subject to the last sentence of this paragraph, a portion of the Preferred Shares then outstanding for the Redemption Price. The number of Preferred Shares to be redeemed from each holder thereof in a partial redemption pursuant to this paragraph 3B shall be the number of Preferred Shares determined by multiplying the total number of Preferred Shares to be redeemed by a fraction, the numerator of which shall be the total Redemption Price of Preferred Shares then held by such holder and the denominator of which shall be the aggregate Redemption Price of Preferred Shares then outstanding. 3C. Redemption Payment. For each Preferred Share which is to be redeemed, the Corporation shall be obligated to pay the Redemption Price to the holder thereof on the Redemption Date or such later date upon which occurs the surrender by such holder at the Corporation's principal office of the certificate representing such Preferred Share. Subject to the provisions of paragraph 4C of the Series A Certificate and paragraph 4C of the Series B Certificate, if the funds of the Corporation legally available for payment of the cash portion of the Redemption Price of Preferred Shares on any Redemption Date are insufficient to pay the cash portion of the Redemption Price for the total number of Preferred Shares to be -4- redeemed on such date, those funds which are legally available shall be used to redeem the maximum possible number of such Preferred Shares ratably among the holders of the Preferred Shares to be redeemed based upon the aggregate Redemption Price of the Preferred Shares held by each such holder and the remaining Preferred Shares called for redemption will remain outstanding; and at any time thereafter when additional funds of the Corporation are legally available for the redemption of Preferred Shares, such funds shall immediately be used to redeem the balance of the Preferred Shares which the Corporation has become obligated to redeem on any Redemption Date but which it has not redeemed. Payment of the Redemption Price in respect of such Preferred Shares shall extinguish all rights to dividends that are accrued and unpaid as of the Redemption Date with respect to the Preferred Shares which are redeemed on such Redemption Date. 3D. Notice of Redemption. The Corporation shall mail written notice of each redemption of any Preferred Stock to each record holder of Preferred Stock not more than 60 nor less than 30 days prior to the date on which such redemption is to be made specifying (a) the number of shares of Preferred Stock to be redeemed by the Corporation and (b) the Redemption Date. Upon mailing any such notice of redemption, the Corporation shall become obligated to redeem the total number of Preferred Shares specified in such notice at the time of redemption specified therein and upon the surrender on or before such time of the certificates representing such Preferred Shares. If one or more holders of Preferred Shares being redeemed shall fail to surrender the certificates representing such Preferred Shares by the Redemption Date, the Corporation shall pay the Redemption Price by irrevocably depositing or setting aside the required amount to be paid promptly upon surrender of such certificates. Such deposit or set aside shall be deemed payment of the Redemption Price to the holder for whom it is deposited or set aside. In case fewer than the total number of Preferred Shares represented by any certificate are redeemed, a new certificate representing the number of unredeemed Preferred Shares shall be issued to the holder thereof without cost to such holder within three Business Days after surrender of the certificate representing the redeemed Preferred Shares. 3E. Dividends after Redemption Date. No Preferred Share that is redeemed is entitled to any dividends accruing after the Redemption Date. On the Redemption Date of any Preferred Share, all rights of the holder of such Preferred Share shall cease, and such Preferred Share shall be deemed to be no longer outstanding. 3F. Redeemed or Otherwise Acquired Preferred Shares. Any Preferred Shares which are redeemed, converted or otherwise acquired by the Corporation thereupon shall be retired. All such shares shall upon their retirement become authorized but unissued shares of preferred stock of the Corporation and may not be reissued as Preferred Stock but may be reissued as part of a new series -5- of preferred stock to be created by resolution or resolutions of the board of directors, subject to the conditions or restrictions on issuance set forth in the certificate of incorporation of the Corporation. Section 4. Voting Rights. ------------- The holders of the Preferred Stock shall be entitled to notice of all stockholders meetings in accordance with the Corporation's bylaws, and except as otherwise required by law, the holders of the Preferred Stock shall be entitled to vote on all matters submitted to the stockholders for a vote together with the holders of the Common Stock voting together as a single class with each share of Common Stock entitled to one vote per share, and each Preferred Share (including fractional shares) entitled to one vote for each whole share of Common Stock that would be issuable upon conversion of such Preferred Share at the time the vote is taken. Section 5. Conversion. 5A. Conversion Procedure. -------------------- (i) At any time and from time to time after the issuance thereof, any holder of Preferred Stock may convert all or any of the Preferred Shares (including any fraction of a Preferred Share) held by such holder into a number of shares of Common Stock equal to the sum of: (a) the number of shares of Common Stock computed by multiplying the number of Preferred Shares to be converted by the Liquidation Value of a Preferred Share, and dividing the result by the Conversion Price then in effect, plus (b) the number of shares of Common Stock that would be payable if all accrued but unpaid dividends were declared and paid on the Preferred Shares to be converted. For purposes of determining the amount of dividends payable or that would be payable with respect to a conversion under Section 5, the date for determining the Market Price shall be the Business Day immediately preceding the date on which conversion is deemed to have been effected. (ii) Each conversion of Preferred Stock shall be deemed to have been effected as of the close of business on the date on which the certificate or certificates representing the Preferred Shares to be converted have been surrendered at the principal office of the Corporation, together with written notice of the holder's desire to convert such Preferred Shares. At such time as such conversion has been effected, the rights of the holder of such Preferred Shares as such holder shall cease, and the Person or Persons in whose name or names any certificate or certificates for shares of Common Stock are to be issued upon such conversion shall be deemed to have become the holder or holders of record of the shares of Common Stock represented thereby, which Common Stock shall be deemed to have been issued as of such time. Issuance of Common Stock by the Corporation to effect any conversion shall extinguish all rights to dividends that are accrued and unpaid as of the date -6- on which conversion is to be made with respect to the Preferred Shares which are to be converted on such date. (iii) The conversion rights of any Preferred Share subject to redemption hereunder shall terminate on the Redemption Date for such Preferred Share unless the Corporation has failed to pay to the holder thereof the Redemption Price thereof. (iv) Notwithstanding any other provision hereof, if a conversion of any Preferred Shares is to be made in connection with a Public Offering or prior to a redemption, such conversion may, at the election of the holder of such Preferred Shares, be conditioned upon the consummation of the Public Offering or the redemption occurring on or before a specified date, in which case such conversion shall not be deemed to be effective until the consummation of the Public Offering or unless the redemption occurs on or before the specified date. (v) As soon as possible after a conversion has been effected (but in any event within three Business Days in the case of subparagraph (a) below), the Corporation shall deliver to the converting holder: (a) a certificate or certificates representing the number of shares of Common Stock issuable by reason of such conversion in such name or names and such denomination or denominations as the converting holder has specified; (b) payment of the amount payable under subparagraph (viii) below with respect to such conversion; and (c) a certificate representing any Preferred Shares which were represented by the certificate or certificates delivered to the Corporation in connection with such conversion but which were not converted. (vi) The issuance of certificates for shares of Common Stock upon conversion of Preferred Stock shall be made without charge to the holders of such Preferred Stock for any issuance tax in respect thereof or other cost incurred by the Corporation in connection with such conversion and the related issuance of shares of Common Stock. (vii) The Corporation shall not close its books against the transfer of Preferred Stock or of Common Stock issued or issuable upon conversion of Preferred Stock in any manner which interferes with the timely conversion of Preferred Stock. The Corporation shall assist and cooperate (but the Corporation shall not be required to expend substantial efforts or funds) with any holder of Preferred Shares required to make any governmental filings or obtain any governmental approval prior to or in connection with any conversion of Preferred Shares hereunder -7- (including, without limitation, making any filings required to be made by the Corporation). (viii) If any fractional interest in a share of Common Stock would, except for the provisions of this subparagraph, be deliverable upon any conversion of shares of a holder's Preferred Stock, the Corporation, in lieu of delivering the fractional share therefor, shall pay an amount to the holder thereof equal to the Market Price of such fractional interest as of the Business Day immediately preceding the date of conversion. (ix) The Corporation shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of issuance upon the conversion of the Preferred Stock, not less than the number of shares of Common Stock issuable upon the conversion of all outstanding Preferred Stock which may then be exercised. All shares of Common Stock which are so issuable shall, when issued, be duly and validly issued, fully paid and nonassessable and free from all taxes, liens and charges. The Corporation shall take all such actions as may be necessary to ensure that all such shares of Common Stock may be so issued without violation of any applicable law or governmental regulation or any requirements of any domestic securities exchange upon which shares of Common Stock may be listed (except for official notice of issuance which shall be immediately delivered by the Corporation upon each such issuance). 5B. Subdivision or Combination of Common Stock. If the Corporation at any time subdivides (by any stock split, stock dividend, recapitalization or otherwise) the outstanding shares of one or more classes of Common Stock into a greater number of shares, the Conversion Price (and the Trigger Price and Series A/B Dilution Price) in effect immediately prior to such subdivision shall be proportionately reduced, and if the Corporation at any time combines (by reverse stock split or otherwise) the outstanding shares of one or more classes of Common Stock into a smaller number of shares, the Conversion Price (and the Trigger Price and Series A/B Dilution Price) in effect immediately prior to such combination shall be proportionately increased. 5C. Reorganization, Reclassification, Consolidation, Merger or Sale. In connection with any Reorganization, (i) the holders of Preferred Stock shall thereafter have the right to acquire and receive, in lieu of or in addition to (as the case may be) the shares of Common Stock immediately theretofore acquirable and receivable upon the conversion of such holder's Preferred Stock, such shares of stock, securities, cash or other assets (or, if not practicably attainable, the reasonable equivalent thereof) as such holder would have received in connection with such Reorganization if such holder had converted its Preferred Stock immediately prior to such Reorganization, and (ii) dividends and amounts in respect of dividends hereunder payable in shares of Common Stock prior to such Reorganization shall be payable, in lieu of each share of Common Stock, in such -8- shares of stock, securities, cash or other assets (or reasonable equivalent thereof) as the holder of one share of Common Stock received in connection with such Reorganization. The Corporation shall make appropriate provisions to ensure that the requirements of the previous sentence are effected. In each such case, the Corporation shall also make appropriate provisions to ensure that the provisions of this Section 5 and Sections 6 and 7 shall thereafter be applicable to the Preferred Stock. 5D. Notices. ------- (i) Immediately upon any adjustment of the Conversion Price, the Corporation shall give written notice thereof to all holders of Preferred Stock, setting forth in reasonable detail and certifying the calculation of such adjustment. (ii) The Corporation shall give written notice to all holders of Preferred Stock at least 20 days prior to the date on which the Corporation closes its books or fixes a record date (a) with respect to any dividend or distribution upon Common Stock, (b) with respect to any pro rata subscription offer to holders of Common Stock or (c) for determining rights to vote with respect to any Liquidation or Reorganization. 5E. Mandatory Conversion. The Corporation may require, by written notice to all holders of Preferred Stock, the conversion of all of the outstanding Preferred Stock into a number of shares of Common Stock equal to the sum of: (a) the number of shares of Common Stock computed by multiplying the number of Preferred Shares to be converted by the Liquidation Value of a Preferred Share, and dividing the result by the applicable Conversion Price then in effect, plus (b) the number of shares of Common Stock that would be payable if all accrued but unpaid dividends were declared and paid on the Preferred Shares to be converted; provided that the Closing Price of the Common Stock (adjusted proportionately for stock dividends, stock splits, combinations, and similar changes in the Common Stock occurring after the Closing) on at least twenty (20) of the thirty (30) latest trading days preceding the date of the Corporation's notice has been greater than or equal to the Conversion Price. If the Corporation shall require the conversion of the Preferred Stock under this Section 5E within two years from the Initial Date of Issuance, then the number of shares of Common Stock into which the shares of Preferred Stock are converted shall be increased by the number of shares of Common Stock that would be payable if the Corporation were immediately to declare and pay all dividends that in the absence of conversion would have accrued on such shares of Preferred Stock over the six-month period immediately following the date of conversion; provided, however, that the total dividends and amounts in respect of dividends paid on the Preferred Stock after the Date of Issuance thereof, including any additional amounts in respect of dividends paid as a result of a required conversion under this Section 5E, shall not be less than the -9- amount of dividends that would have accrued on all outstanding shares of the Preferred Stock for one full year following the Initial Date of Issuance. Any conversion of shares of Preferred Stock under this Paragraph 5E shall be effected and be deemed to have been effected as of the close of business on the date on which the Corporation provides written notice of such conversion to the holders of such shares of Preferred Stock (the "Mandatory Conversion Time"), and as of the Mandatory Conversion Time, the rights of the holders of the converted shares of Preferred Stock, as such, shall cease and terminate, such converted shares of Preferred Stock shall be retired in accordance with paragraph 3F, the shares of Common Stock into which such shares of Preferred Stock are converted shall be issued and deemed to have been issued, the certificate(s) that theretofore represented shares of Preferred Stock thereafter shall represent the number of shares of Common Stock into which the shares of Preferred Stock theretofore represented thereby shall have been converted, and the holder of any such certificate, upon the surrender thereof to the Corporation, shall be entitled to receive from the Corporation a new certificate representing the number of shares of Common Stock into which the shares of Preferred Stock theretofore represented thereby shall have been converted. 5F. Effect on Conversion Price of Certain Events. -------------------------------------------- (i) General. In order to prevent dilution of the conversion rights granted under this Section 5, the Conversion Price shall be subject to adjustment from time to time pursuant to this paragraph 5F. (ii) Adjustment of Conversion Price. If and whenever on or after the Date of Issuance the Corporation issues or sells, or in accordance with this paragraph 5F is deemed to have issued or sold, other than in an Excluded Issuance, any share of Common Stock for a consideration per share less than the Trigger Price in effect immediately prior to such time (a "Dilutive Event"), then forthwith upon such issue or sale in the Dilutive Event the Conversion Price shall be reduced by multiplying the Conversion Price in effect immediately before the Dilutive Event by a fraction, the numerator of which is the number of shares of Common Stock that are Outstanding on an As-Converted Basis (as defined below) immediately before the Dilutive Event plus the number of shares of Common Stock that could be purchased at the Trigger Price at the time of the Dilutive Event for the aggregate consideration paid or payable upon the sale or issuance of Common Stock in the Dilutive Event, and the denominator of which is the number of shares of Common Stock that are Outstanding on an As-Converted Basis immediately before the Dilutive Event plus the number of shares that are acquired or to be acquired upon the sale or issuance of the Common Stock in the Dilutive Event. For purposes of this paragraph 5F(ii), "Outstanding on an As-Converted Basis" immediately before the Dilutive Event means the sum of (i) all Common Stock issued and outstanding immediately before the Dilutive Event plus (ii) all Common Stock issuable upon the -10- exercise of Options or conversion of Convertible Securities outstanding immediately before the Dilutive Event (other than Preferred Stock). (iii) Issuance of Rights or Options. If the Corporation in any manner grants any Options and the price per share for which shares of Common Stock are issuable upon the exercise of any such Option is less than the Trigger Price in effect immediately prior to the time of the granting of such Option, then such shares of Common Stock shall be deemed to have been issued and sold by the Corporation at the time of the granting of such Options for such price per share and the Conversion Price shall be adjusted in accordance with paragraph 5F(ii) above. For purposes of this paragraph, the "price per share" for which shares of Common Stock are issuable upon the exercise of any Option shall be equal to the sum of the amounts of consideration (if any) received or receivable by the Corporation with respect to such shares of Common Stock upon the granting of the Option and upon exercise of the Option. No further adjustment of the Conversion Price shall be made upon the actual issue of such Common Stock upon the exercise of such Options. (iv) Issuance of Convertible Securities. If the Corporation in any manner issues or sells any Convertible Security (or Options to purchase any Convertible Security) and the price per share for shares of Common Stock that are issuable upon conversion or exchange thereof is less than the Trigger Price in effect immediately prior to the time of such issue or sale (or the granting of such Option), then such shares of Common Stock shall be deemed to have been issued and sold by the Corporation at the time of the issuance or sale of such Convertible Securities (or the granting of such Option) for such price per share and the Conversion Price shall be adjusted in accordance with paragraph 5F(ii) above. For the purposes of this paragraph, the "price per share" for which shares of Common Stock are issuable upon conversion or exchange of any Convertible Security (or exercise of any Option therefor) shall be equal to the sum of the amounts of consideration (if any) received or receivable by the Corporation upon the issuance of the Convertible Security (or such Option) and upon the conversion or exchange of such Convertible Security (or exercise of such Option). No further adjustment of the Conversion Price shall be made upon the actual issue of such Common Stock upon conversion or exchange of any Convertible Security, and if any such issue or sale of such Convertible Security is made upon exercise of any Options for which adjustments of the Conversion Price had been or are to be made pursuant to other provisions of this Section 5, no further adjustment of the Conversion Price shall be made by reason of such issue or sale. (v) Change in Option Price or Conversion Rate. If the purchase price provided for in any Option, the additional consideration (if any) payable upon the issue, conversion or exchange of any Convertible Security, or the rate at which any Convertible Security is convertible into or exchangeable for Common Stock change at any time, any Conversion Price previously adjusted with respect to such Option or Convertible Security and in effect at the time of such change shall be -11- readjusted to the Conversion Price which would have been in effect at such time had such Option or Convertible Security originally provided for such changed purchase price, additional consideration or changed conversion rate, as the case may be, at the time initially granted, issued or sold. (vi) Treatment of Expired Options and Unexercised Convertible Securities. Upon the expiration of any Option or the termination of any right to convert or exchange any Convertible Security without the exercise of any such Option or right, any Conversion Price then in effect hereunder shall be adjusted to the Conversion Price which would have been in effect at the time of such expiration or termination had such Option or Convertible Security, to the extent outstanding immediately prior to such expiration or termination, never been issued. (vii) Calculation of Consideration Received. If any Common Stock, Option or Convertible Security is issued or sold or deemed to have been issued or sold for cash, the consideration received therefor shall be deemed to be the amount received by the Corporation therefor. In case any Common Stock, Options or Convertible Securities are issued or sold for a consideration other than cash, the amount of the consideration other than cash received by the Corporation shall be the fair value of such consideration, except where such consideration consists of securities, in which case the amount of consideration received by the Corporation shall be the Market Price thereof as of the date of receipt. If any Common Stock, Option or Convertible Security is issued to the owners of the non-surviving entity in connection with any merger in which the Corporation is the surviving corporation, the amount of consideration therefor shall be deemed to be the fair value of such portion of the assets and business of the non-surviving entity as is attributable to such Common Stock, Options or Convertible Securities, as the case may be. The fair value of any consideration other than cash and securities shall be as determined in good faith by the Board of Directors of the Corporation. (viii) Integrated Transactions. In case any Option is issued in connection with the issue or sale of other securities of the Corporation, together comprising one integrated transaction in which no specific consideration is allocated to such Option by the parties thereto, the Option shall be deemed to have been issued for a consideration of $.01. (ix) Treasury Shares. For purposes of calculating under this paragraph 5F the number of shares of Common Stock outstanding at any given time, the number of shares of Common Stock outstanding at such time does not include shares owned or held by or for the account of the Corporation or any subsidiary thereof, and the disposition of any shares so owned or held shall be considered an issue or sale of Common Stock. (x) De Minimis Adjustments. Notwithstanding any other provisions of this Section 5, the Corporation shall not be required to make any -12- adjustment of the Conversion Price unless such adjustment would require an increase or decrease of at least one percent (1%) in the Conversion Price as then in effect. Any lesser adjustment shall be carried forward and shall be made no later than the time of, and together with, the next subsequent adjustment which, together with any adjustment or adjustments so carried forward, shall amount to an increase or decrease of at least one percent (1%) of the Conversion Price as then in effect. If any action would require adjustment of the Conversion Price pursuant to more than one subparagraph of this paragraph 5F, only one adjustment shall be made as determined in good faith by the Board of Directors of the Corporation. Section 6. Liquidating Dividends. --------------------- If the Corporation declares or pays a Liquidating Dividend upon the Common Stock, then the Corporation shall pay to the holders of Preferred Stock at the time of payment thereof the Liquidating Dividend which would have been paid to such holders had such Preferred Stock been converted immediately prior to the record date fixed for determining the stockholders entitled to receive payment of such Liquidating Dividend, or, if no record date is fixed, the date as of which the record holders of Common Stock entitled to such dividends are to be determined. Section 7. Purchase Rights. --------------- If at any time the Corporation grants, issues or sells any Purchase Rights pro rata to the record holders of any class of Common Stock, then each holder of Preferred Stock shall be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which such holder would have acquired if such holder had held the number of shares of Common Stock acquirable upon conversion of such holder's Preferred Shares immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights. Section 8. Registration of Transfer. ------------------------ The Corporation shall keep at its principal office a register for the registration of issuances and transfers of Preferred Stock. Upon the surrender of any certificate representing Preferred Stock at such place, the Corporation shall, at the request of the record holder of such certificate, execute and deliver (at the Corporation's expense) a new certificate or certificates in exchange therefor representing in the aggregate the number of Preferred Shares represented by the surrendered certificate. Each such new certificate shall be registered in such name and shall represent such number of Preferred Shares as is requested by the holder of the surrendered certificate and shall be substantially identical in form to the surrendered certificate, and dividends shall accrue on the Preferred Stock -13- represented by such new certificate from the date to which dividends have been fully paid on such Preferred Stock represented by the surrendered certificate. Section 9. Replacement. ----------- Upon receipt of evidence reasonably satisfactory to the Corporation (an affidavit of the registered holder shall be satisfactory) of the ownership and the loss, theft, destruction or mutilation of any certificate evidencing Preferred Shares, and in the case of any such loss, theft or destruction, upon receipt of indemnity reasonably satisfactory to the Corporation (provided that if the holder is a financial institution or other institutional investor, its own agreement shall be satisfactory), or, in the case of any such mutilation upon surrender of such certificate, the Corporation shall (at its expense) execute and deliver in lieu of such certificate a new certificate of like kind representing the number of Preferred Shares represented by such lost, stolen, destroyed or mutilated certificate and dated the date of such lost, stolen, destroyed or mutilated certificate, and dividends shall accrue on the Preferred Stock represented by such new certificate from the date to which dividends have been fully paid on the Preferred Shares represented by such lost, stolen, destroyed or mutilated certificate. Section 10. Definitions. ----------- "Bond Offering" means an underwritten offering of notes or debentures of the Corporation to the public, with or without Options, primarily for the purpose of refinancing the indebtedness of International Private Satellite Partners, L.P. ("Orion Atlantic") outstanding under the Credit Agreement dated December 6, 1991 among Orion Atlantic, the Banks named therein and The Chase Manhattan Bank (National Association), as Agent. "Business Day" means a day on which banks are generally open for business in New York City. "Closing" means ______ ___, 1996. "Closing Price" of each share of Common Stock or other security means the composite closing price of the sales of the Common Stock or such other security on all securities exchanges on which such security may at the time be listed (as reported in The Wall Street Journal), or, if there has been no sale on any such exchange on any day, the average of the highest bid and lowest asked prices of the Common Stock or such other security on all such exchanges at the end of such day, or, if such security is not so listed, the closing price (or last price, if applicable) of sales of the Common Stock or such other security in the Nasdaq National Market (as reported in The Wall Street Journal) on such day, or if such security is not quoted in the Nasdaq National Market but is traded over-the-counter, the average of the highest bid and lowest asked prices on such day in the over-the-counter -14- market as reported by the National Quotation Bureau Incorporated, or any similar successor organization. "Common Stock" means, collectively, the Corporation's common stock, par value $0.01 per share, and any capital stock of any class of the Corporation hereafter authorized which is not limited to a fixed sum or percentage of par or stated value in respect to the rights of the holders thereof to participate in dividends or in the distribution of assets upon any Liquidation of the Corporation; and if there is a change such that the securities issuable upon conversion of the Preferred Stock are issued by an entity other than the Corporation or there is a change in the class of securities so issuable, then the term "Common Stock" shall mean one share of the security issuable upon conversion of the Preferred Stock if such security is issuable in shares, or shall mean the smallest unit in which such security is issuable if such security is not issuable in shares. "Conversion Price" shall mean, with respect to any Series C Share, $17.50 (subject to adjustment as provided in Section 5 for events occurring after its Date of Issuance). "Convertible Securities" means any stock or other securities of the Corporation convertible into or exchangeable for Common Stock. "Convertible Subordinated Debenture Offering" means an offering of convertible subordinated debentures of the Corporation to the public, which debentures would be convertible into Common Stock. "Corporation" means Orion Newco Services, Inc., a Delaware corporation. "Date of Issuance," with respect to any Preferred Share, means the date on which the Corporation initially issues such Preferred Share, regardless of the number of times transfer of such Preferred Share is made on the stock records maintained by or for the Corporation and regardless of the number of certificates which may be issued to evidence such Preferred Share. "Dividend Reference Date" mean [___________] of each year, commencing __________, 1996, and each of the following: (i) the date on which the Liquidation Value of such Preferred Share is paid, (ii) the date on which such Preferred Share is converted into shares of Common Stock hereunder, and (iii) the Maturity Date. "Excluded Issuance" means the issue or sale of (i) shares of Common Stock in respect of any transaction described in paragraph 5B (including without limitation any stock split, stock dividend or recapitalization), (ii) shares of Common Stock by the Corporation pursuant to the exercise of Options and Convertible Securities outstanding immediately prior to the Closing at exercise prices that are -15- greater than or equal to the respective exercise prices in effect as of Closing (as adjusted pursuant to the terms of such securities to give effect to stock dividends or stock splits or a combination of shares in connection with a recapitalization, merger, consolidation or other reorganization occurring after the Closing), (iii) up to an aggregate of 150,000 shares of Common Stock by the Corporation for any purpose, (iv) Options to acquire Common Stock by the Corporation pursuant to a resolution of, or a stock option plan approved by a resolution of, the Board of Directors of the Corporation (or the compensation committee thereof) to the Corporation's employees or directors, (v) shares of Common Stock, Options or Convertible Securities (or shares of Common Stock pursuant to the exercise of Options and Convertible Securities) as part of or in connection with a Bond Offering or a Convertible Subordinated Debenture Offering. "Initial Date of Issuance" means the Date of Issuance of the first share of Preferred Stock to be issued. "Initial Redemption Date" means the earlier of (i) the close of business on ______, 1998. [two years from the Date of Issuance] or (ii) the effective date of a Reorganization. "Junior Securities" means Common Stock and any other capital stock or other equity securities issued by the Corporation, whether currently existing or hereafter authorized or issued (other than Series A Preferred or Series B Preferred or any other series of preferred stock of the Corporation issued pursuant to an option granted to purchasers of Series A Preferred in connection with the initial issuances of Series A Preferred by the Corporation). "Liquidation" means the liquidation, dissolution or winding up of the Corporation; provided, however, that neither the consolidation or merger of the Corporation into or with any other entity or entities, nor the sale or transfer by the Corporation of all or any part of its assets, nor the reduction of the capital stock of the Corporation, shall be deemed to be a liquidation, dissolution or winding up of the Corporation. "Liquidating Dividend" means a dividend upon the Common Stock payable otherwise than in cash out of legally available funds (determined in accordance with generally accepted accounting principles, consistently applied) except for a stock dividend payable in shares of Common Stock. "Liquidation Value" of any Preferred Share shall be equal to $1,000. "Market Price" of each share of Common Stock or other security means, with respect to a specified date, the Closing Price of such share or other security, averaged over a period of the 20 consecutive Business Days prior to such date. If during this period such security is not listed on any securities exchange, quoted in the Nasdaq National Market, or quoted in the over-the-counter market, -16- the Market Price will be the fair value of such shares of Common Stock or security determined by agreement between the Corporation and the holders of a majority of the outstanding Preferred Shares. If such parties are unable to reach agreement within a reasonable period of time, the fair value of such security shall be determined by an independent appraiser experienced in valuing such type of consideration jointly selected by the Corporation and the holders of a majority of the outstanding Preferred Shares. The determination of such appraiser shall be final and binding upon the parties, and the fees and expenses of such appraiser shall be borne by the Corporation. "Maturity Date" means the close of business on ______ __, 2021. [25 years from the Date of Issuance] "Options" means any options, warrants or rights to subscribe for or to purchase Common Stock or any Convertible Securities. "Person" means an individual, a partnership, a corporation, an association, a joint stock company, a limited liability company, a trust, a joint venture, an unincorporated organization and a governmental entity or any department, agency or political subdivision thereof. "Preferred Share" means a share of Series C Preferred. "Preferred Stock" means the Series C Preferred. "Prior Dividend Date" means, with respect to a Dividend Reference Date, the previous Dividend Reference Date following which dividends were paid on shares of Preferred Stock hereunder (or, if there is no such previous Dividend Reference Date, the Date of Issuance). "Public Offering" means any offering by the Corporation of its equity securities to the public pursuant to an effective registration statement under the Securities Act of 1933, as then in effect, or any comparable statement under any similar federal statute then in force; provided, that "Public Offering" shall not include an offering made in connection with a business acquisition or combination or an employee benefit plan. "Purchase Rights" means any Options, Convertible Securities or rights to purchase stock, warrants, securities or other property. "Redemption Date" means the date on which the Redemption Price of a Preferred Share is paid to the holder thereof. "Redemption Price" means the Liquidation Value of such Preferred Share, payable in cash, plus an amount equal to all accrued and unpaid dividends thereon, payable in shares of Common Stock pursuant to paragraph 1D. -17- "Reorganization" means any recapitalization, reorganization, reclassification, consolidation, merger, sale of all or substantially all of the Corporation's assets to another Person or other transaction which is effected in such a manner that holders of Common Stock are entitled to receive (either directly or upon subsequent liquidation) stock, securities or assets with respect to or in exchange for Common Stock. "Series A Certificate" means the Certificate of Designations, Rights and Preferences for the Series A Preferred. "Series B Certificate" means the Certificate of Designations, Rights and Preferences for the Series B Preferred. "Series A Preferred" means the Corporation's Series A 8% Cumulative Redeemable Convertible Preferred Stock, par value $.01 per share. "Series B Preferred" means the Corporation's Series B 8% Cumulative Redeemable Convertible Preferred Stock, par value $.01 per share. "Series C Preferred" means the Corporation's Series C 6% Cumulative Redeemable Convertible Preferred Stock, par value $.01 per share. "Series A/B Dilution Price" means, at any time, the conversion price for the Series B Preferred as then in effect under the Series B Certificate. "Series A Share" means a share of Series A Preferred. "Series B Share" means a share of Series B Preferred. "Series C Share" means a share of Series C Preferred. "Trigger Price" shall mean, with respect to any Series C Share, $14.00 (subject to adjustment as provided in Section 5B for events occurring after its Date of Issuance). Section 11. Amendment and Waiver. -------------------- No amendment, modification or waiver shall be binding or effective with respect to any provision hereof without the prior affirmative vote or written consent of the holders of a majority of the Preferred Shares outstanding at the time such action is taken; provided, however, that without the prior affirmative vote or written consent of each holder individually holding at least 51% of the Preferred Stock then outstanding, no such action shall change (i) the rate at which or the manner in which dividends on the Preferred Stock accrue or the form of consideration in which such dividends are payable or the times at which such dividends become payable or the amount payable on redemption of the Preferred -18- Stock or the times at which redemption of Preferred Stock is to occur, (ii) any Conversion Price of the Preferred Stock or the number of shares or class of stock into which the Preferred Stock is convertible, (iii) the priority of payment of dividends to the Preferred Stock, (iv) the Liquidation Value, (v) the voting rights of the Preferred Stock, (vi) the rights of the Preferred Stock upon a reorganization, (vii) the provisions for mandatory conversion of the Preferred Stock, (viii) the rights of holders of the Preferred Stock to acquire Purchase Rights, or (ix) the percentage required to approve any change in this Section 11. Section 12. Notices. ------- Except as otherwise expressly provided hereunder, all notices referred to herein shall be in writing and shall be delivered by registered or certified mail, return receipt requested and postage prepaid, or by reputable overnight courier service, charges prepaid, and shall be deemed to have been given when so mailed or sent (i) to the Corporation, at its principal executive offices and (ii) to any stockholder, at such holder's address as it appears in the stock records of the Corporation (unless otherwise indicated by any such holder). -19- EX-4.4 5 EXHIBIT 4.4 Incorporated Under the Laws of Delaware Number Shares SEE TRANSFER RESTRICTIONS ON REVERSE SIDE ORION NETWORK SYSTEMS, INC. SERIES A 8% CUMULATIVE REDEEMABLE CONVERTIBLE PREFERRED SHARES Authorized to Issue 40,000,000 Common Shares and 1,000,000 Preferred Shares (Including 15,000 Series A 8% Cumulative Redeemable Convertible Preferred Shares -Par Value $.01 per share) THIS CERTIFIES THAT ** Specimen** is the ----------------------------------------------------- registered holder of ** Specimen** Shares ----------------------------------------------------- of the capital stock of the aboved named corporation, fully paid and non-assesable, transferable only on the books of the Corporation by the holder hereof in person or by Attorney upon surrender of this Certificate properly endorsed. IN WITNESS WHEREOF, the said Corporation has caused this Certificate to be signed by its duly authorized officers and its Corporate Seal to be hereunto affixed this day of A.D. 19 -------------- --------------- -- - --------------------------------- ---------------------------- Secretary President The Company will furnish without charge to each holder of Preferred Stock represented by this certificate, upon request of such stockholder, the powers, designations, preferences and relative, participating optional, or other special rights of the class of stock represented hereby and the qualificaations, limitations or restrictions of such preferences and/or rights. The securities represented by this certificate were originally issued on June 17, 1994, and have not been registered under the Securities Act of 1933, as amended, and may not be transferred or sold except pursuant to an effective registration statement under the Securities Act of 1933, as amended, and applicable state Securities laws or an available exemption from such registration. The transfer of the securities represented by this certificate is subject to the conditions and restrictions specified in the Purchase Agreement, dated as of June 17, 1994 between the issuer (the "Company") and certain conditions have been fulfilled with respect to such transfer. A copy of such conditions shall be furnished by the Company to the holder hereof upon written request and without charge. The securities represented by this certificate are subject to certain voting agreements and restrictions on transfer contained in a Stockholder Agreement dated as of June 17, 1994, among the Company and certain of the Company's stockholders. A copy of such Stockholders Agreement will furnished without charge to the holder hereof upon written request. The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM as tenants in common UNIF GIFT MIN ACT -...Custodian... TEN ENT as tenants by entireties (Cust) (Minor) JT TEN as joint tenants with right of under Uniform Gifts to Minors survivorship and not as tenants Act...................... in common (State) Additional abbreviations may also be used though no in the above list. For the value received, _____________________ hereby sell, assign and transfer unto ________________________________________________________________ ________________________________________________________________________ Shares represented by the within Certificate, and do hereby irrevocable constitute and appoint ________________________________________________________ Attorney to transfer the said Shares on the books of the within named Corporation with full power and substitution in the premises. Dated ___________________________ 19__ In the presence of __________________________________________________ ____________________________________________ Incorporated Under the Laws of Delaware Number Shares SEE TRANSFER RESTRICTIONS ON REVERSE SIDE ORION NETWORK SYSTEMS, INC. SERIES B 8% CUMULATIVE REDEEMABLE CONVERTIBLE PREFERRED SHARES Authorized to Issue 40,000,000 Common Shares and 1,000,000 Preferred Shares (Including 5,000 Series B 8% Cumulative Redeemable Convertible Preferred Shares -Par Value $.01 per share) THIS CERTIFIES THAT ** Specimen** is the ----------------------------------------------------- registered holder of ** Specimen** Shares ----------------------------------------------------- of the capital stock of the aboved named corporation, fully paid and non-assesable, transferable only on the books of the Corporation by the holder hereof in person or by Attorney upon surrender of this Certificate properly endorsed. IN WITNESS WHEREOF, the said Corporation has caused this Certificate to be signed by its duly authorized officers and its Corporate Seal to be hereunto affixed this day of A.D. 19 -------------- --------------- -- - --------------------------------- ---------------------------- Secretary President The Company will furnish without charge to each holder of Preferred Stock represented by this certificate, upon request of such stockholder, the powers, designations, preferences and relative, participating optional, or other special rights of the class of stock represented hereby and the qualificaations, limitations or restrictions of such preferences and/or rights. The securities represented by this certificate were originally issued on June 19, 1995, and have not been registered under the Securities Act of 1933, as amended, and may not be transferred or sold except pursuant to an effective registration statement under the Securities Act of 1933, as amended, and applicable state Securities laws or an available exemption from such registration. The transfer of the securities represented by this certificate is subject to the conditions and restrictions specified in the Purchase Agreement, dated as of June 16, 1995 between the issuer (the "Company") and certain conditions have been fulfilled with respect to such transfer. A copy of such conditions shall be furnished by the Company to the holder hereof upon written request and without charge. The securities represented by this certificate are subject to certain voting agreements and restrictions on transfer contained in a Stockholder Agreement dated as of June 17, 1994, among the Company and certain of the Company's stockholders. A copy of such Stockholders Agreement will furnished without charge to the holder hereof upon written request. The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM as tenants in common UNIF GIFT MIN ACT -...Custodian... TEN ENT as tenants by entireties (Cust) (Minor) JT TEN as joint tenants with right of under Uniform Gifts to Minors survivorship and not as tenants Act...................... in common (State) Additional abbreviations may also be used though no in the above list. For the value received, _____________________ hereby sell, assign and transfer unto ________________________________________________________________ ________________________________________________________________________ Shares represented by the within Certificate, and do hereby irrevocable constitute and appoint ________________________________________________________ Attorney to transfer the said Shares on the books of the within named Corporation with full power and substitution in the premises. Dated ___________________________ 19__ In the presence of __________________________________________________ ____________________________________________ Incorporated Under the Laws of Delaware Number Shares SEE TRANSFER RESTRICTIONS ON REVERSE SIDE ORION NETWORK SYSTEMS, INC. SERIES C 6% CUMULATIVE REDEEMABLE CONVERTIBLE PREFERRED SHARES Authorized to Issue 40,000,000 Common Shares and 1,000,000 Preferred Shares (Including 125,000 Series C 6% Cumulative Redeemable Convertible Preferred Shares-Par Value $.01 per share) THIS CERTIFIES THAT ** Specimen** is the ----------------------------------------------------- registered holder of ** Specimen** Shares ----------------------------------------------------- of the capital stock of the aboved named corporation, fully paid and non-assesable, transferable only on the books of the Corporation by the holder hereof in person or by Attorney upon surrender of this Certificate properly endorsed. IN WITNESS WHEREOF, the said Corporation has caused this Certificate to be signed by its duly authorized officers and its Corporate Seal to be hereunto affixed this day of A.D. 19 -------------- --------------- -- - --------------------------------- ---------------------------- Secretary President THE COMPANY WILL FURNISH WITHOUT CHARGE TO EACH HOLDER OF PREFERRED STOCK REPRESENTED BY THIS CERTIFICATE, UPON REQUEST OF SUCH STOCKHOLDER, THE POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE, PARTICIPATING OPTIONAL, OR OTHER SPECIAL RIGHTS OF THE CLASS OF STOCK REPRESENTED HEREBY AND THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF SUCH PREFERENCES AND/OR RIGHTS. THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE OFFERED, SOLD OR TRANSFERRED IN THE ABSENCE OF REGISTRATION OR THE AVAILABILITY OF ANY EXEMPTION FROM REGISTRATION UNDER THE ACT AND REGULATIONS PROMULGATED THEREUNDER AND APPLICABLE STATE SECURITIES LAWS. THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN TRANSFER RESTRICTIONS CONTAINED IN A TRANSFER RESTRICTION AGREEMENT BETWEEN THE COMPANY AND THE ORIGINAL HOLDER OF PREFERRED STOCK REPRESENTED BY THIS CERTIFICATE. SUCH TRANSFER RESTRICTIONS MAY REQUIRE ANY SUBSEQUENT HOLDER OF PREFERRED STOCK REPRESENTED BY THIS CERTIFICATE TO EXECUTE AND DELIVER TO THE COMPANY A SIMILAR TRANSFER RESTRICTION AGREEMENT. A COPY OF SUCH TRANSFER RESTRICTION AGREEMENT WILL BE FURNISHED WITHOUT CHARGE TO THE HOLDER HEREOF UPON WRITTEN REQUEST. The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM as tenants in common UNIF GIFT MIN ACT -...Custodian... TEN ENT as tenants by entireties (Cust) (Minor) JT TEN as joint tenants with right of under Uniform Gifts to Minors survivorship and not as tenants Act...................... in common (State) Additional abbreviations may also be used though no in the above list. For the value received, _____________________ hereby sell, assign and transfer unto ________________________________________________________________ ________________________________________________________________________ Shares represented by the within Certificate, and do hereby irrevocable constitute and appoint ________________________________________________________ Attorney to transfer the said Shares on the books of the within named Corporation with full power and substitution in the premises. Dated ___________________________ 19__ In the presence of __________________________________________________ ____________________________________________ EX-4.5 6 EXHIBIT 4.5 COMMON STOCK NUMBER SHARES [Logo] ORION NETWORK SYSTEMS,INC. INCORPORATED UNDER THE LAWS OF DELAWARE CUSIP 68628K 10 4 SEE REVERSE FOR CERTAIN RESTRICTIONS THIS CERTIFIES THAT: or the record holder FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK, PAR VALUE $.01 PER SHARE, OF ORION NETWORK SYSTEMS INC. CERTIFICATE OF STOCK transferable on the books of the Corporation by the holder hereof in person or by duly authorized upon surrender of this certificate properly endorsed. This certificate is not valid unless conutersigned and registered by the Transfer Agent and Registrar. WITNESS the facsimile seal of the Corporation and the facsimile signatures of its duly authorized officers. Dated: Orion Network Systems, Inc. Corporate Seal, 1982 Delaware /s/ /s/ TREASURER CHAIRMAN THE OWNERSHIP OF THE SECURITIES BY THIS CERTIFICATE IS RESTRICTED BY AND SUBJECT TO THE PROVISIONS OF THE RESTATED CERTIFICATE OF INCORPORATION OF ORION NETWORK SYSTEMS, INC. (THE "CORPORATION"), WHICH (i) PROVIDES THAT THE CORPORATION SHALL HAVE THE RIGHT TO REDEEM ANY STOCK OF THE CORPORATION IF IN THE JUDGMENT OF THE BOARD OF DIRECTORS SUCH ACTION SHOULD BE TAKEN TO PREVENT THE LOSS OR SECURE THE REINSTATEMENT OF ANY LICENSE OR FRANCHISE HELD BY THE CORPORATION, AND (ii) SETS FORTH THE TERMS AND CONDITIONS OF SUCH REDEMPTION. A COPY OF THE RESTATED CERTIFICATE OF INCORPORATION IS AVAILABLE FOR INSPECTION AT THE PRINCIPAL OFFICES OF THE CORPORATION. Orion Network systems, Inc. will furnish without charge to each stockholder who so requests the powers, designations, preferences and relative participating, optional or other special rights of each class of stock or sereies thereof of Orion Network Systems, Inc., and the qualifications, limitations and restrictions of such preferences and/or rights. Such request may be made to Orion Network Systems, Inc. or the transfer agent. The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM as tenants in common UNIF GIFT MIN ACT -...Custodian... TEN ENT as tenants by entireties (Cust) (Minor) JT TEN as joint tenants with right of under Uniform Gifts to Minors survivorship and not as tenants Act...................... in common (State) Additional abbreviations may also be used though no in the above list. For value received, ______________________________________ hereby sell, assign and transfer unto _______________________________________________________ [please insert the Social Security or other identifying number of assignee] ________________________________________________________________________________ pleas print or typewrite name and address including postal zip of assignee ________________________________________________________________________________ ________________________________________________________________________________ _________________________________________________________________________ Shares of the Capital Stock represented by the within Certificate, and do hereby irrevocably constitute and appoint _____________________________________________ Attorney to transfer the said stock on the books of the within-named Corporation with full power of substitution in the premises. Dated, __________________________________ ________________________________________ [NOTICE: The signature to this assignment must correspond with the name as wrritten upon the face of the Certificate, in every particular, without alteration or enlargement, or any change whatever.] EX-4.6 7 EXHIBIT 4.6 RESTRICTION ON TRANSFER THE SECURITIES REPRESENTED BY THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT") OR APPLICABLE STATE SECURITIES LAWS, AND CANNOT BE RESOLD UNLESS SUBSEQUENTLY REGISTERED UNDER THE ACT AND SUCH LAWS OR UNLESS AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE. WARRANT To purchase 50,000 shares of Common Stock of Orion Network Systems, Inc. 1. Grant of Warrant. This is to certify that, for value received, DACOM Corp. (the "Holder") is entitled to purchase, subject to the provisions of this Warrant, from Orion Network Systems, Inc. ("Orion"), an aggregate of 50,000 shares of common stock, par value $.0l per share, of Orion (the "Orion Common Stock") at a purchase price per share equal to $14.00 (the "Exercise Price"). The number of shares of Orion Common Stock that may be received upon exercise of this Warrant and the Exercise Price are subject to adjustment from time to time as hereinafter set forth. 2. Term. This Warrant may be exercised in whole or in part at any time or from time to time during the period commencing on the date that is 180 days and ending on the date that is 360 days after the "Commencement Date" as defined in Article 1 of the Joint Investment Agreement (the "Agreement") dated November 11, 1996 between Orion Asia Pacific Corp. and the Holder, provided, however, that this Warrant shall terminate immediately upon termination of the Agreement. 3. Exercise Procedures. In order to exercise this Warrant, the Holder shall send a written notice of exercise to Orion on any business day at Orion's principal office, addressed to the attention of the Treasurer of Orion, which notice shall specify the number of shares for which this Warrant is being exercised, and shall be accompanied by payment in full of the Exercise Price of the shares for which this Warrant is being exercised. Payment of the Exercise Price for the shares of Orion Common Stock purchased pursuant to the exercise of this Warrant shall be made either in cash, by certified check or by wire transfer. If the person or entity exercising this Warrant is not the Holder, such person or entity shall also deliver, with the notice of exercise, appropriate proof of the right of such person or entity to exercise this Warrant. An attempt to exercise this Warrant granted hereunder other than as set forth above shall be invalid and of no force and effect. Promptly after exercise of this Warrant as provided for above, Orion shall deliver to the person exercising this Warrant a certificate or certificates for the shares of Orion Common Stock being purchased. In the event this Warrant is exercised in part only, Orion shall, upon surrender of this Warrant for cancellation, execute and deliver to the Holder a new Warrant of like tenor evidencing the right of the Holder to purchase the balance of the shares of Orion Common Stock subject to purchase hereunder. Such stock certificate or certificates shall be appropriately legended to the extent required by federal or state securities laws. All shares of Orion Common Stock issued upon exercise of this Warrant shall be duly authorized and validly issued, fully paid and nonassessable. 4. Transferability. This Warrant may not be transferred by the Holder in whole or in part, other than to an affiliate of the Holder, without the prior written consent of Orion. 5. Reservation of Stock; Compliance. Orion hereby agrees that at all times there shall be reserved for issuance and/or delivery upon exercise of this Warrant, free from preemptive rights, such number of shares of authorized but unissued or treasury shares of Orion Common Stock as shall be required for issuance or delivery upon exercise of this Warrant. Orion further agrees (i) that it will not, by amendment to its certificate of incorporation or bylaws or through any other action, avoid or seek to avoid the observance or performance of any of the covenants or conditions to be observed or performed hereunder by Orion, and (ii) promptly to take all action as may from time to time be required in order to permit the Holder to exercise this Warrant and Orion duly and effectively to issue shares of Orion Common Stock hereunder. 6. Effect of Changes in Capitalization. A. Changes in Stock. If the outstanding shares of Orion Common Stock are increased or decreased or changed into or exchanged for a different number or kind of shares or other securities of Orion by reason of any recapitalization, reclassification, stock split-up, reverse stock split, combination of shares, exchange of shares, stock dividend or other distribution payable in capital stock, or other increase or decrease in such shares effected without receipt of consideration by Orion occurring after the date hereof, a proportionate and appropriate adjustment shall be made by Orion in the number and kind of shares subject to this Warrant, so that the proportionate interest of the Holder immediately following such event shall, to the extent practicable, be the same as immediately prior to such event. Any such adjustment in this Warrant shall not change the total Exercise Price with respect to shares subject to the unexercised portion of this Warrant but shall include a corresponding proportionate adjustment in the Exercise Price per share. - 2 - B. Merger, Consolidation or Sale. Subject to Subsection C of this Section 6, in the event of any Sale Transaction (as defined below), this Warrant shall pertain to and apply to the cash, securities or other consideration to which a holder of the number of shares of Orion Common Stock subject to this Warrant would have been entitled immediately following such Sale Transaction, with a corresponding proportionate adjustment of the Exercise Price per share so that the aggregate Exercise Price thereafter shall be the same as the aggregate Exercise Price of the shares remaining subject to this Warrant immediately prior to such reorganization, merger or consolidation. For purposes of this Warrant, a "Sale Transaction" shall mean (i) the dissolution or liquidation of Orion, (ii) a merger, consolidation or reorganization of Orion with one or more other corporations in which stockholders of Orion receive cash or securities of another corporation for their stock in Orion, (iii) a sale of substantially all of the assets of Orion to another corporation, or another transaction (including, without limitation, a merger or reorganization in which Orion is the surviving corporation) approved by the Board of Directors of Orion which results in any person or entity owning 80 percent or more of the combined voting power of all classes of stock of Orion. C. Proposed Reorganization with Orion Newco. The parties acknowledge that Orion is presently contemplating a transaction (the "Proposed Holding Company Formation") in which, among other things, Orion would merge with a subsidiary of a newly formed company, Orion Newco Services, Inc. ("Orion Newco"), which has no significant assets or liabilities, in which merger (i) stockholders of Orion would receive substantially identical stock in Orion Newco, (ii) the common stock of Orion Newco would become publicly traded and Orion would be a wholly-owned subsidiary of Orion Newco, which would become the parent holding company of Orion. For the avoidance of doubt, the parties agree that the Proposed Holding Company Formation would be a Sale Transaction, and upon consummation of the Proposed Holding Company Formation, this Warrant would cease to be exercisable for Common Stock of Orion and instead would pertain to and apply to the common stock of Orion Newco (and other securities or other consideration, if any) to which a holder of the number of shares of Orion Common Stock subject to this Warrant would have been entitled immediately following such Proposed Holding Company Formation, with a corresponding proportionate adjustment of the Exercise Price per share so that the aggregate Exercise Price thereafter shall be the same as the aggregate Exercise Price of the shares remaining subject to this Warrant immediately prior to the Proposed Holding Company Formation. E. Adjustments. Adjustments specified in this Section 6 shall be made by the Board of Directors of Orion, whose determination in that respect shall be final, binding and conclusive. No fractional shares of Orion Common Stock or units of other securities shall be issued pursuant to any such adjustment, and - 3 - any fractions resulting from any such adjustment shall be eliminated in each case, with cash being paid (at fair market value as reasonably determined by the Board of Directors of Orion) in lieu of such fractions 7. General Restrictions. Orion shall not be required to issue any shares of Orion Common Stock under this Warrant Agreement if the issuance of such shares would constitute a violation by Orion of any provision of any law or regulation of any governmental authority, including without limitation, the registration or qualification requirement of applicable federal and state securities laws or regulations. If at any time Orion shall determine, based upon a written opinion of securities counsel, that the registration or qualification of any shares subject to this Warrant under any applicable state or federal law is necessary as a condition of, or in connection with, the issuance of shares, this Warrant may not be exercised in whole or in part unless such registration or qualification shall have been effected or obtained free of any conditions not reasonably acceptable to Orion, and any delay caused thereby shall in no way affect the date of termination of this Warrant. Specifically in connection with the Securities Act of 1933 (as now in effect or as hereafter amended) (the "Securities Act"), unless a registration statement under the Securities Act is in effect with respect to the shares of Orion Common Stock covered by this Warrant, Orion shall not be required to issue such shares unless the Board of Directors of Orion has received evidence reasonably satisfactory to it that the holder of this Warrant may acquire such shares pursuant to an exemption from registration under the Securities Act. Orion may, but shall in no event, unless otherwise agreed in writing by Orion, be obligated to, register any securities covered hereby pursuant to the Securities Act. Orion shall use its reasonable efforts to cause the exercise of this Warrant and the issuance of shares pursuant thereto to comply with any applicable law or regulation of any governmental authority; provided, however, that Orion may, but shall in no event be obligated to, register any securities covered hereby under federal or state securities laws. As to any jurisdiction that expressly imposes the requirement that this Warrant shall not be exercisable unless and until the shares of Orion Common Stock covered by this Warrant are registered or are subject to an available exemption from registration, the exercise of this Warrant (under circumstances in which the laws of such jurisdiction apply) shall be deemed conditioned upon the effectiveness of such registration or the availability of such an exemption. 8. Divisibility: Combination. This Warrant may, at the option of the Holder, without expense, be divided into or combined with other Warrant for Orion Common Stock which carry the same rights. Upon surrender of this Warrant and any such other Warrant to Orion together with a written notice signed by the Holder and specifying the names and denominations for not less than 1,000 shares of Orion Common Stock in which new Warrant are to be issued, Orion shall execute and deliver new Warrant, as requested entitling the Holder or Holders thereof to purchase in the aggregate the same number of shares of Orion Common Stock purchasable hereunder and under any such other Warrant. The term "Warrant" as - 4 - used herein includes any Warrant into which this Warrant may be divided or combined. 9. Applicable Law. This Warrant shall be governed by and construed in accordance with the laws of the State of Delaware except to the extent federal law may be applicable. 10. Reports. Orion shall deliver to the Holder, promptly upon the mailing thereof to the stockholders of Orion generally, copies of all financial statements, reports and proxy statements so mailed, and shall deliver to the Holder such other information that Orion may produce in written form in the ordinary course of its business which is available to stockholders of Orion generally and which the Holder reasonably requests. IN WITNESS WHEREOF, Orion has caused this Warrant to be duly executed on the day and year set forth below. DATED: December __, 1996 [SEAL] ORION NETWORK SYSTEMS, INC. ATTEST: By ------------------------------------- - ---------------------------------- Its ------------------------------------ - 5 - EX-4.7 8 EXHIBIT 4.7 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- ORION NEWCO SERVICES, INC. $60,000,000 Convertible Junior Subordinated Debentures Due February 1, 2012 (Interest Payable in Common Stock) ----------------------------- DEBENTURE PURCHASE AGREEMENT ----------------------------- Dated as of January 13, 1997 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Table of Contents -----------------
Page ---- 1. Issuance of Debentures and the Subsidiary Guarantee.................................................... 1 1.1. The Debentures.............................................................................. 1 1.2. Sale of Debentures.......................................................................... 1 1.3. The Subsidiary Guarantee.................................................................... 2 2. Closing................................................................................................ 2 3. Use of Proceeds........................................................................................ 2 4. Conditions to Closing.................................................................................. 2 4.1. Representations and Warranties.............................................................. 2 4.2. Exchange Agreement.......................................................................... 3 4.3. Merger Transaction.......................................................................... 3 4.4. Financing Transaction....................................................................... 3 4.5. Termination of Your Prior Obligations....................................................... 3 4.6. Subsidiary Guarantee........................................................................ 4 4.7. Registration Rights......................................................................... 4 4.8. Opinions of Counsel......................................................................... 4 4.9. Matra Incentive Payments.................................................................... 5 4.10. Senior Notes................................................................................ 5 4.11. Terms of the Merger; Capitalization......................................................... 5 4.12. HSR Clearance............................................................................... 5 4.13. Investment by Each Purchaser................................................................ 5 4.14. Termination................................................................................. 5 5. Representations, Warranties and Agreements of the Company and ONS...................................... 6 5.1. Incorporation, Standing, etc................................................................ 6 5.2. Capital Stock............................................................................... 7 5.3. Subsidiaries................................................................................ 7 5.4. Qualification............................................................................... 8 5.5. Business; Financial Statements.............................................................. 8 5.6. Solvency.................................................................................... 8 5.7. Authorization of Agreement.................................................................. 8 5.8. Authorization of Common Stock............................................................... 9 5.9. Absence of Defaults and Conflicts........................................................... 9 5.10. Absence of Labor Dispute.................................................................... 10 5.11. Absence of Proceedings...................................................................... 10 5.12. Possession of Licenses and Permits.......................................................... 10 5.13. Environmental Laws.......................................................................... 11 (i) Page 5.14. No Violations of Laws....................................................................... 12 5.15. Internal Accounting Controls................................................................ 12 5.16. Tax Returns and Payments.................................................................... 12 5.17. Indebtedness................................................................................ 12 5.18. Title to Properties; Liens.................................................................. 13 5.19. Patents, Trademarks, Authorizations, etc.................................................... 13 5.20. Governmental Consents; Exercise of Voting Rights, etc....................................... 13 5.21. Offer of Debentures......................................................................... 14 5.22. Federal Reserve Regulations................................................................. 14 5.23. Investment Company Act...................................................................... 14 5.24. Public Utility Holding Company Act.......................................................... 14 5.25. Compliance with ERISA....................................................................... 14 5.26. Disclosure.................................................................................. 15 5.27. HSR Act Filings............................................................................. 16 5.28. Certificate of Incorporation................................................................ 16 6. Representations, Warranties and Agreements of Purchasers............................................... 17 6.1. Investment Representations.................................................................. 17 6.2. ERISA....................................................................................... 17 6.3. HSR Act Filings............................................................................. 17 7. Accounting; Financial Statements; Other Information.................................................... 17 7.1. Accounting; Financial Statements and Other Information...................................... 17 7.2. Company Certificate......................................................................... 19 7.3. Accountant's Certificate.................................................................... 19 8. Inspection............................................................................................. 20 9. Confidential Treatment................................................................................. 21 10. ERISA.................................................................................................. 21 11. Redemption of Debentures; Repurchase Rights; Mandatory Sales........................................... 22 11.1. Right of Redemption......................................................................... 22 11.2. Company Right of Redemption................................................................. 22 11.3. Redemption and Repurchase Rights upon Change of Control Event............................... 22 11.4. Mandatory Sale.............................................................................. 23 11.5. Restriction on Conversion Rights; Withdrawal of Notice...................................... 24 12. Business Covenants..................................................................................... 26 12.1. Payment of Debentures and Maintenance of Office............................................. 26 12.2. Payment of Taxes and Claims................................................................. 26 (ii) Page 12.3. Maintenance of Properties and Corporate Existence........................................... 27 12.4. Compliance with Law......................................................................... 28 12.5. [Reserved.]................................................................................. 28 12.6. When Company May Merge, Etc................................................................. 28 12.7. Listing..................................................................................... 28 12.8. Issuances of Guarantees by New Restricted Subsidiaries...................................... 29 12.9. Subsidiaries................................................................................ 29 12.10. Notice...................................................................................... 29 12.11. Waiver of Stay, Extension or Usury Laws..................................................... 29 13. Financial Covenants.................................................................................... 29 13.1. Merger and Sale of Assets................................................................... 29 13.2. Transactions with Affiliates................................................................ 31 13.3. Tax Consolidation........................................................................... 31 13.4. Compliance with ERISA....................................................................... 31 13.5. Limitation on Indebtedness.................................................................. 32 13.6. Limitation on Restricted Payments........................................................... 34 13.7. Limitation on the Issuance and Sale of Capital Stock of Restricted Subsidiaries................................................................................ 36 13.8. Issuances of Guarantees by New Restricted Subsidiaries...................................... 36 13.9. Limitation on Liens......................................................................... 36 13.10. Limitation on Sale-Leaseback Transactions................................................... 37 13.11. Limitation on Asset Sales................................................................... 37 13.12. Insurance................................................................................... 38 14. Subordination of Debentures............................................................................ 39 14.1. Debentures Subordinated to Senior Indebtedness.............................................. 39 14.2. Liquidation; Dissolution; Bankruptcy........................................................ 39 14.3. Default on Senior Indebtedness.............................................................. 40 14.4. Payment Permitted If No Default............................................................. 42 14.5. Subrogation to Rights of Holders of Senior Indebtedness..................................... 42 14.6. Provisions Solely to Define Relative Rights................................................. 42 14.7. Enforcement of Subordination By Holders of Senior Notes; No Waiver of Subordination Provisions................................................................. 43 14.8. Reliance on Judicial Order or Certificate of Liquidating Agent.............................. 44 14.9. Certain Conversions Deemed Payment.......................................................... 44 14.10. Not to Prevent Events of Default............................................................ 44 15. Conversion Rights...................................................................................... 44 15.1. Conversion Privilege and Conversion Rate.................................................... 44 15.2. Exercise of Conversion Privilege; Time Conversion Deemed Effected; Delivery of Stock Certificates; Partial Conversions; Accrued Interest....................... 45 (iii) Page 15.3. Fractions of Shares......................................................................... 45 15.4. Adjustments to Conversion Rate.............................................................. 46 15.5. Effect on Conversion Price of Certain Events................................................ 50 15.6. De Minimis Adjustments...................................................................... 53 15.7. Notice of Adjustments of Conversion Rate.................................................... 53 15.8. Notice of Certain Corporate Action.......................................................... 53 15.9. Company to Reserve Common Stock............................................................. 54 15.10. Taxes on Conversions........................................................................ 54 15.11. Agreements as to Common Stock; Listing...................................................... 54 15.12. Cancellation of Converted Debentures........................................................ 55 15.13. Provision in Case of Consolidation, Merger or Conveyance of Assets.......................... 55 15.14. Other Dilutive Events....................................................................... 56 15.15. Continuing Obligation of the Company........................................................ 57 16. Registration, Transfer and Substitution of Debentures.................................................. 57 16.1. Debenture Register; Ownership of Registered Debentures...................................... 57 16.2. Transfer and Exchange of Debentures......................................................... 57 16.3. Replacement of Debentures................................................................... 57 17. Payment................................................................................................ 58 17.1. Form of Payment............................................................................. 58 17.2. Place of Payment............................................................................ 58 17.3. Home Office Payment......................................................................... 58 18. Events of Default; Acceleration........................................................................ 59 18.1. Nature of Events and Acceleration of Debentures............................................. 59 18.2. Default Remedies............................................................................ 61 18.3. Notice of Default........................................................................... 62 18.4. Annulment of Acceleration of Debentures..................................................... 62 18.5. Accelerations and other Remedies Limited Prior to Senior Notes Reduction Date.............................................................................. 62 19. Interpretation of Agreement and Debentures............................................................. 63 20. Expenses............................................................................................... 85 21. Survival............................................................................................... 86 22. Amendments and Waivers................................................................................. 86 23. Notices................................................................................................ 87 (iv) Page 24. Substitution of Purchaser.............................................................................. 87 25. Execution in Counterparts.............................................................................. 87 27. GOVERNING LAW.......................................................................................... 87 28. Consent to Jurisdiction; Appointment of Agent to Accept Service of Process............................. 88 29. WAIVER OF JURY TRIAL................................................................................... 89
(v) Schedule I - Schedule of Purchaser(s) Schedule II - Exceptions to Section 5.11 Exhibit A - Form of Debenture Exhibit B - Form of Subsidiary Guarantee Exhibit C - Registration Rights Agreement Exhibit D - Information Relating to Subsidiaries (vi) ORION NEWCO SERVICES, INC. as of January 13 , 1997 British Aerospace Holdings, Inc. 15000 Conference Center Drive Chantilly, Virginia 20151 Matra Marconi Space UK Limited The Grove Warren Land Stanmore, Middlesex, HA7 4LY England Dear Sirs: ORION NEWCO SERVICES, INC., a Delaware corporation (herein, together with its successors and assigns, called the "Company"), and ORION NETWORK SYSTEMS, INC., a Delaware corporation ("ONS"), agree with you as follows: 1. Issuance of Debentures and the Subsidiary Guarantee. --------------------------------------------------- 1.1. The Debentures. The Company has duly authorized the issue and sale of $60,000,000 in aggregate principal amount of its Convertible Junior Subordinated Debentures Due February 1, 2012 (Interest Payable in Common Stock) (such Debentures, together with all Debentures issued in substitution or exchange therefor pursuant to this Agreement, are herein called the "Debentures"). Each Debenture will bear interest from the date thereof on the unpaid principal amount thereof at the rate specified therein, payable in Common Stock semi-annually on the first day of February and the first day of August of each year commencing with August 1, 1997, will mature on February 1, 2012, and will be in substantially the form of Exhibit A attached hereto, with such changes thereto, if any, as may be approved by you. Capitalized terms used and not otherwise defined herein shall have the respective meanings assigned thereto in Section 19. 1.2. Sale of Debentures. ------------------ (a) The Company will issue and sell to BAe and, subject to the terms and conditions hereof, BAe will purchase from the Company at the Closing provided for in Section 2, Debentures in the aggregate principal amount of $50,000,000 at the purchase price of one hundred percent (100%) of such principal amount. (b) The Company will issue and sell to Matra and, subject to the terms and conditions hereof, Matra will purchase from the Company at the Closing provided for in Section 2, Debentures in the aggregate principal amount of $10,000,000 at the purchase price of one hundred percent (100%) of such principal amount. 1.3. The Subsidiary Guarantee. The Guarantors, no later than the Closing Date (as hereinafter defined), shall have taken all necessary action to authorize the issuance of their unconditional guarantee of payment of the Debentures as set forth in the Subsidiary Guarantee and to make their guarantee of the Debentures the enforceable obligation it purports to be in accordance with the terms of the Subsidiary Guarantee. The Subsidiary Guarantee is not effective or enforceable against the Guarantors until the Senior Notes Reduction Date. The Subsidiary Guarantee will become effective and enforceable against each of the Guarantors on the Senior Notes Reduction Date without any further action by any party. 2. Closing. The closing of the sale of the Debentures to be purchased by each Purchaser (the "Closing") shall take place at the offices of Coudert Brothers, 1114 Avenue of the Americas, New York, New York 10036 at 10:00 a.m., New York City time, (or at such other time and place as the parties hereto may agree) on the date on which the Financing Transaction is closed provided that each of the conditions in Section 4 have been satisfied prior to such date or are to be satisfied concurrently with the Closing (the "Closing Date"). At the Closing the Company will deliver to each Purchaser the Debentures to be purchased by such Purchaser, in the form of a single Debenture (or such greater number of Debentures in denominations of at least $100,000 as such Purchaser may request), dated the Closing Date and registered in such Purchaser's name (or the name of such Purchaser's nominee), against delivery by such Purchaser to the Company of the purchase price therefor by the same method of payment utilized in the closing of the Financing Transaction. If at the Closing the Company shall fail to tender such Debentures to a Purchaser as provided in this Section 2, or any of the conditions specified in Section 4 shall not have been fulfilled to such Purchaser's satisfaction, such Purchaser shall, at its election, be relieved of all further obligations under this Agreement, without thereby waiving any other rights such Purchaser may have by reason of such failure or such non-fulfillment. 3. Use of Proceeds. The proceeds of the sale of the Debentures will be used to pay amount under the contracts for the construction of Orion 2 and Orion 3 and to provide working capital to the Company. 4. Conditions to Closing. Each Purchaser's obligation to purchase and pay for the Debentures to be purchased by such Purchaser is subject to the fulfillment to such Purchaser's satisfaction, prior to or at the Closing, of each of the following conditions: 4.1. Representations and Warranties. The representations and warranties of the Company, ONS and their respective Subsidiaries contained in this Agreement shall be correct as of the date hereof and at the time of the Closing. Alternatively, the Company (and if applicable ONS) shall have made, in writing, for the benefit of you and any other holder of -2- Debentures, the same representations, warranties and agreements as made to Morgan Stanley & Co. Incorporated ("Morgan") in the underwriting agreement with respect to the sale of the Senior Notes (the "Underwriting Agreement"), except that such representations, warranties and agreements shall be made in connection with (and with reference to) the offer, sale, delivery and performance of the Debentures and this Agreement (including, without limitation, the issuance and delivery of Conversion Shares and Interest Shares as required under the Debentures), rather than with respect to the offer, sale, delivery and performance of the Senior Notes, as the context requires, and such representations and warranties shall have been correct as of the date first made and at the time of Closing. If the Company or ONS shall make for the benefit of you and other holders of Debentures such representations, warranties and agreements in the Underwriting Agreement, the representations, warranties and agreements set forth in Sections 5.1 through 5.28 hereof shall not be updated through the Closing Date. In either case, each Purchaser shall have received a certificate, dated the Closing Date and signed by the Secretary of the Company, certifying as to the correctness of the applicable representations and warranties. 4.2. Exchange Agreement. The transactions provided for in the Exchange Agreement shall be completed prior to or concurrently with the Closing. 4.3. Merger Transaction. The Merger Transaction shall be completed prior to or concurrently with the Closing. 4.4. Financing Transaction. The Financing Transaction shall be completed prior to or concurrently with the Closing. 4.5. Termination of Your Prior Obligations. ------------------------------------- (a) As a condition to BAe's obligation to purchase and pay for the Debentures to be purchased by BAe, the obligations of (i) BAC under the Communications Satellite Capacity Agreement dated as of December 20, 1991 by and between Orion Atlantic and BAC, and the Contingent Communications Satellite Capacity Agreement, dated as of December 20, 1991, by and between, Orion Atlantic and BAC and (ii) British Aerospace Plc ("PLC") under the Guarantee Agreement dated as of February 19, 1992 between and among PLC, Orion Atlantic and The Chase Manhattan Bank (National Association), as agent, (including, without limitation, all payment obligations, guarantees or other credit support obligations under or related to each such agreement) shall have been terminated and be of no further force or effect and a termination of guarantee agreement and termination of capacity agreements contracts, substantially in the form of the exhibits attached to the Exchange Agreement, in respect of the termination of the obligations of PLC and BAC, respectively, shall be executed and delivered prior to or concurrently with the Closing. (b) As a condition to Matra's obligation to purchase and pay for the Debentures to be purchased by Matra, the obligations of (i) MCN Sat Service S.A. under the Communications Satellite Capacity Agreement dated as of December 20, 1991 by and between Orion Atlantic and MCN Sat Service S.A., (ii) MCN Sat -3- US, Inc. under the Contingent Communications Satellite Capacity Agreement dated as of December 20, 1991 by and between Orion Atlantic and MCN Sat US, Inc., (iii) Lagardere Groupe SCA (formerly Matra S.A.) under the Guarantee Agreement dated as of February 19, 1992 between and among Lagardere Groupe SCA (formerly Matra S.A.), Orion Atlantic and The Chase Manhattan Bank (National Association), as agent, and (iv) Lagardere Groupe SCA under the Guaranty Agreement, dated April 2, 1992 between Lagardere Groupe SCA (formerly Matra S.A.) and Orion Atlantic (including, without limitation, all payment obligations, guarantees or other credit support obligations under or related to each such agreement) shall have been terminated and be of no further force or effect and a termination of guarantee agreements and termination of capacity agreements, substantially in the form of the exhibits attached to the Exchange Agreement, in respect of the termination of the obligations of MCN Sat US, Inc. and MCN Sat Service S.A., respectively, shall be executed and delivered prior to or concurrently with the Closing. 4.6. Subsidiary Guarantee. A Subsidiary Guarantee substantially in the form of Exhibit B attached hereto, shall be executed and delivered to each Purchaser by each of the Guarantors. The parties hereto agree that the Subsidiary Guarantee may, at your sole option, be amended to incorporate from any subsidiary guarantee provisions for the benefit of the holders of the Senior Notes, any additional or, in your opinion, more favorable terms than those appearing in the Subsidiary Guarantee, provided that, in no event, will the Subsidiary Guarantee become effective prior to the Senior Notes Reduction Date. 4.7. Registration Rights. (i) A Registration Rights Agreement with respect to the Conversion Shares, the Interest Shares, and certain other shares specified therein substantially in the form of Exhibit C attached hereto, shall have been executed by each Purchaser and the Company and (ii) the Company or ONS shall have obtained all agreements, amendments, consents or waivers, in form and substance satisfactory to each Purchaser, from the holders of any registration rights granted pursuant to any prior registration rights agreements (or any such agreement entered into in connection with the Merger Transaction or the Financing Transaction) with the Company or ONS as necessary to allow you (and each other holder of Debentures) their registration rights in accordance with the terms of the Registration Rights Agreement. 4.8. Opinions of Counsel. The Purchasers shall have received a favorable opinion, dated the Closing Date and satisfactory in form and substance to the Purchasers, from Hogan & Hartson L.L.P., special counsel for the Company, which shall opine as to offer and sale of the Debentures. Such opinion shall be deemed to be in form and substance satisfactory to the Purchasers if the opinion provided is the same as the opinion provided by Hogan & Hartson L.L.P. to Morgan under the Underwriting Agreement in connection with the offer and sale of the Senior Notes, except that the opinion delivered to the Purchasers shall opine as to the Debentures (including, without limitation, as to the issuance of the Conversion Shares and Interest Shares) and the Subsidiary Guarantee in addition to or in place of the Senior Notes and the guarantee thereof and shall refer to the Purchasers and the Debentures (including the Conversion Shares and Interest Shares), rather than to Morgan and the Senior Notes, as the context requires. BAe shall also have received a favorable opinion, dated the Closing Date and satisfactory in form and substance to BAe, from Hogan & Hartson L.L.P. which shall opine as to the applicability of Section 16 of the Exchange Act to the receipt of Conversion Shares and -4- Interest Shares by BAe and the receipt by BAC of stock dividends on, and shares issued upon conversion of, the Series C Preferred Stock. 4.9. Matra Incentive Payments. As a condition to Matra's obligation to purchase and pay for the Debentures to be purchased by Matra, ONS, shall, concurrently with the Closing, pay to Matra by wire transfer into a bank account established by Matra in the United States of America, $13 million of the payments required to be made under Articles 15.6.1 and 15.6.2 of the Second Amended and Restated Purchase Contract, dated 26 September 1991, as amended, by and between Orion Satellite Corporation, as general partner of Orion Atlantic and Matra Marconi Space UK Limited. 4.10. Senior Notes. The material terms of the Senior Notes, as set out on the Senior Notes Term Sheet, a copy of which has been furnished to you, shall not have been amended or waived without your written approval. For purposes of this Section 4.10, an increase in the size of the Senior Notes offering shall not constitute an amendment or waiver requiring your written approval. 4.11. Terms of the Merger; Capitalization. The material terms of the Merger Transaction, as described in the Registration Statement, a copy of which has been delivered to you and your special U.S. counsel, shall not have been amended or waived without your written approval. Except for a proposed sale of ONS Common Stock or Common Stock previously disclosed to you, and except as specifically contemplated by the Registration Statement and the Senior Notes Term Sheet, there shall have been no material changes to the capital structure of either the Company or ONS and no material increase or decrease in the number of outstanding shares of any class of capital stock of either ONS or the Company, or in the number of (or terms of) any options, warrants, or other rights to acquire any shares of any class of capital stock of either ONS or the Company since January 10, 1997. 4.12. HSR Clearance. As a condition to BAe's obligation to purchase and pay for the Debentures to be purchased by BAe, any waiting period (including any extensions thereof) applicable to BAC's acquisition of Series C Preferred Stock pursuant to the Exchange Agreement shall have expired or been terminated. 4.13. Investment by Each Purchaser. The purchase of Debentures by each Purchaser shall be completed concurrently with the purchase of Debentures by the other Purchaser. 4.14. Termination. (a) No Closing. Notwithstanding anything to the contrary contained in this Agreement, this Agreement may be terminated and the transactions contemplated hereby may be abandoned at any time prior to the Closing: -5- (i) By the mutual consent of all of the parties; (ii) By a Purchaser at any time in the event of a material breach or material default by the Company in the observance or in the timely performance of any of its obligations hereunder which is not waived by such Purchaser; (iii) By the Company at any time in the event of a material breach or material default by a Purchaser in the observance or in the timely performance of any of such Purchaser's obligations hereunder which is not waived by the Company; or (iv) If the Closing shall not have occurred on or before April 30, 1997, without any further action by you or the Company. Except as provided in paragraph (iv) above, no termination under this Section 4.14 shall be effective unless and until the terminating party gives written notice of such termination to the other parties. (b) Failure to Notify. If the Closing shall not actually occur on any date on which the Closing is scheduled to occur (the "Scheduled Closing Date") (other than by reason of your failure to purchase Debentures duly tendered), and the Company shall have failed to notify Coudert Brothers prior to 12:00 p.m., New York City time, on such Scheduled Closing Date that such Closing has been postponed, the Company shall pay to each Purchaser by wire transfer of immediately available funds to the bank account designated by such Purchaser (if such Purchaser incurs any loss of funds or administrative costs, as compensation for such loss of funds and administrative costs) an amount equal to interest on the aggregate purchase price for the Debentures to have been purchased by such Purchaser on such Scheduled Closing Date, at the effective rate of interest equal to eight and three-quarters percent (8 3/4%) per annum, less the overnight Federal funds rate, for each day from and including such Scheduled Closing Date to and including the earlier of the date on which such Closing actually occurs or the date on which the amount to be paid by such Purchaser as the purchase price of such Debentures is available to such Purchaser for reinvestment, provided, that the Company shall pay to such Purchaser in any case not less than one day's interest at such specified rate. 5. Representations, Warranties and Agreements of the Company and ONS. Each of ONS and the Company represents, warrants and agrees as follows: 5.1. Incorporation, Standing, etc. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has all requisite corporate power and authority to own and operate its properties, to carry on its business as now conducted and as presently proposed to be conducted, to enter into this Agreement, to issue and sell the Debentures, to issue the Conversion Shares and the Interest Shares and to carry out the terms of this Agreement and the Debentures. The Company has, by all necessary corporate action, duly authorized the execution and delivery of this Agreement -6- and of the Debentures and the performance of its obligations hereunder and under the Debentures (including, without limitation, the issuance and sale of the Debentures and the issuance of the Conversion Shares and the Interest Shares). 5.2. Capital Stock. ------------- (a) As of January 10, 1997, the authorized capital stock of ONS consists of 40,000,000 shares of common stock, par value $0.01 per share ("ONS Common Stock"), and 1,000,000 shares of preferred stock, par value $0.01 per share ("ONS Preferred Stock"), of which 10,985,150 shares of ONS Common Stock, 13,871 shares of ONS Series A 8% Cumulative Redeemable Convertible Preferred Stock ("ONS Series A Preferred Stock") and 4,298 shares of ONS Series B 8% Cumulative Redeemable Convertible Preferred Stock ("ONS Series B Preferred Stock") are duly authorized and validly issued and outstanding, fully paid and nonassessable. ONS has no other class of stock authorized or outstanding. Options and warrants to purchase 947,330 shares of ONS Common Stock are outstanding as of January 10, 1997, and when such options and warrants are exercised and the prescribed exercise price paid, the shares of ONS Common Stock issued with respect to such options and warrants will be duly authorized, validly issued, fully paid and nonassessable. Options to purchase 350,666 shares of ONS Preferred Stock, the terms of which are to be substantially identical to the ONS Series A Preferred Stock and the ONS Series B Preferred Stock other than the conversion price, are outstanding as of January 10, 1997. Except as set forth above, or in the certificates of designations of the ONS Series A Preferred Stock and ONS Series B Preferred Stock and related investment agreements, as of January 10, 1997 there are no existing options, warrants or rights to purchase or otherwise acquire from ONS Capital Stock of ONS of any class, no outstanding securities of ONS that are convertible into shares of Capital Stock of ONS of any class, and no options, warrants or rights to purchase from ONS any such convertible securities, and ONS has no outstanding contractual or other obligation to repurchase, redeem or otherwise acquire any outstanding shares of its Capital Stock. (b) ONS and the Company agree that prior to the Closing Date there will be no material increase or decrease in the number of outstanding shares of any class of Capital Stock of either ONS or the Company, or in the number of (or terms of) any options, warrants, or other rights to acquire any shares of any class of Capital Stock of either ONS or the Company except in connection with a proposed sale of ONS Common Stock or Common Stock previously disclosed to you, or as specifically contemplated by the Registration Statement and the Senior Notes Term Sheet. 5.3. Subsidiaries. Attached hereto as Exhibit D is a complete and correct list of the Subsidiaries of the Company and ONS, which Exhibit D correctly sets forth as to each Subsidiary (a) its name, (b) the jurisdiction of its organization and the jurisdictions, if any, in which it is qualified as a foreign corporation or foreign partnership and (c) the percentage of its issued and outstanding shares of common stock, shares of beneficial interest or general and limited partnership interests owned by the Company, ONS or another Subsidiary (specifying such -7- other Subsidiary). Each corporate Subsidiary is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation, and each limited partnership Subsidiary is duly formed, validly existing and in good standing under the laws of its jurisdiction of organization. Each Subsidiary has all requisite power and authority to own and operate its properties and to carry on its business as now conducted and as presently proposed to be conducted. All the outstanding equity interests or partnership interests of, or shares of capital stock of, or shares of beneficial interest in, each Subsidiary are duly authorized, validly issued, fully paid and nonassessable, and all such equity interests, partnership interests or shares indicated in Exhibit D as owned by the Company, ONS or by another Subsidiary are so owned beneficially and of record by the Company or such other Subsidiary, free and clear, except as described in the Registration Statement, of any Lien. Upon the completion of the Merger Transaction, Exhibit D shall be amended to include ONS as a Wholly Owned Subsidiary of the Company. 5.4. Qualification. The Company and ONS are, and each of the Subsidiaries listed on Exhibit D is, duly qualified and in good standing as a foreign corporation or partnership authorized to do business in the jurisdictions indicated with respect to it in Exhibit D. Failure of the Company, ONS or any of their respective Subsidiaries to so qualify in any other jurisdiction would not, in any case or in the aggregate, have a Material Adverse Effect. 5.5. Business; Financial Statements. The Company has delivered to you complete and correct copies of (a) the annual report to stockholders of ONS for the fiscal year ended December 31, 1995 (the "Annual Report"), (b) the annual report to the Commission of ONS on Form 10-K for the fiscal year ended December 31, 1995 (the "10-K") and (c) the report to the Commission on ONS for the fiscal quarter ended September 30, 1996 (the "10-Q"). The Annual Report and the 10-K correctly describe, as of their respective dates, the business then conducted by ONS and its Subsidiaries and proposed to be conducted by the Company, ONS and the Subsidiaries. The 10-K includes the consolidated financial statements of ONS and the Subsidiaries for each of the fiscal years ended December 31, 1994 and 1995 accompanied by the report thereon of Ernst & Young LLP, certified public accountants. All of said financial statements (including in each case the related schedules and notes) fairly present in all material respects the consolidated financial position of ONS and the Subsidiaries as of the respective dates specified in the 10-K and the consolidated results of their operations and cash flows for the respective periods so specified and have been prepared in accordance with GAAP consistently applied throughout the periods involved except as set forth in the notes thereto and subject in the case of unaudited financial statements to normal recurring audit adjustments. 5.6. Solvency. ONS and its Subsidiaries, considered as one enterprise, are Solvent and immediately after the Closing Date, the Company and its Subsidiaries, considered as one enterprise, will be Solvent. 5.7. Authorization of Agreement. This Agreement has been duly authorized, executed and delivered by each of the Company and ONS. -8- 5.8. Authorization of Common Stock. Upon issuance and delivery of the Debentures in accordance with this Agreement, the Debentures will be convertible at the option of the holders thereof for shares of Common Stock in accordance with the terms of the Debentures and this Agreement; the Conversion Shares and the Interest Shares have been duly and validly authorized and reserved for issuance upon payment of interest and upon conversion by all necessary corporate action of the Company, and such shares, when issued upon such conversion or as a payment of interest in accordance with the terms of the Debentures and this Agreement, will be duly and validly issued and will be fully paid and non-assessable; no holder of such shares will be subject to personal liability solely by reason of being such a holder; and the issuance of such shares upon conversion or as a payment of interest in accordance with the terms of the Debentures and this Agreement will not be subject to the preemptive or other similar rights of any security holder of the Company arising by operation of law, or under the Certificate of Incorporation or bylaws of the Company or under any agreement to which the Company is a party or by which the Company is bound. 5.9. Absence of Defaults and Conflicts. None of the Company, ONS or any of their respective Subsidiaries are in violation of their respective certificates of incorporation, bylaws or other charter documents or is in default in the performance or observance of any material obligation, agreement, covenant or condition contained in any contract, indenture, mortgage, loan agreement, note, lease or other instrument to which any of them is a party or by which any of them may be bound, or to which any of the property or assets of the Company, ONS or any of their Subsidiaries is subject (collectively, "Agreements and Instruments") except for such defaults that would not result in a Material Adverse Effect; and the execution, delivery and performance of this Agreement and any other Agreement or Instrument entered into or issued or to be entered into or issued by the Company, ONS or any of their respective Subsidiaries in connection with the transactions contemplated hereby or thereby, and the consummation of the transactions contemplated herein or therein (including the issuance and sale of the Debentures, the use of the proceeds from the sale of the Debentures and the issuance of the Conversion Shares and Interest Shares) and compliance by the Company with its obligations hereunder and thereunder, have been duly authorized by all necessary corporate action and do not and will not, whether with or without the giving of notice or passage of time or both, conflict with or constitute a breach of, or default or Repayment Event (as defined below) under, or result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Company, ONS or any of their respective Subsidiaries pursuant to the Agreements and Instruments, except for such conflicts, breaches, defaults, Repayment Events or liens, charges or encumbrances that would not result in a Material Adverse Effect, nor will such action result in any violation of the provisions of the Certificate of Incorporation, bylaws or other charter documents of the Company, ONS or any of their respective Subsidiaries or any applicable law, statute, rule, regulation, judgment, order, writ or decree of any government, government instrumentality or court, domestic or foreign, having jurisdiction over the Company, ONS or any of their respective Subsidiaries or any of their assets or properties, except for such violations of law, statutes, rules, regulations, judgments, orders, writs or decrees that would not result in a Material Adverse Effect. As used herein, a "Repayment Event" means any event or condition which gives the holder of any note, debenture or other evidence of indebtedness (or -9- any Person acting on such holder's behalf) the right to require the repurchase, redemption or repayment of all or a portion of such indebtedness by the Company, ONS or any of the Subsidiaries. 5.10. Absence of Labor Dispute. No labor dispute with the employees of the Company, ONS or any of the Subsidiaries exists or, to the best of the Company's knowledge, is threatened and the Company has not received notice of any existing or threatened labor disturbance by the employees of any of the principal suppliers, manufacturers, customers or contractors of the Company, ONS or any of their respective Subsidiaries, which, in either case, may reasonably be expected to result in a Material Adverse Effect. 5.11. Absence of Proceedings. There is no action, suit or proceeding before or by any court or governmental agency or body, domestic or foreign, now pending or, to the best of the Company's knowledge, threatened, against or affecting the Company, ONS or any of their respective Subsidiaries or any of their respective officers or directors in their capacity as such or any of their respective property or assets, that is required to be disclosed in the Registration Statement (other than as disclosed therein), or which might reasonably be expected to result in any Material Adverse Effect, or which might reasonably be expected to have a Material Adverse Effect on the properties or assets thereof or the consummation of the Financing Transaction, the transactions contemplated by this Agreement or the transactions contemplated in the Registration Statement, or the performance by the Company, ONS or any of their respective Subsidiaries of any obligation hereunder or thereunder; the aggregate of all pending legal or governmental proceedings to which the Company, ONS or any of their respective Subsidiaries is a party or of which any of their respective property or assets is the subject which are not described in the Registration Statement, including ordinary routine litigation incidental to the business, could not reasonably be expected to result in a Material Adverse Effect. Without limiting the foregoing, except as otherwise set forth in the Registration Statement and in Schedule II hereto, there are no legal or governmental proceedings, including rulemaking proceedings of general applicability in the industry or industries in which the Company, ONS or any of their Subsidiaries operate, by or before the Federal Communications Commission (the "FCC"), any state public utility commission or similar state governmental agency ("PUC") or any international body formed by treaty that is responsible for coordinating and registering orbital slots to satellites, including but not limited to, the International Telecommunication Union ("ITU"), now pending or, to the Company's best knowledge, threatened or contemplated, which in each case might reasonably be expected to result in any Material Adverse Effect. In addition, all applications, reports and other filings required to be filed through the Execution Date with the FCC, the PUC, the ITU or any other governmental or international authority, have been duly and timely filed and all such applications, reports and other filings required to be filed by the Closing Date will have been filed prior to the Closing Date. 5.12. Possession of Licenses and Permits. The Company, ONS and the Subsidiaries possess such permits, certificates, licenses, approvals, consents, orders and other authorizations (collectively, "Governmental Licenses") issued by the appropriate Federal, state, local or foreign regulatory agencies or bodies necessary to conduct the business now operated -10- by them, except for such permits, certificates, licenses, approvals, consents, orders and other authorizations the absence of which would not have a Material Adverse Effect; the Company, ONS and their respective Subsidiaries are in compliance with the terms and conditions of all such Governmental Licenses, except where the failure so to comply would not, individually or in the aggregate, have a Material Adverse Effect; all of the Governmental Licenses are valid and in full force and effect, except where the invalidity of such Governmental Licenses or the failure of such Governmental Licenses to be in full force and effect would not have a Material Adverse Effect; and none of the Company, ONS or any of their respective Subsidiaries has received any notice of proceedings relating to the revocation, withdrawal, cancellation, modification, suspension or non-renewal of any such Governmental Licenses which, individually or in the aggregate, if the subject of an unfavorable decision, ruling or finding, would result in a Material Adverse Effect. 5.13. Environmental Laws. None of the Company, ONS or any of their respective Subsidiaries is in violation of any Federal, state, local or foreign statute, law, rule, regulation, ordinance, code, policy or rule of common law and any judicial or administrative interpretation thereof, including any judicial or administrative order, consent, decree or judgment, relating to pollution or protection of human health, the environment (including, without limitation, ambient air, surface water, groundwater, land surface or subsurface strata) or wildlife, including, without limitation, laws and regulations relating to the release or threatened release of chemicals, pollutants, contaminants, wastes, toxic substances, hazardous substances, petroleum or petroleum products (collectively, "Hazardous Materials") or to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Hazardous Materials (collectively, "Environmental Laws"), except for such violations as would not, individually or in the aggregate, result in a Material Adverse Effect. None of the Company, ONS or any of their respective Subsidiaries has received any notice from any governmental authority or third party of an asserted claim under any Environmental Law. The Company, ONS and their respective Subsidiaries have all permits, authorizations and approvals required under any applicable Environmental Laws and are each in compliance with their requirements, except for such permits, authorizations and approvals the absence of which would not, individually or in the aggregate, result in a Material Adverse Effect. There are no pending or, to the Company's knowledge, threatened administrative, regulatory or judicial actions, suits, demands, demand letters, claims, liens, notices of noncompliance or violation, investigation or proceedings relating to any Environmental Law against the Company, ONS or any of their respective Subsidiaries, except for such actions, suits, demands, demand letters, claims, liens, notices of noncompliance or violation, investigation or proceedings which if decided adversely to the Company, ONS or any of their respective Subsidiaries would not, individually or in the aggregate, result in a Material Adverse Effect. To the best of the Company's knowledge, there are no events or circumstances that might reasonably be expected to form the basis of any order for clean-up or remediation, or an action, suit or proceeding by any private party or governmental body or agency, against or affecting the Company, ONS or any of their respective Subsidiaries relating to any Hazardous Materials or the violation of any Environmental Laws. -11- 5.14. No Violations of Laws. None of the Company, ONS or any of their respective Subsidiaries has violated any foreign, Federal or state law relating to the discrimination in the hiring, promotion or pay of employees nor any applicable Federal or state wages and hours laws nor any other Federal or State law concerning the conditions or the terms of employment of employees by an employer, nor any provisions of ERISA or the rules and regulations promulgated thereunder nor any provisions of the U.S. Communications Act of 1934, as amended, nor the rules or regulations promulgated thereunder, nor any applicable state law or regulation concerning intra-state telecommunications nor any foreign law or regulation concerning international communications (such state and foreign laws and regulations, along with the U.S. Communications Act of 1934, as amended, and the regulations thereunder being referred to herein as the "Communications Laws"), except for such violations as, individually or in the aggregate, will not have a Material Adverse Effect. 5.15. Internal Accounting Controls. The books, records and accounts of the Company, ONS and their respective Subsidiaries accurately and fairly reflect, in all material respects, in reasonable detail, the transactions in and dispositions of the assets of the Company, ONS and their respective Subsidiaries. The Company, ONS and each of their respective Subsidiaries maintain a system of internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management's general or specific authorizations; (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain asset accountability; (iii) access to assets is permitted only in accordance with management's general or specific authorization; and (iv) the recorded amount for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. 5.16. Tax Returns and Payments. The Company, ONS and each of their respective Subsidiaries have filed all income tax returns required by law to be filed by them and have paid all taxes shown to be due and payable on such returns and all other taxes, assessments, fees and other governmental charges levied upon them and their respective properties, assets, income and franchises which are due and payable, to the extent such taxes and assessments have become due and payable and before they have become delinquent, except for any taxes and assessments (i) the amount of which is not individually or in the aggregate Material or (ii) the amount, applicability or validity of which is currently being contested in good faith by appropriate proceedings and with respect to which the Company, ONS or any of their respective Subsidiaries, as the case may be, has established adequate reserves in accordance with GAAP. The charges, accruals and reserves on the books of the Company, ONS and any of their respective Subsidiaries in respect of Federal, state and foreign income taxes for all fiscal periods are adequate in the reasonable opinion of the Company and, to the best of the Company's knowledge, there are no additional assessments for such periods or any basis therefor. 5.17. Indebtedness. None of the Company, ONS or any of their respective Subsidiaries is in default and no waiver of default is currently in effect, in the payment of any principal, interest or premium on any Indebtedness of the Company, ONS or any such Subsidiary and no event or condition exists with respect to any Indebtedness of the Company, -12- ONS or any such Subsidiary the outstanding principal amount of which exceeds $1,000,000 that would permit (or that with notice or the lapse of time, or both, would permit) one or more Per- sons to cause such Indebtedness to become due and payable before its stated maturity or before its regularly scheduled dates of payment. 5.18. Title to Properties; Liens. The Company, ONS and their respective Subsidiaries each have good and marketable title to all of their respective properties and assets, including such properties and assets which are reflected in the financial statements as at December 31, 1995 referred to in Section 5.5 (except for such properties and assets disposed of since such date in the ordinary course of business and except as set forth in the Registration Statement), free and clear of all Liens except as set forth in the Registration Statement, except for minor imperfections of title and encumbrances, if any, which do not materially impair the use thereof in the operation of the business of the Company, ONS or any of their respective Subsidiaries and except for Permitted Liens. 5.19. Patents, Trademarks, Authorizations, etc. The Company, ONS and their respective Subsidiaries own, possess or have the right to use (without any known conflict with the rights of others) all patents, trademarks, service marks, trade names, copyrights, licenses and authorizations which are necessary to the conduct of their respective businesses as conducted on the date hereof and which the failure to own, possess or have the right to use might result in a Material Adverse Effect. 5.20. Governmental Consents; Exercise of Voting Rights, etc. (a) None of the nature of the Company, ONS or of any of their respective Subsidiaries, nor any of their respective businesses or properties, nor any relationship between the Company, ONS or any such Subsidiary and any other Person, nor any circumstance in connection with the offer, issue, sale or delivery of the Debentures, is such as to require any consent, approval or authorization of, or any notice to, of filing, registration or qualification with, any court or administrative or governmental body by or on behalf of the Company, ONS or any Subsidiary in connection with the execution and delivery of this Agreement or the offer, issue, sale or delivery of the Debentures, the Interest Shares and the Conversion Shares or fulfillment of, or compliance with, the terms and provisions of this Agreement or of the Debentures, except for (1) filings of reports pursuant to Section 13 or 15(d) of the Exchange Act, (2) filings under state securities or Blue Sky laws, (3) filings under the HSR Act. (b) No Applicable Law and no provision of the certificate of incorporation, bylaws or other governing documents of the Company, ONS or any of their respective Subsidiaries is such as to require or would give rise to any limitation of any type on your right to vote (or consent with respect to) any securities of ONS or the Company owned by you as of the Execution Date or that will be owned by you as a result of (A) the Merger Transaction, (B) consummation of the transactions contemplated by the Exchange Agreement or (C) the Closing under this Agreement (including any Conversion Shares or Interest Shares received hereunder). -13- 5.21. Offer of Debentures. Neither ONS nor the Company has either directly or indirectly or through an agent directly or indirectly offered the Debentures or any part thereof or any similar securities for sale to, or solicited any offer to buy any of the same from, or otherwise approached or negotiated in respect thereof with, anyone other than you. None of ONS, the Company nor anyone authorized or employed to act on its behalf of either of them has taken or will take any action which would subject the issuance and sale of the Debentures to the provisions of Section 5 of the Securities Act or to the registration or qualification requirements of any securities or Blue Sky law of any applicable jurisdiction. 5.22. Federal Reserve Regulations. Neither the Company nor any of its Subsidiaries will, directly or indirectly, use any of the proceeds of the sale of the Debentures for the purpose of purchasing or carrying any "margin security" within the meaning of Regulation G of the Board of Governors of the Federal Reserve System (12, C.F.R. 207, as amended), or any "security that is publicly-held" within the meaning of Regulation T of such Board (12 C.F.R. 220, as amended), or otherwise take or permit to be taken any action which would involve a violation of such Regulation G or Regulation T or Regulation X (12 C.F.R. 224, as amended) or any other regulation of such Board. No Indebtedness being reduced or retired out of the proceeds of the sale of the Debentures, if any, was incurred for the purpose of purchasing or carrying any "margin security" within the meaning of such Regulation G or any "security that is publicly-held" within the meaning of such Regulation T. None of the Company, ONS or any of their Subsidiaries owns or has any present intention of acquiring directly or indirectly any such margin security or any such security that is publicly-held. 5.23. Investment Company Act. The Company is not, and upon the issuance and sale of the Debentures as herein contemplated and the application of the net proceeds therefrom will not be, an "investment company" or an entity "controlled" by an "investment company" as such terms are defined in the Investment Company Act of 1940, as amended (the "Investment Company Act"), nor is the Company an "open-ended investment trust," "unit investment trust" or "face-amount certificate company" that is or is required to be registered under Section 8 of the Investment Company Act. 5.24. Public Utility Holding Company Act. The Company is not a "holding company," or a "subsidiary company" of a "holding company," or an "affiliate" of a "holding company" or of a "subsidiary company" of a "holding company," as such terms are defined in the Public Utility Holding Company Act of 1935, as amended. 5.25. Compliance with ERISA. (a) The Company, ONS and each ERISA Affiliate have operated and administered each Plan in compliance with all applicable laws except for such instances of noncompliance as have not resulted in and could not reasonably be expected have in a Material Adverse Effect. None of the Company, ONS or any ERISA Affiliate has incurred any liability pursuant to Title I or IV of ERISA or the penalty or excise tax provisions of the Code relating to employee benefit plans (as defined in Section 3 of ERISA), and no event, transaction or condition has occurred or exists that could reasonably be expected to result in the incurrence of any such liability by the Company, ONS or any ERISA Affiliate, or in the -14- imposition of any Lien on any of the rights, properties or assets of the Company, ONS or any ERISA Affiliate, in either case pursuant to Title I or IV of ERISA or to such penalty or excise tax provisions or to Section 401(a)(29) or 412 of the Code, other than such liabilities or Liens as would not be individually or in the aggregate Material. (b) The present value of the aggregate benefit liabilities under each of the Plans (other than Multiemployer Plans), determined as of the end of such Plan's most recently ended plan year on the basis of the actuarial assumptions specified for funding purposes in such Plan's most recent actuarial valuation report, did not exceed the aggregate current value of the assets of such Plan allocable to such benefit liabilities. The term "benefit liabilities" has the meaning specified in Section 4001 of ERISA and the terms "current value" and "present value" have the meaning specified in Section 3 of ERISA. (c) The Company, ONS and the ERISA Affiliates have not incurred withdrawal liabilities (and are not subject to contingent withdrawal liabilities) under Section 4201 or 4204 of ERISA in respect of Multiemployer Plans that individually or in the aggregate are Material. (d) The execution and delivery of this Agreement and the issuance and sale of the Debentures hereunder will not involve any transaction that is subject to the prohibitions of Section 406 of ERISA or in connection with which a tax could be imposed pursuant to Section 4975(c)(1)(A)-(D) of the Code. The representation by the Company and ONS in the first sentence of this Section 5.25(d) is made in reliance upon and subject to (i) the accuracy of the representation in Section 6.2 by each Purchaser as to the sources of the funds to be used to pay the purchase price of the Debentures to be purchased by such Purchaser and (ii) the assumption, made solely for the purpose of making such representation, that Department of Labor Interpretive Bulletin 75-2 with respect to prohibited transactions remains valid in the circumstances of the transactions contemplated herein. 5.26. Disclosure. The Registration Statement, including the financial statements included therein and any document incorporated therein by reference, complies or will comply as to form with all applicable provisions of the Securities Act in all material respects. As of its effective date, the Registration Statement does not or will not contain any untrue statements of a material fact or omit to state a material fact necessary in order to make the statements contained therein not misleading. This Agreement and the other documents certificates, instruments or reports delivered to you under this Agreement, taken as a whole, do not contain any untrue statements of material facts or omit to state material facts necessary in order to make the statements contained herein or therein, in the light of the circumstances under which they were made, not misleading. There is no fact known to either ONS or the Company which has had a Material Adverse Effect through the Execution Date or in the future (so far as the Company and ONS can now reasonably foresee and excluding the effect of general economic and industry conditions) may have a Material Adverse Effect which has not been or will not be set forth or reflected in the Registration Statement. The representations contained in this Section 5.26 shall also apply to any amendments to the Registration Statement and to the -15- registration statement declared effective by the Commission with respect to the Financing Transaction and to any amendments to any such registration statement. 5.27. HSR Act Filings. The Company hereby agrees to promptly make such filings or other submissions under the HSR Act as may be required with respect to the conversion of any Debenture, the payment of any Interest Shares or with respect to the redemption or repurchase of any Debenture or in connection with any Mandatory Sale of Underlying Shares. The Company hereby agrees to use its best efforts to respond to requests for additional information relating to such filings or submissions. Exercise by the Company of its rights under Section 11 of this Agreement or otherwise hereunder shall be subject to compliance with the HSR Act as applicable. 5.28. Certificate of Incorporation (a) The Company hereby agrees that, notwithstanding its rights under its Certificate of Incorporation, it shall not exercise whatever rights it may have under Article Tenth of its Certificate of Incorporation (as presently in effect and as the same may be amended, supplemented or otherwise changed, "Article Tenth"), to redeem (i) any Debentures, (ii) any Conversion Shares, (iii) any Interest Shares, (iv) any share of Series C Preferred Stock, (v) any securities received as stock dividends or redemption payments on any share of Series C Preferred Stock pursuant to the Certificate of Designations, Rights and Preferences with respect to the Series C Preferred Stock (the "Series C Designation") or (vi) any securities received upon any conversion of any share of Series C Preferred Stock (collectively, the "Subject Securities") held by you unless (x) you shall have received a copy of an opinion addressed to the Company, reasonably acceptable to you, of Verner, Liipfert, Bernard, McPherson and Hand Chartered or other U.S. regulatory counsel reasonably acceptable to you, to the effect that such redemption is necessary to prevent a loss or secure reinstatement of a franchise of the type specified in Article Tenth and (y) you have received an Officers' Certificate to the effect that such loss or failure to secure such reinstatement would have a Material Adverse Effect. The Company agrees to exercise its right of redemption only to the minimum extent necessary to avoid such loss or to secure such reinstatement. The Company presently has no knowledge of any grounds for requiring any redemption under Article Tenth with respect to you. (b) If the Company exercises its right of redemption pursuant to Article Tenth, in addition to paying you the redemption amount under Article Tenth, it shall pay you the positive difference, if any of (i) the highest dollar value (adding cash and the value of any securities received) you would have received with respect to the Subject Securities had they been redeemed under applicable provisions of this Agreement or the Series C Designation, as the case may be, as at the date they were instead redeemed under Article Tenth less (ii) the dollar value (adding cash and the value of any securities received) actually received by you as a result of any redemption pursuant to Article Tenth. For purposes of this Section 5.28, the "value of any securities received" shall be equal to the "Closing Price" of such securities as "Closing Price" is defined in Article Tenth. Notwithstanding Article Tenth, the payment to be received by you with respect to any Subject Securities redeemed under Article Tenth will be either (i) all in cash -16- or (ii) otherwise in the form provided with respect to redemptions under this Agreement or the Series C Designation, as applicable, for the Subject Securities redeemed. Notwithstanding anything in this Agreement to the contrary, the provisions of this Section 5.28 shall survive until the first date after the Closing Date as of which you do not own any Subject Security. 6. Representations, Warranties and Agreements of Purchasers. -------------------------------------------------------- 6.1. Investment Representations. Each Purchaser represents and warrants (for itself and not the other Purchaser) that it is purchasing the Debentures for its own account for investment and not with a view to the resale or distribution of the Debentures or any part thereof or any Conversion Shares or Interest Shares, and that such Purchaser has no present intention of distributing any of the same; provided, however, that the disposition of such Purchaser's property shall at all times be within such Purchaser's control. Each Purchaser understands that the Debentures have not been registered under the Securities Act, and that upon issuance the Conversion Shares and the Interest Shares will not be registered under the Securities Act, and that the Debentures, the Conversion Shares and the Interest Shares may be resold only if registered pursuant to the provisions of the Securities Act or if an exemption from registration is available. 6.2. ERISA. Each Purchaser represents (for itself and not the other Purchaser) that it is not acquiring the Debentures or any interest therein with assets allocated to any separate account maintained by it in which any employee benefit plan (or its related trust) has any interest. As used in this Section 6.2, "separate account" and "employee benefit plan" shall have the respective meanings assigned thereto in Section 3 of ERISA. 6.3. HSR Act Filings. You hereby agree to promptly make such filings or other submissions under the HSR Act as may be required with respect to the conversion of any Debenture, the receipt of any Interest Shares or with respect to the redemption or repurchase of any Debenture or in connection with any Mandatory Sale of Underlying Shares. You hereby agree to use your best efforts to respond to requests for additional information relating to such filings or submissions. Exercise by you of your rights under Section 11 of this Agreement or otherwise hereunder shall be subject to compliance with the HSR Act as applicable. 7. Accounting; Financial Statements; Other Information. ----------------------------------------------------- 7.1. Accounting; Financial Statements and Other Information. The Company will maintain, and will cause each of its Subsidiaries to maintain, a system of accounting established and administered in accordance with GAAP. The Company will deliver (in duplicate) to you, so long as you shall hold any Debentures: (a) as soon as practicable, and, in any case, within ninety (90) days after the close of each fiscal year, two (2) copies of the consolidated balance sheet of the Company and its Subsidiaries setting forth their consolidated financial condition as at the -17- end of such fiscal year, together with consolidated statements of income, stockholders' equity and cash flows of the Company and its Subsidiaries for such fiscal year, all in reasonable detail, such consolidated balance sheet and statements of income, stockholders' equity and cash flows to be accompanied by an opinion with respect thereto of independent public accountants of recognized national standing, who may be the present regular auditors of the books of the Company, which opinion (i) shall state that such financial statements present fairly the consolidated financial position and the consolidated results of operations and cash flows of the Company, in conformity with GAAP applied on a consistent basis during the period (except for changes in application in which such accountants concur), and that the examination of such accountants in connection with such financial statements has been made in accordance with generally accepted auditing standards and, accordingly, included such tests of the accounting records and such other auditing procedures as were considered necessary in the circumstances, or (ii) shall, using appropriate language that at the time shall have been adopted by the American Institute of Certified Public Accountants and generally employed by the accounting profession, certify in substance that such financial statements present fairly the consolidated financial position and the consolidated results of operations and cash flows of the Company, in conformity with GAAP applied on a consistent basis during the period (except for changes in application in which such accountants concur), and that the examination of such accountants in connection with such financial statements has been made in accordance with generally accepted auditing standards, and, accordingly, included such tests of the accounting records and such other auditing procedures as were considered necessary in the circumstances; provided that, the delivery within the time period specified above (or, if later, within five (5) days of timely filing with the Commission) of the Company's Annual Report on Form 10-K (together with the Company's annual report to shareholders, if any, prepared pursuant to Rule 14a-3 under the Exchange Act) for any fiscal year prepared in compliance with the requirements therefor and filed with the Commission shall be deemed to satisfy the requirements of this Section 7.1(a) for such fiscal year; (b) as soon as practicable and, in any case, within sixty (60) days after the end of the first, second and third quarterly accounting periods in each fiscal year, an unaudited consolidated balance sheet of the Company and its Subsidiaries as at the end of such accounting period, and unaudited consolidated statements of income, stockholders' equity and cash flows of the Company and its Subsidiaries for such period and for the fiscal year to date, setting forth in each case in comparative form the figures for the corresponding periods a year earlier, all in reasonable detail, prepared and certified by the Treasurer or the Controller or any Vice President of the Company as presenting fairly such financial condition and results of operations, subject to changes resulting from year-end audit adjustments; provided that, delivery within the time period specified above (or, if later, within five (5) days of timely filing with the Commission) of copies of the Company's Quarterly Report on Form 10-Q for any quarterly accounting period prepared in compliance with the requirements thereof and filed with the -18- Commission shall be deemed to satisfy the requirements of this Section 7.1(b) for such quarterly accounting period; (c) promptly after the submission thereof to the Company, copies of all communications prepared by independent accountants regarding matters of material weakness of internal accounting controls submitted to the Company's senior management, its Board of Directors or the audit committee of its Board of Directors, as contemplated by American Institute of Certified Public Accountants Statement of Auditing Standards No. 60; (d) promptly upon distribution thereof, copies of all such financial or other statements, including proxy statements and reports, as the Company shall send to the holders of its Common Stock or the holders of the Senior Notes; (e) promptly after filing thereof, copies of all regular and periodic reports and registration statements which the Company may file with the Commission, other than registration statements on Form S-8; (f) promptly upon receipt thereof, copies of any notices received from any administrative official or agency relating to any order, ruling, statute or other law or information which might have or cause a Material Adverse Effect; and (g) promptly upon request therefor, such information as to the business and properties of the Company as you may from time to time reasonably request. Notwithstanding any other provision of this Section 7.1, the Company will be required to deliver to BAe and Matra only, and not to any other holder of Debentures, the materials specified in paragraphs (a), (b), (c), (f) and (g). The Company will deliver (in duplicate) to each holder of Debentures (other than BAe and Matra) the materials specified in paragraphs (d) and (e). 7.2. Company Certificate. Each set of financial statements delivered pursuant to Section 7.1(a) or Section 7.1(b) will be accompanied by a certificate, signed by one of the Responsible Officers, stating that a review of the affairs and activities of the Company during the applicable period has been made by authorized employees of the Company and that, to the knowledge and belief of such officer, there did not exist at any time during such period any condition or event which constitutes an Event of Default under any of the provisions of this Agreement or the Debentures; provided, however, that if to the knowledge of such officer any such Event of Default shall have occurred, such certificate shall so specify and shall state whether such Event of Default has been cured or is continuing and, if continuing, what steps the Company proposes to take to cure such Event of Default and the time necessary to cure such Event of Default. 7.3. Accountant's Certificate. Each set of annual financial statements delivered pursuant to Section 7.1(a) will be accompanied by a report of the independent public -19- accountants who have certified or reported on such financial statements, stating that in making their examination necessary to express an opinion on such financial statements, such accountants have obtained no knowledge of any condition or event which constitutes an Event of Default or a Potential Event of Default or, if such accountants have any such knowledge that any such condition or event then exists, specifying the nature and period of existence thereof. Each suchreport may in addition state that such examination was not directed primarily toward obtaining knowledge of any such condition or event referred to in the preceding sentence. 8. Inspection. ---------- (a) Pre-Closing Access. From the Execution Date through the Closing Date, the Company and ONS shall each: (i) upon reasonable prior notice, permit each Purchaser and its authorized representatives, counsel, accountants and agents to have reasonable access to its properties, records and documents, and (ii) furnish to each Purchaser and its authorized representatives, counsel, accountants and agents such financial records and other documents with respect to the Company, ONS or any Subsidiary as such Purchaser may reasonably request; provided, however, that in no event shall the Company be obligated to comply with any of the foregoing if such compliance will give any Person access to any information which the Company, ONS or any Subsidiary is required by contract or otherwise to keep confidential; and provided, further, that with respect to such confidential information, the Company or ONS shall, at its expense, upon a Purchaser's specific request, use its best efforts to seek the consent of such Persons as may be necessary to permit the requesting party access to such information without violating the confidential nature thereof. (b) Post-Closing Access. While you hold any Debentures, your representative or representatives may visit and inspect any of the properties of the Company or any of its Subsidiaries as follows: (i) No Default. If no Potential Event of Default or Event of Default exists, then at your expense and upon reasonable prior notice to the Company, you may visit the principal executive offices of the Company to discuss the affairs, finances and accounts of the Company and its Subsidiaries with the Company's officers, and, with the consent of the Company (which consent will not be unreasonably withheld), visit the other offices and properties of the Company and each Subsidiary, all at such reasonable times and as often as may be reasonably requested in writing; and (ii) Default. If a Potential Event of Default or Event of Default exists, then at the expense of the Company you may visit and inspect any of the offices or properties of the Company or any Subsidiary to examine all their respective books of account, records, reports and other papers, to make copies and extracts therefrom, and to discuss their respective affairs, finances and accounts with their respective officers and independent public accountants (and -20- by this provision the Company authorizes said accountants to discuss the affairs, finances and accounts of the Company and its Subsidiaries), all at such reasonable times and as often as may be requested. The rights set forth in this Section 8(b) are granted to BAe and Matra only and not to any other holders of Debentures. 9. Confidential Treatment. You agree that any information concerning the Company, ONS or any of their respective Subsidiaries obtained by you under the provisions of Section 7 or 8 or which was furnished to you in connection with the negotiation of the transactions contemplated hereby and which in any case is not contained in a report or other document filed with the Commission (and which is not afforded confidential treatment by the Commission or such other agency), distributed by ONS and, after consummation of the Merger Transaction, by the Company to its public stockholders or otherwise available to the public generally and which is or was designated by the Company in writing as confidential, will, to the extent permitted by law or legal process, be treated confidentially by you and will not be distributed or otherwise made available by you to any Person, other than your employees or your authorized agents or representatives; provided, however, that you may provide any such information to any governmental agency or other Person to which you are required by law or legal process to provide such information. 10. ERISA. The Company will deliver (in duplicate) to you, so long as you shall hold any Debenture, and to each other holder of the outstanding Debentures, promptly, and in any event within five (5) days after a Responsible Officer becoming aware of any of the following, a written notice setting forth the nature thereof and the action, if any, that the Company or an ERISA Affiliate proposes to take with respect thereto: (i) with respect to any Plan, any reportable event, as defined in Section 4043(b) of ERISA and the regulations thereunder, for which notice thereof has not been waived pursuant to such regulations as in effect on the date hereof; or (ii) the taking by the PBGC of steps to institute, or the threatening by the PBGC of the institution of, proceedings under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Plan, or the receipt by the Company or any ERISA Affiliate of a notice from a Multiemployer Plan that such action has been taken by the PBGC with respect to such Multiemployer Plan; or (iii) any event, transaction or condition that could result in the incurrence of any liability by the Company or any ERISA Affiliate pursuant to Title I or IV of ERISA or the penalty or excise tax provisions of the Code relating to employee benefit plans, or in the imposition of any Lien on any of the rights, properties or assets of the Company or any ERISA Affiliate pursuant to -21- Title I or IV of ERISA or such penalty or excise tax provisions, if such liability or Lien, taken together with any other such liabilities or Liens then existing, would reasonably be expected to have a Material Adverse Effect. 11. Redemption of Debentures; Repurchase Rights; Mandatory Sales. 11.1. Right of Redemption. Any redemption or repurchase of the Debentures at the election of the Company or otherwise, as permitted or required by any provision of the Debentures or this Agreement, shall be made in accordance with such provision and this Section 11. 11.2. Company Right of Redemption. Subject to Section 11.5, the Company may, at any time other than during a Change of Control Period, redeem all or part of the Debentures, subject to satisfaction of the following conditions: (a) The Company shall give a notice of redemption to each holder in the manner provided in Section 23 not less than fifteen (15) nor, subject to Section 11.5(a), more than sixty (60) days prior to the applicable Redemption Date. Such notice shall disclose the proposed source of funds for the redemption (e.g. private placement, working capital, public offering). (b) The amount to be redeemed must be (i) at least $5,000,000, in principal amount of Debentures and (ii) at least twenty-five percent (25%) of the then Outstanding Debentures (unless the principal amount of then Outstanding Debentures is less than $5,000,000, in which case the amount to be redeemed shall be such principal amount). In the event that less than all of the then Outstanding Debentures are to be redeemed, the Company shall redeem Debentures pro rata from each holder of Debentures based upon the respective principal amounts of the Debentures outstanding on the date of redemption. (c) The Company shall pay the applicable Redemption Price to each holder of Debentures on the Redemption Date, in cash, in immediately available funds. With respect to each holder of Debentures, the Redemption Price shall be determined by multiplying (A) the sum of (i) the number of Conversion Shares such holder would receive on the Redemption Date with respect to the Debentures to be redeemed if such Debentures were to be converted in accordance with the provisions of Section 15 hereof and (ii) the number of Interest Shares representing the accrued but unpaid interest on the Debentures to be redeemed, as of the Redemption Date, by (B) the greater of (x) the average of the daily Closing Prices per share of Common Stock for the twenty (20) Trading Days immediately preceding the Redemption Date or (y) $17.50. 11.3. Redemption and Repurchase Rights upon Change of Control Event. (a) During any Change of Control Period either the Company (subject to Section 11.5) or any holder of Debentures may give notice to the other pursuant to -22- which the Company shall be required to purchase all (but not less than all) of the Debentures (if the notice is given by the Company) or all of the Debentures held by a holder (if the notice is given by such ho lder) in accordance with the provisions of this Section 11.3. The Company shall give notice in accordance with Section 23 to each holder of Debentures, within five (5) Business Days of the commencement of a Change of Control Period. (b) Notice of a redemption by the Company or the exercise of a repurchase right by any holder of Debentures pursuant to this Section 11.3 may be given (in the manner provided in Section 23) at any time during the Change of Control Period. The repurchase date (the "Repurchase Date") for any redemption or repurchase under this Section 11.3 shall be a Business Day specified in the notice that is not less than fifteen (15) nor, subject to Section 11.5(a), more than sixty (60) days from the date notice is given. Any notice given by the Company under this Section 11.3 shall disclose the proposed source of funds for the Company's redemption (e.g. private placement, working capital, public offering). (c) The Company shall pay the applicable Repurchase Price to each holder of Debentures from whom Debentures are to be redeemed or repurchased on the Repurchase Date, in cash, in immediately available funds. With respect to each holder of Debentures from whom Debentures are to be redeemed or repurchased pursuant to this Section 11.3, the repurchase price (the "Repurchase Price") shall be determined by multiplying (A) the sum of (i) the number of Conversion Shares such holder would receive on the Repurchase Date with respect to the Debentures to be repurchased if such Debentures were to be converted in accordance with the provisions of Section 15 hereof and (ii) the number of Interest Shares representing the accrued but unpaid interest on the Debentures to be repurchased as of the Repurchase Date by (B) the greatest of: (x) the average of the daily Closing Prices per share of Common Stock for the twenty (20) Trading Days immediately preceding the Repurchase Date, (y) $17.50, or (z) the price per share paid for the Common Stock (whether in assets, cash, securities or any combination thereof) in the Change of Control transaction to public holders of the Common Stock generally. 11.4. Mandatory Sale. Subject to Section 11.5, the Company may require each holder of Debentures to sell (a "Mandatory Sale") all or subject to paragraph (b) below, a part of the Conversion Shares and Interest Shares such holder would be entitled to receive if such holder converted, as of the Mandatory Sale Date, all of the Debentures owned by such holder on the date such holder receives the notice specified in paragraph (a) below (the "Underlying Shares") provided all of the following terms and conditions are met: (a) The Company shall give a notice of the Mandatory Sale in the manner provided in Section 23 not less than fifteen (15) nor, subject to Section 11.5(a), more than sixty (60) days prior to the date specified in such notice (the "Mandatory Sale -23- Date"). Such notice shall disclose the proposed source of funds for the Mandatory Sale (e.g. private placement, public offering). (b) The Company may only exercise its right to require a Mandatory Sale on one occasion. If less than all of the Underlying Shares are to be subject to the Mandatory Sale, the aggregate sale price (the "Mandatory Sale Price") with respect to such Underlying Shares must be at least $10,000,000. In the event that the Mandatory Sale shall apply to less than all of the Underlying Shares, the Underlying Shares subject to the Mandatory Sale shall be allocated pro rata among the holders of the Debentures based upon the respective principal amounts of the Debentures of such holders outstanding on the date of the Mandatory Sale. (c) The Mandatory Sale may be accomplished by an underwritten public offering of the Underlying Shares or by a private placement of the Underlying Shares, in either case arranged by a nationally recognized investment banking firm reasonably acceptable to the holders of a majority of the Underlying Shares subject to the Mandatory Sale. (d) The Company will indemnify and hold each holder of Debentures harmless with respect to any liability arising out of any misstatement or omission in the registration statement or private placement memorandum and other documents prepared by or on behalf of the Company in connection with the Mandatory Sale transaction (other than information provided by such holder expressly for inclusion therein) and will pay all of the expenses of the Mandatory Sale, including, any registration fees, any underwriting discount or placement agent fees, and the reasonable fees of one legal counsel selected by the holders of a majority of the Underlying Shares subject to the Mandatory Sale in connection with the review of such registration statement or private placement memorandum. (e) The underwriters or the private placement purchasers shall pay each holder of Debentures in connection with the Mandatory Sale, the Mandatory Sale Price, in cash, in immediately available funds. The Mandatory Sale Price for each holder of Debentures shall be determined by multiplying the number of Underlying Shares of such holder subject to the Mandatory Sale by the greater of (x) an amount that is at least ninety-five percent (95%) of the average of the daily Closing Prices per share of Common Stock for the twenty (20) Trading Days immediately preceding the Mandatory Sale Date (plus such percentage in excess of ninety-five percent (95%) of such average if paid by the purchasers of the Underlying Shares) or (y) $17.50. In the event that the underwriters or private placement purchasers do not for any reason pay each holder of Debentures the full Mandatory Sale Price to which such holder is entitled, the Company shall pay such holder within one (1) Business Day of the Mandatory Sale Date the positive difference (up to the full amount of the Mandatory Sale Price) between the Mandatory Sales Price to which such holder was entitled and the aggregate amount such holder actually received from the underwriters or the private placement purchasers in connection with the Mandatory Sale. -24- 11.5. Restriction on Conversion Rights; Withdrawal of Notice. ------------------------------------------------------ (a) Following receipt from the Company of any notice of redemption pursuant to Section 11.2 or Section 11.3 or any notice of Mandatory Sale pursuant to Section 11.4 (each, a "Company Notice"), each holder of Debentures shall have ten (10) Business Days after receipt of the Company Notice (the "Decision Period") in which to notify the Company in accordance with the provisions of Section 23 that such holder wishes to convert all or a part of such holder's Debentures (the "Converted Debenture Portion") into shares of Common Stock in accordance with the provisions of Section 15.2. If such notice is given in a timely manner by such holder (a "Holder Notice"), the proposed redemption of Debentures by the Company or proposed Mandatory Sale of Underlying Shares arranged by the Company pursuant to Section 11.2, 11.3 or 11.4 shall not impair the right of such holder to convert the Converted Debenture Portion into shares of Common Stock pursuant to Section 15.2. Except as provided in the preceding sentence, no amount of Debentures of any holder specified in the Company Notice as subject to redemption pursuant to Section 11.2 or Section 11.3 or Mandatory Sale pursuant to Section 11.4 may be converted into shares of Common Stock pursuant to Section 15.2 during the period commencing on the date of the Company Notice and ending on the earliest of (x) the date of any withdrawal of the Company Notice pursuant to Section 11.5(b), (y) subject to Section 11.5(c), the sixty-first (61st) day following the earlier of (i) the expiration of the Decision Period or (ii) the date of the Company's receipt of the Holder Notice of such holder (the "Company Notice Expiration Date") or (2) the applicable Redemption, Repurchase or Mandatory Sale Date. Each holder giving a Holder Notice shall convert the Converted Debenture Portion specified in the Holder Notice within fifteen (15) Business Days after the applicable Redemption, Repurchase, or Mandatory Sale Date. Notwithstanding any other provision of this Agreement, the Company shall have given notice of redemption in compliance with Section 11.2(a) and Section 11.3(b) and notice of a Mandatory Sale in compliance with Section 11.4(a) if the Redemption Date, the Repurchase Date or the Mandatory Sale Date, as the case may be, occurs not later than the day immediately preceding the Company Notice Expiration Date. (b) The Company shall have the right to withdraw any Company Notice by notifying the holders of the Debentures of such withdrawal in accordance with the provisions of Section 23, but only if the notice of withdrawal is accompanied by a copy of a written notice, to the effect set forth in the following sentence from the underwriter, placement agent or proposed private placement purchaser from whom the Company intended to raise the capital necessary to complete the proposed redemption or with whom the Company intended to place the Underlying Shares in a proposed Mandatory Sale. Such notice shall state that the amount of Company securities included in the proposed offering (which, in the case of a Mandatory Sale, shall be the Underlying Shares included in such offering) would not be able to be sold at a price sufficient to yield proceeds at least equal to the redemption price specified in Section 11.2 or Section 11.3, as applicable, or the Mandatory Sale Price. If any Company Notice is properly withdrawn pursuant to this Section 11.5(b), failure by the Company to make any redemption payment pursuant to Section 11.2 or Section 11.3 or to arrange for or make any payment in connection with a Mandatory Sale pursuant to Section 11.4, -25- in any case as proposed in such withdrawn Company Notice, (i) shall not constitute an Event of Default under this Agreement and (ii) shall not constitute the one-time exercise by the Company of its rights under Section 11.4(b). (c) Notwithstanding any other provision of this Agreement, following receipt of a Company Notice, if the HSR Act would require any filings to be made with respect to the conversion of any Debenture subject to a Company Notice, each holder of Debentures subject to the filing requirements of the HSR Act upon any conversion of a Debenture subject to a Company Notice shall have ten (10) Business Days after the expiration or early termination of any applicable HSR Act waiting period to exercise the conversion privilege in accordance with Section 15.2 with respect to such Debentures before any proposed redemption of such Debentures by the Company or proposed Mandatory Sale of Underlying Shares arranged by the Company pursuant to Section 11.2, 11.3 or 11.4 shall impair the right of such holder to convert such Debentures, and the Company's right to redeem the Debentures of any such holder or to require the Mandatory Sale of any Underlying Shares of any such holder shall be suspended until ten (10) Business Days after the expiration or early termination of the applicable HSR Act waiting period (an "HSR Suspension Period"). If any HSR Act filing shall be required hereunder, the Company Notice Expiration Date shall be the sixty-first (61st) day after the latest HSR Suspension Period applicable to any Holder. 12. Business Covenants. From the Closing Date, and thereafter so long as any of the Debentures are outstanding, the Company will perform or comply with, as required, each of the following covenants: 12.1. Payment of Debentures and Maintenance of Office. The Company will punctually pay or cause to be paid the principal, premium, if any, and interest to become due in respect of the Debentures according to the terms thereof and hereof and will maintain an office within the continental boundaries of the United States of America where notices, presentations and demands in respect of this Agreement and the Debentures may be made upon it and will notify each holder of a Debenture of any change of location of such office. Such office shall first be maintained at 2440 Research Boulevard, Suite 400, Rockville, Maryland 20850. 12.2. Payment of Taxes and Claims. The Company will, and will cause each of its Subsidiaries to, pay and discharge promptly (a) all taxes, assessments and other governmental charges imposed upon it or any of its properties or assets or in respect of any of its franchises, business, income or profits before the same shall become delinquent and (b) all lawful claims of materialmen, mechanics, carriers, warehousemen, landlords and other similar Persons for labor, materials, supplies and rentals which, if unpaid, might by law become a lien or charge upon its property, except to the extent that the failure so to pay any amount pursuant to (a) or (b) would not have a Material Adverse Effect; provided, however, that none of the foregoing need be paid while being contested in good faith by appropriate proceedings initiated within the period allowed by applicable law, rule or regulation and diligently conducted so long as (i) adequate book reserves have been established in accordance with GAAP with respect -26- thereto and (ii) neither the Company's nor any such Subsidiary's title to or right to the use of its properties is materially adversely affected thereby. 12.3. Maintenance of Properties and Corporate Existence. The Company and its Subsidiaries will each: (a) maintain its property in good condition and make all needful and proper renewals, replacements, additions, betterments and improvements thereto, all as in the judgment of the Company may be necessary so that the business carried on in connection therewith may be conducted properly and advantageously at all times; provided that nothing in this Section 12.3 shall prevent the Company or any Subsidiary from discontinuing the use, operation or maintenance of any properties or disposing of any of them if such discontinuance or disposal is, in the judgment of the Company, desirable in the conduct of the business of the Company or such Subsidiary; (b) subject to Section 13.12 (if and to the extent in effect), keep adequately insured, by financially sound and reputable insurers, all of its property of a character usually insured by entities engaged in the same or a similar business similarly situated against loss or damage of the kinds and in amounts customarily insured against by such entities and with deductibles or co-insurance no greater than is customary, and carry, with such insurers in customary amounts and with deductibles or co-insurance no greater than is customary, such other insurance, including public liability insurance and liability insurance against claims for any violation of applicable law, as is usually carried by entities engaged in the same or a similar business similarly situated, provided that compliance with the insurance covenants in the Senior Indentures will be satisfactory compliance with this paragraph; (c) keep proper books of record and account in which full, true and correct entries will be made of all its business transactions in accordance with GAAP; (d) set aside on its books from its earnings for each fiscal year, beginning with the first such year ending subsequent to the date hereof and for each fiscal year thereafter, in amounts deemed adequate in the opinion of the Company, all proper accruals and reserves which, in accordance with GAAP, should be set aside from such earnings in connection with its business, including, without limitation, reserves for depreciation, obsolescence and/or amortization and accruals for taxes for such period, including all taxes based on or measured by income or profits; and (e) except as otherwise permitted or contemplated hereby, do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence and such rights, patents, trademarks, copyrights, licenses, permits, franchises and governmental authorizations as the Company determines to be necessary for the present and presently planned future conduct of its business. -27- 12.4. Compliance with Law. Neither the Company nor any of its Subsidiaries will: (a) violate any laws, ordinances, governmental rules or regulations to which it is, or might become, subject, unless the same are being contested by the Company or such Subsidiary in good faith and by appropriate proceedings which shall effectively prevent the imposition of any penalty on the Company or such Subsidiary for such noncompliance, or (b) fail to use its best efforts to obtain any patents, trademarks, service marks, trade names, copyrights, design patents, licenses, permits, franchises or other governmental authorizations necessary to the ownership of its property or to the conduct of its business, which violation or failure would or might have a Material Adverse Effect. 12.5. [Reserved.] 12.6. When Company May Merge, Etc. The Company shall not consolidate with or merge into, or transfer all or substantially all of its assets to, another Person unless: (i) such Person is a corporation, partnership or limited liability company organized under the laws of the United States, one of the States thereof or the District of Columbia; (ii) the resulting, surviving or transferee corporation, partnership or limited liability company assumes by written agreement all the obligations of the Company under the Debentures and this Agreement; (iii) immediately after giving effect to such transaction no Event of Default or Potential Event of Default shall have occurred and be continuing; and (iv) the Company shall have delivered to you an Officers' Certificate and an opinion of counsel of the Company acceptable to you, each stating that such consolidation, merger or transfer and such supplemental agreement comply with this Agreement, and thereafter all obligations of the predecessor shall terminate. Upon any consolidation or merger or any transfer of all or substantially all of the assets of the Company in accordance with this Section 12.6, the successor corporation, partnership or limited liability company formed by such consolidation or into which the Company is merged or to which such transfer is made shall succeed to, and be substituted for, and may exercise every right and power of, the Company under this Agreement, with the same effect as if such successor had been named as the Company herein, all without any further act or deed on the part of such successor being required. Section 12.6 shall cease to apply after the Senior Notes Reduction Date. 12.7. Listing. The Company will list on each national securities exchange on which any Common Stock may at any time be listed and on the Nasdaq National Market, if the Common Stock is authorized for quotation thereon, subject to official notice of issuance upon -28- the conversion of the Debentures or upon payment of interest, and will maintain such listing of, (i) all Conversion Shares and (ii) all Interest Shares. 12.8. Issuances of Guarantees by New Restricted Subsidiaries. On the date that any Person becomes a Restricted Subsidiary, the Company will cause such additional Restricted Subsidiary to execute a supplemental Subsidiary Guarantee, providing for a full and unconditional guarantee by such additional Restricted Subsidiary of the Company's obligations under the Debentures and this Agreement to the same extent as that set forth in the Subsidiary Guarantee. 12.9. Subsidiaries. The Company will provide to you a complete and accurate list of its Subsidiaries each time Exhibit D attached hereto becomes inaccurate and cause each Subsidiary which guarantees any Indebtedness to promptly execute and deliver a Subsidiary Guarantee to you. 12.10. Notice. The Company will give prompt written notice to you of any Event of Default or Potential Event of Default hereunder. 12.11. Waiver of Stay, Extension or Usury Laws. The Company covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, or plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension law or any usury law or other law that would prohibit or forgive the Company from paying all or any portion of the principal of, premium, if any, or interest on the Debentures as contemplated herein, whenever enacted, now or at any time hereafter in force, or that may affect the covenants or the performance of this Purchase Agreement; and (to the extent that it may lawfully do so) the Company hereby expressly waives all benefit or advantage of any such law and covenants that it will not hinder, delay or impede the execution of any power herein granted to the holders of the Debentures, but will suffer and permit the execution of every such power as though no such law had been enacted. 13. Financial Covenants. From the Senior Notes Reduction Date, and thereafter so long as any of the Debentures are outstanding, the Company will perform or comply with, as required, each of the following covenants: 13.1. Merger and Sale of Assets. ------------------------- (a) The Company will not consolidate with or merge into any other Person or permit any other Person (other than a Subsidiary as provided by paragraph (b) below) to consolidate with or merge into it, or sell, lease, transfer or otherwise dispose of all or substantially all of its assets (as an entirety or substantially an entirety in one transaction or a series of related transactions), unless: (i) the entity which survives such merger or results from such consolidation or the corporation to which such sale, lease, transfer or other -29- disposition is made (the "surviving corporation") is a corporation organized under the laws of the United States of America or a jurisdiction thereof; (ii) the due and punctual payment of the principal of and premium, if any, and interest on all of the Debentures, according to their tenor, and of the covenants therein, and the due and punctual performance and observance of all the covenants in this Agreement to be performed or observed by the Company, are expressly assumed in writing by the surviving corporation; (iii) before and immediately after the consummation of the transaction, and after giving effect thereto, no Event of Default or Potential Event of Default exists or would exist; (iv) immediately after giving effect to such transaction on a pro forma basis, the Company or any Person becoming the successor obligor of the Debentures shall have a Consolidated Net Worth equal to or greater than the Consolidated Net Worth of the Company immediately prior to such transaction; (v) immediately after consummation of the transaction, and after giving effect thereto, the surviving corporation would be permitted to incur at least $1.00 of additional Indebtedness under the first paragraph of Section 13.5; provided that this clause (v) shall not apply to a consolidation or merger with or into a Wholly Owned Restricted Subsidiary with a positive net worth; provided that, in connection with any such merger or consolidation, no consideration (other than Common Stock in the surviving Person or the Company) shall be issued or distributed to the stockholders of the Company; (vi) the provisions of Sections 15.8 and 15.13 shall have been in all respects complied with in connection with such transaction; and (vii) the Company delivers to each holder of Debentures an Officers' Certificate (attaching the arithmetic computations to demonstrate compliance with clauses (iv) and (v)), in each case stating that such consolidation, merger or transfer complies with this provision and that all conditions precedent provided for herein relating to such transaction have been complied with; provided, however, that clauses (iv) and (v) above do not apply if, in the good faith determination of the Board of Directors of the Company, whose determination shall be evidenced by a Board Resolution, the principal purpose of such transaction is to change the state of incorporation of the Company; and provided further that any such transaction shall not have as one of its purposes the evasion of the foregoing limitations. (b) No Subsidiary of the Company will consolidate with or merge into any other Person or permit any other Person to consolidate with or merge into it, except -30- that a Subsidiary may consolidate with or merge into (i) the Company if each of the provisions of paragraph (a) are satisfied or (ii) another Subsidiary. 13.2. Transactions with Affiliates. The Company will not, and will not permit any Restricted Subsidiary to, directly or indirectly, enter into, renew or extend any transaction (including, without limitation, the purchase, sale, lease or exchange of property or assets, or the rendering of any service) with any holder (or any Affiliate of such holder) of five percent (5%) or more of any class of Capital Stock of the Company or with any Affiliate of the Company or any Restricted Subsidiary, except upon fair and reasonable terms no less favorable to the Company or such Restricted Subsidiary than could be obtained, at the time of such transaction or, if such transaction is pursuant to a written agreement, at the time of the execution of the agreement providing therefor, in a comparable arm's-length transaction with a Person that is not such a holder or an Affiliate. The foregoing limitation does not limit and shall not apply to (i) transactions (A) approved by a majority of the disinterested members of the Board of Directors or (B) for which the Company or a Restricted Subsidiary delivers to you a written opinion of a nationally recognized investment banking firm stating that the transaction is fair to the Company or such Restricted Subsidiary from a financial point of view, (ii) any transaction solely between the Company and any of its Wholly Owned Restricted Subsidiaries or solely between Wholly Owned Restricted Subsidiaries, (iii) the payment of reasonable and customary regular fees to directors of the Company who are not employees of the Company, (iv) any payments or other transactions pursuant to any tax-sharing agreement between the Company and any other Person with which the Company files a consolidated tax return or with which the Company is part of a consolidated group for tax purposes, (v) any Restricted Payments not prohibited by Section 13.6 or (vii) [other matters]. Notwithstanding the foregoing, any transaction covered by the first paragraph of this Section 13.2 and not covered by clauses (ii) through (v) of this paragraph, the aggregate amount of which exceeds $[___] million in value, must be approved or determined to be fair in the manner provided for in clause (i)(A) or (B) above. 13.3. Tax Consolidation. The Company will not, except as may be required by any mandatory provision of applicable law, file or consent to the filing of any consolidated income tax return with any Person other than a Subsidiary. 13.4. Compliance with ERISA. The Company will not, and will not permit any ERISA Affiliate to: (a) engage in any transaction in connection with which the Company or any Subsidiary could be subject to either a material civil penalty assessed pursuant to Section 502(i) of ERISA or a material tax imposed by Section 4975 of the Code; -31- (b) terminate any Plan in a manner, or take any other action, which could result in any material liability of the Company or any ERISA Affiliate to the PBGC; or (c) fail to make full payment when due of all amounts (including any amounts because of an accumulated funding deficiency) which, under the provisions of any Plan, the Code or ERISA, the Company or any ERISA Affiliate is required to pay as contributions to such Plan or otherwise. As used in this Section 13.4, the term "accumulated funding deficiency" has the meaning specified in Section 302 of ERISA and Section 412 of the Code. 13.5. Limitation on Indebtedness. -------------------------- (a) The Company will not, and will not permit any of its Restricted Subsidiaries to, Incur any Indebtedness (other than the Senior Notes, the Debentures and Indebtedness existing on the Senior Notes Reduction Date); provided that the Company may Incur Indebtedness if, after giving effect to the Incurrence of such Indebtedness and the receipt and application of the proceeds therefrom, the Consolidated Leverage Ratio would be greater than zero and less than [_] to 1, for Indebtedness Incurred on or prior to [_________ __, 199_], or [_] to 1, for Indebtedness Incurred thereafter. Notwithstanding the foregoing, the Company and any Restricted Subsidiary (except as specified below) may Incur each and all of the following: (i) Indebtedness outstanding at any time (A) Incurred to finance the purchase, construction, launch, insurance for and other costs with respect to Orion 2 and Orion 3 and (B) in an aggregate principal amount not to exceed (1) until Orion 2 or Orion 3 has been successfully delivered in orbit, $50 million, (2) after the first of Orion 2 or Orion 3 has been successfully delivered in orbit, $100 million and (3) after the second of Orion 2 or Orion 3 has been successfully delivered in orbit, $150 million, in each case under this clause (i)(B), less any amount of Indebtedness permanently repaid as provided under Section 13.11; (ii) Indebtedness (A) to the Company evidenced by an unsubordinated promissory note or (B) to any of its Restricted Subsidiaries; provided that any event which results in any such Restricted Subsidiary ceasing to be a Restricted Subsidiary or any subsequent transfer of such Indebtedness (other than to the Company or another Restricted Subsidiary) shall be deemed, in each case, to constitute an Incurrence of such Indebtedness not permitted by this clause (ii); (iii) Indebtedness issued in exchange for, or the net proceeds of which are used to refinance or refund, then outstanding Indebtedness, other than Indebtedness Incurred under clause (i)(B), (ii), (iv), (vi) or (viii) of this paragraph, and any refinancings thereof in an amount not to exceed the amount so refinanced or refunded (plus premiums, accrued interest, fees and expenses); provided that Indebtedness the proceeds of which are used to redeem or repurchase the Debentures or Indebtedness that is pari passu with, or subordinated in right of payment to, the Debentures shall only be permitted under this clause (iii) if (A) in case the Debentures are redeemed or repurchased in part or the Indebtedness to be refinanced is pari passu with the Debentures, such new Indebtedness, by its terms or by the terms of any -32- agreement or instrument pursuant to which such new Indebtedness is outstanding, is expressly made pari passu with, or subordinate in right of payment to, the remaining Debentures, (B) in case the Indebtedness to be refinanced is subordinated in right of payment to the Debentures, such new Indebtedness, by its terms or by the terms of any agreement or instrument pursuant to which such new Indebtedness is issued or remains outstanding, is expressly made subordinate in right of payment to the Debentures at least to the extent that the Indebtedness to be refinanced is subordinated to the Debentures and (C) such new Indebtedness, determined as of the date of Incurrence of such new Indebtedness, does not mature prior to the Stated Maturity of the Indebtedness to be refinanced or refunded, and the Average Life of such new Indebtedness is at least equal to the remaining Average Life of the Indebtedness to be refinanced or refunded; and provided further that in no event may Indebtedness of the Company be refinanced by means of any Indebtedness of any Restricted Subsidiary pursuant to this clause (iii); (iv) Indebtedness (A) in respect of performance, surety or appeal bonds provided in the ordinary course of business, (B) under Currency Agreements and Interest Rate Agreements; provided that such agreements (a) are designed solely to protect the Company or its Subsidiaries against fluctuations in foreign currency exchange rates or interest rates and (b) do not increase the Indebtedness of the obligor outstanding at any time other than as a result of fluctuations in foreign currency exchange rates or interest rates or by reason of fees, indemnities and compensation payable thereunder and (C) arising from agreements providing for indemnification, adjustment of purchase price or similar obligations, or from Guarantees or letters of credit, surety bonds or performance bonds securing any obligations of the Company or any of its Restricted Subsidiaries pursuant to such agreements, in any case Incurred in connection with the disposition of any business, assets or Restricted Subsidiary of the Company (other than Guarantees of Indebtedness Incurred by any Person acquiring all or any portion of such business, assets or Restricted Subsidiary of the Company for the purpose of financing such acquisition), in a principal amount not to exceed the gross proceeds actually received by the Company or any Restricted Subsidiary in connection with such disposition; (v) Indebtedness of the Company, to the extent the net proceeds thereof are promptly (A) used to purchase the Senior Notes in accordance with the redemption, repurchase and/or change of control provisions of the Senior Note Indentures or (B) deposited to defease the Senior Notes in accordance with the Senior Note Indentures; (vi) Guarantees by any Restricted Subsidiary under the Subsidiary Guarantee or permitted by and made in accordance with Section 13.8 or the Senior Indentures; (vii) Indebtedness Incurred to finance the cost (including the cost of design, development, construction, installation or integration) of equipment (other than Orion 2 and Orion 3) or inventory acquired by the Company or a Wholly Owned Restricted Subsidiary after the Closing Date; (viii) Indebtedness of the Company not to exceed, at any one time outstanding, two (2) times the Net Cash Proceeds received by the Company after the Closing Date from the issuance and sale of its Capital Stock (other than Disqualified Stock) to a Person that is not a Subsidiary of the Company (less the amount of such proceeds applied as provided in clause (C)(2) of the first paragraph or clause (iii) or (iv) of the second paragraph of Section 13.6), provided that such Indebtedness does not mature prior to the Stated Maturity of the Debentures; and (ix) Redemption Indebtedness. (b) Notwithstanding any other provision of this Section 13.5, the maximum amount of Indebtedness that the Company or a Restricted Subsidiary may incur -33- pursuant to this Section 13.5 shall not be deemed to be exceeded, with respect to any outstanding Indebtedness, due solely to the result of fluctuations in the exchange rates of currencies. (c) For purposes of determining any particular amount of Indebtedness under this Section 13.5, (1) Guarantees, Liens or obligations with respect to letters of credit supporting Indebtedness otherwise included in the determination of such particular amount shall not be included and (2) any Liens granted pursuant to the equal and ratable provisions referred to in Section 13.9 shall not be treated as Indebtedness. For purposes of determining compliance with this Section 13.5, in the event that an item of Indebtedness meets the criteria of more than one (1) of the types of Indebtedness described in the above clauses, the Company, in its sole discretion, shall classify such item of Indebtedness and only be required to include the amount and type of such Indebtedness in one of such clauses. 13.6. Limitation on Restricted Payments. The Company will not, and will not permit any Restricted Subsidiary, directly or indirectly, to (i) declare or pay any dividend or make any distribution on or with respect to its Capital Stock (other than (x) dividends or distributions payable solely in shares of its Capital Stock (other than Disqualified Stock) or in options, warrants or other rights to acquire shares of such Capital Stock and (y) pro rata dividends or distributions on Common Stock of Restricted Subsidiaries held by minority stockholders, provided that such dividends do not in the aggregate exceed the minority stockholders' pro rata share of such Restricted Subsidiaries' net income from the first day of the fiscal quarter beginning immediately following the Closing Date) held by Persons other than the Company or any of its Restricted Subsidiaries, (ii) purchase, redeem, retire or otherwise acquire for value any shares of Capital Stock of the Company, any Guarantor or an Unrestricted Subsidiary (including options, warrants or other rights to acquire such shares of Capital Stock) held by Persons other than the Company and its wholly-owned subsidiaries, (iii) make any voluntary or optional principal payment, or voluntary or optional redemption, repurchase, defeasance, or other acquisition or retirement for value, of Indebtedness of the Company that is subordinated in right of payment to the Debentures or of any Guarantor that is subordinated to the Subsidiary Guarantee (other than in each case the purchase, repurchase or the acquisition of Indebtedness in anticipation of satisfying a sinking fund obligation, principal installment or final maturity, in any case due within one (1) year of the date of acquisition) or (iv) make any Investment, other than a Permitted Investment, in any Person (such payments or any other actions described in clauses (i) through (iv) being collectively "Restricted Payments") if, at the time of, and after giving effect to, the proposed Restricted Payment: (A) a Potential Event of Default or Event of Default shall have occurred and be continuing, (B) except with respect to Investments and dividends on the Common Stock of any Guarantor, the Company could not Incur at least $1.00 of Indebtedness under paragraph (a) of Section 13.5 or (C) the aggregate amount of all Restricted Payments (the amount, if other than in cash, to be determined in good faith by the Board of Directors, whose determination shall be conclusive and evidenced by a Board Resolution) made after the Closing Date shall exceed the sum of (1) fifty percent (50%) of the aggregate positive amount, if any, of the Adjusted Consolidated Net Income (determined by excluding income resulting from transfers of assets by the Company or a Restricted Subsidiary to an Unrestricted Subsidiary) accrued on a cumulative basis during the -34- period (taken as one (1) accounting period) beginning on the first day of the fiscal quarter immediately following the Closing Date and ending on the last day of the last fiscal quarter preceding the Transaction Date for which reports have been filed with the Commission plus (2) the aggregate Net Cash Proceeds received by the Company or any Guarantor after the Closing Date from the issuance and sale of its Capital Stock (other than Disqualified Stock) to a Person who is not a Subsidiary of the Company or any Guarantor or from the issuance to a Person who is not a Subsidiary of the Company or any Guarantor of any options, warrants or other rights to acquire Capital Stock of the Company (in each case, exclusive of any other than Disqualified Stock, options, warrants or other rights that are redeemable at the option of the holder, or are required to be redeemed, prior to the Stated Maturity of the Debentures), in each case except to the extent such Net Cash Proceeds are used to Incur Indebtedness pursuant to clause (viii) of the second paragraph of Section 13.5, plus (3) an amount equal to the net reduction in Investments (other than reductions in Permitted Investments) in any Person resulting from payments of interest on Indebtedness, dividends, repayments of loans or advances, or other transfers of assets, in each case to the Company or any Restricted Subsidiary or from the Net Cash Proceeds from the sale of any such Investment (except, in each case, to the extent any such payment or proceeds are included in the calculation of Adjusted Consolidated Net Income), or from redesignations of Unrestricted Subsidiaries as Restricted Subsidiaries (valued in each case as provided in the definition of "Investments"), not to exceed, in each case, the amount of Investments previously made by the Company or any Restricted Subsidiary in such Person or Unrestricted Subsidiary. The foregoing provision shall not be violated by reason of: (i) the payment of any dividend within sixty (60) days after the date of declaration thereof if, at said date of declaration, such payment would comply with the foregoing paragraph; (ii) the redemption, repurchase, defeasance or other acquisition or retirement for value of Indebtedness that is subordinated in right of payment to the Debentures including premium, if any, and accrued and unpaid interest, with the proceeds of, or in exchange for, Indebtedness Incurred under clause (iii) of the second paragraph of part (a) of Section 13.5; (iii) the repurchase, redemption or other acquisition of Capital Stock of the Company (or options, warrants or other rights to acquire such Capital Stock) in exchange for, or out of the proceeds of a substantially concurrent offering of shares of Capital Stock (other than Disqualified Stock) of the Company; (iv) the making of any principal payment or the repurchase, redemption, retirement, defeasance or other acquisition for value of Indebtedness of the Company which is subordinated in right of payment to the Debentures in exchange for, or out of the proceeds of, a substantially concurrent offering of, shares of the Capital Stock of the Company (other than Disqualified Stock); (v) payments or distributions to dissenting stockholders pursuant to applicable law, pursuant to or in connection with a consolidation, merger or transfer of assets that complies with the provisions of this Agreement applicable to mergers, consolidations and transfers of all or substantially all of the property and assets of the Company; (vi) the repurchase, redemption or other acquisition of outstanding shares of Series A Preferred Stock or Series B Preferred Stock, which shares were outstanding on the Closing Date, in exchange for, or out of the proceeds of, an issuance of Indebtedness Incurred under clause (ix) of the second paragraph of part (a) of Section 13.5; or (vii) investments, to the extent the amount invested consists solely of Net Cash Proceeds -35- received by the Company or any Guarantor substantially currently with the making of such Investment from the issuance and sale permitted by this Agreement of its Capital Stock (other than Disqualified Stock) to a Person who is not a Subsidiary of the Company or any Guarantor; provided that, except in the case of clauses (i) and (iii), no Potential Event of Default or Event of Default shall have occurred and be continuing or occur as a consequence of the actions or payments set forth therein. Each Restricted Payment permitted pursuant to the preceding paragraph (other than the Restricted Payment referred to in clause (ii) thereof and an exchange of Capital Stock for Capital Stock or Indebtedness referred to in clause (iii) or (iv) thereof) and the Net Cash Proceeds from any issuance of Capital Stock referred to in clauses (iii) and (iv) shall be included in calculating whether the conditions of clause (C) of the first paragraph of this Section 13.6 have been met with respect to any subsequent Restricted Payments. In the event the proceeds of an issuance of Capital Stock of the Company are used for the redemption, repurchase or other acquisition of the Debentures, or Indebtedness that is pari passu with the Debentures, then the Net Cash Proceeds of such issuance shall be included in clause (C) of the first paragraph of this Section 13.6 only to the extent such proceeds are not used for such redemption, repurchase or other acquisition of Indebtedness. Any Restricted Payments made other than in cash shall be valued at fair market value. The amount of any Investment "outstanding" at any time shall be deemed to be equal to the amount of such Investment on the date made, less the return of capital to the Company and its Restricted Subsidiaries with respect to such Investment (up to the amount of such Investment on the date made). 13.7. Limitation on the Issuance and Sale of Capital Stock of Restricted Subsidiaries. The Company will not sell, and will not permit any Restricted Subsidiary, directly or indirectly, to issue or sell, any shares of Capital Stock of a Restricted Subsidiary (including options, warrants or other rights to purchase shares of such Capital Stock) except (i) to the Company or a Wholly Owned Restricted Subsidiary; (ii) issuances of director's qualifying shares or sales to foreign nationals of shares of Capital Stock of foreign Restricted Subsidiaries, to the extent required by applicable law; and (iii) if, immediately after giving effect to such issuance or sale, such Restricted Subsidiary would no longer constitute a Restricted Subsidiary, provided any Investment in such Person remaining after giving effect to such issuance or sale would have been permitted to be made under Section 13.6, if made on the date of such issuance or sale. 13.8. Issuances of Guarantees by New Restricted Subsidiaries. On the date that any Person becomes a Restricted Subsidiary the Company will cause such additional Restricted Subsidiary to execute a supplemental Subsidiary Guarantee, providing for a full and unconditional guarantee by such additional Restricted Subsidiary of the Company's obligations under the Debentures and this Agreement to the same extent as that set forth in the Subsidiary Guarantee. -36- 13.9. Limitation on Liens. The Company will not, and will not permit any Restricted Subsidiary to, create, incur, assume or suffer to exist any Lien of any kind securing Indebtedness that is pari passu with, or subordinated in right of payment to, the Debentures on any of its assets or properties of any character, or any shares of Capital Stock or Indebtedness of any Restricted Subsidiary, without making effective provision for all of the Debentures and all other amounts due under this Agreement to be directly secured equally and ratably with (or, if the obligation or liability to be secured by such Lien is subordinated in right of payment to the Debentures, prior to) the obligation or liability secured by such Lien. The foregoing limitation does not apply to (i) Liens existing on the Closing Date; (ii) Liens granted after the Closing Date on any assets or Capital Stock of the Company or its Restricted Subsidiaries created in favor of the holders of Debentures; (iii) Liens with respect to the assets of a Restricted Subsidiary granted by such Restricted Subsidiary to the Company or a Wholly Owned Restricted Subsidiary to secure Indebtedness owing to the Company or such other Restricted Subsidiary; (iv) Liens securing Indebtedness which is Incurred to refinance secured Indebtedness which is permitted to be Incurred under clause (iii) of the second paragraph of Section 13.5(a); provided that such Liens do not extend to or cover any property or assets of the Company or any Restricted Subsidiary other than the property or assets securing the Indebtedness being refinanced; or (v) Permitted Liens. The Company will not, and will not permit any Restricted Subsidiary to, create, incur, assume or suffer to exist any Lien (securing Indebtedness) on Orion 2 or Orion 3. 13.10. Limitation on Sale-Leaseback Transactions. The Company will not, and will not permit any Restricted Subsidiary to, directly or indirectly, enter into any sale-leaseback transaction involving any of its assets or properties, whether now owned or hereafter acquired, whereby the Company or a Restricted Subsidiary sells or transfers such assets or properties and then or thereafter leases such assets or properties or any part thereof or any other assets or properties which the Company or such Restricted Subsidiary, as the case may be, intends to use for substantially the same purpose or purposes as the assets or properties sold or transferred. The foregoing restriction does not apply to any sale-leaseback transaction if (i) the lease is for a period, including renewal rights, of not in excess of three (3) years; (ii) the lease secures or relates to industrial revenue or pollution control bonds; (iii) the transaction is solely between the Company and any Wholly Owned Restricted Subsidiary or solely between Wholly Owned Restricted Subsidiaries; or (iv) the Company or such Restricted Subsidiary, within twelve (12) months after the sale or transfer of any assets or properties is completed, applies an amount not less than the net proceeds received from such sale in accordance with clause (A) or (B) of Section 13.11. 13.11. Limitation on Asset Sales. The Company will not, and will not permit any Restricted Subsidiary to, consummate any Asset Sale unless (i) the consideration received by the Company or such Restricted Subsidiary is at least equal to the fair market value of the assets sold or disposed of and (ii) at least eighty-five percent (85%) of the consideration -37- received consists of cash or Temporary Cash Investments. In the event and to the extent that the Net Cash Proceeds received by the Company or any of its Restricted Subsidiaries from one or more Asset Sales occurring on or after the Senior Notes Reduction Date in any period of twelve (12) consecutive months exceed ten percent (10%) of Adjusted Consolidated Net Tangible Assets (determined as of the date closest to the commencement of such twelve (12) month period for which a consolidated balance sheet of the Company and its Subsidiaries has been filed with the Commission), then the Company shall or shall cause the relevant Restricted Subsidiary to within twelve months after the date Net Cash Proceeds so received exceed ten percent (10%) of Adjusted Consolidated Net Tangible Assets (A) apply an amount equal to such excess Net Cash Proceeds to permanently repay Senior Indebtedness of the Company or Indebtedness of any Restricted Subsidiary, in each case owing to a Person other than the Company or any of its Restricted Subsidiaries or (B) invest an equal amount, or the amount not so applied pursuant to clause (A) (or enter into a definitive agreement committing to so invest within twelve (12) months after the date of such agreement), in property or assets (other than current assets) of a nature or type or that are used in a business (or in a company having property and assets of a nature or type, or engaged in a business) similar or related to the nature or type of the property and assets of, or the business of, the Company and its Restricted Subsidiaries existing on the date of such investment. 13.12. Insurance. The Company will maintain (a) in-orbit insurance with respect to Orion 1 in an amount equal to or greater than $___ million, and (b) with respect to Orion 2, Orion 3, each other satellite to be launched by the Company or any Restricted Subsidiary and each replacement satellite therefor, (i) launch insurance with respect to each such satellite covering the period from the launch of such satellite to one hundred eighty (180) days following such launch in an amount equal to or greater than the sum of (A) the cost to replace such satellite pursuant to the contract pursuant to which a replacement satellite will be constructed, (B) the cost to launch a replacement satellite pursuant to the contract pursuant to which a replacement satellite will be launched and (C) the cost of launch insurance for such satellite or, in the event that the Company has reason to believe that the cost of obtaining comparable insurance for a replacement satellite would be materially higher, the Company's best estimate of the cost of such comparable insurance and (ii) at all times subsequent to one hundred eighty [(180) days after] the launch (if it is a Successful Launch) of each such satellite, in-orbit insurance in an amount at least equal to the cost to replace such satellite with a satellite of comparable or superior technological capability (as estimated by the Board of Directors) and having at least as much transmission capacity as such satellite. The in-orbit insurance required by this paragraph shall provide that if fifty percent (50%) or more of a satellite's initial capacity is lost, the full amount of insurance will become due and payable, and that if a satellite is able to maintain more than fifty percent (50%) but less than ninety percent (90%) of its initial capacity, a pro rata portion of such insurance will become due and payable. The insurance required by this paragraph shall name the Company and/or any Guarantor as the sole loss payee or payees, as the case may be, thereof. In the event that the Company (or a Guarantor) receives proceeds from insurance relating to any satellite, the Company (or a Guarantor) may use a portion of such proceeds to repay any -38- vendor or third-party purchase money financing pertaining to such satellite (other than Orion 1) that is required to be repaid by reason of the loss giving rise to such insurance proceeds. The Company (or a Guarantor) may use the remainder of such proceeds to develop, construct, launch and insure a replacement satellite (including components for a related ground station) if (i) such replacement satellite is of comparable or superior technological capability as compared with the satellite being replaced and has at least as much transmission capacity as the satellite being replaced and (ii) the Company will have sufficient funds to service the Company's projected debt service requirements until the scheduled launch of such replacement satellite and for one (1) year thereafter and to develop, construct, launch and insure (in the amounts required by the preceding paragraph) such replacement satellite, provided that such replacement satellite is scheduled to be launched within fifteen (15) months of the receipt of such proceeds. Any such proceeds not used as permitted by this paragraph shall be applied, within ninety (90) days, to reduce Indebtedness of the Company. Section 12.3(b) shall cease to apply after the Senior Notes Reduction Date. 14. Subordination of Debentures. --------------------------- 14.1. Debentures Subordinated to Senior Indebtedness. The Company covenants and agrees, and each holder of a Debenture, whether upon original issue or upon transfer, assignment or exchange thereof by his acceptance thereof, likewise covenants and agrees, that, to the extent and in the manner hereinafter set forth in this Section 14, the payment of the principal of and interest (except interest paid in the form of Junior Securities) on each and all of the Debentures are hereby expressly made subordinate and subject in right of payment to the prior payment in full in cash or cash equivalents of all Senior Indebtedness. 14.2. Liquidation; Dissolution; Bankruptcy. In the event of (a) any insolvency or bankruptcy case or proceeding, or any receivership, liquidation, reorganization or other similar case or proceeding in connection therewith, relative to the Company or to its creditors, as such, or to its assets, (b) any liquidation, dissolution or other winding up of the Company, whether voluntary or involuntary and whether or not involving insolvency or bankruptcy, or (c) any assignment for the benefit of creditors or any other marshalling of assets and liabilities of the Company, then and in any such event specified in (a), (b) or (c) above (each such event, if any, herein sometimes referred to as a "Proceeding") the holders of Senior Indebtedness shall be entitled to receive payment in full in cash or cash equivalents of all amounts due or to become due on or in respect of all Senior Indebtedness, or provision shall be made for such payment in cash or cash equivalents or otherwise in a manner satisfactory to the holders of Senior Indebtedness, before the holders of the Debentures are entitled to receive any payment or distribution of any kind or character, whether in cash, property or securities (other than Junior Securities paid as interest on the Debentures), on account of principal of or interest on the Debentures or on account of any purchase or other acquisition of Debentures by the Company or any Subsidiary of the Company (all such payments, distributions, purchases and acquisitions herein referred to, individually and collectively, as a "Debenture Payment"), and to that end the holders of all Senior Indebtedness shall be entitled to receive, for application to -39- the payment thereof, any Debenture Payment which may be payable or deliverable in respect of the Debentures in any such Proceeding. To the extent any payment of Senior Indebtedness (whether by or on behalf of the Company, as proceeds of security or enforcement of any right of setoff orotherwise) is declared to be fraudulent or preferential, set aside or required to be paid to any receiver, trustee in bankruptcy, liquidating trustee, agent or other similar Person under any bankruptcy, insolvency, receivership, fraudulent conveyance or similar law, then if such payment is recovered by, or paid over to, such receiver, trustee in bankruptcy, liquidating trustee, agent or other similar Person, the Senior Indebtedness or part thereof originally intended to be satisfied shall be deemed to be reinstated and outstanding as if such payment had not occurred. In the event that, notwithstanding the foregoing provisions of this Section, the holder of any Debenture shall have received any Debenture Payment before all Senior Indebtedness is paid in full or payment thereof provided for in cash or cash equivalents or otherwise in a manner satisfactory to the holders of Senior Indebtedness, then and in such event such Debenture Payment shall be received and held in trust for the benefit of, and shall be paid over or delivered forthwith to the trustee in bankruptcy, receiver, liquidating trustee, custodian, assignee, agent or other Person making payment or distribution of assets of the Company for application to the payment of all Senior Indebtedness remaining unpaid, to the extent necessary to pay all Senior Indebtedness in full, after giving effect to any concurrent payment or distribution to or for the holders of Senior Indebtedness. For purposes of this Section 14 only, the words "any payment or distribution of any kind or character, whether in cash, property or securities" shall not be deemed to include (a) any payment of interest on the Debentures made solely in Junior Securities or (b) a payment or distribution of stock or securities of the Company provided for by a plan of reorganization or readjustment authorized by an order or decree of a court of competent jurisdiction in a reorganization proceeding under any applicable bankruptcy law or of any other corporation provided for by such plan of reorganization or readjustment which stock or securities are subordinated in right of payment to all then outstanding Senior Indebtedness at least to the same extent as the Debentures are so subordinated as provided in this Section 14; provided that (1) if a new corporation results from such reorganization or readjustment, such corporation assumes the Senior Indebtedness and (2) the rights of the holders of the Senior Indebtedness are not, without the consent of such holders, altered by such reorganization or readjustment. The consolidation of the Company with, or the merger of the Company into, another Person or the liquidation or dissolution or the Company following the conveyance, transfer, sale or lease of all or substantially all of its properties and assets to another Person upon the terms and conditions set forth in either Section 12.6 or Section 13.1, as then applicable, shall not be deemed a Proceeding for the purposes of this Section if the Person formed by such consolidation or into which the Company is merged or the Person which acquires by conveyance, transfer, sale or lease such properties and assets, as the case may be, shall, as a part of such consolidation, merger, conveyance, transfer, sale or lease comply with the conditions set forth in either Section 12.6 or Section 13.1, as then applicable. -40- 14.3. Default on Senior Indebtedness. In the event that any Senior Payment Default (as defined below) shall have occurred and be continuing, then no Debenture Payment shall be made directly or indirectly unless and until such Senior Payment Default shall have been cured or waived, such default or the benefits of this sentence shall have been waived or shall have ceased to exist, or all amounts then due and payable in respect of Senior Indebtedness to which such Senior Payment Default relates shall have been paid in full, or provision shall have been made for such payment in cash or cash equivalents or otherwise in a manner satisfactory to the holders of Senior Indebtedness. "Senior Payment Default" means any default in the payment of principal of or premium, if any, or interest on all or any portion of the Senior Indebtedness. In addition, in the event that any Senior Nonmonetary Default (as defined below) shall have occurred and be continuing, then, upon the receipt by the Company of written notice of such Senior Nonmonetary Default from any holder, or a trustee on behalf of a holder of such Senior Indebtedness, of the Senior Indebtedness to which such Senior Nonmonetary Default relates, then the Company may not directly or indirectly, make any payments in respect of the Debentures (other than payment of interest in shares of Junior Securities or payment of other subordinated securities issued in a reorganization proceeding, each as provided in the fourth paragraph of Section 14.2 or payments from funds previously segregated or deposited in trust to redeem or repurchase the Debentures under this Purchase Agreement) during the period (the "Payment Blockage Period") commencing on the date of such receipt by the Company of such written notice and ending on the earlier of (i) the date, if any, on which the Senior Indebtedness to which such Senior Nonmonetary Default relates is discharged or such Senior Nonmonetary Default shall have been cured or waived in writing or shall have ceased to exist and any acceleration of Senior Indebtedness to which such Senior Nonmonetary Default relates shall have been rescinded or annulled and (ii) the one hundred seventy-ninth (179th) day after the date of such receipt of such written notice. Notwithstanding anything in this Agreement to the contrary, no more than one Payment Blockage Period may be commenced with respect to the Debentures during any period of three hundred sixty (360) consecutive days and there shall be a period of at least one hundred eighty (180) consecutive days in each period of three hundred sixty (360) consecutive days when no Payment Blockage Period is in effect. Following the commencement of any Payment Blockage Period, the holders of Senior Indebtedness shall be precluded from commencing a subsequent Payment Blockage Period until the conditions set forth in the preceding sentence shall have been satisfied. For all purposes of this paragraph, no Senior Nonmonetary Default that existed or was continuing (it being acknowledged that any subsequent action that would give rise to an event of default pursuant to any provision under which an event of default previously existed or was continuing shall constitute a new event of default for this purpose) on the date of commencement of any Payment Blockage Period with respect to the Senior Indebtedness initiating such Payment Blockage Period shall be, or may be made, the basis for the commencement of a subsequent Payment Blockage Period with respect to the Senior Indebtedness initiating such blockage period unless such Senior Nonmonetary Default shall have been cured or waived for a period of not less than ninety (90) consecutive days. "Senior Nonmonetary Default" means any default (other than a Senior Payment Default) or any event (other than a Senior Payment Default) which, after notice or lapse or time (or -41- both), would become an event of default, under the terms of any Senior Indebtedness permitting one or more holders of such Senior Indebtedness or a trustee or agent on behalf of a holder of Senior Indebtedness to declare such Senior Indebtedness due and payable prior to the date on which it would otherwise become due and payable. In the event that, notwithstanding the foregoing, the Company shall make any Debenture Payment to any holder prohibited by the foregoing provisions of this Section 14.3, then and in such event the Company shall promptly notify the holders of Senior Indebtedness of such prohibited payment and such payment shall be held in trust for the benefit of, and such Debenture Payment shall be paid over and delivered forthwith to the Company for the benefit of the holders of Senior Indebtedness. The provisions of this Section shall not apply to any Debenture Payment with respect to which Section 14.2 would be applicable. 14.4. Payment Permitted If No Default. Nothing contained in this Section 14 or in any of the Debentures insofar as they incorporate the provisions of this Section 14 shall prevent the Company, at any time except during the pendency of any Proceeding referred to in Section 14.2 or under the conditions described in Section 14.3, from making Debenture Payments. 14.5. Subrogation to Rights of Holders of Senior Indebtedness. Subject to the payment in full of all amounts due or to become due on or in respect of Senior Indebtedness, or the provision for such payment in cash or cash equivalents or otherwise in a manner satisfactory to the holders of Senior Indebtedness, the holders of the Debentures shall be subrogated to the rights of the holders of such Senior Indebtedness to receive payments and distributions of cash, property and securities applicable to the Senior Indebtedness until the principal of and interest on the Debentures shall be paid in full. For purposes of such subrogation, no payments or distributions to the holders of the Senior Indebtedness of any cash, property or securities to which the holders of the Debentures would be entitled except for the provisions of this Section 14, and no payments over pursuant to the provisions of this Section 14 to the holders of Senior Indebtedness by holders of the Debentures shall, as among the Company, its creditors other than holders of Senior Indebtedness and the holders of the Debentures, be deemed to be a payment or distribution by the Company to or on account of the Senior Indebtedness. 14.6. Provisions Solely to Define Relative Rights. The provisions of this Section 14 are and are intended solely for the purpose of defining the relative rights of the holders of the Debentures on the one hand and the holders of Senior Indebtedness on the other hand. Nothing contained in this Section 14 or elsewhere in this Agreement or in the Debentures is intended to or shall (a) impair, as among the Company, its creditors other than holders of Senior Indebtedness and the holders of the Debentures, the obligation of the Company, which is absolute and unconditional, to pay to the holders of the Debentures the principal of and interest on the Debentures as and when the same shall become due and payable in accordance -42- with their terms; (b) affect the relative rights against the Company of the holders of the Debentures and creditors of the Company other than the holders of Senior Indebtedness; or (c) prevent the holder of any Debenture from exercising all remedies otherwise permitted by applicable law upon default under this Agreement subject to the rights, if any, under this Section 14 of the holders of Senior Indebtedness to receive cash, property and securities otherwise payable or deliverable to such holder. 14.7. Enforcement of Subordination By Holders of Senior Notes; No Waiver of Subordination Provisions. Each holder of a Debenture by his acceptance thereof, if and so long as a Debenture Payment is prohibited under this Section 14, irrevocably authorizes and empowers (but without imposing any obligation on, or any duty to such holder from) each holder of Senior Notes at any time outstanding, and such holder's representatives, to demand, sue for, collect and receive such holder's ratable share of Debenture Payments which are required to be paid or delivered to the holders of Senior Indebtedness as provided in this Section 14 in any liquidation or reorganization of the Company under the U.S. Federal Bankruptcy Code (an "Insolvency Proceeding"), (A) to file a proof of claim or debt in the form required in an Insolvency Proceeding respecting such holder of Senior Notes' ratable share of such Debenture Payments in any Insolvency Proceeding in the name of such holders of Debentures, and to prove the validity, amount and priority of such claim, and agrees that such holder is an authorized agent for purposes of Federal Rule of Bankruptcy Procedure 3001(b) (provided, however, if, and to the extent that, the holders of the Senior Notes (or their representatives) have not filed a proof of claim or interest with respect to the Debentures in any action or case under the Federal Bankruptcy Code at least five (5) Business Days prior to the last date by which all such proofs of claim or interest must be filed or forever barred, the holders of the Debentures or their representatives may (but shall not be obligated to) file proofs of claim or interest with respect to the Debentures); (B) to vote the claim respecting such holder of Senior Notes' ratable share of such Debenture Payments in any Insolvency Proceeding, including, without limitation, in a proceeding under Chapter 11, Title 11, United States Code; and (C) to take any such actions as such holder of Senior Notes, or such holder's representatives, may determine to be reasonably necessary or appropriate for the enforcement of the provisions set forth in (A) or (B) above. No right of any present or future holder of any Senior Indebtedness to enforce subordination as herein provided shall at any time in any way be prejudiced or impaired by any act or failure to act on the part of the Company or by any act or failure to act, in good faith, by any such holder, or by any noncompliance by the Company with the terms, provisions and covenants of this Agreement, regardless of any knowledge thereof any such holder may have or be otherwise charged with. Without in any way limiting the generality of the foregoing paragraph, the holders of Senior Indebtedness may, at any time and from time to time, without the consent of or notice to the holders of the Debentures, without incurring responsibility to the holders of the Debentures and without impairing or releasing the subordination provided in this Section 14 or the obligations hereunder of the holders of the Debentures to the holders of Senior Indebtedness, do any one or more of the following: (i) amend or supplement in any manner -43- Senior Indebtedness or any instrument evidencing the same or any agreement under which Senior Indebtedness is outstanding; (ii) sell, exchange, release or otherwise deal with any property pledged, mortgaged or otherwise securing Senior Indebtedness; (iii) release any Person liable in any manner for the collection of Senior Indebtedness; and (iv) exercise or refrain from exercising any rights against the Company and any other Person. 14.8. Reliance on Judicial Order or Certificate of Liquidating Agent. Upon any payment or distribution of assets of the Company referred to in this Section 14, the holders of the Debentures shall be entitled to rely upon any order or decree entered by any court of competent jurisdiction in which such Proceeding is pending, or a certificate of the trustee in bankruptcy, receiver, liquidating trustee, custodian, assignee for the benefit of creditors, agent or other Person making such payment or distribution, delivered to the holders of Debentures, for the purpose of ascertaining the Persons entitled to participate in such payment or distribution, the holders of the Senior Indebtedness and other indebtedness of the Company, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Section 14. 14.9. Certain Conversions Deemed Payment. For the purposes of this Section 14 only, (i) the issuance and delivery of Junior Securities upon conversion of Debentures in accordance with Section 15 hereof shall not be deemed to constitute a Debenture Payment and (ii) the payment, issuance or delivery of cash, property or securities (other than Junior Securities) upon conversion of a Debenture shall be deemed to constitute a Debenture Payment. For the purposes of this Section 14, the term "Junior Securities" means shares of any Capital Stock. Nothing contained in this Section 14 or elsewhere in this Agreement or in the Debentures is intended to or shall impair, as among the Company, its creditors other than holders of Senior Indebtedness and the holders of the Debentures, the right, which is absolute and unconditional, of the holder of any Debenture to convert such Debenture in accordance with the provisions of Section 15 hereof. 14.10. Not to Prevent Events of Default. The failure to make a payment on account of principal of premium, if any, or interest on the Debentures by reason of any provision of this Section 14 will not be construed as preventing the occurrence of an Event of Default. 15. Conversion Rights. ----------------- 15.1. Conversion Privilege and Conversion Rate. Subject to and upon compliance with the provisions of this Section 15, at the option of the holder thereof, any Debenture may be converted into fully paid and nonassessable shares (calculated as to each conversion to the nearest one one-hundredth (1/100th) of a share) of Common Stock at the Conversion Rate, determined as hereinafter provided, in effect at the time of conversion. Such conversion right shall commence on the date of such Debenture and expire the later of (i) at the close of business on February 1, 2012 or (ii) the date the full principal amount of all of the Debentures and all accrued interest thereon have been paid in full. In case any Debentures -44- are called for redemption under Section 11.2 or 11.3 or the Company requires holders of Notes to make a Mandatory Sale under Section 11.4, such conversion right in respect of any such Debenture shall be subject to the provisions of Section 11.5. The rate at which shares of Common Stock shall be delivered upon conversion (herein called the "Conversion Rate") shall be initially 71.42857 shares of Common Stock for each $1,000 principal amount of Debentures. The Conversion Rate shall be adjusted in certain instances as provided in this Section 15. 15.2. Exercise of Conversion Privilege; Time Conversion Deemed Effected; Delivery of Stock Certificates; Partial Conversions; Accrued Interest. In order to exercise the conversion privilege, the holder of any Debenture to be converted shall surrender such Debenture, duly endorsed or assigned to the Company or in blank, at the Company's principal executive offices, 2440 Research Boulevard, Suite 400, Rockville, Maryland 20850 (or such other office or agency of the Company as the Company may designate by notice in writing to each holder of Debentures), accompanied by written notice to the Company at such office that the holder elects to convert such Debenture or, if less than the entire principal amount thereof is to be converted, the portion thereof to be converted. A Debenture shall be deemed to have been converted immediately prior to the close of business on the day of surrender of such Debenture for conversion in accordance with the foregoing provisions, and at such time the rights of the holder of such Debenture, as a holder thereof, shall cease to the extent of the portion of such Debenture converted, and the Person or Persons entitled to receive the Conversion Shares shall be treated for all purposes as the record holder or holders thereof at such time. As promptly as practicable on or after the date of any conversion in full or in part of any Debenture, but in no event later than five (5) Business Days thereafter, the Company shall, at its expense (including the payment by it of any applicable issue taxes), issue and deliver to the holder of such Debenture, or as such holder may direct, a certificate or certificates for the number of full Conversion Shares, together with (a) payment in lieu of any fraction of a share, as provided in Section 15.3, and (b) interest (payable in the form of Interest Shares as provided in the form of the Debenture) on the principal amount of such Debenture, or the portion thereof converted, accrued and unpaid to and including the date of such conversion, without any adjustment in respect of any dividend or other distribution payable on the Conversion Shares. Upon any partial conversion of a Debenture, the Company will forthwith issue and deliver to or upon the order of the holder thereof, at the expense of the Company, a new Debenture or Debentures in aggregate principal amount equal to the unpaid and unconverted portion of the principal amount of such partially converted Debenture. Such new Debenture or Debentures shall be registered in the name of such holder and dated as of the date of the converted Debenture. 15.3. Fractions of Shares. No fractional shares of Common Stock shall be issued upon conversion of any Debenture or Debentures. If more than one (1) Debenture shall -45- be surrendered for conversion at one time (or substantially at the same time) by the same holder, the number of full shares which shall be issuable upon conversion thereof shall be computed on the basis of the aggregate principal amount of the Debentures so surrendered. In place of any fractional share of Common Stock which would otherwise be issuable upon conversion of any Debenture or Debentures, the Company shall calculate and pay a cash adjustment in respect of such fraction (calculated to the nearest one one-hundredth (1/100th) of a share) in an amount equal to the same fraction of the current market price per share of Common Stock (calculated in accordance with Section 15.4(8) below) at the close of business on the day of conversion. 15.4. Adjustments to Conversion Rate. The Conversion Rate shall be subject to adjustments from time to time as follows: (1) In case at any time after the Closing Date the Company shall pay or make a dividend or other distribution on any class of Capital Stock of the Company (other than the Series C Preferred Stock) in shares of its Common Stock, the Conversion Rate in effect at the opening of business on the day following the date fixed for the determination of stockholders entitled to receive such dividend or other distribution shall be increased by dividing such Conversion Rate by a fraction of which the numerator shall be the number of shares of Common Stock outstanding at the close of business on the date fixed for such determination and the denominator shall be the sum of such number of shares and the total number of shares constituting such dividend or other distribution, such increase to become effective immediately after the opening of business on the day following the date fixed for such determination. For the purposes of this paragraph (1), the number of shares of Common Stock at any time outstanding shall not include shares held in the treasury of the Company but shall include shares issuable in respect of scrip certificates issued in lieu of fractions of shares of Common Stock. The Company will not pay any dividend or make any distribution on shares of Common Stock held in the treasury of the Company. (2) In case at any time after the Closing Date, the Company shall issue rights or warrants to all holders of its Common Stock (not being available on an equivalent basis to holders of the Debentures upon conversion) entitling them to subscribe for or purchase shares of Common Stock at a price per share less than the current market price per share (determined as provided in paragraph (8) of this Section 15.4) of the Common Stock on the date fixed for the determination of stockholders entitled to receive such rights or warrants, the Conversion Rate in effect at the opening of business on the day following the date fixed for such determination shall be increased by dividing such Conversion Rate by a fraction of which the numerator shall be the number of shares of Common Stock outstanding at the close of business on the date -46- fixed for such determination plus the number of shares of Common Stock which the aggregate of the offering price of the total number of shares of Common Stock so offered for subscription or purchase would purchase at such current market price and the denominator shall be the number of shares of Common Stock outstanding at the close of business on the date fixed for such determination plus the number of shares of Common Stock so offered for subscription or purchase, such increase to become effective immediately after the opening of business on the day following the date fixed for such determination. However, upon the expiration of any right or warrant to purchase Common Stock the issuance of which resulted in an adjustment in the Conversion Rate pursuant to this subsection (2), if any such right or warrant shall expire and shall not have been exercised, the Conversion Rate shall immediately upon such expiration be recomputed and effective immediately upon such expiration be increased to the price which it would have been (but reflecting any other adjustments in the Conversion Rate made pursuant to the provisions of this Section 15.4 after the issuance of such rights or warrants) had the adjustment of the Conversion Rate made upon the issuance of such rights or warrants been made on the basis of offering for subscription or purchase only that number of shares of Common Stock actually purchased upon the exercise of such rights or warrants actually exercised. For the purposes of this paragraph (2), the number of shares of Common Stock at any time outstanding shall not include shares held in the treasury of the Company but will include shares issuable in respect of scrip certificates issued in lieu of fractions of shares of Common Stock. The Company will not issue any rights or warrants in respect of shares of Common Stock held in the treasury of the Company. (3) In case at any time after the Closing Date, outstanding shares of Common Stock shall be subdivided into a greater number of shares of Common Stock, the Conversion Rate in effect at the opening of business on the day following the day upon which such subdivision becomes effective shall be proportionately increased and, conversely, in case at any time after the date hereof, outstanding shares of Common Stock shall each be combined into a smaller number of shares of Common Stock, the Conversion Rate in effect at the opening of business on the day following the day upon which such combination becomes effective shall be proportionately reduced, such increase or reduction, as the case may be, to become effective immediately after the opening of business on the day following the day upon which such subdivision or combination becomes effective. (4) In case at any time after the Closing Date, the Company shall, by dividend or otherwise, distribute to all holders of its Common Stock evidences of its indebtedness or assets (including stock or other securities of the Company or any other issuer, but excluding any rights or warrants referred to in paragraph (2) of this Section 15.4, any dividend or distribution paid exclusively in cash and any dividend or distribution referred to in paragraph (1) of this Section 15.4), the Conversion Rate shall be adjusted so that the same shall equal the rate determined by dividing the Conversion Rate in effect immediately prior to the close of business on the date fixed for the determination of stockholders entitled to receive such distribution by a fraction of which the numerator shall be the current market price per share (determined as provided in paragraph (8) of this Section 15.4) of the Common Stock on the date fixed for such determination less the then fair market value (each reference to "fair market value" in this Section 15.4 shall mean the fair market value as determined by the Board of -47- Directors of the Company in good faith, whose determination shall be described in a Board Resolution, a copy of which shall be delivered to each holder of Debentures within ten (10) days of the adoption of the resolution) of the portion of the assets or evidences of indebtedness so distributed applicable to one (1) share of Common Stock and the denominator shall be such current market price per share of the Common Stock, such adjustment to become effective immediately prior to the opening of business on the day following the date fixed for the determination of stockholders entitled to receive such distribution. (5) In case at any time after the Closing Date (A) the Company shall, by dividend or otherwise, distribute to all holders of its Common Stock cash (excluding any cash that is distributed upon a merger or consolidation to which Section 15.13 applies or as part of a distribution referred to in paragraph (4) of this Section 15.4) and (B)(I) the total of (x) the aggregate amount of such cash distribution, (y) the aggregate amount of any other distributions to all holders of its Common Stock made exclusively in cash within the twelve (12) months preceding the date of payment of such distribution and in respect of which no adjustment pursuant to this paragraph (5) or paragraph (6) of this Section 15.4 has been made and (z) the aggregate of any cash plus the fair market value of other consideration payable in respect of any tender offers by the Company or any of its Subsidiaries for all or any portion of the Common Stock concluded within the twelve (12) months preceding the date of payment of such distribution and in respect of which no adjustment pursuant to this paragraph (5) or paragraph (6) of this Section 15.4 has been made, exceeds (II) ten percent (10%) of the product of the current market price per share (determined as provided in paragraph (8) of this Section 15.4) of the Common Stock on the date for the determination of holders of shares of Common Stock entitled to receive such distribution times the number of shares of Common Stock outstanding on such date, then, and in each such case, immediately after the close of business on such date for determination, the Conversion Rate shall be increased so that the same shall equal the rate determined by dividing the Conversion Rate in effect immediately prior to the close of business on the date fixed for determination of the stockholders entitled to receive such distribution by a fraction (i) the numerator of which shall be equal to such current market price per share on the date fixed for such determination less an amount equal to the quotient of (X) the sum of (I) the total of the amounts referred to in subclauses (B)(I)(x) and (y) of this paragraph (5) and (II) the aggregate of the excess of the amount referred to in subclause (B)(I)(z) of this paragraph (5) for each tender offer so referred to over the aggregate current market price of the shares of Common Stock purchased in such tender offer as of the Expiration Time (as hereinafter defined) for such tender offer divided by (Y) the number of shares of Common Stock outstanding on such date for determination and (ii) the denominator of which shall be equal to such current market price per share on such date for determination. (6) In case at any time after the Closing Date (A) a tender offer made by the Company or any Subsidiary for all or any portion of the Common Stock shall -48- expire and (B)(I) the total of (x) the fair market value of the aggregate consideration required to be paid pursuant to such tender offer (as amended upon the expiration thereof) to stockholders (based on the acceptance (up to any maximum specified in the terms of the tender offer) of Purchased Shares (as defined below)), (y) the aggregate of the cash plus the fair market value, as of the expiration of such tender offer, of consideration payable in respect of any other tender offer, by the Company or any Subsidiary for all or any portion of the Common Stock expiring within the twelve (12) months preceding the expiration of such tender offer and in respect of which no adjustment pursuant to this paragraph (6) or paragraph (5) of this Section 15.4 has been made and (z) the aggregate amount of any distributions to all holders of the Company's Common Stock made exclusively in cash within twelve (12) months preceding the expiration of such tender offer and in respect of which no adjustment pursuant to this paragraph (6) or paragraph (5) of this Section 15.4 has been made, exceeds (II) ten percent (10%) of the product of the current market price per share of the Common Stock (determined as provided in paragraph (8) of this Section 15.4) on the date of the last time (the "Expiration Time") tenders could have been made pursuant to such tender offer (as it may be amended) times the number of shares of Common Stock outstanding (including any tendered shares) on the Expiration Time, then, and in each such case, immediately prior to the opening of business on the day after the date of the Expiration Time, the Conversion Rate shall be adjusted so that the same shall equal the price determined by dividing the Conversion Rate immediately prior to the close of business on the date of the Expiration Time by a fraction (i) the numerator of which shall be equal to (a) the product of (I) such current market price per share on the date of the Expiration Time and (II) the number of shares of Common Stock outstanding (including any tendered shares) as of the Expiration Time less (b) the total of the amounts referred to in Clause (B)(I) of this paragraph (6), and (ii) the denominator of which shall be equal to the product of (a) such current market price per share on the date of the Expiration Time and (b) the number of shares of Common Stock outstanding (including any tendered shares) as of the Expiration Time less the number of all shares validly tendered and not withdrawn as of the Expiration Time (the shares deemed so accepted up to any such maximum, being referred to as the "Purchased Shares"). (7) The reclassification of Common Stock into securities other than Common Stock (other than any reclassification upon a consolidation or merger to which Section 15.13 applies) shall be deemed to involve (a) a distribution of such securities other than Common Stock to all holders of Common Stock (and the effective date of such reclassification shall be deemed to be "the date fixed for the determination of stockholders entitled to receive such distribution" and "the date fixed for such determination" within the meaning of paragraph (4) of this Section 15.4), and (b) a subdivision or combination, as the case may be, of the number of shares of Common Stock outstanding immediately prior to such reclassification into the number of shares of Common Stock outstanding immediately thereafter (and the effective date of such reclassification shall be deemed to be "the day upon which such subdivision becomes effective" or "the day upon which such combination becomes effective", as the case may -49- be, and "the day upon which such subdivision or combination becomes effective" within the meaning of paragraph (3) of this Section 15.4). (8) For the purpose of any computation under paragraph (2), (4), (5) or (6) of this Section 15.4, the current market price per share of Common Stock on any date shall be calculated by the Company and be deemed to be the average of the daily Closing Price per share of Common Stock for the five (5) consecutive Trading Days before, and ending not later than, the earlier of (i) the day in question and (ii) the day before the "ex" date with respect to the issuance or distribution requiring such computation. For purposes of this paragraph, the term "'ex' date", when used with respect to any issuance or distribution, means the first date on which the Common Stock trades regular way on the applicable securities exchange or in the applicable securities market without the right to receive such issuance or distribution. (9) The Company may make such increases in the Conversion Rate, for the remaining term of the Debentures or any shorter term, in addition to those required by paragraphs (1), (2), (3), (4), (5) and (6) of this Section 15.4, as it considers to be advisable in order to avoid or diminish any income tax to any holders of shares of Common Stock resulting from any dividend or distribution of stock or issuance of rights or warrants to purchase or subscribe for stock or from any event treated as such for income tax purposes or for any other reasons. 15.5. Effect on Conversion Price of Certain Events. In order to prevent dilution of the conversion rights granted under this Section 15, in addition to the adjustments provided for in Section 15.4, the Conversion Rate shall be subject to adjustment from time to time pursuant to this Section 15.5 as follows; provided, however, that no adjustments shall be made under this Section 15.5 with respect to any issuance of securities or other event that requires an adjustment of the Conversion Rate under Section 15.4. (1) If and whenever on or after the Closing Date the Company issues or sells, or in accordance with this Section 15.5 is deemed to have issued or sold, other than in an Excluded Issuance, any share of Common Stock for a consideration per share less than the Trigger Price in effect immediately prior to such time (a "Dilutive Event"), then forthwith upon such issue or sale in the Dilutive Event the Conversion Rate shall be increased by dividing the Conversion Rate in effect immediately before the Dilutive Event by a fraction, the numerator of which is the number of shares of Common Stock that are Outstanding on an As-Converted Basis (as defined below) immediately before the Dilutive Event plus the number of shares of Common Stock that could be purchased at the Trigger Price at the time of the Dilutive Event for the aggregate consideration paid or payable upon the sale or issuance of Common Stock in the Dilutive Event, and the denominator of which is the number of shares of Common Stock that are Outstanding on an As-Converted -50- Basis immediately before the Dilutive Event plus the number of shares that are acquired or to be acquired upon the sale or issuance of the Common Stock in the Dilutive Event. For purposes of this paragraph (1), "Outstanding on an As-Converted Basis immediately before the Dilutive Event" means the sum of (i) all Common Stock issued and outstanding immediately before the Dilutive Event plus (ii) all Common Stock issuable upon the exercise of Options or conversion of Convertible Securities outstanding immediately before the Dilutive Event (other than the Debentures). (2) If after the Closing Date the Company in any manner grants any Options and the price per share for which shares of Common Stock are issuable upon the exercise of any such Option is less than the Trigger Price in effect immediately prior to the time of the granting of such Option, then such shares of Common Stock shall be deemed to have been issued and sold by the Company at the time of the granting of such Options for such price per share and the Conversion Rate shall be adjusted in accordance with paragraph (1) of this Section 15.5. For purposes of this paragraph, the "price per share" for which shares of Common Stock are issuable upon the exercise of any Option shall be equal to the sum of the amounts of consideration (if any) received or receivable by the Company with respect to such shares of Common Stock upon the granting of the Option and upon exercise of the Option. No further adjustment of the Conversion Rate shall be made upon the actual issue of such Common Stock upon the exercise of such Options. (3) If after the Closing Date the Company in any manner issues or sells any Convertible Security (or Options to purchase any Convertible Security) and the price per share for shares of Common Stock that are issuable upon conversion or exchange thereof is less than the Trigger Price in effect immediately prior to the time of such issue or sale (or the granting of such Option), then such shares of Common Stock shall be deemed to have been issued and sold by the Company at the time of the issuance or sale of such Convertible Securities (or the granting of such Option) for such price per share and the Conversion Price shall be adjusted in accordance with paragraph (1) of this Section 15.5. For the purposes of this paragraph (3), the "price per share" for which shares of Common Stock are issuable upon conversion or exchange of any Convertible Security (or exercise of any Option therefor) shall be equal to the sum of the amounts of consideration (if any) received or receivable by the Company upon the issuance of the Convertible Security (or such Option) and upon the conversion or exchange of such Convertible Security (or exercise of such Option). No further adjustment of the Conversion Price shall be made upon the actual issue of such Common Stock upon conversion or exchange of any Convertible Security, and if any such issue or sale of such Convertible Security is made upon exercise of any Options for which adjustments of the Conversion Rate had been or are to be made pursuant to other provisions of this Section 15, no further adjustment of the Conversion Rate shall be made by reason of such issue or sale. (4) If after the Closing Date the purchase price provided for in any Option, the additional consideration (if any) payable upon the issue, conversion or exchange of any Convertible Security (other than the Debentures), or the rate at which any Convertible Security (other than the Debentures) is convertible into or exchangeable -51- for Common Stock changes at any time, any Conversion Rate previously adjusted with respect to such Option or Convertible Security (other than the Debentures) and in effect at the time of such change shall be readjusted to the Conversion Rate which would have been in effect at such time had such Option or Convertible Security (other than the Debentures) originally provided for such changed purchase price, additional consideration or changed conversion rate, as the case may be, at the time initially granted, issued or sold. (5) Upon the expiration of any Option or the termination of any right to convert or exchange any Convertible Security (other than the Debentures), after the Closing Date, without the exercise of any such Option or right, any Conversion Rate then in effect hereunder shall be adjusted to the Conversion Rate which would have been in effect at the time of such expiration or termination had such Option or Convertible Security, to the extent outstanding immediately prior to such expiration or termination, never been issued. (6) For the purpose of this Section 15.5, if any Common Stock, Option or Convertible Security is issued or sold or deemed to have been issued or sold for cash, the consideration received therefor shall be deemed to be the amount received by the Company therefor. In case any Common Stock, Options or Convertible Securities are issued or sold for a consideration other than cash, the amount of the consideration other than cash received by the Company shall be the fair value of such consideration, except where such consideration consists of securities, in which case the amount of consideration received by the Company shall be the Market Price thereof as of the date of receipt. If any Common Stock, Option or Convertible Security is issued to the owners of the non- surviving entity in connection with any merger in which the Company is the surviving corporation, the amount of consideration therefor shall be deemed to be the fair value of such portion of the assets and business of the non-surviving entity as is attributable to such Common Stock, Options or Convertible Securities, as the case may be. The fair value of any consideration other than cash and securities shall be as determined in good faith by the Board of Directors of the Company. For purposes of this paragraph (6), the term "Market Price" of a security means, with respect to a specified date, the Closing Price of such security, averaged over a period of the twenty (20) consecutive Business Days prior to such date; provided that if during this period such security is not listed on any securities exchange, quoted on the Nasdaq National Market, or quoted in the over-the-counter market, the Market Price will be the fair value of such security determined by agreement between the Company and the holders of a majority of the Outstanding Debentures. If such parties are unable to reach agreement within a reasonable period of time, the fair value of such security shall be determined by an independent appraiser experienced in valuing such type of consideration jointly selected by the Company and the holders of a majority of the Outstanding Debentures. The determination of such appraiser shall be final and binding upon the parties, and the fees and expenses of such appraiser shall be borne by the Company. -52- (7) In case any Option is issued in connection with the issue or sale of other securities of the Company, together comprising one (1) integrated transaction in which no specific consideration is allocated to such Option by the parties thereto, the Option shall be deemed to have been issued for a consideration of $.0l. 15.6. De Minimis Adjustments. Notwithstanding any other provisions of this Section 15, the Company shall not be required to make any adjustment of the Conversion Rate unless such adjustment would require an increase or decrease of at least one percent (1%) in the Conversion Rate as then in effect. Any lesser adjustment shall be carried forward and shall be made no later than the time of, and together with, the next subsequent adjustment which, together with any adjustment or adjustments so carried forward, shall amount to an increase or decrease of at least one percent (1%) of the Conversion Rate as then in effect. 15.7. Notice of Adjustments of Conversion Rate. Whenever the Conversion Rate is adjusted as provided in Section 15.4 or Section 15.5, the Company shall promptly (and, in any event, not later than the fifteenth (15th) day following the occurrence of the event requiring such adjustment) compute the adjusted Conversion Rate in accordance with this Section 15 and shall prepare a report setting forth such adjustment and showing in detail the method of calculation and the facts upon which such adjustment is based, including a statement of (a) the consideration received or to be received by the Company for any additional shares of Common Stock issued or sold or deemed to have been issued, (b) the number of shares of Common Stock outstanding or deemed to be outstanding, and (c) the Conversion Rate in effect immediately prior to such issue or sale and as adjusted on account therefor and, upon the request of any holder of the Debentures, shall cause certified public accountants of recognized national standing (which may be the regular auditors of the Company) selected by the Company to verify such computation and report, if not previously verified at the request of any holder. The Company will promptly (and, in any event, not later than such fifteenth (15th) day) furnish a copy of each such report and such verification to the holder of any Debenture, and will, upon the written request at any reasonable time of the holder of any Debenture, furnish to such holder a like report setting forth the Conversion Rate at the time in effect and showing how it was calculated. The Company will also keep copies of all such reports and such verifications at its principal office, and will cause the same to be available for inspection at such office during normal business hours by the holder of any Debenture or any prospective purchaser of any Debenture designated by the holder of such Debenture. 15.8. Notice of Certain Corporate Action. In case: (1) the Company shall declare a dividend (or any other distribution) on its Common Stock payable otherwise than in cash out of its earned surplus; or (2) the Company shall authorize the granting to all holders of its Common Stock of rights or warrants to subscribe for or purchase any shares of Capital Stock or of any other rights; or -53- (3) (a) of any reclassification of the Common Stock of the Company, or (b) of any consolidation, merger or share exchange to which the Company is a party and for which approval of any stockholders of the Company is required, or (c) of any tender offer by the Company or any Subsidiary for all or any portion of the Common Stock, or (d) of the conveyance, transfer, sale or lease of all or substantially all of the assets of the Company; or (4) of the voluntary or involuntary dissolution, liquidation or winding up of the Company; then the Company, ten (10) Business Days prior to the applicable record, expiration or effective date hereinafter specified, shall give to each holder of Debentures a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, rights or warrants, or, if a record is not to be taken, the effective date as of which the holders of Common Stock of record to be entitled to such dividend, distribution, rights or warrants are to be determined, (y) the date on which the right to make tenders under such tender offer expires or (z) the date on which such reclassification, consolidation, merger, share exchange, conveyance, transfer, sale, lease, dissolution, liquidation or winding up is expected to become effective, and the date as of which it is expected that holders of Common Stock of record shall be entitled to exchange their shares of Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, share exchange, conveyance, transfer, sale, lease, dissolution, liquidation or winding up. 15.9. Company to Reserve Common Stock. The Company shall at all times reserve and keep available, free from preemptive rights, out of its authorized but unissued Common Stock, for the purpose of effecting the conversion of Debentures, the full number of Conversion Shares then issuable upon the conversion of all outstanding Debentures. 15.10. Taxes on Conversions. The Company will pay any and all taxes (other than taxes on income), liens and other charges that may be payable in respect of the issue or delivery of Conversion Shares pursuant hereto. 15.11. Agreements as to Common Stock; Listing. The Company agrees that all Conversion Shares, upon delivery thereof, will have been duly authorized and validly issued and will be fully paid and nonassessable with no liability on the part of holders thereof. The Company will take all such action as may be necessary to insure that such Conversion Shares may be issued without violation of any applicable law or regulation, or of any agreement, contract or understanding applicable to the Company or its assets, or of any requirements of any securities exchange or automated quotation system upon which any shares of Common Stock may be listed or quoted. No class of Capital Stock (other than any class that has a preference in respect of dividends or of amounts payable in the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company or that is subject to redemption by the -54- Company) shall have voting rights that are proportionately greater per share than those of any class of Capital Stock issuable on any conversion of the Debentures pursuant hereto, and all classes of which shares are so issuable on any such conversion shall have voting rights. 15.12. Cancellation of Converted Debentures. All Debentures delivered for conversion shall be cancelled and no such Debenture shall thereafter be reissued. 15.13. Provision in Case of Consolidation, Merger or Conveyance of Assets. (a) In case at any time after the Closing Date the Company shall be a party to any transaction (including, without limitation, a merger, consolidation, sale of all or substantially all of the Company's assets or recapitalization of the Common Stock) in which the previously outstanding Common Stock shall be changed into or exchanged for different securities of the Company, common stock or other securities of another corporation or interests in a noncorporate entity or other property (including cash) or any combination of any of the foregoing (each such transaction being hereinafter referred to as a "Reorganization Transaction," the date of the consummation of the Reorganization Transaction being hereinafter referred to as the "Consummation Date," the Company (in the case of a recapitalization of the Common Stock) or such other corporation or entity (in each other case) being hereinafter referred to as the "Acquiring Company," and the common stock (or equivalent equity interests) of the Acquiring Company being hereinafter referred to as the "Acquirer's Common Stock"), then, subject to the alternate rights of each holder of Debentures set forth in Section 15.13(b), if then applicable as a condition to the consummation of the Reorganization Transaction, lawful and adequate provisions shall be made so that, upon the basis and the terms and in the manner provided in this Section 15, each holder of a Debenture, upon the conversion thereof at any time after the consummation of the Reorganization Transaction, shall be entitled to receive, in lieu of the Stock or Other Securities issuable upon such conversion prior to such consummation, the stock and other securities, cash and property to which such holder would have been entitled upon the consummation of the Reorganization Transaction if such holder had converted such Debenture immediately prior thereto (subject to adjustments from and after the Consummation Date as nearly equivalent as possible to the adjustments provided for in this Section 15 including, without limitation, this Section 15.13). (b) In addition to the rights granted in Section 15.13(a), at the election of any holder of any Debenture pursuant to notice given to the Company on or before the later of (x) the day on which the holders of the Common Stock of the Company approve the Reorganization Transaction, and (y) the sixtieth day (60th) following the date of delivery or mailing to such holder of the last proxy statement relating to the vote on the Reorganization Transaction by the holders of the Common Stock of the Company, such holder shall have the right to elect to receive on the Consummation Date and, as a condition precedent to the Reorganization Transaction, in full payment and in consideration for the surrender of such Debenture, a cash amount equal to the current market value (as determined in accordance with Section 15.4(8)) of the number of shares of Stock (or Other Securities) to which the holder of such Debenture would have been entitled had such holder converted such Debenture immediately -55- prior to the consummation of the Reorganization Transaction; provided, however, that the provisions of this Section 15.13(b) shall not apply prior to the Senior Notes Reduction Date. (c) The Company will not enter into or be a party to any Reorganization Transaction following the consummation of which any holder of Debentures would be entitled in accordance with the foregoing provisions of this Section 15.13 to receive Acquirer's Common Stock or other securities of the Acquiring Company upon conversion of such Debentures unless, immediately following the consummation thereof on the Consummation Date, all of the following requirements are fulfilled as to the Acquiring Company: (A) its common stock is listed on the New York Stock Exchange or the American Stock Exchange or is authorized for quotation on the Nasdaq National Market as a national market security and such common stock continues to meet the requirements for such listing or quotation, as the case may be, and (B) it is required to file reports with the Commission pursuant to Section 13 or 15(d) of the Exchange Act. (d) Notwithstanding anything contained in this Agreement to the contrary, the Company will not effect any Reorganization Transaction unless, prior to the consummation thereof, each corporation or entity (other than the Company) which may be required to deliver any stock, securities, cash or property upon the conversion of any Debenture as provided herein shall assume, by written instrument delivered to the holder of such Debenture, the obligation to deliver to such holder such shares of stock, securities, cash or property as, in accordance with the foregoing provisions, such holder may be entitled to receive, and such corporation or entity shall have similarly delivered to such holder an opinion of counsel for such corporation or entity, which counsel shall be reasonably satisfactory to such holder, stating that such Debenture shall thereafter continue in full force and effect and the terms hereof (including, without limitation, all of the provisions of this Section 15) shall be applicable to the stock, securities, cash or property which such corporation or entity may be required to deliver upon the exercise hereof. Nothing in this Section 15.13 shall be deemed to authorize the Company to enter into any transaction not otherwise permitted by either Section 12.6 or Section 13.1, as then applicable. 15.14. Other Dilutive Events. In case any event shall occur which is substantially similar to the events described in the other provisions of this Section 15, but as to which substantially similar event such provisions of this Section 15 are not applicable and in respect of which substantially similar event the failure to make any adjustment would not in the reasonable opinion of any holder of a Debenture or the Company fairly protect the conversion rights granted by this Section 15 in accordance with the essential intent and principles hereof, then, in each such case, upon the written request of such holder or on its own motion, the Company shall appoint a firm of independent certified public accountants of recognized national standing (which may be the regular auditors of the Company) which shall give their opinion as to the adjustment, if any, on a basis consistent with the essential intent and principles established -56- in this Section 15, necessary to preserve, without dilution, such conversion rights. Upon receipt of such opinion, the Company will promptly mail a copy thereof to the holder of each Debenture and shall make the adjustments or increases described therein. 15.15. Continuing Obligation of the Company. The Company will, at the time of conversion of any Debenture in full or in part, upon the request of any holder thereof, acknowledge in writing its continuing obligation to afford such holder any rights (including, without limitation, any right of registration of the Conversion Shares) to which such holder shall continue to be entitled after such conversion in accordance with the provisions of this Agreement; provided, however, that if any such holder shall fail to make any such request, such failure shall not affect the continuing obligation of the Company to afford to such holder all such rights. 16. Registration, Transfer and Substitution of Debentures. ----------------------------------------------------- 16.1. Debenture Register; Ownership of Registered Debentures. The Company will keep at its principal office a register in which the Company will provide for the registration of Debentures and the registration of transfers of Debentures. The Company may treat the Person in whose name any Debenture is registered on such register as the owner and holder thereof for the purpose of receiving payment of the principal of and the premium, if any, and interest on such Debenture and for all other purposes, whether or not such Debenture shall be overdue, and the Company shall not be affected by any notice to the contrary. The Company may treat the Person in whose name any Stock is registered in the stock transfer records of the Company as the owner and holder thereof for the purpose of receiving dividends and other distributions thereon and for all other purposes, and the Company shall not be affected by any notice to the contrary. 16.2. Transfer and Exchange of Debentures. Upon surrender of any Debenture for registration of transfer or for exchange to the Company at its principal office with evidence that all applicable transfer taxes have been paid, the Company at its expense will execute and deliver in exchange therefor a new Debenture or Debentures in denominations of at least $100,000 (except one (1) Debenture may be issued in a lesser principal amount if the unpaid principal amount of the surrendered Debenture is not evenly divisible by, or is less than, $100,000), as requested by the holder or transferee, which aggregate the unpaid principal amount of such surrendered Debenture. Each such new Debenture shall be registered in the name of such Person, or its nominee, as such holder or transferee may request, dated so that there will be no loss of interest on such surrendered Debenture and otherwise of like tenor. 16.3. Replacement of Debentures. Upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of any Debenture and, in the case of any such loss, theft or destruction, upon delivery of an indemnity bond in such reasonable amount and form as the Company may determine (or, in the case of any Debenture held by you or another holder of Debentures, of an indemnity agreement from you or such other holder reasonably satisfactory to the Company), or, in the case of any such mutilation, upon the -57- surrender of such Debenture for cancellation to the Company at its principal office, the Company at its expense will execute and deliver, in lieu thereof, a new Debenture of like tenor, dated so that there will be no loss of interest on such lost, stolen, destroyed or mutilated Debenture. Any Debenture in lieu of which any such new Debenture has been so executed and delivered by the Company shall not be deemed to be an outstanding Debenture for any purpose of this Agreement. 17. Payment. ------- 17.1. Form of Payment. Payments of interest becoming due and payable on any Debenture shall be made by issuing to the holder thereof fully paid and nonassessable shares of Common Stock in an amount determined by multiplying the principal amount of the Debenture by eight and three-fourths percent (8.75%) per annum (computed on the basis of a 360-day year of twelve (12) 30-day months) and dividing the resulting product by the Applicable Divisor. All amounts of principal due on any Debenture and any premium (whether at Stated Maturity, upon acceleration or otherwise) shall be paid in cash in U.S. dollars in immediately available funds to the account or accounts specified by the holder of the Debenture. 17.2. Place of Payment. ----------------- (a) Payments of interest becoming due and payable on the Debentures shall be made by delivering a certificate or certificates for shares of Common Stock in such denomination as the holder may request at the address specified by such holder to the Company from time to time, by notice pursuant to Section 23 hereof. (b) Except as otherwise provided in Section 17.3, payments of principal or premium, if any, becoming due and payable on the Debentures shall be made at the principal office of the Company, provided, however, that if at any time the Company does not maintain its principal office in Rockville, Maryland, the Company, by written notice to each holder of any Debentures, shall designate the principal office of any bank or trust company in New York County, State of New York, as the office or agency where such payments shall be made. 17.3. Home Office Payment. So long as you or your nominee shall be the holder of any Debenture, and notwithstanding anything contained in Section 17.2 or in such Debenture to the contrary, the Company will pay all sums becoming due on such Debenture for principal, or premium, if any, in the manner and at the address specified for such purpose in Schedule I attached hereto, or in such other manner and at such other address as you shall have from time to time specified to the Company in writing for such purpose, without the presentation or surrender of such Debenture or the making of any notation thereon, except that any Debenture so paid or redeemed or repurchased in full shall, following such payment, redemption or repurchase, be surrendered to the Company at its principal office or at the place of payment maintained by the Company pursuant to Section 17.2 for cancellation. The Company agrees to afford the benefits of this Section 17.3 to any holder which is the direct or indirect transferee of any Debenture purchased by you under this Agreement. -58- 18. Events of Default; Acceleration. 18.1. Nature of Events and Acceleration of Debentures. Subject to Section 18.5, if any of the following events ("Events of Default") shall occur and be continuing for any reason whatsoever (and whether such occurrence shall be voluntary or involuntary or come about or be effected by operation of law or otherwise): (a) any payment of principal or premium, if any, on any Debenture is not made when and as such payment becomes due at maturity, upon acceleration, redemption or repurchase, or otherwise; (b) any payment of interest on any Debenture is not made when and as such payment becomes due and payable, and such default continues for a period of fifteen (15) days; (c) the Company fails to comply with the requirements for consolidation, merger or conveyance, transfer or lease of all or substantially all of the Company's assets, as set forth in either Section 12.6 or Section 13.1, as then applicable; (d) the Company fails to comply with or perform any of the then-applicable covenants or other agreements set forth in this Agreement or the Debentures (other than a default specified in clause (a), (b) or (c) above) or any other provision of this Agreement, and such failure continues for a period of thirty (30) days after the earlier of (1) the day on which a Responsible Officer of the Company first obtains knowledge of such failure, or of the events or conditions that constitute such failure or (2) the day on which written notice thereof is given to the Company by the holder of any Debenture; (e) any warranty or representation by or on behalf of the Company contained in this Agreement or in any instrument furnished in compliance with this Agreement is false or incorrect in any material respect on the date as of which made; (f) any "Event of Default" under (and as defined in) either of the Senior Indentures shall have occurred and be continuing; (g) there occurs with respect to any issue or issues of Indebtedness of the Company or any Significant Subsidiary having an outstanding principal amount of $2 million or more in the aggregate for all such issues of all such Persons, whether such Indebtedness now exists or shall hereafter be created, (I) an event of default that has caused the holder thereof to declare such Indebtedness to be due and payable prior to its Stated Maturity and such Indebtedness has not been discharged in full or such -59- acceleration has not been rescinded or annulled within thirty (30) days of such acceleration and/or (II) the failure to make a principal payment at the final (but not any interim) fixed maturity and such defaulted payment shall not have been made, waived or extended within thirty (30) days of such payment default; (h) any final judgment or order (not covered by insurance) for the payment of money in excess of $2 million in the aggregate for all such final judgments or orders against all such Persons (treating any deductibles, self-insurance or retention as not so covered) shall be rendered against the Company or any Significant Subsidiary and shall not be paid or discharged, and there shall be any period of sixty (60) consecutive days following entry of the final judgment or order that causes the aggregate amount for all such final judgments or orders outstanding and not paid or discharged against all such Persons to exceed $2 million during which a stay of enforcement of such final judgment or order, by reason of a pending appeal or otherwise, shall not be in effect; (i) the Company or any of its Significant Subsidiaries shall commence a voluntary case under any chapter of the Federal Bankruptcy Code, or shall consent to (or fail to contest within ten (10) days) the commencement of an involuntary case against the Company or any of its Subsidiaries under the Federal Bankruptcy Code; (j) the Company or any Significant Subsidiary shall institute proceedings for liquidation, rehabilitation, readjustment or composition (or for any related or similar purpose) under any law (other than the Federal Bankruptcy Code) relating to financially distressed debtors, their creditors or property, or shall consent to (or fail to contest within ten (10) days) the institution of any such proceedings against the Company or any of its Subsidiaries; (k) the Company or any of its Significant Subsidiaries shall be insolvent (within the meaning of any applicable law), or shall be unable, or shall admit in writing its inability, to pay its debts generally as they come due, or shall make an assignment for the benefit of creditors or enter into any arrangement for the adjustment or composition of debts or claims; (l) a court or other governmental authority or agency having jurisdiction in the premises shall enter a decree or order (i) for the appointment of a receiver, liquidator, assignee, trustee or sequestrator (or other similar official) of the Company or any of its Significant Subsidiaries or of any part of the property of such Person, or for the winding-up or liquidation of the affairs of such Person, and such decree or order shall remain in force and undischarged and unstayed for a period of more than thirty (30) days, or (ii) for the sequestration or attachment of any property of the Company or any of its Significant Subsidiaries without its unconditional return to the possession of such Person, or its unconditional release from such sequestration or attachment, within thirty (30) days thereafter; -60- (m) a court having jurisdiction in the premises shall enter an order for relief in an involuntary case commenced against the Company or any of its Significant Subsidiaries under the Federal Bankruptcy Code, and such order shall remain in force undischarged and unstayed for a period of more than thirty (30) days; (n) a court or other governmental authority or agency having jurisdiction in the premises shall enter a decree or order approving or acknowledging as properly filed or commenced against the Company or any of its Significant Subsidiaries a petition or proceedings for liquidation, rehabilitation, readjustment or composition (or for any related or similar purpose) under any law (other than the Federal Bankruptcy Code) relating to financially distressed debtors, their creditors or property, and any such decree or order shall remain in force and undischarged and unstayed for a period of more than thirty (30) days; or (o) the Company or any of its Significant Subsidiaries shall take corporate action for the purpose or with the effect of authorizing, acknowledging or confirming the taking or existence of any action or condition specified in paragraph (i), (j) or (k) above; then, in the case of any such Event of Default referred to in clause (i), (j), (k), (1), (m) or (n) of this Section 18.1, automatically, or, in the case of any other such Event of Default, at the option of the holder or holders of not less than twenty-five percent (25%) in aggregate principal amount of the Debentures at the time Outstanding, exercised by written notice to the Company, the Debentures, together with the interest accrued thereon, shall forthwith become and be due and payable, without any other presentment, demand, protest or notice of any kind, all of which are hereby expressly waived; provided, however, that in the case of any Event of Default specified in clause (a) or (b) of this Section 18.1, such option may be exercised by the holder of any Debenture by written notice to the Company and such Debenture, together with interest accrued thereon, shall in such case forthwith become and be due and payable, without any other presentment, demand, protest or notice of any kind, all of which are hereby expressly waived. 18.2. Default Remedies. If an Event of Default exists, the holder of any Debenture then outstanding may exercise any right, power or remedy permitted to it by law, either by suit in equity or by action at law or both, whether for specific performance of any covenant or agreement contained in this Agreement or in aid of the exercise of any power granted in this Agreement, or the holder of any Debenture may proceed to enforce payment of such Debenture or to enforce any other legal or equitable right of the holder of such Debenture. No course of dealing on the part of any holder of any Debenture or any delay or failure on the part of any holder of any Debenture to exercise any right shall operate as a waiver of such right or otherwise prejudice such holder's, or any other holder's rights, powers and remedies. If an Event of Default exists, the Company will pay to the holders of the Debentures, to the extent not prohibited by law, such further amount as shall be sufficient to cover the cost and expenses of collection or other proceedings, including, but not limited to, reasonable attorneys' fees. -61- 18.3. Notice of Default. If any one (1) or more of the Events of Default specified in Section 18.1 above shall occur, or if the holder of any Debenture or of any other evidence of Indebtedness of the Company gives any notice or takes any other action with respect to a claimed default, the Company will forthwith give written notice thereof to all holders of Debentures then Outstanding describing the notice or action and the nature of the claimed default, including any Event of Default. 18.4. Annulment of Acceleration of Debentures. If notice is delivered pursuant to Section 18.1 by any holder or holders of the requisite principal amount of the Debentures, then and in every such case, the holders of at least fifty-one percent (51%) in aggregate principal amount of the Debentures then Outstanding may, by written instrument filed with the Company, rescind and annul such declaration and the consequences thereof; provided, however, that at the time such declaration is annulled and rescinded: (a) no judgment or decree has been entered for the payment of any monies due pursuant to the Debentures or this Agreement; (b) all arrears of principal and interest upon all of the Debentures and all other sums payable under the Debentures and under this Agreement (including costs and expenses of the holders incurred in connection with such notice under Section 18.1 and the exercise of remedies under Section 18.2, but excluding any principal, interest or premium on the Debentures which has become due and payable by reason of such notice under Section 18.1) shall have been duly paid; and (c) each and every other default and Event of Default shall have been waived pursuant to Section 22 or otherwise made good or cured; and provided, further, that no such rescission and annulment shall extend to or affect any subsequent default or Event of Default or impair any right consequent thereon. 18.5. Accelerations and other Remedies Limited Prior to Senior Notes Reduction Date. Notwithstanding anything in Sections 18.1 through Section 18.4 to the contrary, prior to the Senior Notes Reduction Date no holder of any Debenture shall have the right to accelerate any payments on such Debenture or exercise any other remedies or rights against the Company, any Guarantor or any other Subsidiary of the Company arising from any Event of Default as defined herein except for (i) the Events of Default specified in paragraph (i), (j), (k), (l), (m) or (n) of Section 18.1, (ii) the Event of Default specified in paragraph (h) of Section 18.1, provided that the applicable amount of any final judgments or orders for the payment of money thereunder is at least $50 million, or (iii) any Event of Default under paragraph (f) or (g) of this Agreement that results in the acceleration of payment with respect to Indebtedness (other than the Debentures) in the aggregate principal amount of at least $50 million. -62- 19. Interpretation of Agreement and Debentures. Acquired Indebtedness: means Indebtedness of a Person existing at the time such Person becomes a Restricted Subsidiary or assumed in connection with an Asset Acquisition by a Restricted Subsidiary and not Incurred in connection with, or in anticipation of, such Person becoming a Restricted Subsidiary or such Asset Acquisition; provided that Indebtedness of such Person which is redeemed, defeased, retired or otherwise repaid at the time of or immediately upon consummation of the transactions by which such Person becomes a Restricted Subsidiary or such Asset Acquisition shall not be Acquired Indebtedness. Acquirer's Common Stock: the meaning specified in Section 15.13(a). Acquiring Company: the meaning specified in Section 15.13(a). Adjusted Consolidated Net Income: means, for any period, the aggregate net income (or loss) of the Company and its Restricted Subsidiaries for such period determined in conformity with GAAP; provided that the following items shall be excluded in computing Adjusted Consolidated Net Income (without duplication): (i) the net income of any Person (other than net income attributable to a Restricted Subsidiary) in which any Person (other than the Company or any of its Restricted Subsidiaries) has a joint interest and the net income of any Unrestricted Subsidiary, except to the extent of the amount of dividends or other distributions actually paid to the Company or any of its Restricted Subsidiaries by such other Person or such Unrestricted Subsidiary during such period; (ii) solely for the purposes of calculating the amount of Restricted Payments that may be made pursuant to clause (C) of the first paragraph of Section 13.6 (and in such case, except to the extent includable pursuant to clause (i) above), the net income (or loss) of any Person accrued prior to the date it becomes a Restricted Subsidiary or is merged into or consolidated with the Company or any of its Restricted Subsidiaries or all or substantially all of the property and assets of such Person are acquired by the Company or any of its Restricted Subsidiaries; (iii) any gains or losses (on an after-tax basis) attributable to Asset Sales; (iv) except for purposes of calculating the amount of Restricted Payments that may be made pursuant to clause (C) of the first paragraph of Section 13.6, any amount paid or accrued as dividends on Preferred Stock of the Company or any Restricted Subsidiary owned by Persons other than the Company and any of its Restricted Subsidiaries; (v) all extraordinary gains and extraordinary losses; and (vi) any net income of any Guarantor that is designated an Unrestricted Subsidiary. Adjusted Consolidated Net Tangible Assets: means the total amount of assets of the Company and its Restricted Subsidiaries (less applicable depreciation, amortization and other valuation reserves), except to the extent resulting from write-ups of capital assets (excluding write-ups in connection with accounting for acquisitions in conformity with GAAP), after deducting therefrom (i) all current liabilities of the Company and its Restricted Subsidiaries -63- (excluding intercompany items) and (ii) all goodwill, trade names, trademarks, patents, unamortized debt discount and expense and other like intangibles, all as set forth on the most recent quarterly or annual consolidated balance sheet of the Company and its Restricted Subsidiaries, prepared in conformity with GAAP and filed with the Commission. Affiliate: means, as applied to any Person, any other Person directly or indirectly controlling, controlled by, or under direct or indirect common control with, such Person. For purposes of this definition, "control" (including, with correlative meanings, the terms "controlling," "controlled by" and "under common control with"), as applied to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise. The term "Affiliate" when used as a reference to an Affiliate of the Company or any of its Subsidiaries shall not mean or refer to (i) BAe, BAC, PLC or any of their Affiliates (exclusive of the Company or its Subsidiaries) or (ii) Matra, the Lagardere Groupe SCA, MCN Sat US Inc., MCN Sat Service S.A., or any of their Affiliates (exclusive of the Company or its Subsidiaries). Agreements and Instruments: the meaning specified in Section 5.9. Annual Report: the meaning specified in Section 5.5. ------------- Applicable Divisor: means (i) $14 provided that the average of the Closing Price per share of the Common Stock for the 20 Trading Days (the "Twenty Day Average") immediately prior to the date as of which the Applicable Divisor is determined (the "Divisor Date") is greater than $12.80, (ii) the Twenty Day Average, if $12.80 or less but greater than $10.21 at the Divisor Date, or (iii) $10.21 if the Twenty Day Average is $10.21 or less, at the Divisor Date. The initial Applicable Divisor thresholds amounts ($14, $12.80, $10.21) and any amount to which such thresholds are adjusted, shall be proportionately decreased in the event that the Company at any time subdivides (by any stock split, stock dividend, recapitalization or otherwise) the outstanding shares of Common Stock into a greater number of shares or proportionately increased in the event that the Company at any time combines (by reverse stock split, recapitalization or otherwise) the outstanding shares of Common Stock into a smaller number of shares. Applicable Law: means any Federal, state, local or foreign statute, law, ordinance, governmental rule or regulation or any judgment, decree, rule or order of any court or governmental agency or authority applicable to the Company or any of its Subsidiaries or any of their respective properties, assets or operations. Article Tenth: the meaning specified in Section 5.28. ------------- Asset Acquisition: means (i) an investment by the Company or any of its Restricted Subsidiaries in any other Person pursuant to which such Person shall become a Restricted Subsidiary or shall be merged into or consolidated with the Company or any of its Restricted Subsidiaries; provided that such Person's primary business is related, ancillary or -64- complementary to the businesses of the Company and its Restricted Subsidiaries on the date of such investment or (ii) an acquisition by the Company or any of its Restricted Subsidiaries of the property and assets of any Person other than the Company or any of its Restricted Subsidiaries that constitute substantially all of a division or line of business of such Person; provided that the property and assets acquired are related, ancillary or complementary to the businesses of the Company and its Restricted Subsidiaries on the date of such acquisition. Asset Disposition: means the sale or other disposition by the Company or any of its Restricted Subsidiaries (other than to the Company or another Restricted Subsidiary) of (i) all or substantially all of the Capital Stock of any Restricted Subsidiary of the Company or (ii) all or substantially all of the assets that constitute a division or line of business of the Company or any of its Restricted Subsidiaries. Asset Sale: means any sale, transfer or other disposition (including by way of merger, consolidation or sale-leaseback transaction) in one transaction or a series of related transactions by the Company or any of its Restricted Subsidiaries to any Person other than the Company or any of its Restricted Subsidiaries of (i) all or any of the Capital Stock of any Restricted Subsidiary, (ii) all or substantially all of the property and assets of an operating unit or business of the Company or any of its Restricted Subsidiaries or (iii) any other property and assets of the Company or any of its Restricted Subsidiaries outside the ordinary course of business of the Company or such Restricted Subsidiary and, in each case, that is not governed by the provisions of this Agreement applicable to mergers, consolidations and sales of assets of the Company; provided that "Asset Sale" shall not include (a) sales or other dispositions of inventory, receivables and other current assets or (b) sales or other dispositions of assets for consideration at least equal to the fair market value of the assets sold or disposed of, provided that the consideration received would be invested in assets that satisfy clause (B) of Section 13.11. Average Life: means, at any date of determination with respect to any debt security, the quotient obtained by dividing (i) the sum of the products of (a) the number of years from such date of determination to the dates of each successive scheduled principal payment of such debt security and (b) the amount of such principal payment by (ii) the sum of all such principal payments. BAC: British Aerospace Communications, Inc., a Delaware corporation. BAe: British Aerospace Holdings, Inc., a Delaware corporation. Board of Directors: means the Board of Directors of the Company or a committee consisting of one or more directors lawfully exercising the relevant powers of the Board. Board Resolution: means a resolution duly adopted by the Board of Directors, a copy of which, certified by the Secretary or an Assistant Secretary of the Company to have been -65- duly adopted by the Board of Directors and to be in full force and effect on the date of such certification, shall have been delivered to each holder of Debentures. Business Day: means any day other than a Saturday, Sunday or any other day on which commercial banks are authorized by law to be closed in New York City or the District of Columbia. Capital Stock: means, with respect to any Person, any and all shares, interests, participations or other equivalents (however designated, whether voting or non-voting) in equity of such Person, whether now outstanding or issued after the Closing Date, including, without limitation, all series and classes of common stock and Preferred Stock. Capitalized Lease: means, as applied to any Person, any lease of any property (whether real, personal or mixed) of which the discounted present value of the rental obligations of such Person as lessee, in conformity with GAAP, is required to be capitalized on the balance sheet of such Person; and "Capitalized Lease Obligations" means the discounted present value of the rental obligations under such lease. Change of Control: occurs when any "Person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act), is or becomes the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that a Person shall be deemed to have beneficial ownership of all shares that any such Person has the right to acquire, whether such right is exercisable immediately or only after the passage of time) directly or indirectly, of a majority in the aggregate of the total voting power of the Voting Stock of the Company, whether as a result of issuance of securities of the Company, market or private purchases, any merger, consolidation, liquidation or dissolution of the Company, or otherwise. Change of Control Period: means the ninety (90) day period commencing on the date a Change of Control occurs; provided, however, that no Change of Control Period may commence prior to the Senior Notes Reduction Date. A Change of Control effected by a Purchaser or any of such Purchaser's Affiliates shall not commence a Change of Control Period with respect to that Purchaser and any of such Purchaser's Affiliates for purposes of Section 11.3 of the Agreement. Closing: the meaning specified in Section 2. Closing Date: the meaning specified in Section 2. Closing Price: means, with respect to each share of Common Stock or other security, for any day, the reported last sales price regular way per share or, in case no such reported sale takes place on such day, the average of the reported closing bid and asked prices regular way, in either case (i) on the New York Stock Exchange as reported in The Wall -66- Street Journal (or other similar newspaper) for New York Stock Exchange Composite Transactions or, if the Common Stock or other security is not listed or admitted to trading on such Exchange, on the principal (as determined by the Company's Board of Directors) national securities exchange on which the Common Stock or other security is listed or admitted to trading or (ii) if not listed or admitted to trading on any national securities exchange, on the Nasdaq National Market, or, if the Common Stock or other security is not listed or admitted to trading on any national securities exchange or quoted on the Nasdaq National Market, the average of the closing bid and asked prices in the over-the-counter market as furnished by any New York Stock Exchange member firm selected from time to time by the Company for that purpose. If no such prices are available, the Closing Price per share of Common Stock shall be the fair value of a share as determined in good faith by the Board of Directors of the Company. Code: means the Internal Revenue Code of 1986, as amended from time to time and the rules and regulations promulgated thereunder from time to time. Commission: means the Securities and Exchange Commission or any other Federal agency at the time administering the Securities Act. Common Stock: means the Common Stock, $.01 par value per share, of the Company, any stock into which such Common Stock shall have been changed or any stock resulting from any capital reorganization or reclassification of such Common Stock, and all other stock of any class or classes (however designated) of the Company the holders of which have the right, without limitation as to amount, either to all or to a share of the balance of current dividends and liquidating dividends after the payment of dividends and distributions of any shares entitled to preference. Communications Laws: the meaning specified in Section 5.14. Company: the meaning specified in the first paragraph of the Agreement. Company Notice: the meaning specified in Section 11.5(a). Company Notice Expiration Date: the meaning specified in Section 11.5(a). Consolidated EBITDA: means, for any period, the sum of the amounts for such period of (i) Adjusted Consolidated Net Income, (ii) Consolidated Interest Expense, to the extent such amount was deducted in calculating Adjusted Consolidated Net Income, (iii) income taxes, to the extent such amount was deducted in calculating Adjusted Consolidated Net Income (other than income taxes (either positive or negative) attributable to extraordinary and non-recurring gains or losses or sales of assets), (iv) depreciation expense, to the extent such amount was deducted in calculating Adjusted Consolidated Net Income, (v) amortization expense, to the extent such amount was deducted in calculating Adjusted Consolidated Net Income, and (vi) all other non-cash items reducing Adjusted Consolidated Net Income (other than items that will require cash payments and for which an accrual or reserve is, or is required by GAAP to be, -67- made), less all non-cash items increasing Adjusted Consolidated Net Income, all as determined on a consolidated basis for the Company and its Restricted Subsidiaries in conformity with GAAP. Consolidated Interest Expense: means, for any period, the aggregate amount of interest in respect of Indebtedness (including, without limitation, amortization of original issue discount on any Indebtedness and the interest portion of any deferred payment obligation, calculated in accordance with the effective interest method of accounting; all commissions, discounts and other fees and charges owed with respect to letters of credit and bankers' acceptance financing; the net costs associated with Interest Rate Agreements; and Indebtedness that is Guaranteed or secured by the Company or any of its Restricted Subsidiaries) and all but the principal component of rentals in respect of Capitalized Lease Obligations paid, accrued or scheduled to be paid or to be accrued by the Company and its Restricted Subsidiaries during such period; excluding, however, any premiums, fees and expenses (and any amortization thereof) payable in connection with the offering of the Debentures, all as determined on a consolidated basis (without taking into account Unrestricted Subsidiaries) in conformity with GAAP. Consolidated Leverage Ratio: means, on any Transaction Date, the ratio of (i) the aggregate amount of Indebtedness of the Company and its Restricted Subsidiaries on a consolidated basis outstanding on such Transaction Date to (ii) the aggregate amount of Consolidated EBITDA for the then most recent four fiscal quarters for which financial statements of the Company have been filed with the Commission (such four fiscal quarter period being the "Four Quarter Period"); provided that (A) pro forma effect shall be given to (x) any Indebtedness Incurred from the beginning of the Four Quarter Period through the Transaction Date (the "Reference Period"), to the extent such Indebtedness is outstanding on the Transaction Date and (y) any Indebtedness that was outstanding during such Reference Period but that is not outstanding or is to be repaid on the Transaction Date; (B) pro forma effect shall be given to Asset Dispositions and Asset Acquisitions (including giving pro forma effect to the application of proceeds of any Asset Disposition) that occur during such Reference Period, as if they had occurred and such proceeds had been applied on the first day of such Reference Period; and (C) pro forma effect shall be given to asset dispositions and asset acquisitions (including giving pro forma effect to the application of proceeds of any asset disposition) that have been made by any Person that has become a Restricted Subsidiary or has been merged with or into the Company or any Restricted Subsidiary during such Reference Period and that would have constituted Asset Dispositions or Asset Acquisitions had such transactions occurred when such Person was a Restricted Subsidiary as if such asset dispositions or asset acquisitions were Asset Dispositions or Asset Acquisitions that occurred on the first day of such Reference Period; provided that to the extent that clause (B) or (C) of this sentence requires that pro forma effect be given to an Asset Acquisition or Asset Disposition, such pro forma calculation shall be based upon the four full fiscal quarters immediately preceding the Transaction Date of the Person, or division or line of business of the Person, that is acquired or disposed for which financial information is available. -68- Consolidated Net Worth: means, at any date of determination, stockholders' equity as set forth on the most recently available quarterly or annual consolidated balance sheet of the Company and its Restricted Subsidiaries (which shall be as of a date not more than 90 days prior to the date of such computation, and which shall not take into account Unrestricted Subsidiaries), less any amounts attributable to Disqualified Stock or any equity security convertible into or exchangeable for Indebtedness, the cost of treasury stock and the principal amount of any promissory notes receivable from the sale of the Capital Stock of the Company or any of its Restricted Subsidiaries, each item to be determined in conformity with GAAP (excluding the effects of foreign currency exchange adjustments under Financial Accounting Standards Board Statement of Financial Accounting Standards No. 52). Consummation Date: the meaning specified in Section 15.13(a). ----------------- Conversion Rate: the meaning specified in Section 15.1. --------------- Conversion Shares: the shares of Common Stock to be received upon conversion of any Debenture as provided in Section 15. Converted Debenture Portion: the meaning specified in Section 11.5(a). Convertible Securities means any stock or other securities of the Company convertible into or exchangeable for Common Stock. Currency Agreement: means any foreign exchange contract, currency swap agreement or other similar agreement or arrangement designed to protect the Company or any of its Restricted Subsidiaries against fluctuations in currency values to or under which the Company or any of its Restricted Subsidiaries is a party or a beneficiary on the Closing Date or becomes a party or a beneficiary thereafter. Debentures: the meaning specified in Section 1.1. ---------- Debenture Payment: the meaning specified in Section 14.2. ----------------- Decision Period: the meaning specified in Section 11.5(a). --------------- Dilutive Event: the meaning specified in Section 15.5(1). ------------- Disqualified Stock: means any class or series of Capital Stock of any Person that by its terms or otherwise is (i) required to be redeemed prior to the Stated Maturity of the Debentures, (ii) redeemable at the option of the holder of such class or series of Capital Stock at any time prior to the Stated Maturity of the Debentures or (iii) convertible into or exchangeable for Capital Stock referred to in clause (i) or (ii) above or Indebtedness having a -69- scheduled maturity prior to the Stated Maturity of the Debentures; provided, that any Capital Stock that would not constitute Disqualified Stock but for provisions hereof giving holders thereof the right to require such Person to repurchase or redeem such Capital Stock upon the occurrence of a "change of control" occurring prior to the Stated Maturity of the Debentures shall not constitute Disqualified Stock if the "change of control" provisions applicable to such Capital Stock are no more favorable to the holders of such Capital Stock than the provisions contained in Section 11.3 and such Capital Stock specifically provides that such Person will not repurchase or redeem any such stock pursuant to such provision prior to the Company's repurchase of such Debentures as are required to be repurchased pursuant to Section 11.3. Documents: means all documents delivered in connection with the transactions contemplated by this Agreement, including without limitation, the Debentures, the Subsidiary Guarantee and the Registration Rights Agreement, collectively, or each of such documents singularly, and any documents or instruments contemplated by or executed in connection with any of them or any of the transactions contemplated hereby or thereby. ERISA: means the Employee Retirement Income Security Act of 1974, as amended from time to time, and the rules and regulations promulgated thereunder from time to time in effect. ERISA Affiliate: any trade or business (whether or not incorporated) that is treated as a single employer together with either ONS or the Company under Section 414 of the Code. Environmental Laws: the meaning specified in Section 5.13 ------------------ Event of Default: the meaning specified in Section 18.1. Exchange Act: the Securities Exchange Act of 1934, as amended, or any similar Federal statute and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. Exchange Agreement: the Section 351 Exchange Agreement and Plan Conversion dated as of June 1996, as amended, between and among Orion Atlantic, ONS, Orion Satellite Corporation, BAC, COM DEV Satellite Communications Limited, Kingston Communications Limited, Lockheed Martin Commercial Launch Services, Inc., MCN SAT U.S., Inc. and Trans- Atlantic Satellite, Inc., pursuant to which each of the Exchanging Partners (as defined therein) will transfer their limited partnership interests in Orion Atlantic to the Company in exchange for shares of Series C Preferred Stock. Excluded Issuance: means the issue or sale of (i) shares of Common Stock by the Company pursuant to the exercise of Options and Convertible Securities outstanding immediately prior to the Closing Date at exercise prices that are greater than or equal to the respective exercise prices in effect as of the Closing Date (as adjusted pursuant to the terms of such -70- securities to give effect to stock dividends or stock splits or a combination of shares in connection with a recapitalization, merger, consolidation or other reorganization occurring after the Closing Date), (ii) up to an aggregate of one hundred and fifty thousand (150,000) shares of Common Stock by the Company for any purpose, (iii) Options to acquire Common Stock by the Company pursuant to a resolution of, or a stock option plan approved by a resolution of, the Board of Directors of the Company (or the compensation committee thereof) to the Company's employees or directors, and (iv) shares of Common Stock, Options or Convertible Securities (or shares of Common Stock pursuant to the exercise of Options and Convertible Securities) as part of or in connection with the Financing Transaction. Execution Date: means the date on which the Agreement is executed by the parties. Expiration Time: the meaning specified in Section 15.4(6). --------------- fair market value: means the price that would be paid in an arm's-length transaction between an informed and willing seller under no compulsion to sell and an informed and willing buyer under no compulsion to buy, as determined in good faith by the Board of Directors, whose determination shall be conclusive if evidenced by a Board Resolution. Federal Bankruptcy Code: Title 11, United States Code. ----------------------- Financing Transaction: means offer and sale by the Company of the Senior Notes in an underwritten public offering registered with the Commission or in a private placement transaction that results in the Company receiving cash proceeds in the minimum amount of $225,000,000, after deduction of all escrowed amounts, underwriting commissions, fees and expenses. FCC: the Federal Communications Commission. --------------- Four Quarter Period: the meaning specified in Section 19.1. ------------------- GAAP: means generally accepted accounting principles in the United States of America as in effect as of the Closing Date, including, without limitation, those set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as approved by a significant segment of the accounting profession. All ratios and computations contained or referred to in this Agreement or the Debentures shall be computed in conformity with GAAP applied on a consistent basis, except that calculations made for purposes of determining compliance with the terms of the covenants and with other provisions of this Agreement or the Debentures shall be made without giving effect to (i) the amortization of any expenses incurred in connection with the offering of the Debentures and (ii) except as otherwise provided, the amortization of any amounts required or permitted by Accounting Principles Board Opinion Nos. 16 and 17. -71- Government Securities: means direct obligations of, obligations fully guaranteed by, or participations in pools consisting solely of obligations of or obligations guaranteed by, the United States of America for the payment of which guarantee or obligations the full faith and credit of the United States of America is pledged and which are not callable or redeemable at the option of the issuer thereof. Governmental Authority: ----------------------- (a) the government of (i) the United States of America or any State or other political subdivi- sion thereof, or (ii) any jurisdiction in which the Company or any Subsidiary conducts all or any part of its business, or which asserts jurisdiction over any properties of the Company or any Subsidiary, or (b) any entity exercising executive, legislative, judicial, regulatory or administrative functions of, or pertaining to, any such government. Governmental Licenses: the meaning specified in Section 5.12. --------------------- Guarantee: means any obligation, contingent or otherwise, of any Person directly or indirectly guaranteeing any Indebtedness or other obligation of any other Person and, without limiting the generality of the foregoing, any obligation, direct or indirect, contingent or otherwise, of such Person (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or other obligation of such other Person (whether arising by virtue of partnership arrangements, or by agreements to keep-well, to purchase assets, goods, securities or services, to take-or-pay, or to maintain financial statement conditions or otherwise) or (ii) entered into for purposes of assuring in any other manner the obligee of such Indebtedness or other obligation of the payment thereof or to protect such obligee against loss in respect thereof (in whole or in part); provided that the term "Guarantee" shall not include endorsements for collection or deposit in the ordinary course of business. The term "Guarantee" used as a verb has a corresponding meaning. Guarantors: collectively, means (i) the Subsidiaries of the Company that execute the Subsidiary Guarantee attached hereto as Exhibit B; and (ii) any other Person that subsequently Guarantees the Company's obligations under the Debentures pursuant to Section 12.8 or 13.8; provided that any Person that becomes an Unrestricted Subsidiary in compliance with Section 13.5 shall not be included in "Guarantors" after becoming an Unrestricted Subsidiary. Hazardous Materials: the meaning specified in Section 5.13. ------------------- -72- holder: means with respect to any Debenture, the Person in whose name such Debenture is registered in the register maintained by the Company pursuant to Section 16.1. "Holder Notice": the meaning specified in Section 11.5(a). HSR Act: means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended to date. HSR Suspension Period: the meaning specified in Section 11.5(c). Incur: means, with respect to any Indebtedness, to incur, create, issue, assume, Guarantee or otherwise become liable for or with respect to, or become responsible for, the payment of, contingently or otherwise, such Indebtedness, including an "Incurrence" of Indebtedness by reason of a Person becoming a Restricted Subsidiary of the Company; provided that neither the accrual of interest nor the accretion of original issue discount shall be considered an Incurrence of Indebtedness. Indebtedness: means, with respect to any Person at any date of determination (without duplication), (i) all indebtedness of such Person for borrowed money, (ii) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments, (iii) all obligations of such Person in respect of letters of credit or other similar instruments (including reimbursement obligations with respect thereto, but excluding obligations with respect to letters of credit (including trade letters of credit) securing obligations (other than obligations described in (i) or (ii) above or (v), (vi) or (vii) below) entered into in the ordinary course of business of such Person to the extent such letters of credit are not drawn upon or, if drawn upon, to the extent such drawing is reimbursed no later than the third Business Day following receipt by such Person of a demand for reimbursement), (iv) all obligations of such Person to pay the deferred and unpaid purchase price of property or services, which purchase price is due more than six months after the date of placing such property in service or taking delivery and title thereto or the completion of such services, except Trade Payables, (v) all obligations of such Person as lessee under Capitalized Leases, (vi) all Indebtedness of other Persons secured by a Lien on any asset of such Person, whether or not such Indebtedness is assumed by such Person; provided that the amount of such Indebtedness shall be the lesser of (A) the fair market value of such asset at such date of determination and (B) the amount of such Indebtedness, (vii) all Indebtedness of other Persons Guaranteed by such Person to the extent such Indebtedness is Guaranteed by such Person and (viii) to the extent not otherwise included in this definition, obligations under Currency Agreements and Interest Rate Agreements. The amount of Indebtedness of any Person at any date shall be the outstanding balance at such date of all unconditional obligations as described above and, with respect to contingent obligations, the maximum liability upon the occurrence of the contingency giving rise to the obligation, provided (A) that the amount outstanding at any time with respect to any Indebtedness issued with original issue discount is the original issue price of such Indebtedness, (B) Permitted Customer Advances and any money borrowed, at the time of the Incurrence of any Indebtedness, in order to pre-fund the payment -73- of interest on such Indebtedness, shall be deemed not to be "Indebtedness" and (C) that Indebtedness shall not include any liability for federal, state, local or other taxes. Insolvency Proceeding: the meaning specified in Section 14.7. - --------------------- Interest Rate Agreement: means any interest rate swap agreement, interest rate cap agreement or other financial agreement or arrangement designed to protect the Company or any Restricted Subsidiary against fluctuations in interest rates. Interest Shares: means the shares of Common Stock to be received by the holders of the Debentures as interest in accordance with the terms of the Debentures and this Agreement. Investment: in any Person means any direct or indirect advance, loan or other extension of credit (including, without limitation, by way of Guarantee or similar arrangement; but excluding advances to customers in the ordinary course of business that are, in conformity with GAAP, recorded as accounts receivable on the balance sheet of the Company or its Restricted Subsidiaries) or capital contribution to (by means of any transfer of cash or other property to others or any payment for property or services for the account or use of others), or any purchase or acquisition of Capital Stock, bonds, notes, debentures or other similar instruments issued by, such Person and shall include (i) the designation of a Restricted Subsidiary as an Unrestricted Subsidiary and (ii) the fair market value of the Capital Stock (or any other Investment), held by the Company or any of its Restricted Subsidiaries, of (or in) any Person that has ceased to be a Restricted Subsidiary, including without limitation, by reason of any transaction permitted by clause (iii) of Section 13.7. For purposes of the definition of "Unrestricted Subsidiary" and Section 13.6, (i) "Investment" shall include the fair market value of the assets (net of liabilities (other than liabilities to the Company or any of its Subsidiaries)) of any Restricted Subsidiary at the time that such Restricted Subsidiary is designated an Unrestricted Subsidiary, (ii) the fair market value of the assets (net of liabilities (other than liabilities to the Company or any of its Subsidiaries)) of any Unrestricted Subsidiary at the time that such Unrestricted Subsidiary is designated a Restricted Subsidiary shall be considered a reduction in outstanding Investments and (iii) any property transferred to or from an Unrestricted Subsidiary shall be valued at its fair market value at the time of such transfer. Investment Company Act: the meaning specified in Section 5.23. ---------------------- ITU: the International Telecommunication Union. --- Junior Securities: the meaning specified in Section 14.9. ----------------- Lien: means any mortgage, pledge, security interest, encumbrance, lien or charge of any kind (including, without limitation, any conditional sale or other title retention agreement or lease in the nature thereof or any agreement to give any security interest). Mandatory Sale: the meaning specified in Section 11.4. -------------- -74- Mandatory Sale Date: the meaning specified in Section 11.4(a). ------------------- Mandatory Sale Price: the meaning specified in Section 11.4. -------------------- Market Price: the meaning specified in Section 15.5(6). ------------ Material: means material in relation to the business, operations, affairs, financial condition, assets, or properties of the Company, ONS and the Subsidiaries taken as a whole. Material Adverse Effect: means a material adverse effect on the properties, business, operations, earnings, assets, liabilities or financial condition of the Company, ONS and the Subsidiaries, taken as a whole, or on the ability of the Company, ONS or the Subsidiaries to perform their respective obligations under this Agreement, the Debentures or any of the other Documents. Matra: Matra Marconi Space UK Limited, a company organized and existing under the laws of England and Wales. Merger Documents: means (a) the Agreement and Plan of Merger of Orion Merger Company, Inc. ("SUB") with and into ONS, by and among SUB, ONS and the Company, and (b) the Certificate of Merger of SUB with and into ONS. Merger Transaction: means the transaction described in the Registration Statement and the Merger Documents pursuant to which outstanding shares of the common stock and Preferred Stock of ONS are exchanged for shares of the Common Stock and Preferred Stock of the Company on a one-for-one basis and pursuant to which ONS shall become a wholly-owned subsidiary of the Company. Moody's: means Moody's Investors Service, Inc. and its successors. Morgan: the meaning specified in Section 4.1. ------ Multiemployer Plan: means any Plan which constitutes a "multiemployer plan" (as such term is defined in Section 4001(a)(3) of ERISA). Net Cash Proceeds: means, (a) with respect to any Asset Sale, the proceeds of such Asset Sale in the form of cash or cash equivalents, including payments in respect of deferred payment obligations (to the extent corresponding to the principal, but not interest, component thereof) when received in the form of cash or cash equivalents (except to the extent such obligations are financed or sold with recourse to the Company or any Restricted Subsidiary) and proceeds from the conversion of other property received when converted to cash or cash equivalents, net of (i) brokerage commissions and other fees and expenses (including fees and expenses of counsel and investment bankers) related to such Asset Sale, (ii) provisions for all -75- taxes (whether or not such taxes will actually be paid or are payable) as a result of such Asset Sale without regard to the consolidated results of operations of the Company and its Restricted Subsidiaries, taken as a whole, (iii) payments made to repay Indebtedness or any other obligation outstanding at the time of such Asset Sale that either (A) is secured by a Lien on the property or assets sold or (B) is required to be paid as a result of such sale and (iv) appropriate amounts to be provided by the Company or any Restricted Subsidiary of the Company as a reserve against any liabilities associated with such Asset Sale, including, without limitation, pension and other post-employment benefit liabilities, liabilities related to compliance with Environmental Laws and other environmental matters and liabilities under any indemnification obligations associated with such Asset Sale, all as determined in conformity with GAAP and (b) with respect to any issuance or sale of Capital Stock, the proceeds of such issuance or sale in the form of cash or cash equivalents, including payments in respect of deferred payment obligations (to the extent corresponding to the principal, but not interest, component thereof) when received in the form of cash or cash equivalents (except to the extent such obligations are financed or sold with recourse to the Company or any Restricted Subsidiary of the Company) and proceeds from the conversion of other property received when converted to cash or cash equivalents, net of attorney's fees, accountants' fees, underwriters' or placement agents' fees, discounts or commissions and brokerage, consultant and other fees incurred in connection with such issuance or sale and net of taxes paid or payable as a result thereof. Officers' Certificate: means a certificate signed by the Chairman of the Board, a Vice Chairman of the Board, the Chief Executive Officer, the President or a Vice President and by the Chief Financial Officer, the Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary of the Company. One of the officers signing an Officers' Certificate shall be the principal executive, financial or accounting officer of the Company. ONS: Orion Network Systems, Inc., a Delaware corporation. --- ONS Common Stock: the meaning specified in Section 5.2(a). ---------------- ONS Preferred Stock: the meaning specified in Section 5.2(a). ------------------- ONS Series A Preferred Stock: the meaning specified in Section 5.2(a). ONS Series B Preferred Stock: the meaning specified in Section 5.2(a). Options: means any options, warrants or rights to subscribe for or to purchase Common Stock or any Convertible Securities. Orion Atlantic: International Private Satellite Partners, L.P., a Delaware limited partnership. -76- Orion 2 and Orion 3: mean, respectively, each of the first two (2) satellites with respect to which the company has a Successful Launch after the Closing Date, and any replacement for either of such satellites. Other Securities: means any stock (other than Common Stock) and other securities of the Company or any other Person (corporate or otherwise) which the holders of the Debentures at any time shall be entitled to receive, or shall have received, upon the conversion of the Debentures, in lieu of or in addition to Common Stock, or which at any time shall be issuable or shall have been issued in exchange for or in replacement of Common Stock or Other Securities pursuant to Section 15.13 or otherwise. Outstanding: means when used with respect to Debentures or Senior Notes means, as the case may be, as of the date of determination, all Debentures theretofore delivered under this Agreement, or Senior Notes delivered under the Senior Indentures, except: (i) Debentures, or Senior Notes, theretofore canceled by the Company or delivered to the Company for cancellation; (ii) Debentures, or Senior Notes, for the payment or redemption of which money in the necessary amount has been set aside and segregated in trust by the Company for the holders of such Debentures, or Senior Notes, provided that if such Debentures, or Senior Notes, are to be redeemed, notice of such redemption has been duly given pursuant to this Agreement, or Senior Indentures, as the case may be; (iii) Senior Notes owned by the Company or any Affiliate of the Company, or BAe, BAC, PLC or any of their Affiliates, or Matra or any of its Affiliates; and (iv) Debentures that have been converted in accordance with Section 15; provided, however, that in determining whether the holders of the requisite principal amount of Debentures have given any request, demand, authorization, direction, notice, consent or waiver hereunder, Debentures owned by the Company or any other obligor upon the Debentures or any Subsidiary or Affiliate of the Company or such other obligor shall be disregarded and deemed not to be Outstanding. Outstanding on an As-Converted Basis immediately before the Dilutive Event: the meaning specified in Section 15.5(1). Payment Blockage Period: the meaning specified in Section 14.3. -77- PBGC: means the Pension Benefit Guaranty Corporation referred to and defined in ERISA or any successor thereto. Permitted Customer Advances: means obligations of the Company or any Restricted Subsidiary to repay money received by the Company or such Restricted Subsidiary from customers as bona fide prepayment for services to be provided by, or purchases to be made from, the Company or such Restricted Subsidiary. Permitted Investment: means (i) an Investment in the Company or a Restricted Subsidiary or a Person which will, upon the making of such Investment, become a Restricted Subsidiary or be merged or consolidated with or into or transfer or convey all or substantially all its assets to, the Company or a Restricted Subsidiary; provided that such person's primary business is related, ancillary or complementary to the businesses of the Company and its Restricted Subsidiaries on the date of such Investment; (ii) Temporary Cash Investments; (iii) payroll, travel and similar advances to cover matters that are expected at the time of such advances ultimately to be treated as expenses in accordance with GAAP; and (iv) stock, obligations or securities received in satisfaction of judgments. Permitted Liens: means (i) Liens for taxes, assessments, governmental charges or claims that are being contested in good faith by appropriate legal proceedings promptly instituted and diligently conducted and for which a reserve or other appropriate provision, if any, as shall be required in conformity with GAAP shall have been made; (ii) statutory and common law Liens of landlords and carriers, warehousemen, mechanics, suppliers, materialmen, repairmen or other similar Liens arising in the ordinary course of business and with respect to amounts not yet delinquent or being contested in good faith by appropriate legal proceedings promptly instituted and diligently conducted and for which a reserve or other appropriate provision, if any, as shall be required in conformity with GAAP shall have been made; (iii) Liens incurred or deposits made in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security; (iv) Liens incurred or deposits made to secure the performance of tenders, bids, leases, statutory or regulatory obligations, bankers' acceptances, surety and appeal bonds, government contracts, performance and return-of-money bonds and other obligations of a similar nature incurred in the ordinary course of business (exclusive of obligations for the payment of borrowed money); (v) easements, rights-of-way, municipal and zoning ordinances and similar charges, encumbrances, title defects or other irregularities that do not materially interfere with the ordinary course of business of the Company or any of its Restricted Subsidiaries; (vi) Liens (including extensions and renewals thereof) upon real or personal property acquired after the Closing Date; provided that (a) such Lien is created solely for the purpose of securing Indebtedness Incurred, in accordance with Section 13.5, (1) to finance the cost (including the cost of improvement, launch (in the case of property that is a satellite), insurance (in the case of property that is a satellite), development and design, installation or construction) of the item of property or assets subject thereto and such Lien is created prior to, at the time of or within six (6) months after the later of the acquisition, the completion of construction or the commencement of full operation of such property or (2) -78- to refinance any Indebtedness previously so secured, (b) the principal amount of the Indebtedness secured by such Lien does not exceed one hundred percent (100%) of such cost, (c) any Lien permitted by this clause shall not extend to or cover any property or assets other than such item of property or assets and any improvements on such item and (d) such Liens may not relate to Orion 2 or Orion 3; (vii) leases or subleases granted to others that do not materially interfere with the ordinary course of business of the Company and its Restricted Subsidiaries, taken as a whole; (viii) Liens encumbering property or assets under construction arising from progress or partial payments by a customer of the Company or its Restricted Subsidiaries relating to such property or assets; (ix) any interest or title of a lessor in the property subject to any Capitalized Lease or operating lease; (x) Liens arising from filing Uniform Commercial Code financing statements regarding leases; (xi) Liens on property of, or on shares of Capital Stock or Indebtedness of, any Person existing at the time such Person becomes, or becomes a part of, any Restricted Subsidiary; provided that such Liens do not extend to or cover any property or assets of the Company or any Restricted Subsidiary other than the property or assets acquired; (xii) Liens in favor of the Company or any Restricted Subsidiary; (xiii) Liens arising from the rendering of a final judgment or order against the Company or any Restricted Subsidiary of the Company that does not give rise to an Event of Default; (xiv) Liens securing reimbursement obligations with respect to letters of credit that encumber documents and other property relating to such letters of credit and the products and proceeds thereof; (xv) Liens in favor of customs and revenue authorities arising as a matter of law to secure payment of customs duties in connection with the importation of goods; (xvi) Liens encumbering customary initial deposits and margin deposits, and other Liens that are within the general parameters customary in the industry and incurred in the ordinary course of business, in each case, securing Indebtedness under Interest Rate Agreements and Currency Agreements and forward contracts, options, future contracts, futures options or similar agreements or arrangements designed solely to protect the Company or any of its Restricted Subsidiaries from fluctuations in interest rates, currencies or the price of commodities; (xvii) Liens arising out of conditional sale, title retention, consignment or similar arrangements for the sale of goods entered into by the Company or any of its Restricted Subsidiaries in the ordinary course of business in accordance with the past practices of the Company and its Restricted Subsidiaries prior to the Closing Date; (xviii) Liens on or sales of receivables; (xix) Liens on amounts of money or Temporary Cash Investments that each represent bona fide prepayments of at least $5 million on agreements for the long-term sale or lease of capacity on any satellite owned by the Company or a Restricted Subsidiary, but only to the extent that the amount of money or Temporary Cash Investments subject to any such Lien does not exceed the amount of such prepayment and reasonable interest thereon; and (xx) Liens encumbering contracts between the Company or any Restricted Subsidiary and any third party customer relating to the use of a VSAT owned by the Company or any Restricted Subsidiary but only if, and so long as, the Indebtedness secured by any such Lien is also secured by a Lien permitted under clause (vi) of this definition encumbering such VSAT. Person: means an individual, partnership, corporation, limited liability company, association, trust, unincorporated organization, or a government or agency or political subdivision thereof. -79- Plan: means an "employee benefit plan" (as defined in Section 3(3) of ERISA) which is or has been established or maintained, or to which contributions are or have been made or are required to be made, by the Company, ONS or any ERISA Affiliate. PLC: British Aerospace Plc, a company organized and existing under the laws of England and Wales. Potential Event of Default: means an event or condition which, with notice or lapse of time or both, would become an Event of Default. Preferred Stock: as applied to the Capital Stock of any corporation, means Capital Stock of any class or classes (however designated) which is preferred as to the payment of dividends, or as to the distribution of assets upon any voluntary or involuntary liquidation or dissolution of such corporation, over shares of Capital Stock of any other class of such corporation. Proceeding: the meaning specified in Section 14.2. ---------- Purchased Shares: the meaning specified in Section 15.4(6). ---------------- Purchaser: means either BAe or Matra (or any Affiliate of BAe or Matra substituted as a purchaser of Debentures pursuant to Section 24) and Purchasers means BAe and Matra or any such Affiliate. PUC: the meaning specified in Section 5.11. --- Redemption Date: means when used with respect to any Debenture to be redeemed, means the date fixed for such redemption by or pursuant to this Agreement. Redemption Indebtedness: means Indebtedness of the Company which is by its terms expressly subordinated in right of payment of the Debentures and is incurred for the sole purpose of financing the redemption, repurchase or acquisition of shares of Series A Preferred Stock or Series B Preferred Stock. Redemption Price: when used with respect to any Debenture to be redeemed, means the price at which it is to be redeemed pursuant to this Agreement. Reference Period: the meaning specified in Section 19.1 ---------------- Registration Statement: means the registration statement of the Company on Form S-4 filed with the Commission in connection with the Merger Transaction, including the proxy statement and the prospectus contained therein, all exhibits thereto and all material incorporated by reference therein. -80- Reorganization Transaction: the meaning specified in Section 15.13(a). Repayment Event: the meaning specified in Section 5.9. --------------- Repurchase Date: the meaning specified in Section 11.3 (b). Repurchase Price: the meaning specified in Section 11.3 (b). Responsible Officer: shall mean the President, Chief Executive Officer or Chief Financial Officer of the Company. Restricted Payments: the meaning specified in Section 13.6. Restricted Subsidiary: means any Subsidiary of the Company other than an Unrestricted Subsidiary. S&P: means Standard & Poor's Ratings Group and its successors. --- Scheduled Closing Date: the meaning specified in Section 4.14(b). Securities Act: means the Securities Act of 1933, as amended, or any similar Federal statute and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. Senior Indebtedness: means Indebtedness (including, without limitation the Senior Notes) unless, in the instrument creating or evidencing the same or pursuant to which the same is outstanding, it is provided that such obligations are pari passu or junior or subordinate in right of payment to the Debentures; provided, however, that Senior Indebtedness shall not be deemed to include (1) any obligation of the Company to any Subsidiary, (2) any liability for federal, state, local or other taxes owed or owing by the Company, (3) any accounts payable or other liability to trade creditors arising in the ordinary course of business (including guarantees thereof or instruments evidencing such liabilities), (4) any indebtedness, guarantee or obligation of the Company which is subordinate or junior in any respect to any other indebtedness, guarantee or obligation of Company (including, without limitation, the Debentures), or (5) the portion of any Indebtedness issued in violation of this Agreement. Senior Indentures: means the indentures governing the Senior Notes as originally executed or as amended or supplemented from time to time. Senior Nonmonetary Default: the meaning specified in Section 14.3. Senior Notes: means the Senior Unsecured Overfunded Cash Pay Notes and the Senior Unsecured Discount Notes. -81- Senior Notes Reduction Date: means the first date after the Closing on which the aggregate principal amount of Senior Notes Outstanding is less than $50,000,000. Senior Payment Default: the meaning specified in Section 14.3. ---------------------- Senior Unsecured Discount Notes: means the Senior Discount Notes due 2007 to be issued under an indenture, to be dated as of the Closing Date, between the Company, as issuer, each of the Company's Restricted Subsidiaries, as guarantors, and a trustee. Senior Unsecured Overfunded Cash Pay Notes: means the Senior Notes due 2007 to be issued under an indenture, to be dated as of the Closing Date, between the Company, as issuer, each of the Company's Restricted Subsidiaries, as guarantors, and a trustee. Series A Preferred Stock: means the Company's Series A 8% Cumulative Redeemable Convertible Preferred Stock, par value $0.01 per share. Series B Preferred Stock: means the Company's Series B 8% Cumulative Redeemable Convertible Preferred Stock, par value $0.01 per share. Series C Designation: the meaning specified in Section 5.28(a). Series C Preferred Stock: means the Series C 6% Cumulative Convertible Redeemable Preferred Stock of the Company to be issued pursuant to the Exchange Agreement. Significant Subsidiary: means, at any date of determination, any Restricted Subsidiary that, together with its Subsidiaries, (i) for the most recent fiscal year of the Company, accounted for more than ten percent (10%) of the consolidated revenues of the Company and its Restricted Subsidiaries or (ii) as of the end of such fiscal year, was the owner of more than ten percent (10%) of the consolidated assets of the Company and its Restricted Subsidiaries, all as set forth on the most recently available consolidated financial statements of the Company for such fiscal year. Solvent: with respect to any Person on a particular date and, to the extent applicable, after giving effect to the borrowing hereunder on such date and to any other Indebtedness being incurred on such date (i) the amount of the "present fair saleable value" of the assets of such Person and each of its Subsidiaries will, as of such date, exceed the amount of all "liabilities of such Person and each of its Subsidiaries, contingent or otherwise," as of such date, as such quoted terms are determined in accordance with applicable federal and state laws governing determinations of insolvency of debtors, (ii) the present fair saleable value of the assets of such Person and each of its Subsidiaries will, as of such date, be greater than the amount that will be required to pay the liabilities of such Person and each of its Subsidiaries on its debts as such debts become absolute and matured, (iii) such Person and each of its Subsidiaries will not have as of such date, an unreasonably small amount of capital with which -82- to conduct their business, and (iv) such Person and each of its Subsidiaries will be able to pay their debts as they mature. For purposes hereof, "debt" means "liability on a claim," and "claim" means any (x) right to payment, whether or nor such a right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured, or (y) right to an equitable remedy for breach of performance if such breach gives rise to a right to payment, whether or not such right to an equitable remedy is reduced to judgment, fixed, contingent, matured, unmatured, disputed, secured, or unsecured. Stated Maturity: means, (i) with respect to any debt security, the date specified in such debt security as the fixed date on which the final installment of principal of such debt security is due and payable and (ii) with respect to any scheduled installment of principal of or interest on any debt security, the date specified in such debt security as the fixed date on which such installment is due and payable. Stock: means any Conversion Shares and any shares of Common Stock issued subsequent to the conversion of any of the Debentures as a dividend or other distribution with respect to, or in exchange for or in replacement of, the Common Stock issued upon such conversion, or resulting from a subdivision of the outstanding shares of Common Stock issued upon such conversion into a greater number of shares by reclassification, stock splits or otherwise. Subject Securities: the meaning specified in Section 5.28(a). ------------------ Subsidiary: means, with respect to any Person, any corporation, association or other business entity of which more than fifty percent (50%) of the voting power of the outstanding Voting Stock is owned, directly or indirectly, by such Person or one (1) or more other Subsidiaries of such Person. In addition, for purposes of this Agreement, prior to the Closing Date the term "Subsidiary" when used in reference to Subsidiaries of ONS, shall also mean and include Orion Atlantic. Subsidiary Guarantee: means the Guarantee substantially in the form of Exhibit B to be executed by each of the Guarantors. Successful Launch: means with respect to any satellite, the placing into orbit of such satellite in its assigned orbital position with at least forty percent (40%) of its transponder capacity fully operational. Temporary Cash Investment: means any of the following: (i) direct obligations of the United States of America or any agency thereof or obligations fully and unconditionally guaranteed by the United States of America or any agency thereof, (ii) time deposit accounts, certificates of deposit and money market deposits maturing within one hundred and eighty (180) days of the date of acquisition thereof issued by a bank or trust company which is organized under the laws of the United States of America, any state thereof or any foreign country recognized by the United States, and which bank or trust company has capital, surplus and -83- undivided profits aggregating in excess of $50 million (or the foreign currency equivalent thereof) and has outstanding debt which is rated "A" (or such similar equivalent rating) or higher by at least one nationally recognized statistical rating organization (as defined in Rule 436 under the Securities Act) or any money-market fund sponsored by a registered broker dealer or mutual fund distributor, (iii) repurchase obligations with a term of not more than thirty (30) days for underlying securities of the types described in clause (i) above entered into with a bank meeting the qualifications described in clause (ii) above, (iv) commercial paper, maturing not more than ninety (90) days after the date of acquisition, issued by a corporation (other than an Affiliate of the Company) organized and in existence under the laws of the United States of America, any state thereof or any foreign country recognized by the United States of America with a rating at the time as of which any investment therein is made of "P-1" (or higher) according to Moody's or "A-1" (or higher) according to S&P, and (v) securities with maturities of six (6) months or less from the date of acquisition issued or fully and unconditionally guaranteed by any state, commonwealth or territory of the United States of America, or by any political subdivision or taxing authority thereof, and rated at least "A" by S&P or Moody's. 10-K: the meaning specified in Section 5.5. ---- 10-Q: the meaning specified in Section 5.5. ---- this Agreement: means this Debenture Purchase Agreement (including the annexed Schedule I and Exhibits), as it may from time to time be amended, supplemented or modified in accordance with its terms. Trade Payables: means, with respect to any Person, any accounts payable or any other indebtedness or monetary obligation to trade creditors created, assumed or Guaranteed by such Person or any of its Subsidiaries arising in the ordinary course of business in connection with the acquisition of goods or services. Trading Days: means (i) if the Common Stock is listed or admitted for trading on any national securities exchange, days on which such national securities exchange is open for business or (ii) if the Common Stock is quoted on the Nasdaq National Market or any similar system of automated dissemination of quotations of securities prices, days on which trades may be made on such system or (iii) if the Common Stock is not listed or admitted to trading on any national securities exchange or quoted on the Nasdaq National Market or similar system, days on which the Common Stock is traded in the over-the-counter market and for which a closing bid and a closing asked price for the Common Stock are available. Transaction Date: means, with respect to the Incurrence of any Indebtedness by the Company or any of its Restricted Subsidiaries, the date such Indebtedness is to be Incurred and, with respect to any Restricted Payment, the date such Restricted Payment is to be made. Trigger Price: shall initially mean $14.00. The Trigger Price and any adjustment to the Trigger Price shall be proportionately decreased in the event the Company at any time -84- subdivides (by any stock split, stock dividend, recapitalization or otherwise) the outstanding shares of Common Stock into a greater number of shares or proportionately increased in the event that the Company at any time combines (by reverse stock split, recapitalization or otherwise) the outstanding shares of Common Stock into a smaller number of shares. Underlying Shares: the meaning specified in Section 11.4. ----------------- Underwriting Agreement: the meaning specified in Section 4.1. ---------------------- Unrestricted Subsidiary: means (i) any Subsidiary of the Company that at the time of determination shall be designated an Unrestricted Subsidiary by the Board of Directors in the manner provided below and (ii) any Subsidiary of an Unrestricted Subsidiary. The Board of Directors may designate any Restricted Subsidiary (including any newly acquired or newly formed Subsidiary of the Company) to be an Unrestricted Subsidiary unless such Subsidiary owns any Capital Stock of, or owns or holds any Lien on any property of, the Company or any Restricted Subsidiary; provided that (A) any Guarantee by the Company or any Restricted Subsidiary of any Indebtedness of the Subsidiary being so designated shall be deemed an "Incurrence" of such Indebtedness and an "Investment" by the Company or such Restricted Subsidiary (or both, if applicable) at the time of such designation; (B) either (I) the Subsidiary to be so designated has total assets of $1,000 or less or (II) if such Subsidiary has assets greater than $1,000, such designation would be permitted under Section 13.6 and (C) if applicable, the Incurrence of Indebtedness and the Investment referred to in clause (A) of this proviso would be permitted under Section 13.5 and Section 13.6. The Board of Directors may designate any Unrestricted Subsidiary to be a Restricted Subsidiary; provided that immediately after giving effect to such designation (x) the Company could Incur $1.00 of additional Indebtedness under the first paragraph of Section 13.5 and (y) no Potential Event of Default or Event of Default shall have occurred and be continuing. Any such designation by the Board of Directors shall be evidenced by a Board Resolution giving effect to such designation and an Officers' Certificate certifying that such designation complied with the foregoing provisions, copies of which shall be sent to each holder of Debentures. Vice President: when used with respect to the Company, means any vice president, whether or not designated by a number or a word or words added before or after the title "vice president". Voting Stock: means with respect to any Person, Capital Stock of any class or kind ordinarily having the power to vote for the election of directors, managers or other voting members of the governing body of such Person. VSAT: means very small aperture terminal. ---- Wholly Owned: means, with respect to any Subsidiary of any Person, the ownership of all of the outstanding Capital Stock of such Subsidiary (other than any director's -85- qualifying shares or Investments by foreign nationals mandated by applicable law) by such Person or one or more Wholly Owned Subsidiaries of such Person. 20. Expenses. Whether or not the transactions contemplated by this Agreement shall be consummated, the Company will pay all expenses in connection with such transactions and in connection with any amendments or waivers (whether or not the same become effective) under or in respect of this Agreement or the Debentures, including, without limitation: (a) the cost and expenses of preparing and reproducing this Agreement and the Debentures, of furnishing all opinions by counsel for the Company (including any opinions requested by your special counsel as to any legal matter arising hereunder) and all certificates on behalf of the Company, and of the Company's performance of and compliance with all agreements and conditions contained herein on its part to be performed or complied with; (b) the cost of delivering to your principal office, insured to your satisfaction, the Debentures sold to you hereunder and any Debentures delivered to you upon any substitution of Debentures or any Conversion Shares or Interest Shares delivered pursuant hereto or thereto and of your delivering any Debentures, insured to your satisfaction, upon any substitution or conversion; (c) the fees, expenses and disbursements of your U.S. special counsel (Coudert Brothers for BAe and Powell, Goldstein, Frazer & Murphy for Matra) and U.K. special counsel (Allen & Overy) to BAe in connection with all due diligence and the documentation and negotiation of the Debentures, this Agreement and the exhibits hereto and all ancillary documents and in connection with the completion of this transaction; and (d) the reasonable out-of-pocket expenses incurred by you in connection with this transaction. The Company also will pay, and will save you and each holder of any Debentures harmless from, all claims in respect of the fees, if any, of brokers and finders, other than any broker or finder retained by you or any such other holder, and any and all liabilities with respect to any taxes (including interest and penalties) which may be payable in respect of the execution and delivery of this Agreement and the issue of the Debentures hereunder and any amendment or waiver under or in respect of this Agreement or the Debentures. 21. Survival. All express representations and warranties contained in this Agreement or made in writing by or on behalf of the Company in connection with the transactions contemplated by this Agreement shall survive the execution and delivery of this Agreement, any investigation at any time made by you or on your behalf, the purchase of the Debentures hereunder, any disposition or payment of the Debentures or any conversion of the Debentures. All statements contained in any certificate or other instrument delivered by or on behalf of the Company pursuant to this Agreement or in connection with the transactions contemplated hereby shall be deemed representations and warranties of the Company under this Agreement. 22. Amendments and Waivers. ---------------------- Prior to the Closing Date, any term of this Agreement may be amended, and the observance of any term of this Agreement may be waived, only with the written consent of the Company, ONS, BAe and Matra. From and after the Closing Date, any term of this Agreement or of the Debentures may be amended, and the observance of any term of this Agreement or of the Debentures may be waived (either generally or in a particular instance and either -86- retroactively or prospectively), only with the written consent of the Company and with the written consent of the holders of at least sixty-six and two-thirds percent (66-2/3%) in principal amount of the then Outstanding Debentures; provided, however, that without the prior written consent of the holders of all the then Outstanding Debentures, no such amendment or waiver shall (a) extend the fixed maturity or reduce the principal amount of, or reduce the rate or extend the time of payment of interest on, or reduce the amount or extend the time of payment of any principal or premium (if any) payable (whether as a redemption, a repurchase or otherwise) on any Debenture, (b) reduce the aforesaid percentage of the principal amount of the Debentures the holders of which are required to consent to any such amendment or waiver, or (c) modify any term of Section 14 or Section 15. Any amendment or waiver effected in accordance with this Section 22 shall be binding upon each holder of any Debenture at the time outstanding, each future holder of any Debenture and the Company. 23. Notices. Except as otherwise provided in this Agreement, notices and other communications under this Agreement shall be in writing and shall be deemed properly served if (i) mailed by registered or certified mail, return receipt requested, (ii) delivered by a recognized overnight courier service, (iii) delivered personally, or (iv) sent by facsimile transmission addressed (a) if to you, at your address set forth at the beginning of this Agreement, or at such other address as you shall have furnished to the Company in writing, except as otherwise provided in Section 17.2 with respect to payments on Debentures held by you, or (b) if to any other holder of any Debenture, at such address as such other holder shall have furnished to the Company in writing, or, until any such other holder so furnishes an address to the Company, then to and at the address of the last holder of such Debenture who has so furnished an address to the Company, or (c) if to the Company, at its address set forth at the beginning of this Agreement, to the attention of the Chief Financial Officer, or at such other address, or to the attention of such other officer, as the Company shall have furnished to you and each such other holder in writing. Such notice shall be deemed to have been received (w) three (3) days after the date of mailing if sent by certified or registered mail, (x) one (1) day after the date of delivery if sent by overnight courier, (y) the date of delivery if personally delivered, or (z) the next succeeding business day after transmission by facsimile. 24. Substitution of Purchasers; References. (a) Each of BAe and Matra shall have the right to substitute (in whole or in part) one (1) or more of its Affiliates as a purchaser of Debentures hereunder, by written notice to the Company, which notice shall be signed by BAe or Matra, as the case may be, and each such Affiliate, shall contain each such Affiliate's agreement to be bound by this Agreement and shall contain a confirmation by each such Affiliate of the accuracy with respect to it of the representations set forth in Section 6. (b) Wherever the word "you" is used in this Agreement, such word shall be deemed to refer to BAe and Matra and/or any of the Affiliates of BAe or Matra which is or at any time becomes the holder of any Debenture. 25. Execution in Counterparts. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so -87- executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. 26. Binding Effect. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, except that the Company shall not have the right to assign its rights or obligations hereunder or any interest herein without your prior written consent which may be withheld for any reason. 27. GOVERNING LAW. THIS AGREEMENT AND THE DEBENTURES SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO ANY CONFLICT OF LAW PROVISIONS THEREOF. 28. Consent to Jurisdiction; Appointment of Agent to Accept Service of Process. (a) The Company irrevocably consents and agrees, for your benefit, that any legal action, suit or proceeding against it with respect to its obligations, liabilities or any other matter arising out of or in connection with this Agreement or any Document or the transaction contemplated hereby or thereby may be brought in the courts of the State of New York or the courts of the United States of America located in The City of New York and, until all amounts due and to become due in respect of this Agreement have been paid, or until any such legal action, suit or proceeding commenced prior to such payment has been concluded, hereby irrevocably consents and submits to the non-exclusive jurisdiction of each such court in personam, generally and unconditionally with respect to any action, suit or proceeding for itself and in respect of its properties, assets and revenues. (b) The Company appoints and empowers CT Corporation System, with offices currently at 1633 Broadway, New York, New York 10019, as its designee, appointee and agent to receive, accept and acknowledge for and on its behalf, and its properties, assets and revenues, service of any and all legal process, summons, notices and documents that may be served in any action, suit or proceeding brought against it in any such United States or State court with respect to its obligations, liabilities or any other matter arising out of or in connection with this Agreement or any of the Documents or the transaction contemplated hereby or thereby and that may be made on such designee, appointee and agent in accordance with legal procedures prescribed for such courts. If for any reason such designee, appointee and agent hereunder shall cease to be available to act as such, the Company agrees to designate a new designee, appointee and agent in The City of New York on the terms and for the purposes of this Section 28 satisfactory to you. The Company further hereby irrevocably consents and agrees to the service of any and all legal process, summons, notices and documents in any such action, suit or proceeding against it by serving a copy thereof upon the relevant agent for service of process referred to in this Section 28 (whether or not the appointment of such agent shall for any reason prove to be ineffective or such agent shall accept or acknowledge such service) or by mailing copies thereof by registered or certified air mail, postage prepaid, to the applicable party at its address specified in or designated pursuant to this Agreement. The Company agrees that the failure of any such designee, appointee and agent to give any notice of such service to it shall -88- not impair or affect in any way the validity of such service or any judgment rendered in any action or proceeding based thereon. Nothing herein shall in any way be deemed to limit your ability to serve any such legal process, summons, notices and documents in any other manner permitted by applicable law or to obtain jurisdiction over such party or bring actions, suits or proceedings against such party in such other jurisdictions, and in such manner, as may be permitted by law, any objection that they may now or hereafter have to the laying of venue of any of the aforesaid actions, suits or proceedings arising out of or in connection with this Agreement brought in the United States Federal courts located in The City of New York or the courts of the State of New York and hereby further irrevocably and unconditionally waives and agrees not to plead or claim in any such court that any such action, suit or proceeding brought in any such court has been brought in an inconvenient forum. (c) The provisions of this Section 28 shall survive any termination of this Agreement, in whole or in part. 29. WAIVER OF JURY TRIAL. THE COMPANY HEREBY IRREVOCABLY WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. If you are in agreement with the foregoing, please sign the form of acceptance on the accompanying counterparts of this Agreement and return one (1) of the same to the Company and ONS, whereupon this Agreement shall become a binding agreement between you and the Company and ONS. Very truly yours, ORION NEWCO SERVICES, INC. By: ------------------------------ Name: Title: ORION NETWORK SYSTEMS, INC. By: ------------------------------ Name: Title: -89- The foregoing agreement is hereby accepted as of the date thereof. BRITISH AEROSPACE HOLDINGS, INC. By: -------------------------- Name: Title: MATRA MARCONI SPACE UK LIMITED By: --------------------------- Name: Title: -90- SCHEDULE I Principal Amount of Name and Address of Purchaser Debentures to be Purchased - ----------------------------- -------------------------- BRITISH AEROSPACE HOLDINGS, INC.............................$ 50,000,000 (1) All payments on account of the Debentures shall be made by wire transfer of immediately available funds not later than 11 a.m., New York City time, to: --------------------------------- --------------------------------- --------------------------------- (2) All notices of such payments and written confirmation of such wire transfer shall be made to: --------------------------------- --------------------------------- --------------------------------- (3) All other communications shall be mailed to: --------------------------------- --------------------------------- --------------------------------- MATRA MARCONI SPACE UK LIMITED..............................$ 10,000,000 (1) All payments on account of the Debentures shall be made by wire transfer of immediately available funds not later than 11 a.m., New York City time, to: --------------------------------- --------------------------------- --------------------------------- (2) All notices of such payments and written confirmation of such wire transfer shall be made to: --------------------------------- --------------------------------- --------------------------------- (3) All other communications shall be mailed to: --------------------------------- --------------------------------- --------------------------------- -92- EX-5.1 9 EXHIBIT 5.1 HOGAN & HARTSON L.L.P COLUMBIA SQUARE 555 THIRTEENTH STREET, NW WASHINGTON, DC 20004-1109 TEL (202) 637-5600 FAX (202) 637-5910 January 14, 1997 Board of Directors Orion Newco Services, Inc. 2440 Research Boulevard, Suite 400 Rockville, Maryland 20850 Gentlemen: This firm has acted as counsel to Orion Newco Services, Inc. (the "Company"), a Delaware corporation, in connection with its registration, pursuant to a registration statement on Form S-4 filed on or about the date hereof (the "Registration Statement"), of 11,097,758 shares of common stock, par value $.01 per share, of the Company, 13,871 shares of a series to be designated Series A Preferred Stock, par value $.01 per share, of the Company, and 4,298 shares of a series to be designated Series B Preferred Stock, par value $.01 per share, of the Company (collectively, the "Shares"), issuable to shareholders of Orion Network Systems, Inc. ("Orion"). The Shares are being offered in connection with that certain merger (the "Merger") of Orion Merger Company, Inc. ("Merger Sub"), a newly formed Delaware corporation that is a wholly owned subsidiary of the Company, with and into Orion, as contemplated by the terms of that certain Agreement and Plan of Merger among the Company, Orion and Merger Sub dated as of January 8, 1997 (the "Merger Agreement"). This letter is furnished to you pursuant to the requirements of Item 601(b)(5) of Regulation S-K, 17 C.F.R. ss. 229.601(b)(5), in connection with such registration. For purposes of this opinion letter, we have examined copies of the following documents: 1. An executed copy of the Registration Statement, which includes the joint proxy statement/prospectus of Orion and the Company. 2. The Certificate of Incorporation of the Company, as amended, as certified by the Secretary of State of the State of Delaware on June 26, 1996 and by the Secretary of the Company on the date hereof as then being complete, accurate and in effect. HOGAN & HARTSON L.L.P. Board of Directors Orion Newco Services, Inc. January 14, 1997 Page 2 3. The By-laws of the Company, as amended, as certified by the Secretary of the Company on the date hereof as then being complete, accurate and in effect. 4. An executed copy of the Merger Agreement. 5. Resolutions of the Board of Directors of the Company adopted on January 13, 1997 as certified by the Secretary of the Company on the date hereof as then being complete, accurate and in effect relating to, among other things, approval of the Merger. We have not, except as specifically identified above, made any independent review or investigation of factual or other matters, including the organization, existence, good standing, assets, business or affairs of the Company or its subsidiaries. In our examination of the aforesaid certificates, records, and documents, we have assumed the genuineness of all signatures, the legal capacity of natural persons, the authenticity, accuracy and completeness of all documents submitted to us as originals, and the authenticity, accuracy and completeness and conformity with the original documents of all documents submitted to us as certified, telecopied, photostatic, or reproduced copies. We have assumed the authenticity and accuracy of the foregoing certifications of corporate officers, on which we are relying, and have made no independent investigations thereof. This opinion is given in the context of the foregoing. This opinion letter is based as to matters of law solely on the General Corporation Law of the State of Delaware. We express no opinion herein as to any other laws, statutes, regulations, or ordinances. Based upon, subject to, and limited by the foregoing, we are of the opinion that following (i) approval by the stockholders of Orion of the Merger, and (ii) consummation of the Merger and the issuance and delivery of the Shares pursuant to the terms of the Merger Agreement and the Registration Statement, the Shares will be validly issued, fully paid and non-assessable. We assume no obligation to advise you of any changes in the foregoing subsequent to the delivery of this opinion letter. This opinion letter has been prepared solely for your use in connection with the filing of the Registration Statement on the date of this letter, and should not be quoted in whole or in part or HOGAN & HARTSON L.L.P. Board of Directors Orion Newco Services, Inc. January 14, 1997 Page 3 otherwise be referred to, nor be filed with or furnished to any governmental agency or other person or entity, without the prior written consent of this firm. We hereby consent to the filing of this opinion letter as Exhibit 5.0 to the Registration Statement. In giving this consent, we do not thereby admit that we are an "expert" within the meaning of the Securities Act of 1933, as amended. Very truly yours, HOGAN & HARTSON L.L.P. EX-8.1 10 EXHIBIT 8.1 January 6, 1997 Board of Directors Orion Network Systems, Inc. 2440 Research Boulevard, Suite 400 Rockville, Maryland 20850 Dear Directors: This letter is in response to your request that we provide you with our opinion as to certain of the Federal income tax consequences of the proposed reorganization of Orion Network Systems, Inc. ("Orion"), Orion Newco Services, Inc. ("Orion Newco"), a newly formed Delaware corporation and wholly owned subsidiary of Orion, and Orion Merger Company, Inc. ("Orion Merger Subsidiary"), a newly formed Delaware corporation and wholly owned subsidiary of Orion Newco, pursuant to the Agreement and Plan of Merger, dated as of December, 1996 (the "Merger Agreement"), by and among Orion, Orion Newco and Orion Merger Subsidiary (the "Merger"). In rendering our opinion, we have also considered the proposed transfer of (i) limited partnership interests in International Private Satellite Partners, L.P., a Delaware limited partnership ("Orion Atlantic") and (ii) a portion of certain refund rights, contractual rights and debt instruments under which Orion Atlantic is the obligor, to Orion Newco in exchange for shares of Series C 6% Cumulative Redeemable Convertible Preferred Stock of Orion Newco ("Orion Newco Series C Preferred Stock") pursuant to the Section (1) 351 Exchange Agreement and Plan of Conversion (the "Exchange Agreement"), dated as of June , 1996, among Orion, Orion Satellite Corporation, a Delaware corporation that is a wholly owned subsidiary of Orion and the sole general partner of Orion Atlantic, and each of the existing limited partners of Orion Atlantic other than Orion (2) (the "Exchange"). In rendering our opinions, we have relied upon the facts and representations, summarized below, as they have been represented to us or described in the following documents (the "Documents"): 1. Agreement and Plan of Merger, as approved by the Board of Directors on January 3, 1997; - ---------- 1 All "Section" references in this letter are to the Internal Revenue Code of 1986, as amended. 2 The limited partners in Orion Atlantic other than Orion are British Aerospace Communications, Inc. ("BAe"), COM DEV Satellite Communications Limited (COM DEV"), Kingston Communications International Limited ("Kingston"), Lockheed Martin Commercial Launch Services, Inc. ("Lockheed Martin CLS"), MCN Sat US, Inc. ("Matra"), and Trans Atlantic Satellite, Inc. ("Nisho"). All limited partnerss except for Orion will be taking part in the Exchange and those partners taking part in the Exchange will hereinafter be referred to as the "Exchanging Partners". Board of Directors January 6, 1997 Orion Network Systems, Inc. Page 2 2. The Section 351 Exchange Agreement and Plan of Conversion, dated as of June, 1996; 3. The First Amendment to the Section 351 Exchange Agreement and Plan of Conversion, dated as of December, 1996; 4. The Proposed Amendment to Preliminary Schedule 14A as filed with the Securities and Exchange Commission on December 30, 1996 (the "Proxy Statement"); and 6. The letter dated December 27, 1996 from management of Orion containing certain representations regarding the Merger (the "Representation Letter"). The management of Orion has represented to us that the Documents provide an accurate, true, and complete description of the entire understanding of the parties with respect to the subject matter thereof and are true and complete in all material respects. Also, the management of Orion has represented (without our independent investigation) that the Merger and Exchange and any transactions incident thereto will occur in strict accordance with the terms of the Documents. We have made no independent determination regarding such facts and circumstances and, therefore, have relied upon the statements and representations of management and the information presented in the Documents for purposes of this letter. Any changes to the Documents or to such facts or to the assumptions set forth in this letter may affect the opinions stated herein. I. STATEMENT OF FACTS The management of Orion has represented the following to us: A. In General Orion, together with its subsidiaries, is a provider of private network services to multinational corporations. More specifically, Orion has developed and operates a privately owned international satellite communications business, which delivers two distinct types of services: (i) private communications networks for multinational businesses and (ii) transmission capacity for video and other program distribution services. As of December 15, 1996, Orion's capital structure consisted of (i) 40,000,000 authorized shares of voting common stock, 10,974,121 shares of which were issued and outstanding, (ii) 15,000 authorized shares of convertible redeemable Series A Preferred Stock, 13,871 shares of which were outstanding and currently entitled to vote on the election of directors and all other matters proper for shareholder consideration on an "as converted" basis,(3) and (iii) 5,000 authorized shares of convertible redeemable Series B Preferred Stock, 4,298 of which were outstanding and - --------- 3 Each share of the Series A Preferred stock entitles its holder to 117 votes because each share of the Series A Preferred can be converted to 117 shares of common stock. Thus, the outstanding shares of Series A preferred constitute an aggregate of 1,622,907 votes. Board of Directors January 6, 1997 Orion Network Systems, Inc. Page 3 currently entitled to vote on the election of directors and all other matters proper for shareholder consideration on an "as converted" basis.(4) As of September 30, 1996, there are only 6 shareholders who beneficially own more than five percent of the outstanding common stock of Orion. The Orion common stock is traded over-the-counter and quoted on the NASDAQ System. Orion is the common parent of an affiliated group of corporations filing a consolidated Federal income tax return on the basis of a December 31 year end ("Orion Group"). Other members of the Orion Group include: Orion Newco; Orion Merger Subsidiary; Asia Pacific Space & Communications, Ltd.; Orion Asia Pacific Corp. ("Orion Asia Pacific")(5); Orion Satellite Corporation ("OrionSat"); OrionNet, Inc. ("OrionNet"); and OrionNet Finance Corporation. Orion Newco is currently a wholly-owned subsidiary of Orion. Orion Newco was formed solely for the purpose of effecting the Merger and Exchange and has not conducted any business since incorporation other than matters incident to its organization and matters incident to the Merger Agreement and Exchange Agreement. While Orion Newco currently conducts no business, upon completion of the Merger as described below, its business activities will initially include the operations currently conducted by Orion. The authorized capital stock of Orion Newco consists of 40,000,000 shares of common stock, par value $.01 per share, and 1,000,000 shares of preferred stock, par value $.01 per share. Each holder of Orion Newco common stock is entitled to one vote per share of Orion Newco common stock held by such holder on all matters to be voted upon by the stockholders of Orion Newco. The holders of Orion Newco preferred stock will be entitled to one vote for each whole share of Orion Newco common stock that would be issuable upon conversion of such share of Orion Newco preferred stock on all matters submitted to the stockholders of Orion Newco. Immediately after the Merger and Exchange, Orion Newco will have outstanding 10,973,018 shares of Orion Newco common stock, 13,871 shares of Orion Newco Series A Preferred Stock, 4,298 shares of Orion Newco Series B Preferred Stock, and 121,988 shares of Orion Newco Series C Preferred Stock (subject to possible adjustment, as discussed below). The terms, rights and preferences of the Orion Newco Series A Preferred and Orion Newco Series B Preferred will be identical in all respects to the terms, rights and preferences of the Series A Preferred Stock and the Orion Series B Preferred Stock, respectively. - ---------- 4 Each share of the Series B Preferred stock entitles it holder to 98 votes because each share of the Series B Preferred can be converted to 98 shares of common stock. Thus, the outstanding shares of Series A preferred constitute an aggregate of 421,204 votes. 5 Presently, Orion owns approximately 83% of the total outstanding stock of Orion Asia Pacific. As noted below, as a condition to the Exchange, Orion Newco will issue approximately 86,000 shares of common stock to acquire the remaining outstanding shares of stock of Asia Pacific which are currently owned by an affiliate of BAe. Board of Directors January 6, 1997 Orion Network Systems, Inc. Page 4 Orion Merger Subsidiary was organized solely for the purpose of merging with Orion in accordance with the Merger Agreement. Orion Merger Subsidiary has engaged in no business activities other than matters incident to its organization and matters incident to the Merger Agreement and Exchange Agreement. The authorized capital stock of Orion Merger Subsidiary consists of 1,000 shares of common stock. Immediately before the Merger of Orion Merger Subsidiary with and into Orion, Orion Merger Subsidiary's assets will consist solely of cash contributed by Orion Newco in exchange for Orion Merger Subsidiary's stock. Immediately after the Merger, Orion Newco will be the sole shareholder of Orion, owning 100% of the issued and outstanding shares of Orion's common and preferred stock. OrionSat is the sole general partner of Orion Atlantic with a 25% equity interest. The limited partners in Orion Atlantic include Orion and the Exchanging Partners. B. Business Purpose Management has represented that the proposed Merger will permit the acquisition of the LPIs and Partnership Debt (hereinafter defined) in that, absent the formation of Orion Newco, Exchanging Partners owning significant LPIs and Partnership Debt have indicated they are not willing to exchange their LPIs and Partnership Debt for Orion stock. Accordingly, the Merger has been structured to accommodate the wishes of the Exchanging Partners and permit Orion to acquire all the capital and profits interests in Orion Atlantic not presently owned by the Orion Group. In addition, the Proxy states that the Merger and the Exchange (collectively, the "Transactions") will provide the following additional benefits: (i) simplify Orion's organizational structure and improve Orion's access to the capital markets; (ii) consolidate outside investor ownership at the holding company (Orion Newco) level; (iii) improve the speed and efficiency of Orion's decision making; (iv) provide Orion Newco with 100% ownership of all of its material subsidiaries; (v) allow Orion Newco to pursue independently its business plans and financing for all of its satellites; (vi) eliminate (in exchange for Orion Newco Stock) approximately $37.5 million (as of September 30, 1996) of obligations Orion Atlantic owes to the Exchanging Partners under various agreements; and (vii) increase Orion's overall market capitalization. Access to the capital markets is necessary for Orion to achieve its business plan to construct and launch two additional satellites. With this plan in mind, Orion Newco has been pursuing and will continue to pursue various financing transactions including: (i) an offering of investment units consisting of senior notes and common stock warrants in the amount of approximately $322 million; (ii) the issuance and sale of approximately $60 million of Orion Newco's convertible subordinated debentures to BAe and Matra; (iii) a satellite procurement contract for the Orion 2 Satellite; and (iv) a satellite procurement contract for the Orion 3 Satellite. Orion believes that the construction and launch of Orion 2 and Orion 3 will offer stockholders an opportunity to Board of Directors January 6, 1997 Orion Network Systems, Inc. Page 5 realize long-term value through the potential appreciation in the value of Orion's stock. The Proxy states that Orion believes that it would not be able to complete these financings in the absence of the Transactions. C. Merger Pursuant to the Merger, (i) Orion Merger Subsidiary will merge with and into Orion as provided in the relevant provisions of the Delaware merger statute, with Orion being the surviving corporation and Orion Merger Subsidiary disappearing in connection with the Merger, and (ii) each share of common stock of Orion outstanding immediately prior to the effective date of the Merger will be automatically canceled and converted by operation of law into one share of Orion Newco Common Stock. In addition, each share of Orion Series A Preferred Stock and Series B Preferred Stock will be canceled and converted by operation of law into one share of Orion Newco Series A Preferred Stock and Series B Preferred Stock, respectively, having the same terms as the canceled Orion preferred stock. The shares of Orion Newco stock originally issued to Orion will be canceled. Each share of Orion Merger Subsidiary common stock will be canceled and converted into one share of Orion common stock, which shall not be converted into Orion Newco common stock. Following consummation of the Merger, Orion will be a wholly-owned subsidiary of Orion Newco and the Orion shareholders will automatically become holders of all of the outstanding stock of Orion Newco in the same proportion of ownership that they had in Orion. Any outstanding stock options which Orion may have granted pursuant to its stock option plans shall be assumed by Orion Newco and will become stock options of Orion Newco upon the same terms as applied prior to the Merger. According to the Proxy Statement, the Merger, if approved, will become effective upon the filing with the Delaware Secretary of State of the Delaware Merger Certificate, which is expected to occur following approval of the Transactions by the requisite vote of the Orion stockholders, and satisfaction or waiver of the other conditions set forth in the Merger Agreement and the Exchange Agreement (the "Effective Time of the Merger"). According to the Proxy Statement, it is expected that approximately 10,974,121 shares of Orion Newco Common Stock, 13,871 shares of Orion Newco Series A Preferred Stock, and 4,298 shares of Orion Newco Series B Preferred Stock will be issued to the stockholders of Orion in the Merger in exchange for their shares of Orion Common Stock, Orion Series A Preferred Stock and Orion Series B Preferred Stock, respectively. Orion Newco will have a certificate of incorporation, bylaws, capital structure (before the issuance of Orion Newco Series C Preferred Stock, as discussed in D. below) and management substantially identical in all material respects to those of Orion. As a result of the Merger, the stockholders of Orion Newco will have substantially the same securities and rights in Orion Newco that they had in Orion, except that their percentage ownership of Orion Newco will be diluted as a result of the Exchange (discussed immediately below). The Proxy states that Orion stockholders will not be entitled to appraisal Board of Directors January 6, 1997 Orion Network Systems, Inc. Page 6 rights in connection with the approval of the Merger. D. Exchange Pursuant to the terms of the Exchange Agreement, and subject to and effective upon the consummation of the Merger, Orion Newco will issue 121,988 shares of Series C 6% Cumulative Redeemable Convertible Preferred Stock (the "Orion Newco Series C Preferred Stock") to the Exchanging Partners. In exchange for the Orion Newco Series C Preferred Stock, the Exchanging Partners will transfer to Orion Atlantic the following rights currently held by the Exchanging Partners: (i) their respective limited partnership interests in Orion Atlantic and other rights and obligations relating thereto under the Second Amended and Restated Partnership Agreement of International Private Satellite Partners, L.P. (the "LPIs"); (ii) all of the rights and obligations held by certain of the Exchanging Partners under the Refund Agreement, dated December 31, 1994, consisting primarily of rights to receive an aggregate of $26.7 million of refunds thereunder; (iii) all the rights of BAe, COM DEV, Kingston, Lockheed Martin CLS and Matra under the Preferred Participating Unit Agreements ("PPUA") among OrionSat and such Exchanging Partners, consisting primarily of rights to receive repayment of $6.6 million advanced thereunder and approximately $4.3 million of interest accrued on such advances; (iv) all of the Exchanging Partners' rights under the Preferred Bidders Agreement consisting of preferred bidder status with respect to procurement contracts entered into by Orion Atlantic; and (v) certain of the Exchanging Partners' rights under a variety of other agreements between or among Orion Atlantic and the Limited Partners. The contractual and refund rights referred to in clauses (ii), (iii), (iv) and (v) of the preceding sentence are collectively referred to as the "Partnership Debt." Pursuant to the Exchange, Orion Newco will transfer to the Exchanging Partners the following number of shares of Orion Newco Series C Preferred Stock: Exchanging Partner Number of Shares BAe 50,129 COM DEV 9,462 Kingston 11,198 Lockheed Martin CLS 19,534 Matra 17,727 Nissho 13,938 ------------------ 121,988 ================== The above number of shares will be increased by an amount pursuant to a formula based upon payments by the Exchanging Partners under various agreements, and adjusted proportionately to reflect any subdivision, stock split, stock dividend, recapitalization, combination or reverse stock Board of Directors January 6, 1997 Orion Network Systems, Inc. Page 7 split of Orion capital stock or similar transaction by Orion between the date of the Exchange Agreement (June, 1996) and the consummation of the Exchange. As a result of the Exchange, the Orion Group will become the owner of all the LPIs in Orion Atlantic (through Orion Newco and Orion as limited partners and OrionSat as the sole general partner of Orion Atlantic) and all of the Partnership Debt. The Series C Preferred Stock will be entitled to receive dividends at the rate of 6% per annum, payable exclusively in Orion Newco Common Stock. Each share of Series C Preferred Stock will have a liquidation preference of $1,000 per share (plus all accrued and unpaid dividends) over the Orion Newco Common Stock. The holders of the Orion Newco Series C Preferred Stock will be entitled to vote on the basis of one vote for each whole share of Orion Newco Common Stock that would be issuable upon conversion of such share of Orion Newco Series C Preferred Stock at the time the vote is taken. Orion Newco will redeem all of the Orion Newco Series C Preferred Stock on the 25th anniversary of issuance, 2022. Additionally, at any time after the second anniversary of the date of the issuance of the Orion Newco Series C Preferred Stock (or, if earlier, immediately prior to the consummation of any consolidation, merger or sale in which the successor entity or purchasing entity is other than Orion Newco), Orion Newco has the option to redeem the Orion Newco Series C Preferred Stock (in whole or in part) at a price of $1,000 per share plus all accrued and unpaid dividends. Holders of the Orion Newco Series C Preferred Stock have the right to convert their shares into a number of shares of Orion Newco Common Stock generally equal to a number computed by multiplying the number of shares of Orion Newco Series C Preferred Stock to be converted by $1,000, and dividing the result by the applicable Conversion Price (as such term is used in the Certificate of Designations), initially $17.50, subject to adjustment. The 121,988 shares of Orion Newco Series C Preferred Stock expected to be issued in the Exchange will be convertible into approximately 7,933,319 million shares of Orion Newco Common Stock. Finally, if the closing price of the Orion Newco Common Stock over 20 of the 30 prior trading days is greater than or equal to the conversion price of $17.50 (subject to adjustment), Orion Newco may require the conversion of all of the outstanding Orion Newco Series C Preferred Stock into Orion Newco Stock. Section 3.2(c) of the Exchange Agreement provides that the number of shares of Orion Newco Series C Preferred Stock will be increased by the Adjustment Amount. The Adjustment Amount for an Exchanging Partner will equal (i) the sum of (A) the amounts paid by such Exchanging Partner for obligations pursuant to the Capacity Agreement which are subject to being refunded under the Refund Agreement, and the amounts paid by such Exchanging Partner pursuant to the Contingent Capacity Agreement, during the period from July 1, 1996 through the Closing Date (as defined in the Exchange Agreement), plus (B) the amount of interest accrued with respect to funds advanced by such Exchanging Partner pursuant to the PPU Agreement, minus (ii) the product of the number of days in the Adjustment Period through and including (but not beyond) January 29, 1997, multiplied by the Tax Adjustment Factor for such Exchanging Partner, Board of Directors January 6, 1997 Orion Network Systems, Inc. Page 8 divided by (iii) $1,000. The Tax Adjustment means, with respect to (i) BAe, $11,634; (ii) COM DEV, $1,940; (iii) Kingston, $1,940; (iv) Lockheed Martin, $3,878; (v) MCN Sat, $3,878; and (vi) TA Sat, $3,878. The First Amendment to Section 351 Exchange Agreement and Plan of Conversion ("First Amendment") amended Section 3.2(c) of the Exchange Agreement to provide that if the Closing Date for the Exchange occurs after January 29, 1997, then any payments made by the Exchanging Partners which are subject to refund under the Refund Agreement and any payments made under the Contingent Capacity Agreements will be refunded to the Exchanging Partners to the extent proceeds from the Bond Offering contemplated by the Exchange Agreement plus the gross proceeds from the sale of convertible subordinated debentures to BAe and Matra, exceed the sum of: (i) the amount necessary to refinance the credit facility; (ii) $49.4 million payments to be made by Orion or Orion Newco under the Orion 2 Satellite Contract; (iii) $13 million incentive payments payable to Matra immediately following the refinancing of the credit facility; (iv) $3.5 million payable to STET immediately following the refinancing of the credit facility; (v) reasonably amount necessary for working capital; and (vi) the costs and expenses of the Bond Offering, the convertible subordinated debenture financings and related transactions. If such excess is not sufficient to refund all such post-closing payments in full, the excess will be used first to refund Contingent Capacity Payments, and second to refund Firm Capacity Payments. Any funds then remaining will be used to make partial refunds, pro rata among the Exchanging Partners in proportion to their respective post-closing payments. Any amounts so refunded will not be taken into account in determining any required adjustment described in the preceding paragraph. E. Mutual Interdependence of Exchange and Merger The Proxy requests the shareholders of Orion to consider and vote separately upon the Merger and the Exchange. However, the Proxy states that the Exchange is a condition to the completion of the Merger, and the Merger is a condition to the completion of the Exchange, as provided in the Merger Agreement and Exchange Agreement. In addition, as is set forth in the Proxy Statement, the Merger and Exchange are pursuant to the same plan, and the Merger is undertaken for the principal purpose of enabling Orion to acquire the LPIs and Partnership Debt pursuant to the Exchange. II. REPRESENTATIONS Set forth below are representations made by the management of Orion ("Management") on which we have relied in concluding that the Merger satisfies the requirements of Section 368(a)(2)(E) of the Internal Revenue of 1986, as amended (the "Code"): 1. The Merger of Orion Merger Subsidiary with and into Orion will satisfy all of the Board of Directors January 6, 1997 Orion Network Systems, Inc. Page 9 requirements for treatment as a statutory merger under applicable state law and regulations thereunder, and as a consequence of the Merger, Orion Merger Subsidiary will disappear and Orion will be the surviving corporation with its charter intact. 2. The fair market value of the Orion Newco stock to be received by each Orion shareholder will be equal to the fair market value of the Orion stock surrendered in the Merger. 3. Upon consummation of the Merger, certificates evidencing Orion stock will represent, by operation of law, the same number and class of shares of Orion Newco stock and will no longer represent a direct ownership interest in Orion. 4. There is no plan or intention by the shareholders of Orion who own (directly or indirectly, such as by reason of the ownership of stock options or convertible preferred stock) five percent or more of the Orion common stock, and, to the best of Orion management's knowledge and belief, there is no plan or intention on the part of the remaining shareholders of Orion, to sell, exchange, or otherwise dispose of (or enter into any other arrangement designed to limit the appreciation in value of, or risk of loss with respect to) a number of shares of Orion Newco stock received in the transaction that would reduce the shareholders' ownership of Orion Newco stock to a number of shares having a fair market value, as of the Effective Time of the Merger, of less than 50 percent of the total fair market value of all of the formerly outstanding common and preferred stock of Orion as of the same date. Moreover, shares of Orion stock and shares of Orion Newco stock held by Orion shareholders and otherwise sold, redeemed, or disposed of prior to or subsequent to the Merger which are part of the plan of Merger will be considered in making this representation. 5. Following the Merger, Orion will hold at least 90 percent of the fair market value of its net 2. assets and at least 70 percent of the fair market value of its gross assets and at least 90 percent of the fair market value of Orion Merger Subsidiary's net assets and 70 percent of the fair market value of Orion Merger Subsidiary's gross assets held immediately prior to the Merger. For purposes of this representation, amounts (if any) paid by Orion or Orion Merger Subsidiary to dissenters, amounts paid by Orion or Orion Merger Subsidiary to shareholders who receive cash or other property, amounts used by Orion or Orion Merger Subsidiary to pay reorganization expenses, and all redemptions and distributions (except for regular, normal dividends) made by Orion will be included as assets of Orion or Orion Merger Subsidiary, respectively, immediately prior to the Merger. 6. Prior to the Merger, Orion Newco will be in control of Orion Merger Subsidiary within the meaning of Section 368(c) of the Code. 7. Orion Newco was formed solely for the purpose of effecting the Merger and has not Board of Directors January 6, 1997 Orion Network Systems, Inc. Page 10 conducted any business since incorporation other than matters incident to its organization and matters incident to the Merger Agreement and Exchange Agreement. 8. Following the Merger, Orion Newco will own all the issued and outstanding stock of Orion. Orion has no plan or intention to issue additional shares of its stock that would result in Orion Newco losing control of Orion within the meaning of Section 368(c) of the Code. 9. Orion Newco has no plan or intention to redeem or otherwise reacquire any of its stock issued in the Merger. 10. Orion Newco will remain in existence. There is no plan or intention to liquidate Orion Newco; to merge Orion Newco with or into another corporation; or to cause Orion Newco to sell or otherwise dispose of any of its assets or of any of the assets acquired from Orion Merger Subsidiary, except for dispositions made in the ordinary course of business or transfers of assets to a corporation controlled by Orion. 11. There is no plan or intention on the part of Orion, Orion Newco, or any other person to liquidate Orion; to merge Orion with or into another corporation; to sell or otherwise dispose of the stock of Orion; or to cause Orion to sell or otherwise dispose of any of its assets or of any of the assets acquired from Orion Merger Subsidiary, except for dispositions made in the ordinary course of business or transfers of assets to a corporation controlled by Orion. 12. No holder of any issued or outstanding Orion stock will be entitled to exercise dissenters' or appraisal rights in connection with the Merger; rather, the only consideration any Orion stockholder will be entitled to receive in connection with the Merger will be shares of Orion Newco stock. 13. Orion Merger Subsidiary was organized solely for the purpose of merging with Orion in accordance with the Merger Agreement and Exchange Agreement, and has engaged in no 2. business activities other than matters incident to its organization and matters incident to the Merger Agreement and Exchange Agreement. 14. Orion Merger Subsidiary will have no liabilities assumed by Orion, and will not transfer to Orion any assets subject to liabilities, in the Merger. 15. Following the Merger, Orion will continue its historic business or use a significant portion of its historic business assets in a business. 16. Orion Newco, Orion Merger Subsidiary, Orion, and the shareholders of Orion will pay their respective expenses, if any, incurred in connection with the Merger. Board of Directors January 6, 1997 Orion Network Systems, Inc. Page 11 17. There is no intercorporate indebtedness existing between Orion Newco and Orion or between Orion Merger Subsidiary and Orion that was issued, acquired, or will be settled at a discount. 18. Each class of issued and outstanding stock of Orion currently entitles its holders to vote in the election of directors of Orion and on all other matters that are subject to shareholder approval under the applicable provisions of Delaware corporate law, and there is no class of nonvoting stock of Orion that is or will be issued and outstanding on or before the date of the Merger. Taking into account any shares of Orion stock acquired by Orion or Orion Newco for consideration other than voting stock of Orion Newco, Orion Newco will acquire at least 80% of the total shares of each class of Orion stock solely in exchange for shares of Orion Newco stock that currently entitles its holders to vote in the election of directors of Orion Newco and on all other matters that are subject to shareholder approval under the applicable provisions of Delaware corporate law. Orion Newco has no plan or intention to modify any of the voting rights or other terms and provisions of any class of Orion Newco stock issued pursuant to the Merger. 19. At the time of the Merger, Orion will not have outstanding any warrants, options, convertible securities, or any other type of right pursuant to which any person could acquire stock in Orion and that, if exercised or converted, would affect Orion Newco's acquisition or retention of control of Orion, as defined in Section 368(c) of the Code. 20. Orion Newco does not own, nor has it owned during the past five years, any shares of the stock of Orion. 21. No two parties to the transaction are investment companies as defined in Section 368(a)(2)(F)(iii) and (iv) of the Code. 22. Orion is not under the jurisdiction of a court in a Title 11 or similar case within the meaning of Section 368(a)(3)(A) of the Code. 23. The facts and representations relating to the Transactions described in this opinion letter and the Documents are true, correct, and complete in all material respects. Board of Directors January 6, 1997 Orion Network Systems, Inc. Page 12 III. ANALYSIS A. Statutory Requirements Section 368(a)(1)(A) of the Code provides that the term "reorganization" means a statutory merger or consolidation. Management has represented that the proposed merger of Orion Merger Subsidiary with and into Orion will qualify as a statutory merger under the applicable state law. Based on this representation, this requirement will be met. Section 368(a)(2)(E) of the Code provides that a transaction which otherwise qualifies under Section 368(a)(1)(A) will not be disqualified by reason of the fact that stock of a corporation (the "controlling corporation") which before the merger was in control of the merged corporation is used in the transaction, if: (i) After the transaction, the corporation surviving the merger holds substantially all of the surviving corporation's properties and substantially all of the properties of the merged corporation (other than stock of the controlling corporation distributed in the transaction); and (ii) In the transaction, former shareholders of the surviving corporation exchange, for an amount of voting stock of the controlling corporation, an amount of stock in the surviving corporation which constitutes control of such corporation. Section 1.368-2(j)(3)(iii) of the Income Tax Regulations ("Regulations" or "Treas. Reg.") provides that for purposes of Section 368(a)(2)(E)(i) of the Code, the term "substantially all" has the same meaning as under Section 368(a)(1)(C). Rev. Proc. 77-37, 1977-2 C.B. 568, provides that, for advance ruling purposes, the "substantially all" requirement of Section 368(a)(2)(E)(i) is satisfied if there is a retention of assets representing at least 90 percent of the fair market value of the net assets and at least 70 percent of the fair market value of the gross assets held by the surviving corporation immediately prior to the transfer. (This amount of assets of the merged corporation must also be transferred to and retained by the surviving corporation.) Management has represented that after the Merger, Orion will hold assets representing at least 90 percent of the fair market value of the net assets and 70 percent of the gross assets of Orion and Orion Merger Subsidiary. Based on this representation, the "substantially all" requirement will be met. For purposes of Section 368(a)(2)(E) of the Code, the term "control" is defined in Section 368(c) as ownership of stock possessing at least 80 percent of the total combined voting power of all classes of stock entitled to vote and at least 80 percent of the total number of shares of all other Board of Directors January 6, 1997 Orion Network Systems, Inc. Page 13 classes of stock of the corporation. Pursuant to the terms of the Merger Agreement, prior to the merger of Orion Merger Subsidiary with and into Orion, Orion Newco will own all of the issued and outstanding stock of Orion Merger Subsidiary. Consequently, Orion Newco will be in control of Orion and, therefore, will be the "controlling corporation" within the meaning of Section 368(a)(2)(E). Finally, as discussed above, "control" for purposes of Section 368(a)(2)(E) is defined in Section 368(c) as ownership of stock possessing at least 80 percent of the total combined voting power of all classes of stock entitled to vote and at least 80 percent of the total number of shares of all other classes of stock of the corporation. Pursuant to the Merger Agreement, the existing shareholders of Orion will exchange Orion stock possessing more than 80% of the voting power of all classes of Orion voting stock (which constitutes all of Orion's outstanding stock) solely for voting stock of Orion Newco. Therefore, the Orion stock that is converted into Orion Newco stock upon the merger of Orion Merger Subsidiary with and into Orion will constitute control of Orion immediately before the Merger within the meaning of Section 368(a)(2)(E)(ii). The IRS has published a ruling which analyzes the applicability of Section 368(a)(2)(E) of the Code to a situation similar to the proposed Merger. In Rev. Rul. 77-428, 1977-2 C.B. 117, corporation P formed a subsidiary corporation, S1, which in turn formed subsidiary corporation S2. Pursuant to a plan of merger, S2 merged with and into P, with P being the surviving corporation. On the date of the merger all outstanding shares of P stock not held by S1 were exchanged for shares of S1 stock. Thus, P became a wholly owned subsidiary of S1 and the former P shareholders became the shareholders of S1. The IRS held that the above described merger qualified as a tax-free reorganization under Section 368(a)(2)(E), even though the two subsidiaries were newly organized corporations and a related corporation was acquired in the transaction. As noted, this is similar to the plan contemplated by the parties to the proposed Merger, with Orion acting as P, Orion Newco acting as S1, and Orion Merger Subsidiary acting as S2. Based on the above, so long as the continuity of interest, continuity of business enterprise, and business purpose requirements are satisfied, as discussed under "Nonstatutory Requirements" immediately below, the Merger will qualify as a reorganization under Section 368(a)(1)(A) of the Code by reason of 368(a)(2)(E).(6) B. Nonstatutory Requirements - ---------- 6 In addition to satisfying the requirements of Section 368(a)(2)(E), (i) there appear to be good arguments that the Merger will constitute a reorganization described in Section 368(a)(1)(B), and (ii) when considered in conjunction with the Exchange, in the Merger of Orion stock for Orion Newco stock should qualify for nonrecognition treatment under Section 351(a). Board of Directors January 6, 1997 Orion Network Systems, Inc. Page 14 Sections 1.368-1(b) and 1.368-2(g) of the Regulations provide that the following additional requirements must be met for a transaction to qualify as a reorganization within the meaning of Section 368: (i) "Continuity of interest" must be present; (ii) "Continuity of business enterprise" must exist; and (iii) The transaction must be undertaken for reasons pertaining to the continuance of the business of a corporation which is a party to the transaction. Continuity of Interest. Qualification of a transaction as a reorganization requires that the former shareholders of the acquired corporation have a continuing proprietary interest in the acquiring corporation. Rev. Proc. 77-37, 1977-2 C.B. 568, provides that the "continuity of interest" requirement of Section 1.368-1(b) of the Regulations is satisfied in a transaction described in Section 368(a)(1)(A) of the Code by reason of Section 368(a)(2)(E) if there is continuing interest through stock ownership in the controlling corporation on the part of the former shareholders of the surviving corporation which is equal in value, as of the effective date of the reorganization, to at least 50 percent of the value of all of the formerly outstanding stock of the surviving corporation as of that date. Sales, redemptions, and other dispositions of stock occurring prior or subsequent to the exchange which are part of the plan of reorganization, will be considered in determining whether there is a 50 percent continuing interest through stock ownership as of the effective date of the reorganization. Management has represented that the 50 percent continuity of interest test of Rev. Proc. 77-37 will be met in the Merger. Based on this representation, the Merger will satisfy the continuity of interest requirement. Continuity of Business Enterprise. Section 1.368-1(b) of the Regulations provides that a continuity of business enterprise [as described in Section 1.368-1(d) of the Regulations] is requisite to a reorganization. Section 1.368-1(d) of the Regulations provides that continuity of business enterprise requires that the acquiring corporation either (i) continue the acquired corporation's historic business, or (ii) use a significant portion of the acquired corporation's historic assets in a business. Management has represented that Orion will continue to be engaged in the same business following the Merger. Based on this representation, the Merger will satisfy the continuity of business enterprise requirement. Business Purpose. Section 1.368-2(g) of the Regulations provides that a reorganization must be undertaken for reasons germane to the continuance of the business of a corporation, a party to the reorganization. Management has represented that the Merger will substantially benefit the business of Orion Atlantic and Orion in various ways (see I.B. above). Based upon such representations, the Merger will satisfy the business purpose requirements of Section 1.368-2(g) of the Regulations. Board of Directors January 6, 1997 Orion Network Systems, Inc. Page 15 C. Additional Statutory and Regulatory Provisions Section 358(a)(1) of the Code generally provides that in the case of an exchange to which Section 351 or 354 applies, the basis of the property permitted to be received without the recognition of gain or loss shall be the same as that of the property exchanged. Section 1223(1) states that in determining the period for which a taxpayer has held property received in an exchange, the period for which the taxpayer held the property exchanged shall be included if the property has, for the purpose of determining gain or loss from a sale or exchange, the same basis in whole or in part in the taxpayer's hands as the property exchanged, and the property exchanged constitutes a capital asset at the same time of the exchange. Section 1032(a) of the Code generally provides that no gain or loss shall be recognized to a corporation on the receipt of money or other property in exchange for stock (including treasury stock) of such corporation. Also, Section 361(a) provides that no gain or loss will be recognized to a corporation if it is a party to a reorganization and exchanges property, in pursuance of such plan of reorganization, solely for stock or securities in another corporation a party to the reorganization.(7) IV. FEDERAL INCOME TAX CONSEQUENCES Based solely upon the Documents and the information and representations of Management contained herein, it is our opinion that the following Federal income tax consequences will result: 1. Except as otherwise stated in the Proxy Statement under the heading, "Certain Federal Income Tax Consequences," no gain or loss will be recognized by Orion stockholders solely as a consequence of the exchange of their Orion stock for substantially identical shares of Orion Newco stock pursuant to the Merger. 2. The basis of the Orion Newco stock to be received by the Orion shareholders will be the same as the basis of the Orion stock surrendered in exchange therefor. 3. The holding period of the Orion Newco stock to be received by the Orion shareholders will include the period during which the Orion common stock or Orion preferred stock, as the case may be, surrendered in exchange therefore was held, provided that the Orion common stock and the Orion preferred stock was held as a capital asset on the date of the exchange. - ---------- 7 See also Section 1.1032-2(b) of the Regulations. Board of Directors January 6, 1997 Orion Network Systems, Inc. Page 16 V. SCOPE OF OPINION The scope of this opinion is expressly limited to the three Federal income tax consequences set forth in IV. above. The opinion is based upon the representations made by Management contained herein and in the Documents. These representations have not been independently verified by us. Specifically, our opinion has not been requested and we have made no determination or expressed any opinion with respect to any other issues, including, but not limited to: (1) the fair market value of any stock being exchanged pursuant to the Merger Agreement and Exchange Agreement; (2) any limitations, including those which may be imposed under Section 382, on the availability of net operating loss carryovers (or built-in losses), if any, after the Transactions; (3) any state or local consequences to the parties to the Merger; or (4) the potential application of Section 306 or Section 305(c) and the regulations thereunder to Orion shareholders who receive preferred stock in the Merger. Furthermore, we have not reviewed the Orion stock option plans that, pursuant to the Merger Agreement, will become stock option plans of Orion Newco, and express no opinion with respect to the consequences to Orion, Orion Newco, or the holders of such options as a result of such conversion. Our opinion, as stated above, is based upon the analysis of the current Code, the Regulations thereunder, current case law, and published rulings. The foregoing authorities are subject to change, and such changes may be retroactively effective. If so, our views set forth above may be affected and may not be relied upon. Further, any variation or differences in the facts or representation recited herein, for any reason, might affect our conclusions, perhaps in an adverse manner, and make them inapplicable. In addition, we have not been engaged to and will not update our opinion for changes in facts or law occurring subsequent to the date hereof. This opinion is being rendered solely to the Orion Shareholders and is solely for their benefit. This opinion may not be relied upon by any other person or persons, or be used for any other purposes, including, but not necessarily limited to, filings with Governmental agencies without our prior written consent. However, we understand that this opinion will be included as an appendix to the Proxy Statement to be filed with the Securities and Exchange Commission. We consent to the inclusion of our opinion with such filing. This letter represents our views as to the interpretation of existing law and, accordingly, no assurance can be given that the IRS or the courts will agree with the above analysis. Very truly yours, Board of Directors January 6, 1997 Orion Network Systems, Inc. Page 17 Graphic Omitted EX-10.2 11 EXHIBIT 10.2 RESTATED AMENDMENT #10 TO THE SECOND AMENDED AND RESTATED PURCHASE CONTRACT THIS RESTATED AMENDMENT #10 TO THE SECOND AMENDED AND RESTATED PURCHASE CONTRACT (the "Restated Amendment #10") is entered into on this 10th day of December, 1996 by and between International Private Satellite Partners, L.P., d/b/a Orion Atlantic, L.P., a Delaware limited partnership with its principal offices located at 2440 Research Boulevard, Rockville, Maryland 20850, United States of America ("Orion"), and Matra Marconi Space UK Limited, a company organised and existing under the laws of England and Wales with its Registered Office at The Grove, Warren Lane, Stanmore, Middlesex, HA7 4LY, England (the "Contractor"). WHEREAS, Orion Satellite Corporation, as General Partner of Orion, and British Aerospace Public Limited Company ("BAe"), entered into the Second Amended and Restated Purchase Contract, dated 26 September 1991 (together with all amendments thereto, the "F1 Contract"); WHEREAS, the F1 Contract was assigned by BAe to British Aerospace Space Systems Limited, the name of which was subsequently changed to MMS Space Systems Limited after its acquisition by Matra Marconi Space UK Limited; WHEREAS, the parties have reached a revised agreement on the terms under which certain incentive payments will be made; WHEREAS, the parties previously entered into Amendment #9 to the F1 Contract under which the conditions precedent to Orion's obligations did not occur; WHEREAS, the parties previously entered into Amendment #10 to the F1 Contract (the "Original Amendment #10") under which the conditions precedent to the effectiveness of that Amendment did not occur; NOW, THEREFORE, in consideration of the above premises and the mutual covenants and agreements contained herein, and for other good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereto (hereinafter, the "Parties") agree as follows: 1. DEFINED TERMS. Except as otherwise defined herein, capitalized terms used herein and not otherwise defined shall have the meanings ascribed to them in the F1 Contract. Restated Amendment #10 Page 1 2. AMENDMENT #9. Amendment #9 is terminated in its entirety and shall be of no force and effect. 3. AMENDMENT #10. The conditions precedent to the effectiveness of Original Amendment #10 did not occur and, accordingly, the Original Amendment #10 shall be of no force and effect. 4. CONDITION TO EFFECTIVENESS OF THIS AMENDMENT. Orion's obligations under this Restated Amendment #10 shall become effective when (i) an Option Agreement to purchase the ORION 2 Spacecraft constructed and delivered in accordance with the ORION 2 Purchase Contract, as to be amended, between Orion and Contractor (the "Option Agreement") is in effect and (ii) at least $25 million in Option payments have been made by Orion to Contractor. The date upon which this Restated Amendment #10 becomes effective is herein referred to as the "Effective Date". 5. ORION COVENANT AS TO PAYMENT. Orion hereby covenants and agrees that, without the Contractor's consent, it shall not, after the date of this Amendment, subordinate the payments required to be made hereunder or under Articles 15.6.1 and 15.6.2 of the F1 Contract (the "Incentives") to the payment of the principal of or the interest on any new debt incurred or guaranteed by Orion or any affiliate of ORION or to the payment of any obligation incurred with respect to the Spacecraft provided under the F1 Contract. On the Effective Date, Orion shall provide to the Contractor Orion's representation verifying that no such subordination occurred between the date of this Restated Amendment #10 and the Effective Date. 6. PAYMENT OF INCENTIVE: PURCHASE OF DEBENTURES (a) On the Effective Date, Orion shall pay to the Contractor by wire transfer into a bank account established by the Contractor in the United States of America, the details of which account shall be made known to Orion at least two (2) weeks prior to the Effective Date, $13,000,000 of the Incentives due and payable on such date. (b) On the Effective Date, the Contractor shall purchase $10,000,000 aggregate principal amount of those Debentures issued by ONS or any ONS affiliate, provided that Orion makes the payment required to be made by Section 6(a). The Debentures shall have terms identical to those issued to British Aerospace Public Limited Company (or any affiliate thereof). (c) Orion shall pay the difference between the Incentives due and payable on the Effective Date and $13,000,000 on the last day of the Option Period (as defined in the Option Agreement). (d) Orion shall pay all of the remaining Incentives as they become due in accordance with the payment schedule in Articles 15.6.1 and 15.6.2 of the F1 Contract. Restated Amendment #10 Page 2 7. ADDITIONAL PROVISIONS. --------------------- (a) In the event of any inconsistency between this Restated Amendment #10 and the remaining provisions of the F1 Contract, the terms of this Restated Amendment #10 shall govern. (b) This Restated Amendment #10 may be executed by the Parties hereto in two or more counterparts, each of which shall be deemed to be an original instrument but all of which shall be deemed to be one and the same instrument. (c) Contractor hereby waives and releases any materialman's, mechanic's or other liens it may have with respect to any of the payments due hereunder. (d) This Restated Amendment #10 shall be governed by the law of the State of Maryland, U.S.A. IN WITNESS WHEREOF, the Parties have each duly executed this Restated Amendment #10 as of the day and year first written above. INTERNATIONAL PRIVATE MATRA MARCONI SPACE SATELLITE PARTNERS, L.P. UK LIMITED By: Orion Satellite Corporation, Its General Partner By: /s/W. Neil Bauer By: /s/Armand Carlier ---------------------------- ----------------------- W. Neil Bauer Armand Carlier President Restated Amendment #10 EX-10.19 12 EXHIBIT 10.19 [The portions of this Exhibit for which confidential treatment has been requested are marked by brackets ([ ]). In addition, an asterisk (*) appears in the right hand margin of each paragraph in which confidential information is included.] COMMERCIAL-IN-CONFIDENCE - -------------------------------------------------------------------------------- ORION 2 SPACECRAFT PURCHASE CONTRACT - -------------------------------------------------------------------------------- COMMERCIAL-IN-CONFIDENCE TABLE OF CONTENTS WHEREAS...................................................................1 DEFINITIONS...............................................................1 1. ORION 2 CONTRACT......................................................11 2. ENTIRE AGREEMENT......................................................12 3. SCOPE OF THE WORK.....................................................13 4. NOTICE TO PROCEED; CONDITIONS PRECEDENT...............................14 5. CONTRACT PRICE........................................................14 6. PAYMENT...............................................................16 7. ACCESS TO WORK........................................................22 8. DELIVERABLE ITEMS AND DELIVERY DATES..................................25 9. FINAL ACCEPTANCE......................................................27 10. TRANSFER OF TITLE AND ASSUMPTION OF RISK.............................31 11. ORION 2 SPACECRAFT DELIVERY INCENTIVE AND LATE DELIVERY LIQUIDATED DAMAGES..............................................32 12. EXTENSIONS FOR EXCUSABLE DELAYS......................................33 13. CORRECTION OF DEFECTS................................................35 14. DISCLAIMER OF WARRANTIES, LIMITATION OF LIABILITY AND INTER-PARTY WAIVER OF LIABILITY..........................................38 15. ORION 2 SPACECRAFT IN-ORBIT PERFORMANCE WARRANTY.....................39 16. SUBCONTRACTS.........................................................43 i COMMERCIAL-IN-CONFIDENCE 17. INDEMNIFICATION......................................................45 18. INSURANCE............................................................46 19. REPLACEMENT SATELLITE................................................50 20. TERMINATION FOR CONVENIENCE..........................................53 21. REMEDIES FOR DEFAULT.................................................54 22. TERMINATION IN SPECIAL CASES.........................................59 23. PUBLICATION OF INFORMATION...........................................60 24. CONFIDENTIALITY AND NONDISCLOSURE OF PROPRIETARY INFORMATION.........60 25. LICENSE RIGHTS.......................................................63 26. PATENTS, TRADEMARKS AND COPYRIGHTS...................................64 27. ORION 2 CONTRACT AMENDMENTS..........................................65 28. GOVERNMENTAL APPROVALS...............................................66 29. RESPONSIBILITY FOR THE CONTRACT......................................66 30. DISPUTE RESOLUTION...................................................67 31. CONTRACT MANAGEMENT..................................................70 32. SECURITY INTEREST AND FINANCIAL INFORMATION..........................70 33. ASSIGNMENT...........................................................71 34. NOTICES AND DOCUMENTATION............................................72 35. SEVERABILITY AND WAIVER..............................................73 ii COMMERCIAL-IN-CONFIDENCE 36. COMPLIANCE WITH THE LAW, PERMITS AND LICENSES........................74 37. APPLICABLE LAW; SUBMISSION TO JURISDICTION; APPOINTMENT OF AGENT FOR ACCEPTANCE OF SERVICE; INTERPRETATION AND LANGUAGE.........74 38. SURVIVAL.............................................................75 39. KEY PERSONNEL........................................................75 40. PROGRESS REPORTS.....................................................76 41. LAUNCH VEHICLE AGENCY................................................76 42. GUARANTEE OF CONTRACTOR OBLIGATIONS..................................78 43. INTEREST.............................................................78 iii COMMERCIAL-IN-CONFIDENCE ORION 2 SPACECRAFT PURCHASE CONTRACT PART 1(A) ORION 2 PRICING, TERMS and CONDITIONS THIS ORION 2 SPACECRAFT PURCHASE CONTRACT (referred to herein as the "ORION 2 Contract") is made as of the 31st day of July 1996, between INTERNATIONAL PRIVATE SATELLITE PARTNERS, L.P., d/b/a ORION ATLANTIC, L.P., a Delaware limited partnership with its principal offices located at 2440 Research Boulevard, Rockville, Maryland 20850, United States of America (hereinafter called "ORION"), and MATRA MARCONI SPACE UK LIMITED, a company organized and existing under the Laws of England and Wales with its registered office at The Grove, Warren Lane, Stanmore, Middlesex, HA7 4LY, ENGLAND (hereinafter called the "Contractor"). WHEREAS A. The primary object of ORION is the carrying on of the business of providing a telecommunications system by the use of space satellites. B. ORION anticipates providing the business referred to in recital A through the ORION satellite ("ORIONSAT") system. C. The ORION 2 Spacecraft to be constructed pursuant to this ORION 2 Contract is intended to form part of the space segment of the ORIONSAT system. D. ORION and the Contractor have agreed that the Contractor will perform the work as defined below and that ORION will pay for the Work on the terms and conditions set out in this Agreement. NOW, THEREFORE, in consideration of the above premises and the mutual covenants and agreements contained herein, the parties hereto (hereinafter, the "Parties") agree as follows: DEFINITIONS "Advance Payment" means Fifty-Three Million Dollars ($53,000,000). COMMERCIAL-IN-CONFIDENCE "Affiliate" means, with respect to any entity, any other entity Controlling, Controlled by or under common Control with such entity. "Aggregate Predicted Transponder Life" means the sum of the Predicted Transponder Life of each and every Serviceable Transponder embodied in the Launched ORION 2 Spacecraft and represents a projection of the revenue-earning capacity of the Launched ORION 2 Spacecraft. "Amendment to the ORION 2 Contract" means a written agreement modifying the ORION 2 Contract, which agreement is signed on behalf of ORION by its President (or another person designated by the President in writing to sign such agreement) and on behalf of the Contractor by both its respective Contracts Manager and Project Manager, and which agreement expressly states that it is an "Amendment to the ORION 2 Contract." "Business Day" means any day other than the following: a Saturday, Sunday or other day on which banks are authorized to be closed in the State of New York or London, England. "Calendar Day" means any day. "Constructive Total Loss" means, with respect to the ORION 2 Spacecraft, that either of the following conditions (A or B) applies: (A) (i) the Aggregate Predicted Transponder Life is less than _____________________, or (ii) fewer than______________ downlink Transponders are Serviceable Transponders, or (iii) fewer than _______________ downlink Transponders with _______ at the 12.5-12.75 GHz frequency and _______ at either of the two frequency ranges of 10.95-11.2 or 11.45-11.7 GHz frequency are Serviceable Transponders; or (B) (i) the ORION 2 Spacecraft fails to arrive at its designated orbital location or the Contractor fails to deliver the In-Orbit Acceptance Report within one hundred and eighty (180) Calendar Days after Launch, or (ii) the ORION 2 Spacecraft is completely destroyed or is otherwise rendered incapable of operation. COMMERCIAL-IN-CONFIDENCE "Consultant" means any third party (i) authorized by ORION to provide technical and program support and assistance in connection with the performance of the ORION 2 Contract, or (ii) which is a representative of or consultant to any Financing Entity. "Contract Price" means the firm fixed price of One Hundred Ninety-Six Million, Nine Hundred Thousand Dollars ($196,900,000) as such may be adjusted in accordance with the terms of the ORION 2 Contract. "Control," "Controlling," or "Controlled" means with regard to any entity the legal, beneficial or equitable ownership, directly or indirectly, of fifty (50) percent or more of the capital stock (or other ownership interest, if not a corporation) of such entity ordinarily having voting rights. "Correction Plan" means a plan submitted by the Contractor which details how the Contractor shall correct (i) a failure to make adequate progress towards completion of any Work or (ii) a default or breach under the ORION 2 Contract in accordance with Article 21. "Data and Documentation" means that data and documentation to be supplied by the Contractor to ORION pursuant to the requirements of Part 2(A) (Statement of Work) and as specified in Part 2(B) (ORION 2 Contract Documentation Requirements List). "Defect" means (i) with regard to the ORION 2 Spacecraft and all components thereof, any defect in design, material or workmanship, or failure to perform in accordance with the specifications and requirements set out or referred to in the ORION 2 Contract and the Data and Documentation delivered from time to time under the ORION 2 Contract which ORION or its Consultant reasonably believes may adversely affect the ORION 2 Spacecraft performance; (ii) with regard to services, a failure to conform to a high standard consistent with industry practice; and (iii) with regard to Data and Documentation, a COMMERCIAL-IN-CONFIDENCE failure to meet any specifications or requirements set forth in the ORION 2 Contract. "Deliverable Item" means the ORION 2 Spacecraft and Data and Documentation and other items so identified in subsequent amendments to the ORION 2 Contract. Where the context permits, as used herein the term "Deliverable Items" shall include and refer not only to the whole of the items listed in Article 8, but also every component part thereof. "Delivery" shall have the meaning ascribed to it in Article 8.1. "Delivery Dates" means those dates set forth in Article 8.1. "Demand" means, in the context of Article 21 hereof, a demand by ORION made of the Contractor for the Contractor to provide a Correction Plan in the event that the Contractor is failing to make adequate progress in the performance of the ORION 2 Contract or is in default or breach. "Dollars" shall mean United States Dollars. "Effective Date of Contract" means the first date set forth in this ORION 2 Contract. "Excusable Delay" shall have the meaning ascribed to it in Article 12. "F1 Contract" means the Second Amended and Restated Purchase Contract for the F1 Spacecraft between Orion Atlantic, L.P. and MMS Space Systems Limited (formerly known as British Aerospace Space Systems Limited), as assignee of British Aerospace Public Limited Company, dated 26 September 1991, as amended. "Final Acceptance" shall have the meaning ascribed to it in Article 9. "Financing Agreements" means any and all documents and agreements evidencing and/or securing monies provided on a full or partial debt basis by any Financing Entity to ORION to fund the construction and delivery of the COMMERCIAL-IN-CONFIDENCE ORION 2 Spacecraft and the purchase of Long-Lead Items. "Financing Entity" means any entity (other than the Contractor or parties related to the Contractor), e.g., commercial bank, merchant bank, investment bank, commercial finance organization, corporation, or partnership, providing money on a full or partial debt basis to ORION to fund the construction and delivery of the ORION 2 Spacecraft and purchase of Long-Lead Items. "Initial Incentive Amount" means____________________________ ______________ percent of the Total Amount at Risk, as may be adjusted in accordance with the terms of the ORION 2 Contract. "In-Orbit Acceptance Requirements" means that document which is Part 3(D) of the ORION 2 Contract. "In-Orbit Acceptance Test Plan" means that document which is a Deliverable Item under Part 2(B) (ORION 2 Contract Documentation Requirements List) and as described in Part 3(D) (In-Orbit Commissioning and Acceptance Test Requirements) of the ORION 2 Contract. "In-Orbit Acceptance Test Report" or "In-Orbit Acceptance Report" means that document which is a Deliverable Item under Part 2(B) (ORION 2 Contract Documentation Requirements List) and as described in Parts 2(A) (Statement of Work) and 3(D) (In-Orbit Commissioning and Acceptance Test Requirements) of the ORION 2 Contract. "In-Orbit Performance Warranty" shall mean the Contractor's warranty as to the performance of the ORION 2 Spacecraft following Final Acceptance. "In-Orbit Performance Warranty Period" shall have the meaning ascribed to it in Article 15.2. "Insurers" means those entities providing Launch Insurance. "Intentional Ignition" means, with respect to the Launch Vehicle, the point in time during the launch countdown when COMMERCIAL-IN-CONFIDENCE initiation of the gas generators igniters firing command and firing of any of the gas generators igniters occurs. "Key Personnel" shall have the meaning ascribed to it in Article 39. "Initial Progress Payment" means the initial Progress Payment of Dollars required to be paid under Part 1(B) (ORION 2 Payment Plans and Termination Liability Amounts) of the ORION 2 Contract. "Launch" means Intentional Ignition, followed by (i) release of the Launch Vehicle from the launcher hold down restraints for purposes of lift-off, or (ii) a Constructive Total Loss. "Launch Agreement" means the agreement between the Contractor and the Launch Vehicle Agency to perform the Launch of the ORION 2 Spacecraft. "Launch Damaged Transponders" shall have the meaning ascribed to it in Article 15.2.2. "Launch Date" means the calendar date within the Launch Slot during which the Launch is scheduled to occur. "Launch Insurance" means insurance which covers the ORION 2 Spacecraft from the period beginning at Intentional Ignition and ending no sooner than one hundred eighty (180) Calendar Days following Launch. "Launch Services" shall mean the launch campaign/transportation, launch services, mission planning and launch/early operations phase services as more particularly described in Section 7 of Part 2(A). "Launch Slot" means the period 1 March 1999 through 31 March 1999, as such period may be adjusted by agreement of the Parties, during which the Launch is scheduled to occur. COMMERCIAL-IN-CONFIDENCE "Launch Vehicle" means an Atlas IIAS Standard launch vehicle system (with such customization as may be agreed separately between the Launch Vehicle Agency and ORION) consisting of an Atlas lower stage and Centaur upper stage connected by an interstage adapter, the payload fairing, and the payload adapter with separation system. "Launch Vehicle Agency" means Lockheed Martin or such other Subcontractor as is selected to supply the Launch Vehicle for the ORION 2 Spacecraft. "Launched ORION 2 Spacecraft" means the ORION 2 Spacecraft after its Launch. "Long-Lead Items" means those satellite components purchased by the Contractor pursuant to Article 19. "Major Subcontract" means a Subcontract which is of a value exceeding Two Million, Five Hundred Thousand Dollars ($2,500,000 ) or of importance or critical in nature to the overall program (e.g., a Subcontract for major or critical units, subsystems or other items or services). "Maneuver Lifetime" shall have the meaning ascribed to it in Article 3.4. "Milestone" means completion of a portion of the Work with respect to which a payment is to be made in accordance with the Milestone Payment Plan incorporated in Part 1(B) (ORION 2 Payment Plans and Termination Liability Amounts) of the ORION 2 Contract. "Milestone Payments" means those payments listed as Milestone Payments in Part 1(B) (ORION 2 Payment Plans and Termination Liability Amounts) of the ORION 2 Contract. "Mission Specific Hardware and Software means those items of hardware and software described in Section 10 of Part 2(A) (Statement of Work) of the ORION 2 Contract. "Monthly Amount" means the difference between the Total Amount at Risk and the Initial Incentive Amount which COMMERCIAL-IN-CONFIDENCE difference is divided into sixty (60) equal monthly amounts each having a value of _________________________________ __________ as may be adjusted in accordance with the terms of the ORION 2 Contract. "NPD" or "Notice to Proceed Date" means the date upon which all the conditions set forth in Article 4 have been met. "ORION 2 Spacecraft" means the satellite to be constructed and delivered to ORION as part of the Work and as identified in Part 2(A) (Statement of Work) of the ORION 2 Contract. "Other Users" shall have the meaning set forth in Article 14.4.1. "Partial Loss" shall have the meaning ascribed to it in Article 9.2.2. "Predicted Transponder Life" means the period of time, measured in years, over which a Serviceable Transponder can be operated, commencing from the date of Delivery of the In-Orbit Acceptance Report, this period of time being equal to whichever is the shortest of: (i) thirteen (13) years, or (ii) the ORION 2 Spacecraft predicted propellant life calculated in accordance with Section 5 of Part 3(D) (In-Orbit Commissioning and Acceptance Test Requirements) of the ORION 2 Contract, or (iii) the period of time over which there is predicted to be sufficient solar array power to operate such Serviceable Transponder co-extensively with all other Serviceable Transponders, calculated in accordance with Section 5 of Part 3(D) (In-Orbit Commissioning and Acceptance Test Requirements) of the ORION 2 Contract. COMMERCIAL-IN-CONFIDENCE "Primary Transponder" means a Transponder where the communication signals are received from and transmitted to the ground. "Progress Payments" means those payments listed as Progress Payments in Part 1(B) (ORION 2 Payment Plans and Termination Liability Amounts). "Replacement Satellite" shall have the meaning ascribed to it in Article 19. "Request for Payment" means a request for payment in the form of Annex A hereto. "Revenue" means all amounts received by ORION with respect to an individual Primary Transponder, whether as a result of its sale, lease, license or other disposition, it being understood that, if said amounts are not received in equal monthly installments, the total amount received or to be received by ORION shall be deemed received in equal monthly installments over the remainder of the Predicted Transponder Life of such Transponder. "Satisfactorily Operating Primary Transponder" means a Primary Transponder which is capable of meeting (i) the requirements of Part 3(A) (ORION 2 Spacecraft Specifications) regarding Primary Transponder performance and (ii) the Primary Transponder Test Requirements defined in Part 3(D) (In-Orbit Commissioning and Acceptance Test Requirements). "Senior Executive" means each of the senior executives designated from time to time in writing, by ORION and by the Contractor, respectively, to be their representatives for the purposes of dispute resolution under the ORION 2 Contract. "Serviceable Transponder" means a Primary Transponder which meets the requirements therefor as set forth in Section 5 of Part 3(D) (In-Orbit Commissioning and Acceptance Test Requirements) of the ORION 2 Contract and is determined, pursuant to Section 5.2 thereof, to be capable of operation in accordance with such requirements during periods of eclipse. In the event COMMERCIAL-IN-CONFIDENCE that the Launched ORION 2 Spacecraft has insufficient energy to operate thirty (30) Serviceable Transponders in eclipse, those specific Transponders, if any, which failed the testing requirements of Section 5.2 of Part 3(D), will not be counted twice in determining the total number of Transponders that are not Serviceable Transponders. "Subcontract" means a contract awarded by the Contractor to a Subcontractor or a contract awarded by a subcontractor at any tier for the performance of any of the Work specified in the ORION 2 Contract. "Subcontractor" means a person or company awarded a Subcontract. "Termination Liability Amounts" means the amounts listed as Termination Liability Amounts in Part 1(B) (ORION 2 Payment Plans and Termination Liability Amounts) of the ORION 2 Contract. "Total Amount at Risk" means a firm fixed sum of Nine Million, Nine Hundred Fifty Thousand Dollars ($9,950,000). "Transponder" means an individual transmission channel of defined bandwidth providing a path, inclusive of amplification, frequency translation and frequency channelization, from a receive antenna with defined coverage and polarization to a transmit antenna also with defined coverage and polarization. "Vendor Financing Takeout Payment" means the aggregate amount required to be paid to the Contractor and the Launch Vehicle Agency in respect of the Milestone Payment Schedule and the Progress Payment Schedule, respectively, under Part 1(B) (ORION 2 Payment Plans and Termination Liability Amounts) of the ORION 2 Contract to the date upon which the Vendor Financing Takeout Payment is made less the sum of the Advance Payment, the Initial Progress Payment and any other amount paid by ORION prior to such date in respect of the Milestone Payment Schedule COMMERCIAL-IN-CONFIDENCE and the Progress Payment Schedule of Part 1(B). "Work" means the whole of the work described in Part 2(A) (Statement of Work) and elsewhere in the ORION 2 Contract and, where the context so permits or requires, "Work" includes any part or parts of the Work. The Work includes all elements and phases of delivering the operational ORION 2 Spacecraft in-orbit from design and manufacture through to Launch, Launch Services and in-orbit testing, including, but not limited to, provision of all necessary equipment and documentation related thereto, including Deliverable Items. Note: The satellites(s) (one or more) referred to herein are variously described as the "spacecraft" or the "satellite(s)". 1. ORION 2 CONTRACT 1.1 The documents listed in this Article, as amended from time to time in accordance with Article 27 herein, constitute the ORION 2 Contract:
Issue No. Part 1(A): ORION 2 Pricing, Terms and Conditions Issue 1 Part 1(B): ORION 2 Payment Plans and Termination Liability Amounts Issue 1 Part 2(A): ORION 2 Statement of Work Issue 3 Part 3(A): ORION 2 Spacecraft Specifications Issue 3 Part 3(D): ORION 2 In-Orbit Commissioning and Acceptance Test Requirements Issue 3 Part 3(C): ORION 2 Spacecraft On-Ground Test Requirements Issue 3 Part 2(B): ORION 2 Contract Documentation Requirements List Issue 2 Part 3(B): ORION 2 Spacecraft Product Assurance Requirements Issue 3 COMMERCIAL-IN-CONFIDENCE Part 4: Replacement Satellite Long-Lead Items Issue 3 Annex A: ORION 2 Request for Payment and Contractor's Certificates Issue 1 Appendix I: Form of Contractor Certificate Issue 1 Annex B: Launch Agreement Inter-Party Waiver of Liability Provision Issue 1 Annex C: Launch Agreement Termination Charges
1.2 Notwithstanding anything herein to the contrary, the documents listed in Article 1.1 above shall be deemed to constitute one fully integrated agreement between the Parties. Should there be any ambiguity, discrepancy or inconsistency among any of the documents constituting the ORION 2 Contract, such ambiguity, discrepancy or inconsistency shall be resolved according to the order of precedence in which the documents are listed in Article 1.1. Unless specifically indicated otherwise herein, all Article and Paragraph references in this Part 1(A) shall be deemed to be to Part 1(A). 1.3 In the event the Parties are unable to resolve any ambiguity, discrepancy or inconsistency which affects the Work, ORION shall direct the Contractor and the Contractor shall follow such direction as to the interpretation to be followed in carrying out the Work. If the Contractor disputes ORION's interpretation and such interpretation results in delay and/or increased cost and/or risks, such dispute shall be handled by the procedures set forth in Article 30. 2. ENTIRE AGREEMENT This ORION 2 Contract constitutes the sole agreement as to the Work to be performed hereunder by the Contractor and supersedes any prior agreements relating thereto. The Parties further agree that this ORION 2 Contract does not supersede the F1 Contract (including all amendments thereto) and the F1 Contract shall not be integrated herewith. COMMERCIAL-IN-CONFIDENCE 3. SCOPE OF THE WORK 3.1 The Contractor shall furnish the Work in accordance with the provisions of the documents which constitute the ORION 2 Contract. In the performance of the Work, the Contractor shall supply all personnel, materials and facilities necessary therefor. 3.2 ORION shall specify the final beam coverage for one (1) of the transmit (Tx)/receive(Rx) coverages no later than NPD and for a second Tx/Rx coverage no later than three (3) months after NPD. ORION shall also, no later than two (2) months after NPD, specify the final transponder beam connectivities. If all finalized beam coverages are consistent with what is achievable with the proposed antenna aperture sizes meeting the requirements of Part 3(A), price and delivery schedule shall remain unchanged. If all finalized transponder connectivities are consistent with the proposed switching and filtering hardware meeting the requirements of Part 3(A), price and delivery schedule shall remain unchanged. 3.3 Prior to NPD, the Contractor shall present a thermal design approach with supporting data and analysis (at the communications panel level), which shall demonstrate to the reasonable satisfaction of ORION that the ORION 2 Spacecraft will be designed in full compliance with the requirements of Section 8 of Part 3(A) regarding the thermal control subsystem. 3.4 Prior to NPD, the Contractor shall demonstrate that the ORION 2 Spacecraft has a realistically calculated forty (40) kg dry mass margin adequate to meet the specified contract performance requirements, including maneuver lifetime ("Maneuver Lifetime") as set forth in Section 2.1 of Part 3(A). 3.5 The Launch Vehicle Agency is obligated under the Launch Agreement to deliver the Launch Vehicle with a contract level of performance of seven thousand, six hundred (7,600) pounds of payload systems mass to a reference geosynchronous transfer orbit. The Parties have discussed with the Launch Vehicle Agency methods of enhancing the performance of the Launch Vehicle by using______________________ which will increase the delivery capability of the Launch Vehicle by approximately one hundred seventy (170) pounds of payload systems mass to a reference geosynchronous transfer orbit (the "Launch Enhancements"). The ORION 2 Spacecraft Maneuver Lifetime is based upon the availability of the Launch Enhancements. Notwithstanding any other provision of this ORION 2 Contract, if the Launch Vehicle Agency does not make the Launch Enhancements available, the Maneuver Lifetime shall be reduced to twelve and seven tenths (12.7) years. In such case, ORION and the Contractor shall use all COMMERCIAL-IN-CONFIDENCE commercially reasonable efforts to cause the Maneuver Lifetime to be increased to thirteen (13) years and the Parties agree to amend such number in the ORION 2 Contract to the extent of such increase. If the Launch Vehicle Agency provides to the Contractor other Launch Vehicle improvements in addition to the Launch Enhancements, then seventy percent (70%) of any increased payload systems mass achieved due to such Launch Vehicle improvements shall be allocated to ORION to increase the Maneuver Lifetime and thirty percent (30%) of the same shall be allocated to the Contractor to increase the Contractor's mass margin. 4. NOTICE TO PROCEED; CONDITIONS PRECEDENT The Contractor shall have no obligation to proceed with the Work until (a) the Contractor receives from ORION a written notice to proceed, the Advance Payment, and the payment that ORION is required to make to the Contractor under Section 5(a) of Amendment #10 to the F1 Contract and (b) the Launch Vehicle Agency receives from ORION the Initial Progress Payment. If NPD does not occur by 15 November 1996, adjustments, if any, in the Contract Price will be determined in accordance with the provisions of Article 5.2. If NPD does not occur by 31 March 1997, the Parties agree to negotiate in good faith concerning a later NPD as well as the price and schedule impact, if any. 5. CONTRACT PRICE 5.1 For the full, satisfactory and timely performance of the Work by the Contractor in accordance with the provisions of the ORION 2 Contract, ORION shall pay the Contractor the Contract Price, which includes all taxes applicable at NPD including personal property taxes, imposts and duties wherever the Work is being carried out but excludes interest due under Article 6.1.2. The Contract Price shall be paid in accordance with Article 6 below. Except as otherwise expressly provided in the ORION 2 Contract, the Contract Price is not subject to any escalation, or to any adjustment or revision by reason of the actual cost incurred by the Contractor in the performance of the ORION 2 Contract. COMMERCIAL-IN-CONFIDENCE The Contract Price shall comprise the following elements, including any related training and documentation: Item Description Amounts $ - -------------------------------------------------------------------------------- 1. ORION 2 Spacecraft 2. Launch Vehicle 3. Launch Services - -------------------------------------------------------------------------------- CONTRACT PRICE TOTAL $196,900,000 - -------------------------------------------------------------------------------- 5.2 Variations in Contract Price When NPD Does Not Occur by 15 November 1996 (a) In the event that NPD does not occur by 15 November 1996, then for the period from 15 November 1996 to 31 March 1997, the price of the ORION 2 Spacecraft and Launch Services provided by the Contractor shall be escalated on a daily basis at the annual rate (computed on a 365 days basis) of four percent (4%), unless such failure results from the Contractor's failure to perform its obligations under Articles 3.3 or 3.4, in which case the price of the ORION 2 Spacecraft and Launch Services will not be so escalated during such period. (b) The price of the Launch Vehicle shall remain fixed until and through 30 September 1996. (c) In the event NPD does not occur on or before 30 September 1996, the Launch Vehicle price of_______________________ shall be fixed until and through 31 December 1996 provided ORION pays the Launch Vehicle Agency an Eight Hundred Thousand Dollar ($800,000) launch reservation fee on or before 1 October 1996, which reservation fee shall, at NPD, be applied against the _____________________ Initial Progress Payment. (d) If ORION does not pay Eight Hundred Thousand Dollars ($800,000) to the Launch Vehicle Agency on or before 1 October 1996 or NPD does not occur on or before 31 December 1996, the Contractor shall terminate the Launch Agreement effective 31 December 1996, unless ORION directs the Contractor in writing to extend such Launch Agreement and enters into an Amendment of the Orion 2 Contract, satisfactory in form COMMERCIAL-IN-CONFIDENCE and substance to the Contractor, reflecting any change in schedule and Contract Price that results from the failure of NPD to occur on or before 31 December 1996. 6. PAYMENT 6.1.1 Payments The ORION 2 Contract shall be paid as follows: (a) Progress Payments. ORION shall make Progress Payments to the Launch Vehicle Agency in accordance with the Progress Payment Plan specified in Part 1(B) as adjusted by Articles 5 and/or 27 hereof. Each Progress Payment shall be payable by the Contractor submitting to ORION a Request for Payment accompanied by a certificate in the form of Appendix I to Annex A hereto. (b) Milestone Payments. (i) ORION shall make Milestone Payments to the Contractor in accordance with the Milestone Payment Plan specified in Part 1(B) as adjusted by Articles 5 and/or 27 hereof. With the exception of the first Milestone Payment for the ORION 2 Spacecraft, which shall be made simultaneously with NPD each Milestone Payment shall be payable by the Contractor submitting to ORION a Request for Payment accompanied by a certificate in the form of Appendix I to Annex A hereto together with such supporting data as the Contractor deems necessary or appropriate. A Milestone shall not be regarded as completed until all of the Work relevant to that Milestone has been completed and documented in accordance with applicable specifications and procedures and relevant documentation and training required under the ORION 2 Contract for such Milestone have been provided to ORION. The Contractor's failure to achieve any Milestone in the sequence set forth in Part 1(B) shall not limit the Contractor's rights to claim and be paid other Milestone Payments when the relevant Milestone is achieved. (ii) Subject to the provisions of Article 6.1.1(e), in no event shall the cumulative Milestone Payments made to the Contractor for the ORION 2 Spacecraft or Launch Services at any point in time exceed the cumulative amounts specified up to that point in time for Milestone Payments for the ORION 2 Spacecraft or Launch Services as set forth in Part 1(B) as it may be modified from time to time. (c) Launch Reservation Fees. (i) On the date of execution of the Orion 2 Contract, ORION shall pay to the Launch Vehicle Agency the sum of Two Hundred Thousand Dollars ($200,000) to reserve the Launch Slot until and through 30 September 1996. If NPD does not occur by such date, ORION shall pay to the Launch Vehicle Agency, on or before 1 October 1996, the sum of Eight Hundred Thousand Dollars ($800,000) to COMMERCIAL-IN-CONFIDENCE reserve the Launch Slot until and through 31 December 1996. At NPD, the Contractor shall credit such Two Hundred Thousand Dollars ($200,000) (and any other amount paid by ORION to reserve a Launch Slot, including the Eight Hundred Thousand Dollars ($800,000), if paid) against the __________________ ___________________________ Initial Progress Payment. (d) Delivery to ORION. Each Request for Payment and accompanying certificate shall be telefaxed to ORION followed by airmailed signed copies. (e) Advance Payment and Vendor Financing Takeout Payment. (i) On or before NPD, ORION shall transfer by wire transfer into bank accounts established by the Contractor and the Launch Vehicle Agency, respectively in the United States of America, the details of which accounts shall be made known to ORION at least two (2) weeks prior to NPD, (A) the Advance Payment to the Contractor; and (B) the Initial Progress Payment (less any launch reservation fees paid by ORION to the Launch Vehicle Agency) to the Launch Vehicle Agency. (ii) The Advance Payment shall be used and credited against future installments of the Milestone Payments required under Part 1(B), as and when such payments become due, and the Contractor agrees to hold in trust the Advance Payment, or any portion thereof, for the express use and purpose of paying in full each Milestone Payment required under Part 1(B) as and when such payment becomes due under the terms of the ORION 2 Contract and of offsetting or recouping any Termination Liability Amount that ORION is obligated to pay to the Contractor under the ORION 2 Contract. Within ten (10) days of any date upon which ORION is obligated to pay any Termination Liability Amount to the Contractor, the Contractor shall pay to ORION the difference, if any, between the Advance Payment and such Termination Liability Amount. Notwithstanding any Milestone Payments or Progress Payments required under Part 1(B), ORION shall not be obligated to make any Milestone Payments or Progress Payments in excess of the Advance Payment and the Initial Progress Payment until the last day of the twenty-first (21st) month after NPD. (iii) (A) At least one week prior to the last day of the eighteenth (18th) month following NPD, ORION shall notify the Contractor in writing whether ORION will be able to pay the Progress Payment portion of the Vendor Financing Takeout Payment on or before the last day of the twenty-first (21st) month following NPD in accordance with Article 6.1.1(e)(iii)(C). If ORION notifies the Contractor that it will be able to do so, ORION shall supply to the Contractor evidence reasonably satisfactory to the Contractor of its ability to do so. (B) In the event ORION does not pay the Progress Payment portion of the Vendor Financing Takeout Payment to the Launch Vehicle Agency on or before the last day of the eighteenth (18th) month after NPD, but does commit to make such payment on or before the last day of the twenty-first (21st) month after NPD, then COMMERCIAL-IN-CONFIDENCE (x) in the event ORION does not pay the Vendor Financing Takeout Payment in accordance with Article 6.1.1(e)(iii)(C) on or before the last day of the twenty-first (21st) month after NPD, ORION shall pay the Contractor the amount of Two Million Dollars ($2,000,000) and the Launch Vehicle Agency any termination liability amount the Contractor is obligated to pay the Launch Vehicle Agency which amount is not to exceed thirty percent (30%) of the price of the Launch Vehicle less any payments made by either Party to the Launch Vehicle Agency; and (y) beginning with the first day of the nineteenth (19th) month after NPD, interest shall accrue only on the difference between the amounts required to be paid to the Launch Vehicle Agency under the Progress Payment schedule set forth in Part 1(B) as of the last day of the eighteenth (18th) month after NPD and any payments made by either Party to the Launch Vehicle Agency. Such interest shall accrue on a daily basis at the prime rate announced by The Chase Manhattan Bank (National Association) from time to time plus one-half percent (0.5%) until ORION makes the Progress Payment portion of Vendor Financing Takeout Payment, said interest accruing period not to exceed (3) months; and (z) at least one week prior to the last day of the eighteenth (18th) month after NPD, ORION shall deliver to the Contractor an unconditional, irrevocable letter of credit in form and substance satisfactory to the Contractor from a bank satisfactory to the Contractor or equivalent protection satisfactory in form and substance to the Contractor, the face amount of which shall be sufficient to secure those payments that ORION is required to make under Article 6.1.1(e)(iii)(B)(x) and (y) (the "Guarantee"). (C) ORION agrees to pay, no later than the last day of the twenty-first (21st) month after NPD, the Milestone Payment portion of the Vendor Financing Takeout Payment to the Contractor and the Progress Payment portion (plus interest, if any, required under Article 6.1.1(e)(iii)(B)(y) above) of the Vendor Financing Takeout Payment to the Launch Vehicle Agency, provided, however, that ORION shall be required to make any Milestone Payment portion of the Vendor Financing Takeout Payment only to the extent the Contractor is entitled to Milestone Payments in excess of the Advance Payment in accordance with the ORION 2 Contract. The Vendor Financing Takeout Payment shall be payable by the Contractor submitting to ORION a Request for Payment accompanied by a certificate in the form of Appendix I to Annex A hereto. (iv) If ORION fails to pay, or notify the Contractor at least one week prior to the last day of the eighteenth (18th) month following NPD that it will be able to pay, the Progress Payment portion of the Vendor Financing Takeout Payment on or before the last day of the twenty-first (21st) month following NPD or if ORION fails to deliver to the Contractor the Guarantee specified in Article 6.1.1(e)(iii)(B)(z) with respect to amounts due to the Launch Vehicle Agency, then the Contractor may COMMERCIAL-IN-CONFIDENCE terminate the Launch Agreement. If ORION fails to deliver to the Contractor the Guarantee specified in Article 6.1.1(e)(iii)(B)(z) with respect to the Two Million Dollars ($2,000,000), then either Party may terminate the ORION 2 Contract upon ten (10) days prior written notice to the other Party, provided ORION fails to deliver such portion of the Guarantee within such ten (10) day period. Contractor's exclusive remedy for ORION's failure to deliver the Guarantee specified in Article 6.1.1(e)(iii)(B)(z) with respect to the Two Million Dollars ($2,000,000) (subject to the applicable notice and cure procedure set forth above in this Article 6.1.1(e)(iv)) shall be to sell or dispose of the ORION 2 Spacecraft, or any part thereof, at a public or private sale for cash, upon credit or for future delivery as the Contractor deems appropriate. If ORION fails to make the Vendor Financing Takeout Payment in accordance with Article 6.1.1(e)(iii)(C) on or prior to the last day of the twenty-first (21st) month after NPD, either Party may terminate the ORION 2 Contract upon written notice to the other Party and, if terminated, ORION shall pay any termination liability amount the Contractor is obligated to pay the Launch Vehicle Agency, which amount is not to exceed thirty percent (30%) of the price of the Launch Vehicle less any payments made to the Launch Vehicle Agency. Contractor's exclusive remedy for ORION's failure to make the Vendor Financing Takeout Payment shall be to receive payment of Two Million Dollars ($2,000,000) and to sell or dispose of the ORION 2 Spacecraft, or any part thereof, at a public or private sale for cash, upon credit, or for future delivery as the Contractor deems appropriate, and to draw under the Guarantee. No less than thirty (30) Calendar Days prior to the Contractor's first attempts to sell or to dispose of the ORION 2 Spacecraft, and no less than fifteen (15) Calendar Days prior to any subsequent attempts by the Contractor to sell or to dispose of the ORION 2 Spacecraft, the Contractor shall deliver, by overnight courier (which delivery shall be acknowledged by written receipt), written notice of any such intent to sell or dispose of the ORION 2 Spacecraft. If ORION fails within such notice period, as applicable, to make the Vendor Financing Takeout Payment plus accrued and unpaid interest due and payable to the Contractor under the ORION 2 Contract as well as reasonable costs, expenses, attorneys' fees, and costs incurred by the Contractor for the storage, protection, removal, modification, completion, sale and delivery of the ORION 2 Spacecraft incurred by the Contractor in excess of those contemplated by the Contact Price, the Contractor may proceed with such sale or disposal. Any purchaser at any such sale shall hold the property sold absolutely free from any claim or right on the part of ORION, and ORION hereby waives (to the extent permitted by law) all rights of redemption or stay that ORION now has or may have at any time in the future under any rule of law or statute now existing or hereafter enacted. The proceeds realized from any such sale shall be applied first to the reasonable costs, expenses, attorneys' fees, and costs incurred by the Contractor for the storage, protection, removal, modification, completion, sale, and delivery of the ORION 2 Spacecraft or any portion thereof, second to accrued and unpaid interest due and payable to the Contractor under the ORION 2 Contract, and third to the Contract Price (collectively, the "Disposal Costs"). The Contractor shall have no COMMERCIAL-IN-CONFIDENCE obligation to reimburse any portion of the Advance Payment to ORION or pay to ORION any proceeds of the sale or disposal of the ORION 2 Spacecraft unless the Contractor sells the ORION 2 Spacecraft (other than to ORION) within thirty (30) months after NPD, in which case the Contractor shall pay to ORION one-half the difference, if any, between the sale price and the Disposal Costs. 6.1.2 Payments by ORION Subject to Article 6.1.1(e), which provides for no interest payment by either Party relating to the Advance Payment, Progress Payments (except as provided in Article 6.1.1(e)(iii)(B)(y)), or Milestone Payments prior to the last day of the twenty-first (21st) month after NPD, ORION shall pay each Milestone Payment (other than the first ORION 2 Spacecraft Milestone Payment), Progress Payment (other than the Initial Progress Payment and the payments to the Launch Vehicle Agency pursuant to Article 6.1.1(c)) and the Vendor Financing Takeout Payment in full within thirty (30) Calendar Days after the delivery of a Request for Payment (in accordance with the procedures set forth in Article 6.1.1) into the appropriate bank accounts set forth in Article 6.1.3. Where the thirty (30) Calendar Days allowed for payment after delivery of a Request for Payment for a Milestone or Progress Payment causes a payment to become due on a non-Business Day, such payment shall be due on the next Business Day. Subject to Article 6.1.1(e), (a) Contractor shall be entitled to the interest earned on any properly due but unpaid amount for each Calendar Day after the date any Progress or Milestone Payment is due; and (b) Contractor shall be paid any interest to which it is entitled within ten (10) Calendar Days of the determination that such interest is due; and (c) interest shall be calculated in accordance with Article 43. Any amounts payable to the Launch Vehicle Agency shall be paid directly by ORION. 6.1.3 Procedures Payment shall be made in accordance with Articles 6.1.1 and 6.1.2 into the following bank accounts: In the case of the Contractor: Account name: MATRA MARCONI SPACE UK LIMITED Account number: _________ Bank name: Barclays Bank PLC Sort code: __________ COMMERCIAL-IN-CONFIDENCE Bank address: Southern International Banking Centre P.O. Box 44 Napier Court Napier Road Kings Meadow Reading RG1 8BW England In the case of ORION: Account name: IPSP Receipt Account Account number: ____________ Bank name: The Chase Manhattan Bank, N.A. Sort code: ____________ Bank address: 4 Chase MetroTech Center Brooklyn, New York 11245 United States of America In the case of the Launch Vehicle Agency: Account name: Lockheed Martin Commercial Launch Services, Inc. Account number: __________ Bank name: Citibank N.A. ABA number: ___________ Bank address: One Penn's Way New Castle, Delaware 19720 Any payment shall be deemed to have been made when credit for the amount is established in the above bank accounts. Each Party shall notify the other Party in writing within ten (10) Calendar Days of a change to the above bank accounts. 6.2 Dispute In a written notice (which may be a telefax followed by an originally signed copy) received by the Contractor no later than twenty (20) Business Days after receipt by ORION of a Request for Payment in connection with a Milestone Payment or other payment under Article 6.4, ORION may dispute timely completion of the Milestone associated with such Milestone Payment or other payments. In the event there is such a dispute, ORION shall nonetheless pay the Milestone COMMERCIAL-IN-CONFIDENCE Payment in accordance with Article 6.1.2 without waiving any of its rights. In the event it is determined, either by agreement of the Parties or by dispute resolution pursuant to Article 30 hereof, that the Milestone with respect to which such notice shall have been timely received was not completed as of the date of the Request for Payment, ORION shall be entitled to the interest at the rate specified in Article 43 earned on the disputed amount for each Calendar Day after the date such Milestone Payment was paid until the day the Milestone associated therewith is completed. ORION shall be paid any interest to which it is entitled within ten (10) Calendar Days of the determination that such interest is due. Interest shall be calculated in accordance with Article 43. 6.3 Other Payments Except as otherwise expressly stated herein, all other payments by ORION to the Contractor shall be made in accordance with the procedures set forth in Article 6.1.3 within thirty (30) Calendar Days after receipt by ORION of a telefaxed invoice. This invoice will be followed by an airmailed original and one copy. 6.4 Setoff In the event that one Party has not paid the second Party any amount which is due and payable to the second Party under the ORION 2 Contract, such second Party shall have the right to set off such amount against payments due to the first Party, provided any amount in dispute pursuant to Article 6.2 shall not be considered due and payable while the dispute is being resolved. 6.5 If (a) the Contractor fails to make the Spacecraft available to the Launch Vehicle Agency in sufficient time for the Launch to occur on or prior to 31 March 1999 and such failure is due to any reason other than the Contractor's failure to perform the Work in accordance with Part 2(A) or other than Excusable Delay (but not Excusable Delay caused by ORION's failure to meet its responsibilities under the Orion 2 Contract (including Article 18.5), its invalid exercise of its rights under Article 13, or its exercise of its rights under Article 41), or (b) the Launch Agreement is terminated pursuant to Articles 5.2(d) or 41, then the Contract Price shall be increased by any additional amount required by the Launch Vehicle Agency to perform the Launch. 7. ACCESS TO WORK 7.1 ORION and the Consultants shall have reasonable access (upon reasonable notice to the Contractor from ORION, but no less than forty-eight (48) hours) to any premises of the Contractor or Major Subcontractors, or other selected Subcontractors on an "as needed" basis for short durations, where Work is being performed and may observe all of the Work, as well as any associated facilities and documentation, during regular business hours, or such other times as COMMERCIAL-IN-CONFIDENCE Work is being performed under the ORION 2 Contract. ORION shall justify to the Contractor why such access to other selected Subcontractors is needed but such access shall not be unreasonably withheld. ORION and the Consultants shall also be entitled to attend all meetings and reviews of the Contractor and of the Contractor with Subcontractors related to project schedule and management, engineering, design, manufacturing, integration and testing and Launch as reasonably necessary and with the prior approval of the Contractor. The Contractor shall provide ORION and the Consultants reasonable assistance in the performance of such inspections. The Parties agree that non-escort permanent badges to agreed work areas where ORION activities are being performed shall be made available to all ORION representatives subject to adequate notice of personnel details being provided to the Contractor and security clearance being granted. 7.2 The Contractor shall provide office space and facilities for the accommodation of up to six (6) representatives (plus a secretary) employed by ORION (or its Consultants) at the Contractor's plants and at environmental test facilities (if located off site) and shall ensure that such space and facilities are provided at the repeater Subcontractors' plant for up to three (3) representatives and at other selected Subcontractors' plants on a temporary basis to attend meetings or witness tests. Provision for up to four (4) engineers (plus a secretary) shall be made at the Launch site facility. At a minimum, the Contractor shall provide desks, chairs, normal office supplies, local telephone service (long distance telephone usage to be charged to ORION), car parking facilities and access to meeting rooms, copying machines and facsimile equipment, and access to and use of video conferencing facilities, if any, at the Contractor's plants (in this connection, Contractor will take reasonable measures to facilitate video conferencing between Contractor's plants and ORION's premises, provided the video conferencing facilities of both Parties are fundamentally compatible). ORION shall make ORION space segment capacity for video conferencing available without charge. 7.3 The Contractor shall require that any Subcontract contains a provision substantially similar to this Article 7 to ensure ORION's rights under the ORION 2 Contract, except that ORION's access to the Launch Vehicle Agency's facilities shall be controlled by the Launch Vehicle Agency. 7.4 ORION and its Consultants will have reasonable access to any drawings, specifications, standards or process descriptions which are available to the Contractor and relevant to the ORION 2 Spacecraft and Data and Documentation to be Delivered under the ORION 2 Contract. If an electronic mail system is used by the Contractor to distribute documentation, access to ORION representatives is to be approved by the Contractor. The Contractor will make available, to the extent permitted under Article 24, copies of such documentation, at no charge to ORION, on the reasonable request of ORION or ORION's Consultant where such documentation is COMMERCIAL-IN-CONFIDENCE necessary for evaluation of designs, performance considerations, assessment of test plans and test results or for any other purpose connected with the design, qualification, testing, Launch, Final Acceptance or operation of the ORION 2 Spacecraft components. The Contractor will allow ORION or its Consultants reasonable access to all drawings and document indices to facilitate their work in this respect. The Contractor shall establish data links between its and ORION's facilities such that ORION has remote electronic access to those project related documents identified in Part 2(B). ORION shall make space segment capacity required for such remote access available without charge. The Contractor will also provide ORION and its Consultants with "real time" access to all measured data taken at the Contractor's and Subcontractors' facilities on a non-interference basis. In addition, ORION shall have access to those project related documents which are of the type to which ORION had access during the implementation of the F1 Contract. 7.5 In exercising its rights under the ORION 2 Contract, ORION and the Consultants shall be subject to Governmental security requirements of the Contractor and its Subcontractors and the Contractor shall use its best efforts to ensure that such security requirements do not unduly restrict access or viewing by ORION subject to adequate notice of ORION personnel details being provided to the Contractor. Access by ORION or any Consultant to Subcontractor facilities shall be coordinated through the Contractor. 7.6 In the event a meeting is convened at the Contractor's or a Subcontractor's plant, the Contractor shall provide reasonable advance notice to ORION (e.g., one week for regularly scheduled meetings) and make the necessary arrangements to facilitate the entry of ORION or its Consultants to the meeting place subject to adequate notice of ORION personnel details being provided to the Contractor. 7.7 Subject to Article 27 hereof, the inspection, examination, agreement to, or approval, waiver or deviation by ORION (other than in accordance with Article 27) with regard to any design, drawing, specification or other documentation produced under the ORION 2 Contract shall not relieve the Contractor from fulfilling its contractual obligations or result in any liability being imposed on ORION. 7.8 ORION shall have the right to participate in and make recommendations, but not to control, give directions or assign actions, in all review meetings at the system, subsystem and critical component levels, as well as test review board, manufacturing review board and failure review board meetings. The Parties agree to work cooperatively in resolving issues that arise at the various review board COMMERCIAL-IN-CONFIDENCE meetings and, where ORION has an objection to a recommended resolution/implementation, the Parties agree to discuss it at a senior management level (ORION's Senior Vice President, Engineering and Satellite Operations and Contractor's Director of Civil Communications Satellites) prior to implementation, but the final decision concerning implementation shall remain with the Contractor who shall provide ORION with a written explanation for its decision. 8. DELIVERABLE ITEMS AND DELIVERY DATES 8.1 "Delivery" shall be deemed to have occurred for each Deliverable Item upon its Final Acceptance by ORION. The Parties acknowledge that the Delivery of the ORION 2 Spacecraft is to be in orbit. Subject to this Article and Articles 5, 12 and 27, the Parties agree that the Delivery Dates for Deliverable Items under the ORION 2 Contract (depending on the final configuration selected) are as follows:
Item Description Delivery Date 1. Delivery of ORION 2 Spacecraft in Orbit 28.25 months after NPD (provided a Launch Slot is available in such timeframe) 2. Data and Documentation As specified in Section 9.2.1 of Part 1(A), Part 2(A), Part 2(B) and Part 3(D) 3. Mission Specific Hardware and Software As specified in Section 10 of Part 2(A) - ------------------------------------------------------------------------------------------------------
The Parties will negotiate in good faith reasonable adjustments in the Delivery Date for the ORION 2 Spacecraft upon the addition, elimination or technical complication or simplification of other ORION 2 Spacecraft items prior to NPD, to the extent such additions, eliminations and/or technical complications or simplifications are, singly or in the aggregate, material (i.e., more than minor in effect on cost, schedule and/or performance). If at NPD there is less than twenty-eight and three quarters (28.75) months from NPD to the last possible day of the Launch Slot, which day shall be confirmed at NPD with the Launch Vehicle Agency, then the Parties agree to work together cooperatively and in good faith to devise a revised delivery schedule with the existing launch vehicle provider (or, if necessary, with a COMMERCIAL-IN-CONFIDENCE different launch vehicle provider) such that there is at least a two (2) month margin in the schedule (which schedule is twenty-six and three quarters (26.75) months to Launch) and the Parties shall enter into an Amendment of the ORION 2 Contract reflecting any resultant changes in schedule and Contract Price. If (a) the Contractor fails to make the Spacecraft available to the Launch Vehicle Agency in sufficient time for the Launch to occur on or prior to 31 March 1999 and such failure is due to Excusable Delay or (b) the Launch Agreement is terminated pursuant to Articles 5.2(d) or 41, then the Delivery schedule shall be amended to reflect an in-orbit Delivery Date occurring six (6) weeks (forty-two (42) Calendar Days) after the actual launch date of the Orion 2 Spacecraft. For the avoidance of doubt, the Parties recognize and agree that in the event of a Constructive Total Loss of the ORION 2 Spacecraft, the Delivery Dates provided in Article 8 hereof shall, in respect of the ORION 2 Spacecraft and its related Data and Documentation not already delivered, be extinguished and have no further effect. 8.2 The Contractor understands and agrees that, with respect to the Delivery Dates for all Deliverable Items, whether those items are set out in the ORION 2 Contract or in subsequent Amendments to the ORION 2 Contract, time is of the essence under the ORION 2 Contract. Nothing in the foregoing sentence shall in any way modify either the specific remedies for default specified elsewhere in the ORION 2 Contract, including but not limited to Articles 11.2 and 21, or the specific dispute resolution requirements specified in the ORION 2 Contract. 8.3 The Contractor, if requested to do so by ORION, agrees to construct and launch an additional satellite, the Replacement Satellite, in accordance with the terms set forth in Article 19. 8.4 On time schedules to be mutually agreed to in writing, ORION will make available to the Contractor fully operational in-orbit test equipment equivalent to that used on the F1 Spacecraft as specified in Part 2(A) and facilities (Mt. Jackson and Fucino) for use in meeting the requirements of Part 3(D). Contractor will make available (but not deliver) additional test equipment, as reasonably necessary, for in-orbit testing of the American coverage beam in order to satisfy the requirements of Part 3(D). COMMERCIAL-IN-CONFIDENCE 9. FINAL ACCEPTANCE 9.1 Data and Documentation 9.1.1 "Final Acceptance" (and therefore, Delivery) of Data and Documentation shall occur only when: (i) the Contractor has fulfilled the ORION 2 Contract requirements for the Data and Documentation; and (ii) the Data and Documentation has been delivered at the place specified in the ORION 2 Contract in a condition fully conforming to the provisions of the ORION 2 Contract. Data and Documentation, other than Data and Documentation which requires approval and acceptance by ORION in accordance with Article 9.1.2 hereof, shall be deemed to have achieved Final Acceptance unless rejected by ORION in writing within ten (10) Business Days after receipt of said Data and Documentation by ORION. If Data and Documentation not requiring approval and acceptance by ORION is unacceptable, ORION shall, within the said ten (10) Business Days, notify the Contractor in writing in which respects the Data and Documentation is unacceptable. Any Data and Documentation that is considered by ORION to be unacceptable with respect to which ORION has so notified the Contractor as being unacceptable, shall be deemed under the ORION 2 Contract not to have been Delivered unless and until the Defects that resulted in such rejection have been remedied or demonstrated not to exist pursuant to verification procedures in accordance with the ORION 2 Contract and the Data and Documentation is at the specified delivery location in accordance with the ORION 2 Contract whereupon ORION shall accept the Data and Documentation in writing and Final Acceptance shall occur. 9.1.2 Final Acceptance of any Data and Documentation requiring approval by ORION in accordance with Part 2(B) shall occur when such approval has been granted by ORION in writing. ORION shall respond under this Article 9.1.2 within ten (10) Business Days after receipt of such Data and Documentation by ORION; failing such response, the Parties shall be deemed forthwith to be in dispute and their rights shall be determined in accordance with the provisions of Article 30 hereof. 9.1.3 The provisions of this Article 9.1 shall not apply to the Final Acceptance of a Launched ORION 2 Spacecraft or to the In-Orbit Acceptance Report. The Final Acceptance of the Launched ORION 2 Spacecraft and of the In-Orbit Acceptance Report essential thereto shall be governed by Article 9.2. COMMERCIAL-IN-CONFIDENCE 9.2 Launched ORION 2 Spacecraft 9.2.1 Upon arrival at its designated orbital location, the Contractor will perform the tests and analyses as set forth in Part 3(D) for the Launched ORION 2 Spacecraft to determine the Aggregate Predicted Transponder Life of the Launched ORION 2 Spacecraft The results of such tests and analyses will be furnished to ORION in an In-Orbit Acceptance Report prepared by the Contractor for the Launched ORION 2 Spacecraft in accordance with Part 2(A), Part 2(B) and Part 3(D). Unless the Launched ORION 2 Spacecraft is a Constructive Total Loss, Delivery and Final Acceptance will take place upon receipt by ORION of the In-Orbit Acceptance Report in full compliance with Part 2(A), Part 2(B) and Part 3(D). (a) In respect of the Launched ORION 2 Spacecraft (if it arrives at its designated orbital location): (i) Within 180 days after Launch of the ORION 2 Spacecraft, the Contractor shall furnish to ORION the In-Orbit Acceptance Report in full compliance with Part 2(A), Part 2(B) and Part 3(D) in respect of the Launched ORION 2 Spacecraft. (ii) Unless ORION shall respond to such In-Orbit Acceptance Report within thirty (30) Calendar Days after receipt thereof, or such other period of time acceptable to both Parties, the Report shall be deemed acceptable. (iii) If ORION's response under Article 9.2.2(a)(ii) contains an objection to such In-Orbit Acceptance Report, the Parties shall be deemed forthwith to be in dispute and their rights shall be determined in accordance with the provisions of Article 30 hereof. (iv) The existence of a dispute shall not affect Final Acceptance set forth above; unless, under the procedures in Article 30, it is ultimately determined that the Launched Spacecraft is a Constructive Total Loss. If the Launched ORION 2 Spacecraft fails to arrive at its designated orbital location in time to complete in-orbit testing and provision of the In-Orbit Acceptance Report within 180 Calendar Days after Launch, the ORION 2 Spacecraft shall be deemed a Constructive Total Loss. (b) Without limiting any other Contractor obligations under this Article 9 and in order to comply with insurance requirements, within thirty (30) Calendar Days following receipt of information that one or more of the following circumstances exist, the Contractor shall provide written notice of loss to ORION and to all insurers under applicable policies (provided that the Contractor shall have no obligation to provide such notice to the COMMERCIAL-IN-CONFIDENCE Launch Insurance insurer unless ORION identifies such insurer to the Contractor) specifying in such notice: (i) The basis for a Partial Loss or a Constructive Total Loss under Articles 9.2.2 or 9.2.3, respectively; or (ii) The Launched ORION 2 Spacecraft shall be determined to fall within any of the provisions of Article 9.2.3; or (iii) The Parties are deemed to be in dispute under any of the provisions of Article 9.2.(a) or Article 9.2.3. Such notice of loss shall comply with the provisions of Article 34 hereof, and the foregoing specified time for the provision of notice may be shortened in compliance with the respective requirements of such insurers. 9.2.2 A Partial Loss shall occur in respect of the Launched ORION 2 Spacecraft, if the In-Orbit Acceptance Report accurately confirms (a) that the Aggregate Predicted Transponder Life is __________________________ ______________ years or less but (i) is ______________________ years or higher, and (ii) at least ________________ downlink Transponders with ______ at the ________ GHz frequency and _________ at either of the two frequency ranges of ___________ or _______ GHz frequency are Serviceable Transponders, and (iii) at least _____________ downlink Transponders are Serviceable Transponders, then the ORION 2 Spacecraft will be deemed to have sufficient revenue-earning capacity to form an economically viable part of the space segment of the ORIONSAT system. In such case, ORION must accept the ORION 2 Spacecraft; and/or; (b) that the ORION 2 Spacecraft has fewer than _____________ downlink Transponders which are Serviceable Transponders. 9.2.3 Notwithstanding any other provisions of this Article 9, if the ORION 2 Spacecraft is a Constructive Total Loss pursuant to item B of the definition of such term, the Contractor shall furnish ORION with written notice of loss in respect of the Launched ORION 2 Spacecraft. Such notice shall be furnished to ORION promptly upon the Contractor's concluding from information available to it that such Constructive Total Loss has occurred. In no circumstance shall such notice of loss be furnished to ORION later than 180 Calendar Days after Launch of the ORION 2 Spacecraft. COMMERCIAL-IN-CONFIDENCE If the Contractor fails to provide ORION with the notice of loss in respect of the Launched ORION 2 Spacecraft specified under this Article 9.2.3 within the respective times specified herein, or if ORION rejects the Contractor's notice of loss, the Parties shall be deemed forthwith to be in dispute and their rights shall be determined in accordance with the provisions of Article 30 hereof. In all circumstances Final Acceptance shall be deemed to have occurred upon Constructive Total Loss. In the event of Constructive Total Loss the provisions of Article 15 shall not apply. 9.2.4 In the event of a dispute as to the performance of the Launched ORION 2 Spacecraft, the Parties agree to have an independent determination of the ORION 2 Spacecraft technical status performed by a mutually acceptable technically qualified third party. The costs incurred in retaining the third party shall be shared equally between the Contractor and ORION. The Parties agree that before reference to such mutually-acceptable technically-qualified third party, an informal forum between Contractor's Senior Executive and ORION's Senior Executive shall take place to attempt a resolution of said dispute. In the event that such efforts to resolve the dispute have been unsuccessful, the Parties shall proceed under Article 30 hereof. The foregoing independent determination may be used by either Party in any arbitration under Article 30 hereof, but such determination shall not be binding upon the arbitrators. 9.2.5 In addition, the following provisions shall be applicable to the implementation of this Article 9.2: (a) Warranty The Parties hereto warrant and represent that they will not withhold from each other any of the material information they have or will have concerning anomalies, failures and deviations from the requirements of the ORION 2 Contract, from NPD through Intentional Ignition in respect of the ORION 2 Spacecraft. (b) Access to Technical Information Upon request of a Party, the other Party will respond or permit the first Party to respond to any insurers in relation to all specific and reasonable questions relating to design, test, quality control, launch and orbital information. In addition, in the event a Party notifies or is notified by the other Party of an occurrence which may be expected to result in a Partial Loss or Constructive Total Loss under this Article 9.2, such other Party will permit and assist the first Party to: (i) conduct review sessions with a competent representative selected by the insurers to discuss any continued issue relating to such occurrence, including information conveyed to either Party; and COMMERCIAL-IN-CONFIDENCE (ii) use its best efforts to secure the insurers' access to all information used in or resulting from any investigation or review of the cause or effects of such occurrence; and (iii) make available for inspection and copying all information necessary to establish the scope of such occurrence and verifying the accounting methods employed to compute any refund payment obligated thereby. 9.2.6 If either Party at any time after Launch but prior to Final Acceptance has a reasonable basis for concluding that Final Acceptance will not be achieved within the time limits provided for in this Article 9 and the other Party fails to agree with that conclusion within thirty (30) Calendar Days of notice, either Party shall have the right to proceed under Article 30. 9.2.7 Notwithstanding that title to each Deliverable Item remains with the Contractor until Final Acceptance, the Contractor shall have no liability under this ORION 2 Contract for a Partial Loss or a Constructive Total Loss; however, this Article 9.2.7 shall have no effect on the rights of the Parties under Article 11.2 and 15. 10. TRANSFER OF TITLE AND ASSUMPTION OF RISK 10.1 Transfer of title, free and clear of all liens and encumbrances of any kind, and risk of loss or damage to each Deliverable Item shall pass to ORION at Final Acceptance, provided, however, risk of loss or damage to the ORION 2 Spacecraft shall pass to ORION at Intentional Ignition. COMMERCIAL-IN-CONFIDENCE 10.2 In the event of a Constructive Total Loss, title free and clear of all liens and encumbrances of any kind shall pass to ORION. In such event, at ORION's direction, Contractor shall surrender the ORION 2 Spacecraft to insurers obligated to cover such loss. 10.3 ORION acknowledges that prior to payment of the Milestone portion of the Vendor Financing Takeout Payment it has no property interest in the work in progress of the ORION 2 Spacecraft; ORION does have rights to repayment of the Advance Payment to the extent provided in the ORION 2 Contract and to the proceeds of any sale or disposal of the ORION 2 Spacecraft to the extent provided in Article 6.1.1(e)(iv). 11. ORION 2 SPACECRAFT DELIVERY INCENTIVE AND LATE DELIVERY LIQUIDATED DAMAGES 11.1 Delivery Incentive ORION acknowledges and agrees that the Delivery of the ORION 2 Spacecraft earlier than the Delivery Dates determined under Article 8 may be the sole or partial cause of financial gain being sustained by ORION. In the event of the Delivery of the ORION 2 Spacecraft earlier than the applicable Delivery Date as it may be adjusted pursuant to Articles 5, 8, 12, 18.5 and/or 27 hereof, ORION agrees to pay the Contractor within thirty (30) Calendar Days of Final Acceptance as an incentive the sum of Twenty-Five Thousand Dollars ($25,000) per Calendar Day for each day that Delivery of the ORION 2 Spacecraft occurs earlier than the Delivery Date for the ORION 2 Spacecraft, provided, however, that such payments may be delayed until such time as payment is permitted under any Financing Agreement. 11.2 Late Delivery Liquidated Damages The Contractor acknowledges and agrees that failure to meet the ORION 2 Spacecraft Delivery Date may be the sole or partial cause of substantial financial loss or damage being sustained by ORION, due to the cost of carrying any ORION external financing, cost of alternative means of providing service to customers and loss of continuity of service. In the event that the Delivery of the ORION 2 Spacecraft is later than the applicable Delivery Date as set forth in Article 8.1 (and notwithstanding Article 9.2) and where such delay is not subject to an extension of time pursuant to Articles 5, 8, 12, 18.5 and/or Article 27 hereof, the Contractor agrees to pay to ORION, as liquidated damages and not as a penalty for each Calendar Day during the period of such delay from and including the_______________ Calendar Day of lateness up to and including the ____ __________________ Calendar Day of lateness (the "Liquidated Damages Period") as follows: (i) the sum of _______________________________________________ for each Calendar Day in such Liquidated Damages Period during which the Contractor has not achieved Milestone 13 (lateness to run from _____________________ after NPD) and (ii) the sum of ____________________ per day for each other Calendar Day in such Liquidated Damages COMMERCIAL-IN-CONFIDENCE Period. The total amount of liquidated damages payable by the Contractor shall not exceed the sum of Eleven Million, Eight Hundred Twelve Thousand, Five Hundred Dollars ($11,812,500). Liquidated damages may not be levied on the ORION 2 Spacecraft after termination in accordance with this ORION 2 Contract or after the ORION 2 Spacecraft has been declared a Constructive Total Loss in accordance with Article 9 but ORION shall have the right to collect those liquidated damages that have previously accrued. 11.3 ORION shall have the right to offset any liquidated damages owed to it under this Article against any amounts due the Contractor under the ORION 2 Contract. 11.4 Except as provided under the provisions of Article 21, the liquidated damages provided in this Article shall be ORION's exclusive remedy for late Delivery of the ORION 2 Spacecraft and shall be in lieu of all other damages under the ORION 2 Contract, or at law. This provision in no way limits ORION's remedies under Article 22 for insolvency or bankruptcy of the Contractor. 12. EXTENSIONS FOR EXCUSABLE DELAYS 12.1 The Contractor shall be entitled to extensions of time beyond the Delivery Dates determined under Article 8 only in accordance with the following provisions, and the provisions of Articles 5, 8, 18.5 and 27 and any other specific provision of the ORION 2 Contract providing for extensions of time beyond the Delivery Dates set forth in Article 8.1. 12.2 12.2.1 RESERVED 12.2.2 Any delay in the performance of the Work caused by an event which is beyond the reasonable control of the Contractor or its Subcontractors, such as, but not limited to, any civil commotion, invasion, hostilities, sabotage, earthquake, fire, flood, explosion, governmental regulations or controls, labor strikes, work stoppages or slow downs (but excluding any such labor strikes, work stoppages or slow downs occurring at the facilities of the Contractor and/or at any or all of the facilities of the Launch Vehicle Agency, NEC, or COMDEV), freight embargoes, or acts of God, and which delay could not have been avoided by the Contractor or a Subcontractor through the exercise of reasonable foresight or reasonable precautions, and which cannot be circumvented by the Contractor or a Subcontractor through use of its reasonable efforts to establish work-around plans or other means, or delay caused by failure by ORION to meet its responsibilities (including COMMERCIAL-IN-CONFIDENCE an invalid exercise of its rights under Article 13) under the ORION 2 Contract or exercise by ORION of its rights under Articles 18.5 or 41 shall constitute "Excusable Delay" if notice thereof is given to ORION, in writing, within ten (10) Business Days after the Contractor shall have first learned of the occurrence of such an event. Such notice shall include a detailed description of the portion of the Work known to be affected by such a delay, as well as details of any work-around plans, alternate sources or other means the Contractor expects to utilize to minimize a delay in performance of the Work. Notice must also be given to ORION in writing when the event constituting an Excusable Delay appears to have ended. Without prejudice to the foregoing, any postponement of the Launch of the ORION 2 Spacecraft which is announced by the Launch Vehicle Agency more than one (1) calendar month prior to the Launch Date shall constitute an event of "Excusable Delay" within the meaning of this Article 12, provided that the maximum total amount of such Excusable Delay shall be twelve (12) months. Notwithstanding the foregoing, any postponement of the ORION 2 Spacecraft scheduled Delivery Date due to a launch failure within sixty (60) Calendar Days prior to the Launch Date or a Launch postponement due to bad weather or a launch vehicle accident occurring proximate to the Launch Date shall constitute an event of "Excusable Delay" within the meaning of this Article 12 if notice thereof is given to ORION, in writing as soon as practicable but in no event later than seven (7) Calendar Days after the Contractor shall have first learned of the occurrence of such an event, provided, however, that the maximum total amount of such Excusable Delay shall be twelve (12) months. The Contractor shall be entitled to such extensions of time as are reasonable for the Excusable Delay. In the event ORION disputes the Excusable Delay, ORION must inform the Contractor in writing within ten (10) Business Days from the date of receipt of written notice of the event constituting an Excusable Delay and, if the Parties have not resolved the dispute within the ten (10) Business Days of the Contractor's receipt of written notice from ORION, the dispute shall be resolved pursuant to Article 30. Without prejudice to the foregoing, if any Excusable Delays other than Excusable Delays resulting from ORION's failure to meet its responsibilities (including an invalid exercise of its rights under Article 13) under the Orion 2 Contract, or its exercise of its rights under Article 41 or resulting from Article 18.5, exist for a cumulative period of time exceeding eighteen (18) calendar months, the Contractor agrees to pay to ORION, as liquidated damages and not as a penalty, such reasonable interest costs as ORION actually incurs in relation to any debt financing of the ORION 2 Spacecraft directly as a consequence of such Excusable Delay. The Contractor's liability to pay such interest costs to ORION shall be calculated as, and shall be limited to, the amount of such interest costs incurred by ORION between (i) the first (1st) Calendar Day of the nineteenth (19th) calendar month of such Excusable Delay and (ii) the last Calendar Day of such Excusable Delay or the date of termination of the ORION 2 Contract, whichever is the earlier. ORION shall be required to provide reasonable evidence to the Contractor of it having reasonably incurred such interest costs. COMMERCIAL-IN-CONFIDENCE 12.3 Any extension of time granted under this Article shall be formalized by the execution of an Amendment to the ORION 2 Contract wherein adjustments shall be recorded with respect to the new Delivery Dates for the Deliverable Items set forth in Article 8, the dates set forth in Article 6.1.1(e)(ii), (iii) and (iv), Article 6.1.2, and Article 41 and the delivery dates set forth in Article 19.1 and modifications made as appropriate to the Advance Funding schedule of payments set forth in Article 19.2 and the Part 1(B) Milestone Payment Schedule, and Progress Payment Schedule, and Termination Liability Amounts Schedule. The Contractor acknowledges and understands that the occurrence of an Excusable Delay shall not entitle the Contractor to an increase in the Contract Price, unless the Excusable Delay is caused directly by ORION's failure to meet its responsibilities under the ORION 2 Contract or by exercise by ORION of its rights under Article 41 or resulting from Article 18.5, in which event there shall be an equitable adjustment to the Contract Price. 13. CORRECTION OF DEFECTS 13.1 ORION shall notify the Contractor in writing when it believes any Defect exists in the ORION 2 Spacecraft, the services or the Data and Documentation. The Contractor may from time to time advise ORION in writing that it disagrees with ORION or ORION's Consultant as to the existence or nature of a Defect. In such event, the Parties shall negotiate in good faith to determine what Defect exists, if any, and any action required to remedy such Defect. 13.2 Without limiting the obligations of the Contractor or the rights of ORION under the provisions of the ORION 2 Contract, prior to Launch of the ORION 2 Spacecraft the Contractor shall, at its expense, use its best efforts to promptly correct any Defect related to the ORION 2 Spacecraft which it or ORION discovers during the course of the Work, and notwithstanding that a payment may have been made in respect thereof, and regardless of prior reviews, inspections, approvals or acceptances. This provision is subject to the right of the Contractor to have any items containing a Defect returned at the Contractor's expense to the Contractor's facility for the Contractor to verify the non-conformance and to correct the Defect. All transportation costs such as packaging, shipping and insurance, shall be paid by the Contractor, except that if it is reasonably determined after investigation that ORION or its Consultants directly caused the Defects in question, or that the item is in conformance with applicable specifications and requirements, ORION will reimburse the Contractor for the above-described costs and will pay all costs associated with the shipment to and from the Contractor's facility. If the Contractor fails to so correct such Defects within a reasonable time after notification from ORION and after the Parties have followed the provisions of Article 13.1 above (including agreement on the existence of such Defect), ORION may, by separate contract or otherwise, correct or replace such items or COMMERCIAL-IN-CONFIDENCE services, and, unless it is reasonably determined after investigation that ORION directly caused the Defect in question, or that the item or service is in conformance with applicable specifications or requirements, the Contractor shall pay to ORION the reasonable cost of such correction or replacement. The amount payable by the Contractor shall be verified at the Contractor's request by an internationally recognized firm of accountants appointed by the Contractor, such appointment to be approved by ORION and such approval not to be unreasonably withheld or delayed. The costs of such verification shall be paid by the Contractor and shall be without prejudice to the right of either Party to seek arbitration under Article 30. The report of such accountants may be used by either Party in any arbitration proceeding but shall not be binding upon the arbitrators. In such event, the Contractor, if required by ORION, but pursuant to the arrangement set forth in this Article 13.2, shall promptly repay such portion of the Contract Price as is equitable in the circumstances. The amount paid to ORION to correct such Defect may be offset against any payments due to the Contractor by ORION under this ORION 2 Contract. 13.3 Without limiting the obligations of the Contractor or the rights of ORION under other provisions of the ORION 2 Contract, if the data available from the Launched ORION 2 Spacecraft or from other spacecraft of a similar class which is being built by the Contractor shows that the ORION 2 Spacecraft contains a Defect, the Contractor shall inform ORION of such Defect and shall, promptly upon the request of ORION, use its best efforts to take appropriate corrective measures with respect to the Replacement Satellite, if any, which has not been Launched so as to satisfactorily eliminate from such Replacement Satellite such Defects. The Contractor shall fulfill the foregoing obligations at its own cost and expense, including all costs arising from charges for shipping, insurance, taxes and other matters associated with the corrective measures. If the Contractor fails to take such corrective measures with respect to such Replacement Satellite which has not been Launched, within a reasonable time, ORION may have any or all such Defects corrected through other means, in which event the Contractor shall make such Replacement Satellite which has not been Launched and its component parts thereof available as required and shall pay, subject to the verification procedures set forth in Article 13.2, all reasonable costs of such corrective measures. In the event ORION makes such corrections, ORION may offset the amount paid to have the Defects corrected against any payments due the Contractor by ORION under this ORION 2 Contract. 13.4 Without limiting the obligations of the Contractor or the rights of ORION under other provisions of the ORION 2 Contract, if the data available from another spacecraft of a similar class that is being built or has been launched by Contractor shows that the ORION 2 Spacecraft contains a Defect, the Contractor shall inform ORION of such Defect and shall, promptly upon the request of ORION, use its best efforts prior to Launch to take appropriate corrective measures with respect to the ORION 2 Spacecraft so as to satisfactorily eliminate such Defect from the ORION COMMERCIAL-IN-CONFIDENCE 2 Spacecraft. The Contractor shall fulfill the foregoing obligations at its own cost and expense, including all costs arising from charges for shipping, insurance, taxes, and other matters associated with the corrective measures. If the Contractor fails to take such corrective measures with respect to the ORION 2 Spacecraft within a reasonable time after request from ORION, ORION may by separate contract or otherwise, have all such Defects corrected and the Contractor shall pay, subject to the verification procedures set forth in Article 13.2, all reasonable costs of such corrective measures. In the event ORION makes such corrections, ORION may offset the amount paid to have the Defects corrected against any payments due the Contractor from ORION under this ORION 2 Contract. 13.5 Subject to Article 12, the Contractor acknowledges and agrees that it shall not be entitled to payment for any additional costs incurred as a consequence of any Defect. In addition to ORION's rights under Article 21, if correction of any Defect causes a delay in the Delivery of the ORION 2 Spacecraft, despite the best efforts of the Contractor to correct the Defect, the provisions of Article 11.2 and Article 12, relating to liquidated damages, shall apply, as appropriate in addition to the remedies in this Article 13. 13.6 After notification of a Defect to the Contractor, the Parties may jointly elect in writing, pursuant to Article 27, not to require correction or replacement of such items or services or to waive the Defects noted for the Replacement Satellite, if any, which has not been Launched. In such event the Contractor, if required by ORION but pursuant to the arrangements set forth in Article 13.2, shall repay such portion of the Contract Price as is equitable in the circumstances. 13.7 Subject to the provisions of any applicable law, the Contractor agrees to enforce any manufacturer's warranty given to it in connection with any Work to be provided under the ORION 2 Contract and the Contractor shall assign to ORION warranty protection or pledge to ORION any proceeds therefrom in respect of that Work and other items as are given to the Contractor by the manufacturers or service providers. 13.8 Notwithstanding any other provision of the ORION 2 Contract, the Contractor shall advise ORION immediately by telephone and confirm in writing any event, circumstance or development which materially threatens the quality of the ORION 2 Spacecraft or component part thereof as well as any services or Data and Documentation to be provided hereunder or the Delivery Dates established. COMMERCIAL-IN-CONFIDENCE 13.9 For any Defect which does not adversely affect the form, fit, useful life, reliability or function (i.e., operational performance) of a Transponder, the Contractor and ORION agree to negotiate a reasonable resolution, subject to approval by any Financing Entity, which may not require repair of the Defect, but which may require reasonable compensation to ORION. If the Parties are unable to reach an agreed resolution within five (5) Business Days of ORION receiving notice of the Defect from the Contractor ("Notice Date"), the Contractor shall have the right to elevate the negotiations to Contractor's Senior Executive and to ORION's Senior Executive. Any resolution reached by ORION's Senior Executive and Contractor's Senior Executive may be subject to approval by the Financing Entities. In the event the Parties are unable to reach an agreed resolution or achieve approval of any Financing Entity within fifteen (15) Business Days of the Notice Date, ORION shall thereafter be able to exercise all of its rights under this Article 13. 14. DISCLAIMER OF WARRANTIES, LIMITATIONS OF LIABILITY AND INTER-PARTY WAIVER OF LIABILITY 14.1 EXCEPT AS SPECIFICALLY PROVIDED IN THE ORION 2 CONTRACT, THE CONTRACTOR MAKES NO WARRANTIES, EXPRESS OR IMPLIED, WITH RESPECT TO THE ORION 2 CONTRACT OR THE PERFORMANCE OF THE CONTRACTOR HEREUNDER OR THE EQUIPMENT OR WORK FURNISHED HEREUNDER, WHETHER ARISING UNDER LAW OR AT EQUITY. ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS IS EXCLUDED, THE EXPRESS WARRANTIES OF THE CONTRACTOR CONTAINED IN THE ORION 2 CONTRACT BEING EXCLUSIVE. 14.2 EXCEPT AS OTHERWISE PROVIDED IN THE ORION 2 CONTRACT, IN NO EVENT SHALL EITHER PARTY OR A PARTY'S AFFILIATES AND ITS AND THEIR SUBCONTRACTORS AND ITS AND THEIR OFFICERS, EMPLOYEES AND AGENTS, BE LIABLE, IN CONTRACT, IN TORT, OR OTHERWISE FOR ANY INCIDENTAL OR CONSEQUENTIAL DAMAGES OF ANY NATURE ARISING AT ANY TIME OR FROM ANY CAUSE WHATSOEVER, INCLUDING SPECIFICALLY BUT WITHOUT LIMITATION, LOSS OF PROFITS OR REVENUE, LOSS OF FULL OR PARTIAL USE OF ANY EQUIPMENT, LOSSES BY REASON OF OPERATION OF ANY DELIVERABLE ITEM AT LESS THAN CAPACITY, DELAYS, COST OF REPLACEMENTS, COST OF CAPITAL, LOSS OF GOODWILL, CLAIMS OF CUSTOMERS, OR OTHER SUCH DAMAGES. 14.3 THE TOTAL LIABILITY OF EITHER PARTY TO THE OTHER WITH RESPECT TO ALL CLAIMS OF ANY KIND, INCLUDING WITHOUT LIMITATION LIQUIDATED DAMAGES, WHETHER AS A RESULT OF BREACH OF CONTRACT, WARRANTY, STRICT LIABILITY OR OTHERWISE, AND WHETHER ARISING BEFORE OR AFTER DELIVERY OF ANY DELIVERABLE ITEM, FOR ANY LOSS FROM THE ORION 2 CONTRACT, OR FROM THE PERFORMANCE OR BREACH THEREOF, SHALL BE LIMITED TO THE REMEDIES SET FORTH IN THE ORION 2 CONTRACT AND SHALL IN NO EVENT EXCEED THE CONTRACT PRICE TOTAL. COMMERCIAL-IN-CONFIDENCE 14.4 14.4.1 All operations at the launch site pursuant to this Agreement will be subject to a no-fault, no-subrogation inter-party waiver of liability under terms substantially similar to those set forth in Article 15.2 of the Launch Agreement attached hereto as Annex B. Prior to commencement of Launch Services, the Contractor will provide ORION with evidence reasonably satisfactory to ORION that each other entity ("Other Users") concurrently conducting operations at such launch site, including the Launch Vehicle Agency, has agreed to such inter-party waiver of liability. 14.4.2 If either Party contracts or subcontracts with a third party to provide services that necessitate the Contractor's or Subcontractor's presence on the launch site, then such Party will also ensure that such third party agrees to a no-fault, no-subrogation inter-party waiver of liability and indemnity for damages it sustains, identical to the Parties' respective undertakings under this Article 14.4 and Annex B. 14.4.3 In the event that either ORION or the Contractor fails to obtain the aforesaid inter-party waiver of liability and indemnity from their respective contractors or subcontractors, then such Party shall indemnify and hold the other Party, the Other Users of launch services and their respective contractors and subcontractors harmless from claims brought by such Party's subcontractors with respect to matters that otherwise would have been covered by the inter-party waiver of liability. 14.4.4 Notwithstanding any other term or provision contained in the Contract, this Article 14.4 shall survive the completion or termination of this ORION 2 Contract in any manner whatsoever. 14.4.5 The Parties will take such further actions as may be required to implement the provisions of this Article 14.4, including the execution of such agreements and waivers as are customarily used with respect to operations at the launch site and are consistent with the provisions of this Article 14.4. 15. ORION 2 SPACECRAFT IN-ORBIT PERFORMANCE WARRANTY 15.1 Total Amount at Risk The Total Amount at Risk shall be placed at risk by the Contractor against failure by the ORION 2 Spacecraft's Transponders to meet the criteria for Satisfactorily Operating Primary COMMERCIAL-IN-CONFIDENCE Transponders as set forth in Article 15.3.1. The Total Amount at Risk shall be adjusted pro rata should the Contract Price be modified pursuant to Article 5.2 or otherwise modified by an Amendment to the ORION 2 Contract. 15.2 In-Orbit Performance Warranty 15.2.1 The Contractor warrants that the ORION 2 Spacecraft will provide thirty (30) Satisfactorily Operating Primary Transponders at and after its Final Acceptance pursuant to Article 9 hereof for a period of five (5) years commencing upon the date of its Final Acceptance (the "In-Orbit Performance Warranty Period"). To the extent that the ORION 2 Spacecraft fails to provide said capability, the Contractor shall pay ORION as damages liquidated in their amounts and not as a penalty, an amount which shall be calculated as specified below up to the Total Amount at Risk. 15.2.2 Upon Final Acceptance, as defined in Article 9 hereof, the Total Amount at Risk shall be earned and retained by the Contractor in the manner and to the extent provided hereunder: (a) The Initial Incentive Amount and the Monthly Amounts shall be adjusted pro rata should the Contract Price be modified pursuant to Article 5.2 or otherwise modified following the agreement between the Parties of an Amendment to the ORION 2 Contract pursuant to Article 27 hereof. (b) The Initial Incentive Amount shall be earned and retained by the Contractor if, and only if, at Final Acceptance, the ORION 2 Spacecraft has _________ Satisfactorily Operating Primary Transponders and a propellant lifetime as calculated in accordance with Part 3(D) of at least the Maneuver Lifetime less than one (1) year . Contractor shall not be liable for damages under this Article 15.2.2(b) where its failure to meet such propellant lifetime requirement is due to a malfunction of the Launch Vehicle operation or where its failure to meet the thirty (30) Satisfactorily Operating Transponder requirement is due to the Launch environment exceeding the ORION 2 Spacecraft on-ground test requirements as specified in Part 3(C). (c) The Monthly Amount corresponding and assigned to each calendar month of operation during the In-Orbit Performance Warranty Period shall be earned and retained by the Contractor according to the number of Satisfactorily Operating Primary Transponders which the ORION 2 Spacecraft has, as provided in Table 15.2 hereof. Contractor shall not be liable for damages under this Article 15.2.2(c) to the extent of the number of Transponders ("Launch-Damaged Transponders") that, at Final Acceptance, are not Satisfactorily Operating Transponders due to the Launch environment exceeding the ORION 2 Spacecraft on-ground test requirements as specified in Part 3(C); in such case, Table 15.2 shall be adjusted by decreasing the number of Satisfactorily Operating COMMERCIAL-IN-CONFIDENCE Transponders required to earn each specified proportion of the Monthly Amount by the number of Launch-Damaged Transponders. TABLE 15.2
Number of Satisfactorily Operating Proportion of Monthly Amount Earned (%) Primary Transponders - --------------------------------------------------------------------------------------------------------- 100.00 93.33 86.67 80.00 73.33 66.67 60.02 53.33 46.67 40.00 33.33 26.67 20.00 13.33 6.67 0 - ---------------------------------------------------------------------------------------------------------
(d) In the event that the Initial Incentive Amount shall not have been earned by the Contractor, as specified in subparagraph (b) above, or any of the Monthly Amounts are not earned by the Contractor during the relevant time period, as specified in subparagraph (c) above, those amounts (as appropriate) shall be repaid by the Contractor to ORION. Payment shall be due thirty (30) Calendar Days after the date of receipt by the Contractor of a telefaxed invoice (which shall be followed by the airmailed original plus one copy) from ORION; interest shall be paid (at the rate specified in Article 43) on any amounts not paid when due. Invoices shall be accompanied by sufficient data to support ORION's claim. ORION may offset any such payments not made by the Contractor against any outstanding balance due under the ORION 2 Contract. The Contractor shall be deemed to have accepted the invoice ten (10) Business Days after receipt of the invoice unless, within such time period, it notifies ORION of a dispute. The Contractor shall pay any undisputed part of an invoice. 15.3 Satisfactorily Operating Primary Transponder 15.3.1 If a Primary Transponder does not satisfy the requirements of a Satisfactorily Operating Primary Transponder, but ORION nevertheless elects to use such Primary Transponder for Revenue-earning purposes, then, where the Revenue (or equivalent consideration) received by ORION for such Primary Transponder in any one calendar monthly period is less than the Monthly Amount COMMERCIAL-IN-CONFIDENCE at Risk for such Primary Transponder, the Contractor shall, in the succeeding month, pay the difference between the said Monthly Amount at Risk for such Primary Transponder and ORION's actual monthly Transponder Revenue for such calendar monthly period. In no event shall any one monthly payment by the Contractor under this Article 15.3.1 exceed the Monthly Amount at Risk for such Primary Transponder. In the event that a Primary Transponder is determined not to be a Satisfactorily Operating Primary Transponder but is later used for Revenue-earning purposes, ORION agrees to advise the Contractor within seven (7) Business Days after commencing such use. 15.3.2 For the purposes of this Article, in determining whether a Primary Transponder is a Satisfactorily Operating Primary Transponder no account shall be taken of any period of unavailability: (a) attributable to ORION 2 Spacecraft maintenance activities, station keeping maneuvers, payload reconfiguration for business purposes or station change maneuvers; or (b) less than one one-hundredth percent (0.01%) outage per month; or (c) attributable to communications link fading due to external causes, including but not limited to weather; or (d) arising directly or indirectly as a consequence of any negligent act or omission of ORION or any of its agents, assignees, Consultants, employees, or customers; or (e) attributable to earth station sun blinding. 15.4 15.4.1 All measurements, computations and analyses, for the purpose of determining whether a Primary Transponder is a Satisfactorily Operating Primary Transponder shall be performed by ORION or its Consultants, provided that the Contractor may, at its expense, assist in determining the nature of anomalies and corrective measures. The Contractor shall for this purpose be given access to any data collected by ORION. 15.4.2 If ORION desires, following Final Acceptance, to make any changes to the ORION 2 Spacecraft's in-orbit procedures, ORION shall notify the Contractor in writing of same and the Contractor shall have the right to approve such proposed changes. The Contractor shall not unreasonably withhold such approval and shall work with ORION in good faith to evaluate the proposed changes within a reasonable time period. Notwithstanding Article 27.3 hereof, if the Contractor reasonably concludes that in determining whether to approve the proposed changes to the said in-orbit procedures it will incur a cost in excess of Five Thousand Dollars ($5,000), the COMMERCIAL-IN-CONFIDENCE Contractor shall promptly inform ORION within fifteen (15) Calendar Days as to the estimated cost and a reasonable time for completion. If ORION requests the Contractor to make such determination, the Contractor shall immediately commence work and shall be entitled to claim and shall be paid by ORION all such reasonable costs plus a profit of ten percent (10%). In addition, if ORION proceeds with a change in the in-orbit procedures without Contractor's approval or the Contractor reasonably considers that a proposed change after approval would adversely affect the ORION 2 Spacecraft's operational ability, characteristics, lifetime, propellant, power or station keeping abilities, the Parties shall enter good faith negotiations to determine what equitable consideration in lieu of potential or actual lost In-Orbit Performance Warranty payments shall be provided to the Contractor. 15.5 Therights and remedies under this Article are exclusive for the failure of the ORION 2 Spacecraft and/or its Primary Transponders after Final Acceptance to meet the criteria for a Satisfactorily Operating Primary Transponder and in substitution of any other rights and remedies ORION has under the ORION 2 Contract or otherwise at law as a result of such failure. 16. SUBCONTRACTS 16.1 The Contractor has represented that in the performance of the Work required by the ORION 2 Contract, it will be necessary for the Contractor or its Subcontractors to enter into the following Major Subcontracts. The Contractor shall select the Major Subcontractors and ORION shall be provided with copies of the technical content of all Major Subcontracts and with a copy of the full Launch Agreement promptly upon execution thereof. Initially, the Major Subcontractors are as provided below: COMMERCIAL-IN-CONFIDENCE - -------------------------------------------------------------------------------- Name of Major Location Description of Work Subcontractor - -------------------------------------------------------------------------------- Lockheed Martin USA Launch Vehicle NEC Japan KU Band Transponders COMDEV Canada Multiplexers, Switching __________* __________ Antennas Fokker Netherlands Solar Array __________* __________ Propellant Tank __________* __________ Battery __________* __________ Apogee Kick Motor *Contractor shall comply with Article 16.2 in selection of these Major Subcontractors - -------------------------------------------------------------------------------- 16.2 In the event that the Contractor or a Subcontractor selects or has a necessity to terminate any Major Subcontract or substitute Subcontractors on any Major Subcontract, the Contractor shall consult with ORION and discuss any and all such actions prior to implementation. Subject to Article 16.3, ORION shall have no right of prior approval of Contractor's actions. 16.3 In the event that the Contractor has a necessity to terminate or substitute Lockheed Martin, or NEC or COMDEV, Limited the Contractor shall first consult with and obtain the approval of ORION. If ORION does not approve such actions and the Contractor deems such actions to be necessary to meet its performance obligations under the ORION 2 Contract, then the Contractor may take such action without ORION's approval. 16.4 In the event that the Contractor or a Subcontractor which has been awarded a Major Subcontract has reason to waive, or to agree to, a deviation in any of the technical requirements of any Major Subcontract which will cause a material impact on the technical parameters of the ORION 2 Spacecraft as set forth in Part 3(A), such variations shall be handled in accordance with Part 3(B) and shall require a formal Amendment to this ORION 2 Contract pursuant to Article 27. COMMERCIAL-IN-CONFIDENCE 16.5 Nothing in the ORION 2 Contract shall be construed as creating any contractual relationship between ORION and any Subcontractor. The Contractor is fully responsible to ORION for the acts and omissions of Subcontractors and of all persons used by the Contractor or a Subcontractor in connection with the performance of the Work under the ORION 2 Contract. Any failure by a Subcontractor to meet its obligations to the Contractor shall not constitute a basis for Excusable Delay, except as provided in Article 12 hereof, and shall not relieve the Contractor from meeting any of its obligations under the ORION 2 Contract. 17. INDEMNIFICATION 17.1 The Contractor shall indemnify and hold ORION, its officers, employees, Consultants, and assignees ("ORION Associates") harmless from and against any and all losses, damages, liabilities or demands (including reasonable legal fees) arising out of suits or claims brought by third parties, including the employees and Consultants of ORION, the Contractor, and its Subcontractors, on account of damage to property and injury to persons (including sickness and death), resulting from any act or omission of the Contractor or its Subcontractors in the performance of the Work, or an act or omission of ORION, occurring at any installation of the Contractor or any Subcontractor, and at its expense shall defend any suits or other proceedings brought against said indemnitees, on account thereof, and shall pay all expenses (including reasonable legal fees) and satisfy all judgments which may be incurred by or rendered against them, or any of them, in connection therewith; provided that ORION notifies the Contractor within ten (10) Business Days, in writing, after ORION management has actual notice of any such suit or a written threat of such suit within twenty (20) Business Days of such claim and permits the Contractor to answer the claim or suit and defend the same and gives the Contractor authority and such assistance and information as is available to ORION or the defense of such claim or suit, and provided further that ORION does not by an act (including any admission or acknowledgment or omission) prejudice such defense. Any such assistance or information which is furnished by ORION at the written request of the Contractor is to be at the Contractor's expense. With regard to suits or claims brought by or on behalf of employees or Consultants of ORION, Contractor's indemnification obligations shall be limited to the amount of insurance required to be maintained by Contractor under Article 18. Notwithstanding the foregoing, in no event shall the Contractor have any indemnification liability regarding any claims or suits of any ORION customers. 17.2 ORION shall have a reciprocal obligation to indemnify the Contractor to the extent described in Article 17.1, except that such obligation shall not apply with respect to claims for acts or omissions of ORION or its Consultants occurring at any installation of the Contractor or any Subcontractor. COMMERCIAL-IN-CONFIDENCE 17.3 If the Contractor insures against any loss or damage which the Contractor may suffer in respect of which the Contractor is required to indemnify ORION or an ORION Associate pursuant to Article 17.1, it shall be a condition that the Contractor arrange for the insurer to waive its right of subrogation against ORION and every ORION Associate. ORION shall be entitled to require proof from time to time that the Contractor has complied with its obligations under this Article. In the event that the Contractor does not comply with such obligations, the indemnity referred to in Article 17.1 shall extend to any claim which may be made by an insurer pursuant to an alleged right of subrogation. 17.4 In respect to every insurance referred to in Article 18, the Contractor shall provide documentary evidence (which may be the insurance policies themselves) that ORION's insurable interest has been noted by the Contractor's insurers. 17.5 Without prejudice to ORION's rights under Article 26, ORION shall hold the Contractor harmless from and against any suit or claims which may arise in connection with the use, operation, performance, nonperformance, failure or degradation of the ORION 2 Spacecraft after Final Acceptance or for other Deliverable Items after Delivery, provided that the Contractor notifies ORION within ten (10) Business Days in writing after it receives notice of any such suit or within twenty (20) Business Days of such claim and permits ORION to answer the claim or suit and defend the same and gives ORION authority and such assistance and information as is available to the Contractor for the defense of such claim or suit, and provided further that the Contractor does not by an act (including any admission or acknowledgment or omission) prejudice such defense. Any such assistance or information which is furnished by the Contractor at the written request of ORION is to be at ORION's expense. The foregoing shall not be deemed to release the Contractor from any of its obligations under Articles 9, 15 and 26 hereof. 18. INSURANCE 18.1 Insurance of the Work 18.1.1 Before the Contractor commences the Work, the Contractor shall have an insurance policy covering the ORION 2 Spacecraft and all component parts thereof and all materials of whatever nature used or to be used in completing the Work (collectively, the "Loss Items") against all risks, loss or damage prior to Intentional COMMERCIAL-IN-CONFIDENCE Ignition (including coverage against damage or loss caused by earth movement, flood, boiler, turbine and machinery accidents) subject to normal "All Risks Policy" exclusions. ORION and any Financing Entity shall be named as loss payee, but only in relation to all risks, loss or damage to the Loss Items. ORION, and each Financing Entity, if any, shall be named insured on any such policy in relation to all risks, loss or damage to the Loss Items. The details of the insurer and the relevant extracts of the policy shall be submitted to ORION. 18.1.2 All items shall be insured for a sum not less than their replacement value or their price under the ORION 2 Contract, whichever is the greater. Such insurance coverage shall be maintained by the Contractor up to the point ofIntentional Ignition of the ORION 2 Spacecraft ordered by ORION pursuant to the ORION 2 Contract and shall provide (1) coverage for removal of debris, and insuring the structures, machines, equipment, facilities, fixtures and other properties constituting a part of the project, (2) transit coverage, including ocean marine coverage (unless insured by the supplier), and (3) off-site coverage covering any key equipment, and (4) off-site coverage covering any property or equipment not stored on the construction sites. The deductible for all such insurance shall not exceed Two Hundred Fifty Thousand Dollars ($250,000). 18.1.3 The insurance of the Work as required by this Article 18, whether effected by the Contractor or ORION, shall not limit, bar or otherwise affect the liability and obligation of the Contractor to complete the Work and Deliver the Deliverable Items in accordance with the ORION 2 Contract. The Contractor's insurers shall waive all rights of subrogation against ORION save those for which ORION indemnifies the Contractor pursuant to Article 17.2 hereof. 18.1.4 The Contractor agrees to assign to any Financing Entity the proceeds of the Contractor's "All Risks Policy" with regard to any damage incurred on the ORION 2 Spacecraft where such damage would result in an Excusable Delay which, together with previous Excusable Delays resulting from damage covered by the Contractor's "All Risks Policy," would be greater than one hundred eighty (180) Calendar Days. 18.2 Public Liability Insurance 18.2.1 Before the Contractor commences the Work, the Contractor shall have a Public Liability Policy of insurance. The policy shall cover the Contractor and all Subcontractors employed from time to time in relation to the Work and performance of the ORION 2 Contract for their respective rights and interests and cover their liabilities to third parties. COMMERCIAL-IN-CONFIDENCE 18.2.2 The Contractor's insurers shall waive all rights of subrogation against ORION save those for which ORION indemnifies the Contractor pursuant to Article 17.2 hereof. 18.2.3 The Public Liability Policy of insurance shall be for an amount not less than One Hundred Million Dollars ($100,000,000) in respect of any one occurrence and shall be effected with reputable insurers. The policy shall be maintained until all Work pursuant to the ORION 2 Contract, including remedial work, is Delivered. Such insurance shall not contain any exclusion which denies coverage for third party injuries to persons or damage to property of others arising out of preparation of maps, plans, designs, specifications or the performance of inspection services or out of any other services to be performed by the Contractor under the ORION 2 Contract. 18.2.4 ORION and the Financing Entity, if any, shall be named as named insured on such Public Liability insurance policy. 18.3 Insurance of Employees 18.3.1 Before commencing the Work, the Contractor shall insure against liability for death or injury to persons employed by the Contractor, including liability imposed by statute and at common law. The insurance coverage shall be for an amount in the greater of (i) Ten Million Dollars ($10,000,000) or (ii) as required by law, and shall be maintained until all Work pursuant to the ORION 2 Contract, including remedial work, is Delivered. The Contractor shall ensure that all Subcontracts contain a similar provision. COMMERCIAL-IN-CONFIDENCE 18.3.2 The Contractor's insurers shall waive all rights of subrogation against ORION save those for which ORION indemnifies the Contractor pursuant to Article 17.2 hereof. 18.4 Comprehensive Automobile Liability 18.4.1 Before commencing the Work, the Contractor shall self-insure or Contractor shall insure against liability for claims of personal injury (including bodily injury and death) and property damage covering all owned, leased, non-owned and hired vehicles used at any of the Contractor's facilities in the performance of the Contractor's obligations under the ORION 2 Contract in an insurance amount not less than Five Million Dollars ($5,000,000) per occurrence for combined bodily injury and property damage. 18.4.2 The Contractor's insurers shall waive all rights of subrogation against ORION save those for which ORION indemnifies the Contractor pursuant to Article 17.2 hereof. 18.5 Launch Insurance ORION shall have the responsibility to procure Launch Insurance. Failure to secure a binder for Launch Insurance by sixty (60) days before the Launch Date shall be deemed an Excusable Delay, which Excusable Delay shall extend from the sixtieth (60th) day before the Launch Date until the date such insurance is so secured and written verification thereof is provided to the Contractor. 18.6 Inspection and Provisions of Insurance Policies 18.6.1 Before the Contractor commences the Work, and whenever requested in writing by ORION, the Contractor shall produce evidence that the insurance required by Articles 18.1, 18.2, 18.3 and 18.4 has been effected or is being maintained. Contractor shall provide ORION with copies of all required insurance policies and shall provide ORION with written notice no later than thirty (30) Calendar Days before the expiration date of each such policy. 18.6.2 If, after being requested in writing by ORION to do so, the Contractor fails to produce evidence of compliance with the insurance obligations within fourteen (14) Calendar Days, ORION may COMMERCIAL-IN-CONFIDENCE effect and maintain the insurance and pay the premiums. The amount paid shall be a debt due from Contractor to ORION and may be offset against any payments due the Contractor by ORION. 18.6.3 The Contractor shall, as soon as practicable, inform ORION in writing of any occurrence that may give rise to a claim under a policy of insurance required by Articles 18.1, 18.2, 18.3, 18.4 or 18.5 and shall keep ORION informed of subsequent developments concerning the claim. The Contractor shall ensure that Subcontractors similarly inform ORION of any such occurrences through the Contractor. Each Party shall provide to the other Party any information which may reasonably be required to prepare and present an insurance claim. 19. REPLACEMENT SATELLITE 19.1 The Contractor agrees to provide an additional satellite ("Replacement Satellite") delivered in-orbit no later than twenty-one and one quarter (21.25) months after receipt of an order from ORION (but in no case earlier than thirty-four and one quarter (34.25) months after NPD). Orion may place such order at any time during the performance of the ORION 2 Contract but in no event earlier than seven (7) months after receipt by the Contractor of the applicable Total Advance Funding in Article 19.2 or later than sixty (60) Calendar Days after the ORION 2 Spacecraft is determined to be a Constructive Total Loss (should that event occur). The in-orbit delivery dates shall be conditioned on ORION having ordered and simultaneously paid for the Long-Lead Items (and associated work) set forth in Article 19.2 by the dates set forth therein. COMMERCIAL-IN-CONFIDENCE 19.2 The Contractor agrees to deliver the Replacement Satellite on the schedule set forth in Article 19.1 provided ORION makes the following Advance Funding payments for Long-Lead Items on the schedule set forth below: Fixed Charge at NPD -- _____________________________________________________ Replacement Satellite Total Advance Funding Order Period Variable Charge (Fixed and Variable Charges) - ------------ --------------- ---------------------------- ORION 2 NPD ORION 2 NPD + 6 months ORION 2 NPD + 12 months ORION 2 NPD + 18 months ORION 2 NPD + 21 months 19.3 The Contractor shall furnish the Replacement Satellite in accordance with the provisions of the documents which constitute the ORION 2 Contract, with the dates therein adjusted (if necessary) for the later timeframe of the Replacement Satellite, and with the spacecraft test program revised as follows: o Deletion of Sine Vibration Test (except Test in the thrust-axis) o Deletion of EMC Test (however, the ESD Test is to be performed) o Deletion of Separation Shock Test o Rescheduling of adapter fit/fail check to Launch Site o Reduction of Thermal Vacuum Test to one balance phase only o Reduction in levels/durations from "Protoflight" to "Flight Acceptance" 19.4 The firm fixed price for the Replacement Satellite ("Replacement Satellite Price"), assuming an order had been placed by ORION on or before 1 October 1996, is as follows: (a) In U.S. Dollars --The firm fixed price is ____________________________ _________________________________________________________________, or (b) The sum of the following currency amounts: US$ GB Yen D Fl Fr F DM After 1 October 1996, upon request of ORION, Contractor shall provide ORION with a firm fixed price in U.S. dollars for the Replacement Satellite at least ten (10) Calendar Days prior to the time of order of the Replacement Satellite, which firm COMMERCIAL-IN-CONFIDENCE fixed price shall exceed the firm fixed price set forth in (a) above only to the extent of currency fluctuations subsequent to 1 October 1996; in any event, the price in U.S. dollars shall not exceed ________________________________________________________________________________ _________________________________ excluding the inflation adjustment described in the second succeeding paragraph. At the time of order of the Replacement Satellite, ORION shall advise the Contractor which of the above pricing approaches (U.S. dollars or sum of currencies) it selects. Where ORION orders the Replacement Satellite afterE1 October 1996, the prices set forth in this Article 19.4 shall be increased by a monthly inflation factor of one-third of one percent (0.33%) from October 1996 to the month in which ORION places the Replacement Satellite Order. The Replacement Satellite Price set forth in this Article 19.4 shall be reduced by the amount of any Advance Funding payments made by ORION under Article 19.2 hereof. The Replacement Satellite Payment Plan and Termination Schedule shall be negotiated between the Parties prior to ORION ordering the Replacement Satellite; the Payment Plan shall match Contractor's actual expenditure profile so as to avoid prepayments and financing costs. Selection of the launch vehicle and launch services contractor will be made by ORION (with the concurrence of Contractor) in sufficient time to permit Replacement Satellite delivery on the schedule set forth in Article 19.1. The prices for both such items will be identified and agreed as a part of such process. ORION shall provide for launch insurance for the Replacement Satellite. Except as otherwise required by the terms of this Article 19, contract terms for the Replacement Satellite will be identical to the ORION 2 Contract, with risk elements (e.g., liquidated damages for late delivery and warranty payback incentives) adjusted to the change in price from the ORION 2 Spacecraft so as to represent the same percentage risk. 19.5 Where the Advance Funding for the Replacement Satellite has been paid by ORION, but ORION fails to order the Replacement Satellite by the time required in this Article 19, the option for the Replacement Satellite shall no longer be effective and Contractor shall deliver to ORION, within thirty (30) Calendar Days of the COMMERCIAL-IN-CONFIDENCE expiration date of the option, the Long-Lead Items set forth in Part 4, said Long-Lead items to be mutually agreed to by the Parties no later than 15 August 1996. 20. TERMINATION FOR CONVENIENCE 20.1.1 ORION may, by notice in writing, and without giving any reason or showing cause therefor, at any time prior to Launch of the ORION 2 Spacecraft, terminate the ORION 2 Contract with respect to the Work in its entirety and the Contractor shall immediately cease Work accordingly, and shall similarly direct its Subcontractors. 20.1.2 In the event of such termination under this Article, ORION shall be obligated to pay (i) to the Contractor an amount equal to the sum of the Termination Liability Amounts for the ORION 2 Spacecraft and Launch Services as specified in Part 1(B) corresponding to the month in which termination occurs less the greater of the Advance Payment or the sum of the Milestone Payments actually received by the Contractor, provided that, where such amount is a negative number, the Contractor shall pay such amount promptly to ORION within twenty (20) Calendar Days; and (ii) to the Launch Vehicle Agency an amount equal to the Termination Liability Amount for the Launch Vehicle as specified in Part 1(B) corresponding to the month in which Termination occurs less any Progress Payment actually received by the Launch Vehicle Agency. The Contractor shall submit an invoice to ORION within sixty (60) Calendar Days after the termination date which shall specify the amounts due to the Contractor and the Launch Vehicle Agency from ORION pursuant to this Article 20.1.2 and the Contractor and the Launch Vehicle Agency shall immediately be entitled to payment by ORION of such amounts immediately thereafter. Payment by the Financing Entities of such amount to the Contractor and the Launch Vehicle Agency shall relieve ORION from its obligation to make such payments. 20.2 The amount payable by ORION to the Contractor pursuant to Article 20.1 shall constitute a total discharge of ORION's liabilities to the Contractor for termination pursuant to this Article 20. 20.3 If the ORION 2 Contract is terminated as provided in this Article and full payment made in accordance with Articles 20.1, ORION may require the Contractor to transfer to ORION, in the manner and to the extent directed by ORION, title to and possession of any items comprising all or any part of the Work terminated (including, without limitation, all Work-in-progress and all COMMERCIAL-IN-CONFIDENCE inventories), and the Contractor shall, upon the direction and at the expense of ORION, protect and preserve property in the possession of the Contractor or its Subcontractors in which ORION has an interest and shall facilitate access to and possession by ORION of items comprising all or any part of the Work so terminated. If ORION so requests or ORION has not taken delivery of property in which it has an interest within sixty (60) Calendar Days after termination, or such longer period as is agreed between the Parties, the Contractor shall make a reasonable, good faith effort to sell such items and to remit any sales proceeds to ORION, less a deduction for costs of disposition reasonably incurred by the Contractor. 21. REMEDIES FOR DEFAULT 21.1 (a) If, at any time prior to Intentional Ignition in respect of the ORION 2 Spacecraft (but not thereafter), the Contractor has failed to make adequate progress toward the completion of the ORION 2 Spacecraft, including where such failure is due to the ORION 2 Spacecraft or any component being damaged or destroyed where such damage or destruction does not constitute an Excusable Delay, such that the Contractor, due to causes related to the ORION 2 Spacecraft, and regardless of the status of the Launch Vehicle (or associated services provided by the Launch Vehicle Agency), will not be able to Launch the ORION 2 Spacecraft by ninety (90) Calendar Days after the Delivery Date (as such date may have been modified in accordance with the ORION 2 Contract), then ORION shall be entitled to deliver to the Contractor a Demand for correction of the failure within thirty (30) Calendar Days after ORION learns of such failure. Such Demand shall state full details of the failure. Within ten (10) Calendar Days after receipt of the Demand, or such longer time as the Parties agree, the Contractor shall submit to ORION a Correction Plan for achieving Final Acceptance not later than two hundred and seventy (270) Calendar Days after the Delivery Date provided that no Correction Plan shall ever result in a change to a Delivery Date as specified in Article 8, unless the Parties agree in accordance with Article 27. If the Correction Plan does not reasonably correct or offset the effect of the failure so as to demonstrate that Final Acceptance can be achieved not later than two hundred and seventy (270) Calendar Days after the ORION 2 Spacecraft Delivery Date, ORION may reject the Correction Plan within thirty (30) Calendar Days after receipt, in which case the Parties shall negotiate in good faith to develop a Correction Plan which will be satisfactory to both Parties. If ORION does not reject the Correction Plan within thirty (30) Calendar Days after receipt, the ORION 2 Contract shall be deemed modified in accordance with the Correction Plan and the failure shall be deemed cured so long as Contractor complies with the terms of such Correction Plan. (b) If, in addition to the Contractor's failure to make adequate progress toward completion of the ORION 2 Spacecraft due to the causes set forth in (a) above, the Contractor is COMMERCIAL-IN-CONFIDENCE experiencing any delays other than Excusable Delays such that the Contractor will not be able to Launch the ORION 2 Spacecraft in order to achieve Final Acceptance within three hundred sixty-five (365) Calendar Days after the ORION 2 Spacecraft Delivery Date (as may have been modified in accordance with this ORION 2 Contract), then ORION shall be entitled to deliver to the Contractor a Demand for correction of the failure within thirty (30) Calendar Days after ORION learns of such failure. Such Demand shall state full details of the failure. Within ten (10) Calendar Days after receipt of the Demand, or such longer time as the Parties agree, the Contractor shall submit to ORION a Correction Plan for achieving Final Acceptance not later than three hundred and sixty-five (365) Calendar Days after the ORION 2 Spacecraft Delivery Date provided that no Correction Plan shall ever result in a change to a Delivery Date as specified in Article 8, unless the Parties agree in accordance with Article 27. If the Correction Plan does not reasonably correct or offset the effect of the failure so as to demonstrate that Final Acceptance can be achieved not later than three hundred and sixty-five (365) Calendar Days after the ORION 2 Spacecraft Delivery Date, ORION may reject the Correction Plan within thirty (30) Calendar Days after receipt, in which case the Parties shall negotiate in good faith to develop a Correction Plan which will be satisfactory to both Parties. If ORION does not reject the Correction Plan within thirty (30) Calendar Days after receipt, the ORION 2 Contract shall be deemed modified in accordance with the Correction Plan and the failure shall be deemed cured so long as Contractor complies with the terms of such Correction Plan. 21.2 In the event (i) the Contractor does not submit a Correction Plan to ORION within ten (10) Calendar Days after receipt of a Demand, or (ii) the Parties cannot develop a Correction Plan which reasonably corrects or offsets the effect of the failure, or which otherwise is satisfactory to both Contractor and ORION within twenty (20) Calendar Days after the rejection of the Correction Plan, ORION may, as its sole remedy, elect one of the remedies set forth in Article 21.3 below, and the Contractor shall forthwith notify ORION of completed Work and all Work-in-progress relating to the ORION 2 Spacecraft in respect of which ORION exercises its rights under this Article. ORION shall elect one of the remedies specified in Article 21.3 (i) within forty (40) Calendar Days after the Contractor's receipt of a Demand, if the Contractor fails to submit a Correction Plan, or (ii) within thirty (30) Calendar Days after the deadline for the Parties' joint development of a satisfactory Correction Plan. 21.3 ORION's remedies as referenced in Article 21.2 are as follows: (a) ORION may terminate the ORION 2 Contract with respect to the ORION 2 Spacecraft and may cause the ORION 2 Spacecraft to be completed by another party, and as total damages (in addition to any applicable liquidated damages for delay levied pursuant to Article 11 and/or Article 12 up to the date of termination) may charge the Contractor for any reasonable increased cost incurred in connection therewith in excess of the Contract Price as set forth in Article 5, as adjusted; provided that the Contractor's liability under COMMERCIAL-IN-CONFIDENCE this paragraph shall not exceed the Contract Price as set forth in Article 5, as adjusted (without regard to any payments made to the Contractor to the date of termination). The amount payable by the Contractor shall be verified at the Contractor's request and expense by an internationally recognized firm of accountants appointed by the Contractor for that purpose subject to approval of ORION, such approval not to be unreasonably withheld or delayed. A demand for any such excess costs must be made within one (1) year after the termination and must be paid within sixty (60) Calendar Days of receipt of such verification. In the event of election by ORION under this paragraph, the Contractor shall complete the Launch Vehicle and Launch Services portion of the ORION 2 Contract (as it may need to be amended as a consequence of ORION's election) and shall be liable for any reasonable additional costs over and above the Contract Price for those Launch Vehicle and Launch Services so affected as set forth in Article 5, as adjusted. The Contractor's right to verification shall be without prejudice to the rights of either Party under Article 30. The report issued by the accountants may be used by either Party during any arbitration proceedings, but the report shall not be binding on the arbitrator(s). By notice in writing received by ORION no later than sixty (60) Calendar Days after receipt of ORION's invoice pursuant to this Article 21.3, the Contractor may dispute the amount of said invoice. In the event that the Contractor does not so notify ORION that it disputes ORION's invoice, the Contractor shall be deemed to have accepted said invoice; or (b) ORION may terminate the ORION 2 Contract, and in which case the Contractor shall pay ORION (i) all amounts previously paid by ORION to the Contractor and (ii) applicable liquidated damages for delay levied pursuant to Article 11 and/or Article 12 up to the date of termination. Title to the ORION 2 Spacecraft shall vest or remain vested in the Contractor. 21.4 The remedies provided in Article 21.3 are exclusive and in substitution for any other rights and remedies under the ORION 2 Contract or otherwise at law or equity with respect to such defaults. No termination rights shall be available to ORION in respect of the ORION 2 Spacecraft after the same has been Launched. 21.5 If the Contractor refuses or fails to observe or perform any material duty or obligation in the ORION 2 Contract, except those obligations covered in Articles 21.1 through 21.3 and other obligations of the Contractor for which particular remedies are specified elsewhere in the ORION 2 Contract as being exclusive, then ORION shall be entitled to deliver to the Contractor a Demand that it correct the breach within thirty (30) Calendar Days. Such Demand shall state fully the details of the breach. Within ten (10) Calendar Days after receipt of the Demand, or such longer time as the Parties agree, the Contractor shall submit to ORION a formal Correction Plan. If the Correction Plan does not reasonably correct or offset the effect of the breach in a COMMERCIAL-IN-CONFIDENCE timely manner, ORION may reject the Correction Plan within thirty (30) Calendar Days after receipt, in which case the Parties shall negotiate in good faith to develop a Correction Plan which will be satisfactory to both Parties. If ORION does not reject the Correction Plan within thirty (30) Calendar Days after receipt, the ORION 2 Contract shall be deemed modified in accordance with the Correction Plan and the breach shall be deemed cured so long as Contractor complies with the terms of such Correction Plan. In the event the Contractor fails to submit a Correction Plan or the Parties cannot develop a Correction Plan which reasonably corrects or offsets the effect of the breach in a timely manner, or which otherwise is satisfactory to both Contractor and ORION within twenty (20) Calendar Days after the Demand, ORION shall be entitled to any remedies available at law or equity, subject to Article 14.2 hereof and pursuant to the provisions of Article 30. 21.6 Contractor's Right to Terminate 21.6.1 (a) The Contractor shall be entitled to terminate the ORION 2 Contract in whole or, where severable, in part, if Contractor gives written notice to ORION of the following event and (except as provided in Article 6.1.1(e)) ORION fails to cure such event within thirty (30) Calendar Days after receiving such written notice: default in the payment of any Progress Payment or Milestone Payment or Termination Liability Amount when the same shall have become due and payable. (b) The Contractor shall be entitled to terminate the ORION 2 Contract by giving written notice to ORION where insurance proceeds are paid to any Financing Entity pursuant to Article 18.1.4 (All-Risk Insurance), and such proceeds are not paid over to the Contractor within thirty (30) Calendar Days of receipt by any Financing Entity. (c) Except as specified in the ORION 2 Contract, the Contractor shall not have the right to terminate or suspend the ORION 2 Contract. 21.6.2 In the event of such termination, the Contractor shall be entitled forthwith to take any or all of the following actions: (a) treat the ORION 2 Contract as terminated as to any or all of the items then undelivered or services unperformed and cease or suspend manufacture of any of the items to be supplied hereunder; (b) withhold delivery of any of the items to be supplied hereunder until the Contractor has received full payment under this Article and retain all sums then paid on account thereof; COMMERCIAL-IN-CONFIDENCE (c) cease or suspend performance of any of the services to be provided to ORION hereunder, except those services which are specifically intended to be provided in connection with a termination of the ORION 2 Contract; and (d) take payment of an amount equal to the Termination Liability Amount for the ORION 2 Spacecraft for the calendar month next following the calendar month in which the date of termination occurs, less the greater of the Advance Payment or the sum of the Milestone and Progress Payments actually received by the Contractor, provided that, where such amount is a negative number, the Contractor shall refund such amount promptly to ORION within twenty (20) Calendar Days. Where the Contractor is owed money by ORION, the Contractor shall submit an invoice to ORION within sixty (60) Calendar Days after the termination date which shall specify the amount due to the Contractor from ORION pursuant to this Article 21.6 and the Contractor shall immediately be entitled to full payment by ORION immediately thereafter. Payment by any Financing Entity of such amount to the Contractor shall relieve ORION from its obligation to make such payment. To the extent that full payment has been made therefor, ORION may require the Contractor to transfer to ORION in the manner and to the extent directed by ORION, title to and possession of any items comprising all or any part of the Work terminated (including, without limitation, all Work-in-progress and all inventories), and the Contractor shall, upon direction of ORION, protect and preserve property at ORION's expense in the possession of the Contractor or its Subcontractors in which ORION has an interest and shall facilitate access to and possession by ORION of items comprising all or part of the Work terminated. Alternatively, ORION may request the Contractor to make a reasonable, good faith effort to sell such items and to remit any sales proceeds to ORION less a deduction for costs of disposition reasonably incurred by the Contractor for such efforts. 21.7 In all instances, the Party terminating or claiming other remedies shall take all reasonable steps available to it to mitigate any claim which it may have against the defaulting Party. 21.8 Except in the case of a default under Article 21.6.1, Article 22.1(a) and Article 22.3(a), prior to either Party exercising its right to terminate the ORION 2 Contract under this Article, the Parties agree that ORION's Senior Executive and the Contractor's Senior Executive, and if mutually agreed, an independent third party, will meet within fifteen (15) Calendar Days of receipt of written notice of the dispute by one Party to the other Party to try to resolve the said dispute. If ORION's Senior Executive and the Contractor's Senior Executive cannot agree on an appropriate resolution of the dispute, then the Parties shall resolve their dispute in accordance with the provisions of Article 30. COMMERCIAL-IN-CONFIDENCE 21.9 Nothing in this Article 21 shall affect ORION's rights to liquidated damages under Articles 11 or 12 hereof. 22. TERMINATION IN SPECIAL CASES 22.1 The Contractor shall be deemed to be in default under the ORION 2 Contract if: (a) it is declared insolvent or bankrupt by a court of competent jurisdiction, is the subject of any proceedings related to its liquidation, insolvency or for the appointment of a receiver or an administrative receiver; or makes an assignment for the benefit of its creditors or enters into an agreement for the composition, extension or readjustment of all or substantially all of its obligations; or (b) the Contractor has resorted to fraudulent or corrupt practices in connection with its securing or implementing of the ORION 2 Contract. 22.2 If the Contractor is in default pursuant to Article 22.1, then ORION may terminate the ORION 2 Contract in accordance with the provisions of Article 21.3. 22.3 ORION shall be deemed to be in default under the ORION 2 Contract if: (a) it is declared insolvent or bankrupt by a court of competent jurisdiction, is the subject of any proceedings related to its liquidation, insolvency or for the appointment of a receiver or an administrative receiver, makes an assignment for the benefit of all its creditors or enters into an agreement for the composition, extension or readjustment of all or substantially all of its obligations; or (b) it has resorted to fraudulent or corrupt practices in connection with its securing or implementing of the ORION 2 Contract. 22.4 If ORION is in default pursuant to Article 22.3, then the Contractor may terminate the ORION 2 Contract in accordance with the provisions of Article 21.6. COMMERCIAL-IN-CONFIDENCE 23.1 Neither the Contractor, nor ORION nor any of their independent consultants, officers, employees, agents, contractors, Subcontractors or assignees, shall publish any material (including articles, films, brochures, advertisements and photographs), or authorize other persons to publish such material, or deliver speeches about the Work without the prior written approval of the other Party, which approval shall not be unreasonably withheld. This obligation shall not apply to ORION's statement or publication of any sort relating to the performance specifications or Statement of Work, which are intellectual property of ORION and may be published as ORION so determines. The above obligation shall also not apply to information which is publicly available from any Governmental agencies or which is or otherwise becomes publicly available without breach of this Agreement. Notwithstanding the foregoing, the Contractor, ORION, and Subcontractors may make (i) any filings that the Contractor, ORION or a Subcontractor considers advisable or necessary under applicable securities laws, including the Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as amended, the rules applicable to the National Market System, or the securities laws applicable to public companies in the Republic of France (the "French Securities Laws"), and the Parties shall comply with the provisions of Article 24.5 with respect thereto, (ii) such other filings as may be required to be made by any governmental agency or any administrative or judicial body before which an action affecting the Contractor, ORION, a Subcontractor, any of their Affiliates or the ORION 2 Spacecraft is pending, and (iii) such other filings as may be required by applicable law. 23.2 The application for approval to publish any material or deliver speeches about the Work shall be submitted to the other Party in writing and shall include full particulars of any intended publication. Upon receipt of the other Party's agreement in principle to the proposed publication, the applicant shall submit for final approval by the other Party any material to be published in the form and context in which it is intended to be used. The other Party may then approve or decline to approve publication in whole or in part of the material and at its discretion may specify a time for publication. 24. CONFIDENTIALITY AND NONDISCLOSURE OF PROPRIETARY INFORMATION 24.1 During the course of performance of the ORION 2 Contract each Party may have access to or receive information from the other, such as information concerning inventions, techniques, processes, devices, discoveries and improvements, or regarding administrative, marketing, financial or manufacturing activities. All such information, including any materials or documents containing such information, whether disclosed orally or otherwise, shall be COMMERCIAL-IN-CONFIDENCE considered proprietary and confidential information of the disclosing Party ("Proprietary Information"). 24.2 (a) For the purpose of this Article 24, "Proprietary Information" shall not include any information which the receiving Party can establish to have (i) become publicly known without breach of the ORION 2 Contract; (ii) been given to the receiving Party by a third party who is not obligated to maintain confidentiality; (iii) been independently developed by the receiving Party without reference to the Proprietary Information of the other, as established by documentary evidence; or (iv) been developed by the receiving Party prior to the date of receipt from the other Party, as established by documentary evidence. (b) The Contractor agrees that it will not, for the period specified in Article 24.3(a), disclose details of the Work to be provided to ORION hereunder, to the extent that such disclosure would reveal specific performance information regarding the ORIONSAT system and the ORION 2 Spacecraft or any other information which would materially affect ORION's commercial interest or the commercial use of the ORIONSAT System without the prior written consent of ORION which shall not be unreasonably withheld. Notwithstanding the foregoing, the Parties expressly agree that the Contractor shall have the unrestricted right at any time to use and to supply to third parties services or equipment similar or identical to any Work provided hereunder. (c) ORION agrees that it will not, for the period specified in Article 24.3(a), disclose Proprietary Information of the Contractor to the extent that such disclosure would reveal information to a direct competitor of the Contractor which would materially affect the commercial interests of the Contractor without the prior written consent of the Contractor which shall not be unreasonably withheld. Contractor agrees that for purposes of this Article 24, in the event that TELESAT and/or COMSAT are engaged as Consultants to ORION for purposes of the ORION 2 Contract, they shall not be deemed direct competitors to the Contractor. 24.3 (a) Both during and for a period of three (3) years after the termination or expiration of the ORION 2 Contract, each Party agrees to preserve and protect the confidentiality of the Proprietary Information of the other and all physical forms thereof, whether disclosed before the ORION 2 Contract is signed or afterward. Neither Party shall disclose or disseminate Proprietary Information of the other to any third party, including employees, independent consultants, or Subcontractors unless such party has (i) a need to know the Proprietary Information for the purpose of establishing, maintaining, operating, financing or marketing the ORIONSAT system, and (ii) has executed an agreement obligating the party to maintain the confidentiality of the Proprietary Information and limiting the use of the Proprietary Information to establishing, maintaining, operating, financing or COMMERCIAL-IN-CONFIDENCE marketing the ORIONSAT system. Neither Party shall use Proprietary Information of the other for its own benefit or for the benefit of any third party, except as specifically provided under the terms and conditions of the ORION 2 Contract. (b) The foregoing shall not affect any right of ORION in respect of Data and Documentation provided for under the ORION 2 Contract nor shall either Party be prevented from using the general know-how and abilities gained during the performance of the ORION 2 Contract for any purpose whatsoever. 24.4 (a) Either Party shall be entitled to make copies of any documents containing Proprietary Information under the terms and conditions outlined above. (b) ORION shall have the right at any time to remove, obliterate or ignore any proprietary/confidential legend placed on any Data or Documentation, or other information furnished under the ORION 2 Contract by the Contractor where the legend is not in accordance with the ORION 2 Contract but only after notice to the Contractor and reasonable opportunity for the Contractor to defend such legend. 24.5 Notwithstanding the foregoing, the Contractor, ORION and Subcontractors may make (i) any filings that the Contractor, or ORION or a Subcontractor considers advisable or necessary under applicable securities laws, including the Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as amended, the rules applicable to the National Market System, or the securities laws applicable to public companies in the Republic of France (the "French Securities Laws"), (ii) such other filings as may be required to be made by any governmental agency or any administrative or judicial body before which an action affecting the Contractor, ORION, a Subcontractor, any of their Affiliates, or the ORION 2 Spacecraft is pending and (iii) such other filings as may be required by applicable law. Prior to making any filings containing Proprietary Information of the other Party, the disclosing Party shall provide the other Party reasonable advance notice of the filing and cooperate with such other Party in obtaining confidential treatment for such Proprietary Information. In addition, if ORION or the Contractor desires for any information to be contained within such a filing to be accorded confidential treatment and not disclosed to the public, it shall so indicate to the other Party and such other Party shall cooperate with the disclosing Party in obtaining confidential treatment for such information. COMMERCIAL-IN-CONFIDENCE 25. LICENSE RIGHTS 25.1 Except as set forth in Article 25.5, the Contractor grants to ORION an irrevocable, non-exclusive license to use and have used throughout the world any software, and any invention covered by any patent, now or hereafter owned by the Contractor, or for which the Contractor has or may acquire the right to grant such a license, which software and/or invention is directly incorporated in any Deliverable Item or directly employed in the use of any Deliverable Item under the ORION 2 Contract. Such license shall: (a) be deemed to be fully paid-up for the purposes of the ORION 2 Contract including use, redesign or modification of any items delivered under the ORION 2 Contract; and (b) be on reasonable terms and conditions for other purposes. Such license shall be transferable to the Financing Entities and, subject to the Contractor's approval, any other entity, such approval not to be unreasonably withheld. 25.2 The Contractor shall, unless otherwise authorized or directed by ORION, include in each Subcontract hereunder a license rights clause pursuant to which each Subcontractor will grant rights to ORION to the same extent as the rights granted by the Contractor in Article 25.1. 25.3 This Article shall not be construed as limiting any rights of ORION or obligations of the Contractor under the ORION 2 Contract, including specifically the right of ORION, without payment of additional compensation to the Contractor, to use, have used, deliver, lease, sell or otherwise dispose of, any item or any part thereof, required to be delivered under the ORION 2 Contract. 25.4 The Contractor grants to ORION a non-exclusive license to use the Contractor's thermal propellant gauging software program (the "Software Program") on the terms set out hereunder: (a) such license shall be for the use of ORION and ORION's Consultants, advisors and agents in support of ORION's internal business and for use upon equipment notified in writing to the Contractor. (b) ORION shall not, without the express written approval of the Contractor, modify, enhance, copy, download or reverse engineer the Software Program; provided, however, COMMERCIAL-IN-CONFIDENCE ORION shall be permitted to copy the Software Program for archival or disaster recovery purposes. (c) ORION shall not assign, transfer, sell, lease, sub-license or otherwise deal in the Software Program; provided, however, the license shall be transferable to the Financing Entities with the prior written consent of the Contractor, which consent shall not be unreasonably withheld or delayed. 26. PATENTS, TRADEMARKS AND COPYRIGHTS 26.1 The Contractor, at its own expense, shall defend ORION and its officers, employees, agents, consultants and Subcontractors and assignees against any claim or suit based on an allegation that the manufacture of any item in the performance of the ORION 2 Contract, or the use, lease or sale of any item delivered or to be delivered under the ORION 2 Contract, infringes any letters patent, trademarks, copyrights or other proprietary rights of any third party, and shall pay any royalties and other costs related to the settlement of such claim or suit and the costs and damages, including attorneys' fees, incurred as the result of any such claim or suit; provided that (i) ORION promptly notifies the Contractor in writing within ten (10) Calendar Days of any such claim or suit, (ii) permits the Contractor to answer the claim or suit and defend the same, (iii) gives the Contractor authority and such assistance and information as is available to ORION for the defense of such claim or suit, and provided further that ORION does not by any act (including any admission or acknowledgment or omission) prejudice such defense. Any such assistance or information which is furnished by ORION at the written request of the Contractor is to be at the Contractor's expense. 26.2 If the manufacture of any item in the performance of the ORION 2 Contract or the use, lease or sale of any item delivered or to be delivered under the ORION 2 Contract, is enjoined as a result of a suit based on a claim of infringement, the Contractor shall resolve the matter so that the item is no longer subject to such injunction or replace the item with a functionally-equivalent, non-infringing item satisfactory to ORION. 26.3 ORION neither represents nor warrants that the performance of any Work or the manufacture, use, lease or sale of any Deliverable Item will be free from third party claims of infringement of any patents or other proprietary rights. COMMERCIAL-IN-CONFIDENCE 27. ORION 2 CONTRACT AMENDMENTS 27.1 Except as otherwise specifically provided, the ORION 2 Contract shall not be modified except by an Amendment to the ORION 2 Contract. No purchase order, acknowledgment, quotation or other similar document issued by either Party with respect to the subject matter of the ORION 2 Contract shall be deemed to be a part of the ORION 2 Contract or to modify the ORION 2 Contract in any respect relating to the Work. No oral agreement or conversation with any officer, agent or employee of ORION or the Contractor, either before or after execution of the ORION 2 Contract shall affect or modify any of the terms or obligations contained in the ORION 2 Contract. 27.2 At any time prior to completion and Delivery of all the Work under the ORION 2 Contract, ORION may, in writing, vary the Work with respect to the unlaunched ORION 2 Spacecraft within the general scope of the ORION 2Contract. If any such variation causes an increase or decrease in the cost of, or in the time required for the performance of the ORION 2 Contract, a change in the specifications of any Deliverable Item, or a change in the Aggregate Predicted Transponder Life, the Parties shall negotiate in good faith an equitable adjustment to the Contract Price or any other terms affected by such variation, or to the Delivery Dates, or the specifications, which shall be formalized in an Amendment to the ORION 2 Contract. The Contractor shall not implement such variation, and ORION shall not be liable for any change in Contract Price or Delivery Dates pursuant to such variation, until and unless the Parties have entered into a written Amendment to the ORION 2 Contract. Should ORION decide not to implement any proposed variation of the Work it will pay the Contractor its reasonable preparation costs in evaluating the same. 27.3 Atany time prior to Delivery of all the Work under the ORION 2 Contract, the Contractor may, in writing, request a variation of the Work within the general scope of the ORION 2 Contract. If ORION agrees with the request of the Contractor for variation of the Work and such variation causes an increase or decrease in the cost of, or in the time required for, the performance of the ORION 2 Contract, or a change in the specifications of any Deliverable Item, the Parties shall negotiate in good faith an equitable adjustment to the Contract Price or any other terms affected, or Delivery Dates, or the specifications, which shall be formalized in an Amendment to the ORION 2 Contract. The Contractor shall not implement such variation, and ORION shall not be liable for any change in Contract Price or Delivery Dates pursuant to such variation, until and unless the Parties have entered into an Amendment to the ORION 2 Contract. COMMERCIAL-IN-CONFIDENCE 27.4 At any time prior to Delivery of all the Work under the ORION 2 Contract, the Contractor may, in writing, request to rearrange the Milestone Payments contained in Part 1(B) in order to reflect the current program status. Any such requested change shall not become effective until and unless the Parties have entered into an Amendment to the ORION 2 Contract which implements the requested change. 28. GOVERNMENTAL APPROVALS Notwithstanding any other Article in the ORION 2 Contract, the Parties understand and agree that certain restrictions, including those placed on access to Contractor's and Subcontractor's plants and the use, sale or other disposition of technical data, and/or Work delivered under the ORION 2 Contract may be imposed by any Government which has jurisdiction over the Work. The Parties at all times, both before and after completion of the ORION 2 Contract, agree to be and remain bound by any such Government requirements pertaining to the technical data or Work and shall cooperate in obtaining all required consents and approvals. ORION shall be given an opportunity to comment on any application to the United States Government by the Contractor prior to submission of such application. The Contractor shall in good faith consider any comments made by ORION. 29. RESPONSIBILITY FOR THE CONTRACT 29.1 The Contractor, by having submitting a tender to perform the Work and by executing the ORION 2 Contract, shall be deemed: (a) to have satisfied itself as to: (i) all the conditions and circumstances which may affect the Contract Price, as defined in Article 5; and (ii) the feasibility of the Work to be performed in accordance with the terms and conditions of the ORION 2 Contract; (b) to warrant that it has the necessary skills, facilities and capacity to perform the Work in accordance with the terms and conditions of the ORION 2 Contract. COMMERCIAL-IN-CONFIDENCE 29.2 The Contractor acknowledges that it has fixed the Contract Price according to its own view and assessment of all relevant matters and no additional costs, except as otherwise expressly provided for in the ORION 2 Contract, will be charged over and above the Contract Price. 29.3 By executing the ORION 2 Contract, the Parties acknowledge that they have thoroughly examined all parts of the ORION 2 Contract, and agree that they are complete, consistent and accurate. If the Contractor decides, during the performance of the Work, that any portion of the ORION 2 Contract is inaccurate or incomplete, or that there are inconsistencies, it shall notify ORION in writing specifying full particulars and request resolution before proceeding with the Work in question. If the Contractor proceeds before obtaining such a resolution, it does so at its own risk and expense, and whether or not the course it has chosen is satisfactory to ORION, it shall be entitled to no increase in the Contract Price or any extension of the Delivery Dates set out in Article 8. If the Contractor proceeds with the Work before obtaining resolution of any inaccuracy, incomplete information or inconsistency and the course of action it has pursued is not chosen by ORION, it shall, upon request by ORION, promptly at its own expense follow the course of action directed by ORION and make all readjustments that may be required. 29.4 ORION shall within twenty (20) Calendar Days after written notification by the Contractor pursuant to Article 29.3 provide a response and resolution of the issues raised by the Contractor. 29.5 TheContractor covenants that it will cooperate fully with, and will use reasonable efforts to ensure the full cooperation of, all Subcontractors with ORION in doing all things reasonably necessary to achieve the due performance of the ORION 2 Contract. 30. DISPUTE RESOLUTION 30.1 If any dispute arises out of or in connection with this ORION 2 Contract or the breach thereof, including but not limited to any failure to reach agreement on price, schedule or performance, any claim for breach of contract and any question regarding its existence, validity or termination, such dispute shall be finally settled by arbitration in accordance with this Article 30. Prior to commencing arbitration with respect to any dispute, either Party shall give written notice to the other of its position and reasons therefore and may recommend corrective action. In the event that mutual agreement cannot be reached within ten (10) Calendar Days after receipt of such COMMERCIAL-IN-CONFIDENCE notice, or such other period as may be specified in the ORION 2 Contract, the respective positions of the Parties shall be forwarded to ORION's Senior Executive and the Contractor's Senior Executive, for discussion and an attempt shall be made by these persons to reach mutual agreement within a further ten (10) Calendar Days. To increase the probability of an expeditious resolution of the dispute, ORION's Senior Executive and Contractor's Senior Executive may meet during the ten (10) Calendar Day period and have each side present its position and reasoning directly to them at such meeting. 30.2 If mutual agreement is not reached through the above process, either Party may refer such dispute for final determination to an arbitration tribunal convened in accordance with the terms of Articles 30.3 and 30.4. 30.3 The arbitration tribunal shall consist of three (3) arbitrators, one (1) arbitrator to be appointed by ORION, one (1) arbitrator by the Contractor and the third arbitrator to be appointed by the former two (2) arbitrators; provided that if a Party fails to appoint an arbitrator within the time stipulated in Article 30.8, the other Party having appointed an arbitrator, such appointee shall be the sole arbitrator. 30.4 Except as otherwise provided herein, the arbitration shall be conducted in accordance with and subject to the rules of the American Arbitration Association ("AAA"), including the AAA's Supplementary Procedures for International Commercial Arbitration and shall be held in Washington, District of Columbia, USA. The Parties may be represented by persons of their choice. 30.5 The applicable law governing this arbitration proceeding shall be exclusively the United States Arbitration Act, 9 U.S.C., Section 1 et seq. 30.6 Except as provided in this Article 30.6 with respect to enforcement of arbitral awards, neither Party shall be entitled to maintain any action at law or suit in equity in respect to matters covered by this Article 30; the exclusive means of resolving all such matters shall be the arbitration process set forth in this Article 30. The award of the arbitral tribunal shall be final and binding on the Parties hereto, and, upon application duly made to a court of competent jurisdiction by a Party hereto, judgment thereon shall be entered in such court. COMMERCIAL-IN-CONFIDENCE 30.7 Pending a decision by the arbitrators as referred to in this Article, the Contractor shall, unless directed otherwise by ORION in writing, fulfill all of its obligations under the ORION 2 Contract, including, if and so far as it is reasonably practicable, the obligation to take steps necessary during the arbitration proceedings to ensure that the Work will be Delivered within the time stipulated or within such extended time as may be allowed under the ORION 2 Contract, provided always ORION shall continue to make payments therefore in accordance with the ORION 2 Contract. 30.8 The following time limits shall be observed in respect to any arbitration referred to in this Article: (a) either Party may demand arbitration in writing after the period of twenty (20) Calendar Days referred to in Article 30.1 has expired, or such other time period as may be specified in the ORION 2 Contract; (b) each Party shall appoint its arbitrator within twenty (20) Calendar Days of receipt of the AAA acknowledgment of a demand for arbitration; (c) the two appointed arbitrators shall appoint a third arbitrator within a further twenty (20) Calendar Days from the time stipulated in Article 30.8(b) (unless the two arbitrators agree to an extension not to exceed an additional twenty (20) Calendar Days); and (d) any decision by an arbitrator(s) referred to in Article 30.2 or 30.3 shall be made within six (6) months from the date on which a Party demands arbitration or within such extended period as the arbitrator(s) may allow. 30.9 The fees and expenses of the arbitrator(s) and AAA administrative fees and costs shall be borne equally by the Parties. Each Party shall bear the costs of its own legal representation, witnesses produced by such Party, document production and other discovery expenses. 30.10 In the case of any dispute pursuant to Article 9 hereof, the arbitration tribunal shall award prejudgment interest on any amount which the tribunal determines is owing from one Party to the other, such interest to be calculated at an annual rate equal to the Prime Rate then in effect for each Calendar Day from forty-five (45) Calendar Days following the date of loss or from the date of the filing for arbitration, whichever is the earlier, until the date full payment is made. COMMERCIAL-IN-CONFIDENCE 31. CONTRACT MANAGEMENT 31.1 In General The Contractor shall conduct meetings, reviews and analyses and shall prepare and deliver reports and documentation as provided in Part 2(A). 31.2 Approvals and Acceptances No approval, acceptance, waivers or deviations prior to Final Acceptance by ORION of any action or item under the ORION 2 Contract shall waive any of ORION's contractual rights with regard to Final Acceptance of any Deliverable Item. 31.3 ORION 2 Contract Monitoring 31.3.1 During the performance of the ORION 2 Contract, the Contractor and ORION shall each designate a person to be its Contract Program Manager, whose duties shall be to monitor the Work and to act as liaisons between the Parties. Such monitoring by ORION shall not relieve the Contractor from performing the ORION 2 Contract in accordance with its terms and shall not in any way detract from the Contractor's position as an independent contractor. 31.3.2 Any Consultant who performs services on behalf of ORION shall have access to the Work and data and may witness tests in the same manner as ORION, as provided in Article 7. ORION's Consultants shall execute non-disclosure agreements with the Parties and, as necessary, with Subcontractors. 31.3.3 ORION's Consultants shall have no authority to change any part of the ORION 2 Contract, or to direct the Contractor or to bind ORION. Any changes to the ORION 2 Contract shall be made only in accordance with Article 27, but ORION's Consultants may participate in discussions regarding such changes. Any action taken by the Contractor prior to the resolution of any such question shall be at the Contractor's own risk and expense. 32. SECURITY INTEREST AND FINANCIAL INFORMATION The Contractor agrees to cooperate with ORION and endeavor in good faith to provide security interests in the Work after ORION pays the Vendor Financing Takeout Payment and periodic financial reports concerning the Contractor's financial status, if such are required by any COMMERCIAL-IN-CONFIDENCE Financing Entity, and to negotiate in good faith the terms upon which such security interests are to be provided and the content/frequency of such financial reports. 33. ASSIGNMENT 33.1 The Contractor shall not, without the prior written approval of ORION and except on such terms and conditions as are determined in writing by ORION, assign, mortgage, charge or encumber the ORION 2 Contract or any part thereof, any of its rights, duties, or obligations thereunder, the Work or any monies payable or to become payable under the ORION 2 Contract, to any person, except to a parent or a wholly-owned direct or indirect subsidiary company of the Contractor, or for the purpose of corporate merger, recapitalization or reconstruction. 33.2 The Parties recognize that this ORION 2 Contract may be financed through external sources. The Contractor agrees to work cooperatively to negotiate and execute such documents as may be reasonably required to implement such financing (other than any document requiring the subordination or delay of any payments required to be paid hereunder) and agrees ORION shall have the right to assign its rights, duties or obligations under the ORION 2 Contract to ORION Network Systems, Inc., any ORION subsidiary, and to any Financing Entity, subject to prior notice to the Contractor. 33.3 Provided that the Contractor's rights under the ORION 2 Contract, including the ability to perform the Work, in the Contractor's reasonable judgment, are not and would not be adversely affected, the Contractor shall not withhold its approval to any assignment, mortgage, charge or encumbrance of any of the rights, duties or obligations of ORION under the ORION 2 Contract. 33.4 Assignment of this ORION 2 Contract shall not relieve the assigning Party of any of its obligations nor confer upon the assigning Party any rights except as provided in the ORION 2 Contract. COMMERCIAL-IN-CONFIDENCE 34. NOTICES AND DOCUMENTATION 34.1 Any notice or other communication required or permitted pursuant to the ORION 2 Contract including invoices shall be sufficiently given if given in writing, delivered personally or by pre-paid registered air mail, or by telex, or by facsimile to the following address: In the case of ORION: ORION SATELLITE CORPORATION 2440 Research Boulevard Suite 400 Rockville, Maryland 20850 United States of America For the attention of Dr. Denis Curtin, Senior Vice President, Engineering and Satellite Operations, for technical matters and Richard H. Shay, Vice President of Corporate and Legal Affairs for contract matters or such other persons at such address as ORION may from time to time direct in writing for specific purposes. with a copy to: Shaw, Pittman, Potts & Trowbridge 2300 N Street, N.W. Washington, DC 20037 United States of America For the attention of John F. Dealy for notices relating to matters under Articles 6, 9, 15 and 21. In the case of Contractor: MATRA MARCONI SPACE UK LIMITED Gunnels Wood Road Stevenage, Hertfordshire SG1 2AS England For the attention of Mr. B. Kirk, ORION Project Manager for technical or management matters For the attention of Mr. Arthur Blick, Commercial Manager COMMERCIAL-IN-CONFIDENCE 34.2 A notice given either by certified mail, or by confirmed facsimile or telex followed the same day by the original document via certified mail, shall be deemed to be a notice in writing for the purpose of the ORION 2 Contract and shall be deemed to have been given upon receipt by the sender of the answer-back code of the recipient at the conclusion of the telex or by the actual receipt of the letter or of the facsimile confirmed by its answer-back code, provided transmission is completed during normal business hours on a Business Day in the place of the addressee and if it is not so completed then upon the commencement of normal business hours on the next Business Day in the place of the addressee after transmission is completed. 34.3 The Contractor agrees that any communication or notice required or permitted to be given by ORION to the Contractor which is given by the Program Manager or Contracts Manager or has, prior to the execution of the ORION 2 Contract been so given, shall be deemed to have been given by ORION. 34.4 Without affecting the provisions of Article 34.2, the Parties agree that all correspondence on contract matters shall, if sent by confirmed facsimile or telex, be followed, as soon as reasonably practicable after the sending of such correspondence, by the original document via first-class mail. 35. SEVERABILITY AND WAIVER 35.1 In the event any one or more of the provisions of the ORION 2 Contract shall, for any reason, be held to be invalid or unenforceable, the remaining provisions of the ORION 2 Contract shall be unimpaired, and the invalid or unenforceable provision shall be replaced by a mutually acceptable enforceable provision which comes closest to the intention of the Parties underlying the invalid or unenforceable provision. 35.2 A waiver of any breach of a provision hereof shall not be binding upon either Party unless the waiver is in writing and such waiver shall not affect the rights of the Party not in breach with respect to any other or future breach. COMMERCIAL-IN-CONFIDENCE 36. COMPLIANCE WITH THE LAW, PERMITS AND LICENSES 36.1 The Contractor shall, at its own expense, comply with the requirements of any laws of any place in which any part of the Work is to be done and with the lawful requirements of public, municipal and other authorities in any way affecting or applicable to any Work. 36.2 The Contractor shall at its own expense obtain any permits, licenses, approvals or certificates, including any required for import or export, necessary for the performance of the Work under the ORION 2 Contract. The Contractor shall, at its own expense, perform the Work in accordance with the conditions of any applicable permits or licenses, approvals or certificates. ORION agrees to use its best efforts in assisting the Contractor to obtain any of the documents referred to above which are issued by a United States authority. 36.3 ORION shall not be responsible in any way for the consequences, direct or indirect, of any violation by the Contractor or its Subcontractors, or their officers, employees, agents or servants of any law of a country in which the Work is performed, or of any country whatsoever. 37. APPLICABLE LAW; SUBMISSION TO JURISDICTION; APPOINTMENT OF AGENT FOR ACCEPTANCE OF SERVICE; INTERPRETATION AND LANGUAGE 37.1 Except as provided in Article 30.5 hereof, the ORION 2 Contract shall be governed by and interpreted in accordance with the laws of the State of Maryland, United States of America, without regard to the conflict of laws provisions thereof. 37.2 The Contractor appoints Powell, Goldstein, Frazer & Murphy, attention J. Gail Bancroft, 1001 Pennsylvania Avenue, N.W., Washington, D.C. 20004, United States of America as its agent for acceptance of service of process in the United States. Contractor shall notify ORION promptly in writing of the appointment by Contractor of a new agent or of a change in the agent's address. COMMERCIAL-IN-CONFIDENCE 37.3 In the ORION 2 Contract unless the context otherwise requires: i) words of any gender include any other gender; ii) the singular includes the plural and vice versa; iii) "person" includes a reference to a partnership, firm, or any other body of persons, company or organization whether incorporated or unincorporated. 37.4 Any heading to this ORION 2 Contract shall not be used in the construction or interpretation of the ORION 2 Contract. 37.5 All communications between the Parties to the ORION 2 Contract shall be in the English language. 37.6 Any reference to liquidation damages means agreed liquidated or ascertained damages and not a penalty. 38. SURVIVAL Any provision of the ORION 2 Contract which can be reasonably construed to survive the expiration or termination of the ORION 2 Contract for any reason, including but not limited to the indemnification and confidentiality obligations set forth herein, shall survive such expiration or termination of the ORION 2 Contract. 39. KEY PERSONNEL 39.1 The Contractor will assign properly qualified and experienced personnel to the program contemplated under the ORION 2 Contract. Personnel assigned to the following positions shall be considered "Key Personnel": a) The Contractor's Project Manager b) The Contractor's Contracts Manager COMMERCIAL-IN-CONFIDENCE c) The Contractor's PA Manager d) The Contractor's Resident Manager at NEC e) The Contractor's Engineering Manager f) The NEC Project Manager g) The Contractor's AIT Manager ORION shall have the right to approve the Contractor's Project Manager and NEC's Project Manager which approval shall not be unreasonably withheld or delayed. Other Key Personnel shall not be assigned to other duties without the Contractor giving prior written notice to and consulting with ORION. The Contractor shall provide a chart to ORION of the Program Key Personnel and shall keep such chart current. 39.2 Subject to ORION's right to approve the selection of the Contractor's Project Manager pursuant to Article 39.1, in the event that an employee included in the list of Key Personnel becomes unavailable for work under the ORION 2 Contract, the Contractor shall replace him by a person of substantially equivalent qualifications and abilities. 40. PROGRESS REPORTS 40.1 The Contractor shall render such reports as to the progress of the Work and attend such meetings with ORION as specified in Part 2(A) (Statement of Work) and Part 2(B) (Contract Documentation Requirements List). 41. LAUNCH VEHICLE AGENCY 41.1 41.1.1 The Contractor hereby agrees that ORION shall have the right to direct the Contractor to terminate the Launch Agreement at any time, in which case ORION shall be liable for the termination charges specified in the termination liability schedule set forth in Table 21.6 of the Launch Agreement and attached hereto as Annex C. 41.1.2. The Contractor hereby agrees that ORION shall have the right to direct the Contractor to terminate the Launch Agreement, in whole or, where severable, in part and for ORION to receive directly from the Launch Vehicle Agency a full refund of all amounts previously paid by ORION (excluding postponement fees and retanking charges) (or where the Launch Vehicle Agency provides such amounts to the Contractor, the Contractor shall pay over such amounts to ORION COMMERCIAL-IN-CONFIDENCE with no right of offset) where there has been more than three hundred sixty-five (365) cumulative Calendar Days of Launch postponement by the Launch Vehicle Agency. In the event that, as a result of ORION exercising such right, there is any delay in the performance of the Work, such delay shall constitute an Excusable Delay and the provisions of Article 12 hereof shall be applicable. ORION's right to direct the Contractor to terminate the Launch Agreement is conditional upon receipt of the Contractor's written notification of a Launch postponement or upon the occurrence of a single or cumulative delays by the Launch Vehicle Agency which exceed three hundred sixty-five (365) Calendar Days. ORION must direct the Contractor to terminate within sixty (60) Calendar Days of the first of the two events above or must waive its right to direct the termination of that Launch under this Article unless further delayed by the Launch Vehicle Agency. 41.2 The Launch Vehicle Agency shall provide such insurance as required by the United States Department of Transportation for loss or damage to United States. Government property resulting from activities to be carried out in connection with Launches to be provided under the ORION 2 Contract. In consideration of and conditioned upon a reciprocal waiver by the United States Government, both ORION and the Contractor agree to waive any claim against the United States Government or its agencies for any property damage or loss they sustain or for any personal injury to, death of, or any property damage or loss sustained by their own employees. 41.3 The Launch Vehicle Agency has executed agreements with various United States Government agencies for use of Government-owned property and facilities relating to the production of launch vehicles and launch operations at Cape Canaveral Air Station (CCAS) in Florida. ORION agrees that it will comply with the United States Government's laws and regulations as they relate to ORION-furnished property and personnel, and those agreements relating directly to the United States expendable launch vehicle program. The Contractor will request the Launch Vehicle Agency to furnish copies of such agreements to ORION upon ORION's request. ORION will indemnify the Contractor for any ORION violation of the laws, regulations or agreements as specified herein. In furtherance of the foregoing, the Parties shall, before Launch, execute and deliver the Agreement for Waiver of Claims and Assumption of Responsibility, the execution of which is required by the United States Department of Transportation as a condition of granting the Contractor's license to conduct launch activities and launch the ORION 2 Spacecraft. 41.4 On or before the last day of the twenty-first (21st) month after NPD, Contractor, acting upon the advice and with the consent of ORION, shall cooperate in good faith with the Launch Vehicle Agency to finalize the selection of a Launch Date. The Parties recognize that, if the Contractor and the Launch Vehicle Agency cannot mutually agree upon a Launch Date, the Launch Vehicle COMMERCIAL-IN-CONFIDENCE Agency may select the Launch Date, taking into account all available launch opportunities and the Contractor's requirements and interests. 42. GUARANTEE OF CONTRACTOR OBLIGATIONS The Contractor shall provide an unconditional corporate guarantee by Matra Marconi Space NV and, if required, other entities acceptable to any Financing Entity, in respect of its obligations under the ORION 2 Contract, including repayment, if required, of the Advance Payment or any part thereof. Matra Marconi Spare NV shall certify to ORION in writing on a quarterly basis that it has the financial ability to repay any portion of the Advance Payment that may be required under the ORION 2 Contract and it shall promptly advise ORION of any event or circumstance that may impair such ability. 43. INTEREST Except as set forth in Article 6.1.1(e)(iii), any interest due under the ORION 2 Contract shall be calculated in accordance with LIBOR plus three percent (3%). IN WITNESS WHEREOF the President of ORION SATELLITE CORPORATION has hereto set his hand for and on behalf of and as General Partner of International Private Satellite Partners, L.P., on the 25th day of July 1996, and the Managing Director of MATRA MARCONI SPACE UK LIMITED has hereto set his hand for and on behalf of MATRA MARCONI SPACE UK LIMITED on the 31st day of July 1996. INTERNATIONAL PRIVATE SATELLITE MATRA MARCONI SPACE PARTNERS, L.P. UK LIMITED By: Orion Satellite Corporation, its General Partner By: _____________________________ By: ________________________ COMMERCIAL-IN-CONFIDENCE ANNEX A FORM OF REQUEST FOR PAYMENT (Terms of this Form will be revised to conform to the requirements of the ORION 2 Credit Agreement) [Date] ORION SATELLITE CORPORATION 2440 Research Boulevard Suite 400 Rockville, Maryland 20850 United States of America Attention: [ ] RE: Part 1(A) ORION 2 Spacecraft Purchase Contract, dated as of [...] (as amended, supplemented or modified from time to time, the "ORION 2 Contract"), between INTERNATIONAL PRIVATE SATELLITE PARTNERS, L.P., d/b/a ORION ATLANTIC, L.P. ("ORION") and MATRA MARCONI SPACE UK LIMITED (the "Contractor") Ladies and Gentlemen: This Request for Payment is delivered to ORION pursuant to Article 6 of the ORION 2 Contract and constitutes the Contractor's request for payment in the amount of $ [...] for Milestone Payment No. ________, and Progress Payment No. __________. Very truly yours, MATRA MARCONI SPACE UK LIMITED By: Title: COMMERCIAL-IN-CONFIDENCE Appendix I to Annex A Form of Contractor Certificate (Terms of this Form will be revised to conform to the requirements of the ORION 2 Credit Agreement) Reference: Milestones Payment No. _____ Progress Payment No. _____ ________________ ____, 19___ RE: ORION 2 Spacecraft Purchase Contract, with International Private Satellite Partners, L.P. d/b/a Orion Atlantic, L.P. (as amended, supplemented or modified and in effect from time to time the "ORION 2 Contract") ORION SATELLITE CORPORATION 2440 Research Boulevard Suite 400 Rockville, Maryland 20850 United States of America Attention: [ ] Ladies and Gentlemen: This Certificate is delivered to you in connection with the ORION 2 Contract. Each capitalized term used herein and not otherwise defined shall have the meaning assigned thereto in the ORION 2 Contract. We hereby certify, after due inquiry, that, as of the date hereof: 1. The ORION 2 Contract is in full force and effect and except as set forth in Schedule I hereto, has not been amended, supplemented or otherwise modified, and attached hereto are true, correct and complete copies of all Amendments to the ORION 2 Contract or any other modification or amendment to the ORION 2 Contract not heretofore delivered to the Financing Entity. 2. Except as set forth in Schedule I hereto, we are not aware of any event that has occurred or failed to occur which occurrence or non-occurrence, as the case may be, could COMMERCIAL-IN-CONFIDENCE reasonably be expected to cause the date of Final Acceptance of the ORION 2 Spacecraft to occur later than the Delivery Date therefor. 3. Except as set forth in Schedule I hereto, no event or condition exists that permits or requires us to cancel, suspend or terminate our performance under the ORION 2 Contract or that could excuse us from liability for non-performance thereunder. 4. Except with respect to amounts that are the subject of a dispute (such amounts and such disputes being described in reasonable detail in Schedule II hereto), all amounts due and owing to us have been paid in full through the date of the immediately preceding Construction Certificate and are not overdue. To the extent payment to us has been or will be made as specified in this and the immediately preceding Contractor Certificates, there are and will be no mechanics' or materialsmen's liens except Permitted Liens (as defined in the Financing Agreements) on the Project (as defined in the Financing Agreements), the Collateral (as defined in the Financing Agreements) or on any other property in respect of the work which has or will be performed under the ORION 2 Contract. 5. a. The amount contained in the Request for Payment delivered to you concurrently herewith in accordance with the terms of Article 6.1.1(b) of the ORION 2 Contract represents monies owed to us in respect of Milestone Payment No. _____. b. The amount referred to in paragraph (a) above was computed in accordance with the terms of the ORION 2 Contract. c. The Milestone to which Milestone Payment No. ____ relates has been completed in accordance with the ORION 2 Contract.* 6. a. The amount of the Request for Payment delivered to you concurrently herewith in accordance with the provisions of Article 6.1.1(a) of the ORION 2 Contract represents monies owed to us in respect of Progress Payment No. ____. b. The amount referred to in paragraph (a) above was computed in accordance with the ORION 2 Contract.* 7. a. The amount referred to in paragraph (a) above was computed in accordance with the ORION 2 Contract. COMMERCIAL-IN-CONFIDENCE 8. An amount of $_________ is due to us and represents monies owed to us in respect of the principal amounts due and payable on the outstanding Note.* Very truly yours, MATRA MARCONI SPACE UK LIMITED By: Title: * Include when relevant COMMERCIAL-IN-CONFIDENCE SCHEDULE I to Appendix I to Annex A List of Exceptions: Amendments to ORION 2 Spacecraft Purchase Contract: Exceptions Affecting Final Acceptance Date: Exceptions Affecting Contractor's Performance: COMMERCIAL-IN-CONFIDENCE SCHEDULE II to Appendix I to Annex A List of Disputes: COMMERCIAL-IN-CONFIDENCE ANNEX B INTER-PARTY WAIVER OF LIABILITY PROVISIONS IN LAUNCH AGREEMENT COMMERCIAL-IN-CONFIDENCE Lockheed Martin Commercial Launch Services, Inc. Proprietary Information ANNEX B CONTRACT FOR LAUNCH SERVICES This Contract is made and entered into by and between Lockheed Martin Commercial Launch Services, Inc., a Delaware corporation, having its principal place of business at 101 West Broadway, San Diego, California 92101 ("Contractor") and Matra Marconi Space UK Limited, a company organized and existing under the laws of England and Wales with its registered office at the Grove, Warren Lane, Stanmore, Middlesex, HA7 4LY, England ("Customer"). ARTICLE 1 DEFINITIONS Capitalized terms used and not otherwise defined herein shall have the following meanings: Affiliate means the directors, officers, agents and employees of a Party. This definition is for identification purposes only and shall not be interpreted as creating any privity of contract between Affiliates of one Party and the other Party or its Affiliates. CSLA means the Commercial Space Launch Act, 49 U.S.C. Sections 70101 - 70119, as amended. Contract means this instrument and all exhibits attached hereto, as the same may be amended from time to time in accordance with the terms hereof, including: Exhibit A - Statement of Work Exhibit B - Interface Control Document Contract Price means the Launch Service Price as set forth in Article 4 entitled "Contract Price." Effective Date shall have the meaning set forth in Article 32 entitled "Effective Date." Excusable Delay shall have the meaning set forth in Paragraph 8.1 entitled "Excusable Delays Defined." 1 Lockheed Martin Commercial Launch Services, Inc. Proprietary Information Insured Launch Activities means the activities carried out by either Party or the Related Third Parties of either Party or by the United States Government and operations necessary therefor or incidental thereto pursuant to the terms of this Contract and, in the case of Launch Services licensed by the CSLA, the launch license issued by the Office of Commercial Space Transportation (or any successor agency thereto) to Contractor under the CSLA to conduct the Launch Services, including the use of United States Goverment launch facilities at the launch site used by Contractor and the Launch from the launch site. Intentional Ignition means, with respect to the Launch Vehicle, the point in time during the launch countdown when initiation of the gas generators igniters firing command and firing of any of the gas generators igniters occurs. Interface Control Document or ICD means that document referred to in the Statement of Work attached or to be attached as Exhibit B to this Contract. Launch means Intentional Ignition followed by either (i) release of the Launch Vehicle from the launcher hold down restraints for the purpose of lift off; or (ii) total loss or destruction of the Satellite or Launch Vehicle. Launch Date means the calendar date within the Launch Slot during which the Launch is scheduled to occur, as established in accordance with Article 6 entitled "Launch Schedule" and as such Launch Date may be adjusted in accordance with Article 7 entitled "Launch Schedule Adjustments." Launch Opportunity means an adequate time period during which Contractor, in its reasonable judgment, may provide a Launch Service to Customer, taking into account all relevant conditions, including but not limited to, committments to other customers, maintenance of appropriate clearance times between flights, hardware availability and requirements of the United States Government for range support. Launch Service means those services to be provided by Contractor to Customer for a single Launch as set forth in Exhibit A entitled "Statement of Work." Launch Slot means a thirty (30) day period during which the Launch is scheduled to occur, as set forth in Article 6 entitled "Launch Schedule" and as such Launch Slot may be adjusted in accordance with Article 7 entitled "Launch Schedule Adjustments". 2 Lockheed Martin Commercial Launch Services, Inc. Proprietary Information Launch Vehicle means the baseline launch vehicle system consisting of an Atlas lower stage and Centaur upper stage connected by an interstage adapter, the payload fairing and the payload adapter with separation system, collectively identified as the Atlas ILAS Standard with a performance level as specified in the Exhibit A Statement of Work. NPD means the date upon which all the conditions set forth in Article 32 have been met. Orion means Customer's customer, International Private Satellite Partners, L.P. Party or Parties means Contractor, Customer or both. Related Third Parties means (i) the Parties' Affiliates and customers; (ii) the Parties' contractors, subcontractors and suppliers at any tier involved directly or indirectly in the performance of this Contract, and their directors, officers agents and employees; (iii) entities involved with payload processing or other activities in the payload processing facilities, including the contractor providing the payload processing facilities, other customers of the payload processing facilities contractor, and all employees and contractors of those contractors and customers; and (iv) parties having any right, title or interest, whether through sale, lease or service arrangement or otherwise, directly or indirectly, in the Satellite or any transponder, the Launch Vehicle or the Launch Service. This definition is for identification purposes only and shall not be interpreted as creating any privity of contract between Affiliates of one Party and the other Party or its Affiliates. Satellite means Customer-provided Orion F2 satellite and associated property to be launched on the Launch Vehicle. Statement of Work or SOW means that document attached as Exhibit A to this Contract. Termination Charge means the charge calculated in accordance with Paragraph 21.6 entitled "Termination Charge." Third Party means any person or entity other than Contractor, Customer, their Affiliates and Related Third Parties and the United States Government and its agencies, contractors or subcontractors involved in the Launch Services. 3 Lockheed Martin Commercial Launch Services, Inc. Proprietary Information ARTICLE 14 COMPLETION OF CONTRACTOR'S OBLIGATION TO PROVIDE LAUNCH SERVICES The Launch Services to be provided under this Contract shall be considered complete upon Launch and the submission of data required by the Statement of Work, Sections 4 and 6. ARTICLE 15 EXCLUSION OF WARRANTY AND WAIVER OF LIABILITY AND ALLOCATION OF CERTAIN RISKS 15.1 No Representations or Warranties Contractor has not made nor does it make any representation or warranty, whether written or oral, express or implied, including, without limitation, any warranty of design, operation, condition, quality, suitability or merchantability or of fitness for use or for a particular purpose, absence of latent or other defects, whether or not discoverable, with regard to the success of the Launch or other performance of the Launch Service hereunder. Without limited or creating exceptions to the reciprocal waiver of liability set forth in this Article 15, or the exclusive remedies set forth in Article 18, in no event shall either Party be liable to the other and to persons claiming by or through such Party under any theory of tort, contract, strict liability, negligence of any type or under any other legal or equitable theory for indirect, special, incidental or consequential damages, including without limitation, costs of effecting cover, lost profits, lost revenues or costs of recovering a payload or the Satellite, arising out of or relating to this Contract. 15 Lockheed Martin Commercial Launch Services, Inc. Proprietary Information 15.2 Waiver of Liability ------------------- 15.2.1 Contractor and Customer hereby agree to a reciprocal waiver of liability pursuant to which each Party agrees not to bring a claim in arbitration or otherwise or sue the other Party, the United States Government or Related Third Parties of the other Party for any property loss or damage it sustains and any property loss or damage, personal injury or bodily injury, including death, sustained by any of its Affiliates, arising in any manner in connection with the performance of or activities carried out pursuant to this Contract, or other activities in or around the launch site or Satellite processing area, or the operation or performance of the Launch Vehicle or the Satellite. Such waiver of liability shall also extend to any indirect, special, incidental or consequential damages or other loss of revenue or business injury or loss including but not limited to lost profits or costs of recovering a payload or the Satellite resulting from any delay in Launch, damages to the Satellite before, during or after Launch or from the failure of the Satellite to reach its planned orbit or operate properly. 15.2.2 Claims of liability are waived and released regardless of whether loss, damage or injury arises from the acts or omissions, negligent or otherwise, of either Party or its Related Third Parties. This waiver of liability shall extend to all theories of recovery, including in contract for property loss or damage, tort, product liability and strict liability. In no event shall this waiver of liability prevent or encumber enforcement of the Parties' contractual rights and obligations to each other as specifically provided in this Contract. 15.2.3 Contractor and Customer shall each extend the waiver and release of claims of liability as provided in Paragraphs 15.2.1 and 15.2.2 to its Related Third Parties (other than employees, directors and officers) by requiring them to waive and release all claims of liability they may have against the other Party, its Related Third Parties, the United States Government and its contractors and subcontractors at every tier and to agree to be responsible for any property loss or damage, personal injury or bodily injury, including death, sustained by them arising in any manner in connection with the performance of or activities carried out pursuant to this Contract, or other related activities in or around the launch site or Satellite processing area, or the operation or performance of the Launch Vehicle or the Satellite. 16 Lockheed Martin Commercial Launch Services, Inc. Proprietary Information 15.2.4 The waiver and release by each Party and its Related Third Parties of claims of liability against the other Party and the Related Third Parties of the other Party extends to the successors and assigns, whether by subrogation or otherwise, of the Party and its Related Third Parties. Each Party shall obtain a waiver of subrogation and release of any right of recovery against the other Party and its Related Third Parties from any insurer providing coverage for the risks of loss for which the Party hereby waives claims of liability against the other Party and its Related Third Parties. 15.2.5 In the event of any inconsistency between the provisions of this Paragraph 15.2 and any other provisions of this Contract, the provisions of this Paragraph 15.2 shall take precedence. 15.3 Indemnification - Property Loss and Damage and Bodily Injury ------------------------------------------------------------ 15.3.1 To the extent that such liability is not covered by an insurance policy of either Contractor or Customer, Contractor and Customer each agree to defend, hold harmless and indemnify the other Party and its Related Third Parties, for any liabilities, costs and expenses (including attorneys' fees, costs and expenses), arising as a result of claims brought by Related Third Parties of the indemnifying Party, for property loss or damage, personal injury or bodily injury, including death, sustained by such Related Third Parties, arising in any manner in connection with the activities carried out pursuant to this Contract, other activities in and around the launch site or the Satellite processing area, or the operation or performance of the Launch Vehicle or the Satellite. Such indemnification shall extend to any claim for indirect, special, incidental, or consequential damages or other loss of revenue or business injury or loss resulting from any loss of or damage to the Satellite before or after launch or from the failure of the Satellite to reach its planned orbit or operate properly. 15.3.2 To the extent that such claims of liability are not covered by the third party liability insurance referred to in Paragraph 16.1 entitled "Third Party Liability Insurance," or an insurance policy of either Contractor or Customer or eligible for payment by the United States Government (as provided in Paragraph 16.2 entitled "Insurance Required by Launch License"), Contractor will defend, hold harmless and indemnify Customer and its Related Third Parties for any and all claims of Third Parties, for property loss or damage, personal injury or bodily injury, including death, arising in any manner from the operation or performance of the Launch Vehicle. 17 Lockheed Martin Commercial Launch Services, Inc. Proprietary Information 15.3.3 To the extent that such claims of liability are not covered by the third party liability insurance referred to in Paragraph 16.1 entitled "Third Party Liability Insurance," or an insurance policy of either Contractor or Customer or not paid by the United States Government (as provided in Paragraph 16.2 entitled "Insurance Required by Launch License,") Customer will defend, hold harmless and indemnify Contractor and its Related Third Parties for any and all claims of Third Parties, for property loss or damage, personal injury or bodily injury, including death, arising in any manner from the operation or performance of the Satellite or from any claim for indirect, special, incidental or consequential damages or other loss of revenue or business injury or loss resulting from any loss of or damage to the Satellite before or after Launch or from the failure of the Satellite to reach its planned orbit or operate properly. 15.3.4 Notwithstanding Paragraphs 15.3.2 and 15.3.3 above, Contractor shall not be obligated to defend, hold harmless or indemnify Customer for any claim brought by a Third Party against Customer resulting from any damage to or loss of the Satellite, whether sustained before or after Launch and whether due to the operation, performance, non-performance or failure of the Launch Vehicle or due to any other causes. Customer shall defend, hold harmless and indemnify Contractor for any claims brought by Third Parties against Contractor for damage to or loss of the Satellite, whether sustained before or after Launch or whether due to the operation, performance, non-performance or failure of the Launch Vehicle or due to other causes. 15.3.5 The indemnification provided by this Paragraph 15.3 for property loss or damage, personal injury or bodily injury extends to all damage or injury regardless of whether such loss, damage or injury arises from the acts or omissions, whether negligent or otherwise, of either Party. 15.3.6 The right of either Party or Related Third Parties to indemnification under this Article is not subject to subrogation or assignment and either Party's obligation set forth herein to indemnify the other Party or Related Third Parties extends only to that Party or those Related Third Parties and not to others who may claim through them by subrogation, assignment or otherwise. 18 Lockheed Martin Commercial Launch Services, Inc. Proprietary Information 15.4 Indemnification by United States Government ------------------------------------------- 15.4.1 The Parties recognize that under the CSLA and subject thereto, the Secretary of Transportation shall, to the extent provided in advance in appropriations acts or to the extent there is enacted additional legislative authority to provide for the payment of claims, provide for the payment by the United States Government of successful claims (including reasonable expenses of litigation or settlement) of a Third Party against Contractor or subcontractors, or Customer or its contractors or subcontractors, resulting from activities carried out pursuant to a license issued or transferred under the CSLA for death, bodily injury, or loss of or damage to property resulting from activities carried out under the license, but only to the extent that the aggregate of such successful claims arising out of the Launch: 15.4.1.1 is in excess of the amount of insurance or demonstration of financial responsibility required of Contractor under its license issued pursuant to the CSLA; and 15.4.1.2 is not in excess of the level that is $1,500,000,000 (plus any additional sums necessary to reflect inflation occurring after January 1, 1989) above the required amount of insurance or demonstration of financial responsibility required by the CSLA. 15.4.2 Contractor makes no representation or warranty that any payment of claims by the United States Government will be available pursuant to the CSLA. Contractor's sole obligation is the good faith effort to obtain such payment as may be available from the United States Government. 15.5 Indemnification - Intellectual Property Infringement ---------------------------------------------------- 15.5.1 Contractor shall defend, hold harmless and indemnify Customer and its Related Third Parties for any and all claims resulting from the infringement, or claims of infringement, of the patent rights or any other intellectual property rights of a Third Party, that may arise from Contractor's provision of Launch Services. 15.5.2 Customer shall defend, hold harmless and indemnify Contractor and its Related Third Parties for any and all claims resulting from the infringement, or claims of infringement, of the patent rights or any other intellectual property rights of a Third Party, that may arise from the design, manufacture, launch or operation of Customer's Satellite. 19 Lockheed Martin Commercial Launch Services, Inc. Proprietary Information 15.6 Rights and Obligations The rights and obligations specified in Paragraphs 15.3 and 15.5 shall be subject to the following conditions: 15.6.1 The Party seeking indemnification shall promptly advise the other Party in writing of the filing of any suit, or of any written or oral claim alleging an infringement of any Related Third Party's or any Third Party's rights, upon receipt thereof, and shall provide the indemnitor, at the indemnitor's request and expense, with copies of all relevant documentation. 15.6.2 The Party seeking indemnification shall not make any admission nor shall it reach a compromise or settlement without the prior written approval of the other Party, which approval shall not be unreasonably withheld or delayed. 15.6.3 The Party required to indemnify, defend and hold the other harmless shall assist in and shall have the right to assume, when not contrary to the governing rules of procedure, the defense of any claim or suit or settlement thereof, and shall pay all reasonable litigation and administrative costs and expenses, including attorney's fees, incurred in connection with the defense of any such suit, shall satisfy any judgments rendered by a court of competent jurisdiction in such suits, and shall make all settlement payments. 15.6.4 The indemnitee may participate in any defense at its own expense, using counsel reasonably acceptable to the indemnitor, provided that there is no conflict of interest and that such participation does not otherwise adversely affect the conduct of the proceedings. 15.7 Inconsistency with Government Agreement In the event of any inconsistency between any provision of this Article 15 or Article 16 entitled "Insurance" and the Agreement for Waiver of Claims and Assumption of Responsibility referred to in Paragraph 13.1, this Article 15 shall take precedence as between the Parties. 15.8 Survival of Obligations All indemnities, obligations, liabilities and payments provided for in this Article 15 shall survive, and remain in full force and effect, notwithstanding the expiration or other termination of this Contract and, subject to the limitations set forth in this Article 15, notwithstanding any other provision of this Contract to the contrary. 20 Lockheed Martin Commercial Launch Services, Inc. Proprietary Information 15.9 Limitation of Liability Except for the obligation to indemnify provided in Paragraph 15.3.2, Contractor's liability to Customer for any claim that has not been waived or released pursuant to the terms of this Article 15 and any claim to which the remedies are not limited pursuant to the terms of Article 18 entitled "Remedies and Limitations on Remedies" arising out of or relating to this Contract, including, without limitation, any claim for termination, shall not, under any circumstances, exceed the amount of the Contract Price paid by Customer as of the date of such claim. ARTICLE 16 INSURANCE 16.1 Third Party Liability Insurance Contractor shall procure and maintain in effect insurance for third party liability to provide for the payment of claims resulting from property loss or damage or bodily injury, including death, sustained by Third Parties caused by an occurrence resulting from Insured Launch Activities. The insurance shall have a limit of U.S. $164,000,000 per occurrence and in the aggregate, or such other amount as may be required by the United States Department of Transportion, whichever is higher. Coverage for damage, loss or injury sustained by Third Parties arising in any manner in connection with Insured Launch Activities shall attach upon arrival of the Satellite at CCAS and will terminate upon the earlier to occur at the return of all parts of the Launch Vehicle to Earth or twelve (12) months following the date of Launch, unless the Satellite is removed from the Satellite processing area or CCAS other than by Launch, in which case, coverage shall extend only until such removal. Such insurance shall not cover loss of or damage to the Satellite even if such claim is brought by any Third Party or Related Third Parties. Such insurance also shall not pay claims made by the United States Government for loss of or damage to United States Government property in the care, custody and control of Customer or Contractor. 16.2 Insurance Required by Launch License Contractor shall provide such insurance as is required by the launch license issued by the United States Department of Transportation for loss of or damage to United States Government property. 16.3 Miscellaneous Requirements The third party liability insurance shall name as named insured Contractor and as additional insured Customer and the respective Related Third Parties of the Parties identified by each Party, the United States Government and any of its agencies. Such insurance shall provide that the insurers shall waive all rights of subrogation that may arise by contract or at law aginst the named insured or any additional insured. The Contractor shall notify the Customer when a claim, arising out of activities carried out as a result of this Contract, has been filed against a policy maintained by the Contractor in accordance with this Article 16. 21 (CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PAGES 101 TO 109 AND PORTIONS OF PAGE 114 OF THIS EXHIBIT 1B) ---------------------------------------------------------- ORION SATELLITE CORPORATION PART 1(B) ORION 2 PAYMENT PLANS AND TERMINATION LIABILITY AMOUNTS ---------------------------------------------------------- Signed: Date: On behalf of ORION Satellite Corporation Signed: Date: On behalf of Matra Marconi Space UK Limited Part 1(B) CONTENTS -------- Section Description Page No. - ------- ----------- -------- 1 Progress Payment 2 2 Milestone Payment Plan 4 3 Termination Liability Amounts 7 COMMERCIAL-IN-CONFIDENCE SECTION 1 PROGRESS PAYMENT PLAN page 1 Issue 1 323347 vl Progress Payment Plan Launch Vehicle Orion 2 Atlas IIAS [ ] SECTION 2 MILESTONE PAYMENT PLANS CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PAGES 105 TO 109 OF THIS DOCUMENT. Lockheed Martin Commercial Launch Services, Inc. Proprietary Information CONTRACT FOR LAUNCH SERVICES This Contract is made and entered into by and between Lockheed Martin Commercial Launch Services, Inc., a Delaware corporation, having its principal place of business at 101 West Broadway, San Diego, California 92101 ("Contractor") and Matra Marconi Space UK Limited, a company organized and existing under the laws of England and Wales with its registered office at the Grove, Warren Lane, Stanmore, Middlesex, HA7 4LY, England ("Customer"). ARTICLE 1 DEFINITIONS Capitalized terms used and not otherwise defined herein shall have the following meanings: Affiliate means the directors, officers, agents and employees of a Party. This definition is for identification purposes only and shall not be interpreted as creating any privity of contract between Affiliates of one Party and the other Party or its Affiliates. CSLA means the Commercial Space Launch Act, 49 U.S.C. Sections 70101 - 70119, as amended. Contract means this instrument and all exhibits attached hereto, as the same may be amended from time to time in accordance with the terms hereof, including: Exhibit A - Statement of Work Exhibit B - Interface Control Document Contract Price means the Launch Service Price as set forth in Article 4 entitled "Contract Price." Effective Date shall have the meaning set forth in Article 32 entitled "Effective Date." Excusable Delay shall have the meaning set forth in Paragraph 8.1 entitled "Excusable Delays Defined." Lockheed Martin Commercial Launch Services, Inc. Proprietary Information Insured Launch Activities means the activities carried out by either Party or the Related Third Parties of either Party or by the United States Government and operations necessary therefor or incidental thereto pursuant to the terms of this Contract and, in the case of Launch Services licensed by the CSLA, the launch license issued by the Office of Commercial Space Transportation (or any successor agency thereto) to Contractor under the CSLA to conduct the Launch Services, including the use of United States Goverment launch facilities at the launch site used by Contractor and the Launch from the launch site. Intentional Ignition means, with respect to the Launch Vehicle, the point in time during the launch countdown when initiation of the gas generators igniters firing command and firing of any of the gas generators igniters occurs. Interface Control Document or ICD means that document referred to in the Statement of Work attached or to be attached as Exhibit B to this Contract. Launch means Intentional Ignition followed by either (i) release of the Launch Vehicle from the launcher hold down restraints for the purpose of lift off; or (ii) total loss or destruction of the Satellite or Launch Vehicle. Launch Date means the calendar date within the Launch Slot during which the Launch is scheduled to occur, as established in accordance with Article 6 entitled "Launch Schedule" and as such Launch Date may be adjusted in accordance with Article 7 entitled "Launch Schedule Adjustments." Launch Opportunity means an adequate time period during which Contractor, in its reasonable judgment, may provide a Launch Service to Customer, taking into account all relevant conditions, including but not limited to, committments to other customers, maintenance of appropriate clearance times between flights, hardware availability and requirements of the United States Government for range support. Launch Service means those services to be provided by Contractor to Customer for a single Launch as set forth in Exhibit A entitled "Statement of Work." Launch Slot means a thirty (30) day period during which the Launch is scheduled to occur, as set forth in Article 6 entitled "Launch Schedule" and as such Launch Slot may be adjusted in accordance with Article 7 entitled "Launch Schedule Adjustments". 2 Lockheed Martin Commercial Launch Services, Inc. Proprietary Information Launch Vehicle means the baseline launch vehicle system consisting of an Atlas lower stage and Centaur upper stage connected by an interstage adapter, the payload fairing and the payload adapter with separation system, collectively identified as the Atlas ILAS Standard with a performance level as specified in the Exhibit A Statement of Work. NPD means the date upon which all the conditions set forth in Article 32 have been met. Orion means Customer's customer, International Private Satellite Partners, L.P. Party or Parties means Contractor, Customer or both. Related Third Parties means (i) the Parties' Affiliates and customers; (ii) the Parties' contractors, subcontractors and suppliers at any tier involved directly or indirectly in the performance of this Contract, and their directors, officers agents and employees; (iii) entities involved with payload processing or other activities in the payload processing facilities, including the contractor providing the payload processing facilities, other customers of the payload processing facilities contractor, and all employees and contractors of those contractors and customers; and (iv) parties having any right, title or interest, whether through sale, lease or service arrangement or otherwise, directly or indirectly, in the Satellite or any transponder, the Launch Vehicle or the Launch Service. This definition is for identification purposes only and shall not be interpreted as creating any privity of contract between Affiliates of one Party and the other Party or its Affiliates. Satellite means Customer-provided Orion F2 satellite and associated property to be launched on the Launch Vehicle. Statement of Work or SOW means that document attached as Exhibit A to this Contract. Termination Charge means the charge calculated in accordance with Paragraph 21.6 entitled "Termination Charge." Third Party means any person or entity other than Contractor, Customer, their Affiliates and Related Third Parties and the United States Government and its agencies, contractors or subcontractors involved in the Launch Services. 3 Lockheed Martin Commercial Launch Services, Inc. Proprietary Information Table 21.6 Termination Liability Schedule Date of Termination Termination Charge - -------------------------------------------------------------------------------- Effective Date of Contract through 30 September [---------------------] 1996 1 October 1996 through 31 December 1996 or up to NPD, whichever is earlier * NPD through last day of NPD+18 months First day of NPD+19 months, up to Launch [---------------------] Customer shall pay to Contractor any unpaid portion of the Termination Charge within thirty (30) days of Contractor's invoice. Contractor shall refund to Customer any amount paid, without interest, under this Contract for the terminated Launch Service in excess of the Termination Charge within thirty (30) days of the effective termination date for such Launch Service. 21.7 Effect of Termination If either Party terminates this Contract under this Article 21, both Parties' obligations under this Contract with respect to such Launch Service shall be discharged as of the Contract effective termination date except that Customer's obligation to pay the Termination Charge described in Paragraph 21.6 shall survive the termination of this Contract. 21.8 Effect on Termination Liability in Event of Launch Schedule Adjustment In the event the Contractor postpones the launch schedule in accordance with Article 7 or Article 8, the Customer's termination liability as set forth in Table 21.6 above, shall not increase for a period of time equal to the actual length of the delay. 24 CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PAGES 101 TO 109 AND PORTIONS OF PAGE 114 OF THIS EXHIBIT 1B) 28 June 1996 Issue 3 ORION SATELLITE CORPORATION PART 2(A) ORION 2 STATEMENT OF WORK Issue: 3 Dated: 28 June 1996 Signed: Date: On behalf of ORION Satellite Corporation Signed: Date: On behalf of Matra Marconi Space UK Limited Part 2(A) ORION 2 Statement of Work Page i TABLE OF CONTENTS 1. INTRODUCTION..............................................................1 1.1 Scope .............................................................1 1.2 Responsibilities....................................................1 2. EQUIPMENT, DOCUMENTATION, AND SERVICES......................................2 2.1 Introduction 2 2.2 Deliverable Equipment...............................................3 2.2.1 Flight Spacecraft............................................3 2.2.2 Mission Specific Hardware and Software.......................3 2.2.3 Optional Networking Transponders.............................3 2.2.4 Optional Spacecraft Dynamic Simulator........................3 2.3 Deliverable Documentation...........................................4 2.4 Services .........................................................4 2.4.1 Launch Support Services......................................4 2.4.2 Launch Services..............................................5 2.4.3 Reserved.....................................................5 2.4.4 Mission Support Services.....................................5 2.4.5 Operations Training..........................................5 3. PROGRAM MANAGEMENT........................................................6 3.1 Introduction........................................................6 3.1.1 Scope........................................................6 3.1.2 Responsibilities.............................................6 3.1.3 Program Management Plan......................................7 3.2 Program Management Interface........................................8 3.3 Documentation and Data Management...................................8 3.3.1 General......................................................8 3.3.2 Documentation Center.........................................9 3.3.3 Data Management Plan.........................................9 3.3.4 Documentation Submission Criteria............................9 3.3.5 Revision and Maintenance of Documentation....................9 3.3.6 Monthly Documentation Status Report..........................9 3.4 Meetings .........................................................9 3.4.1 Inaugural Meeting............................................9 3.4.2 Progress Meetings...........................................10 3.4.3 Senior Management Meetings..................................10 3.4.4 Quarterly Progress Meetings.................................10 3.4.5 Subcontractor Progress Meetings and Other Meetings..........10 Part 2(A) ORION 2 Statement of Work Page ii 28 June 1996 Issue 3 3.4.6 Agenda Co-ordination Procedure..............................11 3.4.7 Minutes.....................................................11 3.5 Reviews ........................................................11 3.6 Action Item Control................................................12 3.7 Management of Contract Changes.....................................12 3.8 Program Planning and Status Information............................12 3.8.1 Hardware Matrix ............................................12 3.8.2 Qualification Status List...................................13 3.8.3 Critical Items List.........................................13 3.8.4 Program Schedules ..........................................13 3.8.5 Program Progress Report.....................................14 3.8.6 Executive Summary...........................................15 3.9 Program Monitoring and Notification Requirements...................15 3.9.1 ORION Representatives.......................................15 3.9.2 Office Accommodation and Facilities.........................16 3.9.3 Attendance at Meetings......................................16 3.9.4 Access to Documentation.....................................16 3.9.5 ORION Presence During Development, Qualification, and Acceptance Tests............................................16 3.9.6 Notification Requirements...................................17 3.9.7 Material Review Board (MRB) and Failure Review Board (FRB).................................................17 4. DESIGN ACTIVITIES........................................................18 4.1 General .........................................................18 4.2 Design Reviews.....................................................18 4.3 Design Analyses and Study Reports..................................18 4.3.1 Analyses at Spacecraft System Level.....................19 4.3.1.1 Spacecraft Failure Analysis.............................19 4.3.1.2 Dynamic Analysis........................................19 4.3.1.3 Antenna Pointing Error Analysis.........................20 4.3.1.4 Propellant Budget Analysis..............................21 4.3.1.5 Mass Properties Analysis................................21 4.3.1.6 Power Budget Analysis...................................21 4.3.1.7 Mission Analysis........................................22 4.3.1.8 Electromagnetic Compatibility (EMC) Analysis............22 4.3.1.9 Environmental Effects Analysis..........................23 4.3.1.10 Worst Case Performance Analysis.........................24 4.3.1.11 Autonomous Commands Analysis............................24 4.3.2 Subsystem Level Analyses................................24 4.3.2.1 Communications Subsystem Analysis.......................25 4.3.2.2 Telemetry, Tracking, and Command (TT&C) Subsystem Analysis................................................28 Part 2(A) ORION 2 Statement of Work Page iii 28 June 1996 Issue 3 4.3.2.3 Attitude and Orbit Control Subsystem (AOCS) Analysis....29 4.3.2.4 Propulsion Subsystem Analysis...........................30 4.3.2.5 Power Subsystem Analysis................................30 4.3.2.6 Thermal Subsystem Analysis..............................31 4.3.2.7 Structure Analysis......................................32 5. PRODUCT ASSURANCE.........................................................33 5.1 Product Assurance Requirements.....................................33 5.2 Quality Assurance Tasks............................................33 6. MANUFACTURING, ASSEMBLY, INTEGRATION AND TEST............................35 6.1 General ........................................................35 6.2 Test Plan ........................................................35 6.3 Test Procedures, Data, and Reports.................................36 6.3.1 Unit and Subsystem Test Procedures and Reports..............36 6.3.2 Spacecraft Test Procedures and Reports......................37 6.3.3 Test Data...................................................37 6.3.4 Spacecraft Log Book.........................................38 6.4 Test Reviews.......................................................38 6.5 Preshipment Review.................................................39 6.6 System and Major Subsystems Integration and Test Notification......39 6.7 Failure Notification..............................................39 6.8 Electrical and Mechanical Ground Support Equipment (EGSE/MGSE)........................................................40 6.9 Test Equipment Requirements........................................40 6.10 Software Requirements..............................................40 6.11 Delivery of Drawings and Engineering Control Documents for Spacecraft Operation and In-Orbit Control......................40 6.12 Secure Command System and Certification............................41 7. LAUNCH AND MISSION SUPPORT SERVICES......................................42 7.1 Scope ............................................................42 7.2 Launch Vehicle Compatibility.......................................42 7.3 Launch Support Services............................................42 7.3.1 Spacecraft Preparation at the Launch Sites..................43 7.3.2 Spacecraft Propellant and Pressurant........................43 7.3.3 Support of Meetings and Reviews.............................43 7.4 Safety ............................................................43 7.5 Launch Services....................................................44 Part 2(A) ORION 2 Statement of Work Page iv 28 June 1996 Issue 3 7.6 Mission Support....................................................44 7.6.1 Scope ......................................................44 7.6.2 Mission Support Activities..................................45 7.6.2.1 Preparation and Definition of Mission Support Documents.45 7.6.2.2 World-Wide Ground Segment...............................48 7.6.2.3 Mission Support Procedures and Sequence of Events.......49 7.6.2.4 Spacecraft/ORION SCS Compatibility......................49 7.6.2.5 In-Orbit Test Plan and Procedure........................50 7.6.2.6 Mission Reviews.........................................50 7.6.2.7 Training ...............................................51 7.6.2.7.1 Classroom Training......................................51 7.6.2.7.2 On the Job Training.....................................52 7.6.2.7.3 Course Materials........................................53 7.6.2.8 Real-Time Mission Operations............................53 7.6.2.9 Post-Mission Review.....................................53 7.6.2.10 In-Orbit Testing and Test Report........................54 7.6.2.11 Spacecraft Acceptance Review............................54 7.6.2.12 Spacecraft Operational Support..........................54 8. SHIPPING AND TRANSPORTATION.............................................55 8.1 Shipping and Transportation Plan.................................55 8.2 Spacecraft Shipment ...............................................55 9. OPTIONS 9.1 Networking Transponders............................................56 9.2 Spacecraft Dynamic Simulator Software..............................56 10. MISSION SPECIFIC HARDWARE AND SOFTWARE ..................................57 10.1 Command Generators.................................................57 10.2 Propulsion Model...................................................57 10.3 Propellant Gauging.................................................57 10.4 Sensor Blinding Prediction Model...................................57 Part 2(A) ORION 2 Statement of Work Page v CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PAGES 130 TO 187 OF THIS DOCUMENT. 28 June 1996 CONFIDENTIAL Issue 2 ORION SATELLITE CORPORATION PART 2(B) ORION 2 CONTRACT DOCUMENTATION REQUIREMENTS LIST (CDRL) Issue: 2 Dated: 28 June 1996 Signed: Date: On behalf of ORION Satellite Corporation Signed: Date: On behalf of Matra Marconi Space UK Limited Part 2(B) ORION 2 Contractual Documentation Requirements List Page i CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PAGES 189 TO 206 OF THIS DOCUMENT. 28 June 1996 CONFIDENTIAL Issue 3 ORION SATELLITE CORPORATION PART 3(A) ORION 2 SPACECRAFT SPECIFICATIONS Issue:3 Dated: 28 June 1996 Signed: Date: On Behalf of ORION Satellite Corporation Signed: Date: On Behalf of Matra Marconi Space UK Limited Part 3(A) ORION 2 Spacecraft Specifications Page i TABLE OF CONTENTS 1. INTRODUCTION................................................................1 1.1 Scope and Purpose....................................................1 1.2 Description of the ORION 2 Spacecraft................................1 1.3 General Requirements.................................................1 2. SPACECRAFT SYSTEM CHARACTERISTICS...........................................3 2.1 Life ................................................................3 2.1.1 Manoeuver Life............................................3 2.1.2 Orbital Life..............................................3 2.2 Launch Configuration.................................................3 2.3 Spacecraft Reliability and Quality Assurance Requirements....................................................3 2.5 General Spacecraft Design Considerations.............................6 2.5.1 Configuration.............................................6 2.5.2 Maintainability, Interchangeability, and Accessibility...........................................6 2.5.3 Mechanical Design Criteria for Units and Assemblies..............................................7 2.5.4 Thermal Design Criteria for Units and Assemblies..............................................7 2.5.5 Design Criteria for Electronic Units and Onboard Software...............................................7 2.5.6 Use of Connectors........................................8 2.5.7 Spacecraft Testing Via the Telemetry System...............8 2.5.8 Hard-line Connections for Communications and TT&C Subsystem Testing.......................................8 2.5.9 Insulation of Conductors..................................8 2.5.10 Radiation Environment....................................9 2.5.11 Design Considerations Associated with Charging Phenomena.......................................9 2.5.12 Zero-g Testing..........................................11 2.5.13 Operation Following Storage.............................11 2.5.14 Launch Windows and Mission Profile Constraints............................................11 2.5.15 Telemetry Transmitters Status During Launch.............12 2.5.16 Helium Pressurant Venting (if applicable)...............12 2.5.17 Orbit Control Maneuvers.................................12 2.5.18 Operation in Inclined Orbit.............................12 2.5.19 Attitude Control Failure Mode Recovery and Continued Operation....................................12 2.6 Definition of Coordinate Axes and Attitude Angles...................13 2.7 Antenna Beam Pointing Accuracy......................................13 2.8 Minimum Performance and Defect Criteria.............................15 3.0 COMMUNICATIONS SUBSYSTEM..................................................16 3.1 General.............................................................16 3.1.1 Definitions...........................................16 3.1.2 Conditions for Specification..........................19 3.1.3 Primary Transmission Modes............................20 3.2 Coverage............................................................20 3.2.1 Coverage Regions......................................20 3.2.2 Beams.................................................22 3.3 Polarization........................................................27 3.3.1 Orthogonality.........................................27 3.3.2 Receive Beam Isolation................................28 3.3.3 Transmit Beam Isolation...............................28 3.4 Capacity............................................................30 3.5 Frequency Plan......................................................31 3.6 Communications Subsystem and Antenna Beam Interconnectivity..............................................33 3.6.1 Communications Subsystem Configuration................33 3.6.2 Antenna Beam Interconnectivity........................33 3.7 Input Characteristics...............................................34 3.7.1 Receive Sensitivity (G/T).............................34 3.7.2 Gain and Level Control................................37 3.7.2.1 Fixed Gain Mode.......................................37 3.7.2.2 Automatic Level Control Mode..........................37 3.7.3 Transponder Gain......................................38 3.7.3.1 FG Mode...............................................38 3.7.3.2 ALC Mode..............................................38 3.7.4 Drive Conditions......................................38 3.7.4.1 Overdrive Capability..................................38 3.7.4.2 Overdrive Damage Limit................................39 3.7.4.3 Pulsed Transient Response.............................39 3.7.5 Receive Rejection.....................................39 3.7.6 Linearity of the Common Receive Section...............40 3.7.7 Interference from Command Carrier.....................40 3.8 Output Characteristics..............................................41 3.8.1 Effective Isotropic Radiated Power (EIRP).............41 3.8.2 Spurious Outputs......................................45 3.8.3 Spurious Modulation...................................46 3.8.4 AM/AM Transfer........................................46 3.8.5 AM/FM Transfer........................................48 3.8.5.1 Continuous Mode.......................................48 3.8.5.2 Pulsed Level..........................................48 3.8.6 Passive Intermodulation...............................48 3.8.7 Multipaction Requirements.............................48 3.9 Transfer Characteristics............................................48 3.9.1 Gain Versus Frequency.................................49 3.9.2 Gain Slope...........................................51 3.9.3 Group Delay Versus Frequency.........................51 3.9.4 Group Delay Slope....................................53 3.9.5 Group Delay Stability................................53 3.9.6 Group Delay Ripple...................................53 3.9.7 Phase Linearity and AM/PM Conversion Coefficient.........................................53 3.9.8 AM/PM TransferCoefficient............................54 3.9.9 Amplitude Linearity..................................54 3.9.10 Frequency Stability..................................55 3.9.11 Out-Of-Band Response.................................55 3.10 Cessation of Emissions.............................................56 3.11 Traffic Routing....................................................56 3.12 Redundancy.........................................................57 3.13 Power Amplifiers...................................................57 3.13.1 Linearized TWTAs.....................................57 3.13.2 TWTA Auto-Restart Capability.........................57 3.14 TT&C Interface.....................................................58 3.14.1 Command Requirements.................................58 3.14.2 Telemetry Requirements...............................58 4.0 TELEMETRY, TRACKING, AND COMMAND (TT&C).............................64 4.1 Telemetry...........................................................64 4.1.1 Functional Requirements..............................64 4.1.1.1 Purpose..............................................64 4.1.1.2 Function.............................................65 4.1.1.3 Operation............................................65 4.1.1.4 Interaction with the Communications Subsystem............................................65 4.1.1.5 Redundancy...........................................65 4.1.1.6 Interfaces...........................................66 4.1.1.6.1 All Subsystems.......................................66 4.1.1.6.2 Communications Subsystem.............................67 4.1.1.6.3 Telemetry, Tracking and Command Subsystem............67 4.1.1.6.4 Attitude and Orbit Control Subsystem.................68 4.1.1.6.5 Propulsion Subsystem.................................69 4.1.1.6.6 Power Subsystem......................................69 4.1.1.6.7 Thermal Subsystem....................................70 4.1.1.6.8 Deployment and Pointing Mechanisms...................70 4.1.1.7 Accuracy.............................................71 4.1.1.8 Data Channel Dynamic Range...........................71 4.1.1.9 Spare Capacity.......................................72 4.1.2 RF Parameters........................................72 4.2 Command.............................................................73 4.2.1 Functional Requirements..............................73 4.2.1.1 Purpose..............................................73 4.2.1.2 Function.............................................73 4.2.1.3 Operation............................................73 4.2.1.4 Isolation............................................73 4.2.1.5 Redundancy...........................................74 4.2.1.6 Interfaces...........................................74 4.2.1.7 System Test Considerations...........................74 4.2.1.8 Spare Capacity.......................................75 4.2.2 RF Parameters........................................75 4.2.3 Baseband Characteristics.............................75 4.2.3.1 Error Prevention and Detection......................76 4.2.3.2 Command Security.....................................76 4.2.3.3 Command Acceptance Probability.......................77 4.3 Ranging.............................................................77 4.3.1 Functional Requirement...............................77 4.3.1.1 Purpose..............................................77 4.3.1.2 Function.............................................77 4.3.1.3 Operation............................................78 4.3.1.4 Isolation............................................78 4.3.2 Performance Requirements.............................78 5. ATTITUDE AND ORBIT CONTROL SUBSYSTEM(AOCS).................................79 5.1 Functional Description..............................................79 5.2 Subsystem Performance and Design Requirements.......................79 5.2.1 Attitude Determination...............................79 5.2.1.1 Transfer Orbit.......................................79 5.2.1.2 Synchronous Orbit....................................80 5.2.2 Attitude Control.....................................80 5.2.2.1 Parking Orbit (If Applicable)........................80 5.2.2.2 Transfer Orbit.......................................80 5.2.2.3 Transfer to Geosynchronous Orbit and Initial Acquisition.........................................80 5.2.2.4 On Orbit Control and Antenna Pointing Mode...........80 5.2.3 Reacquisition........................................81 5.2.4 Ground Control.......................................81 5.2.4.1 Ground Control Command Capability....................81 5.2.5 Safe Modes...........................................81 5.2.6 Special Features.....................................82 5.2.6.1 Antenna Pattern Measurement Capability...............82 5.2.6.2 Control Bias Capability..............................82 5.2.6.3 AOCS Switching.......................................82 5.2.6.4 Control Electronics Fault Protection.................82 5.2.6.5 Dynamic Stability....................................83 5.2.7 Subsystem Configuration and Interfaces...............83 5.2.7.1 Redundancy...........................................83 5.2.7.2 TT&C Interfaces......................................83 5.2.7.3 Propulsion Interfaces................................83 6. PROPULSION SUBSYSTEM.......................................................84 6.1 Functional Description..............................................84 6.2 Design Requirements.................................................84 6.3 Redundancy..........................................................86 6.4 Maneuver Life and Propellant Loading................................87 6.4.1 General Requirements..................................87 6.4.2 Propellant Budgeting Methodology......................87 6.4.2.1 Actual Hardware Performance Test Data.................87 6.4.2.2 Inefficiencies of Operation...........................88 6.4.2.3 Inflight Performance..................................88 6.4.2.4 Specific Maneuver Requirements........................88 6.5 TT&C Interfaces.....................................................89 7. POWER SUBSYSTEM............................................................90 7.1 Functional Description..............................................90 7.2 General Requirements................................................90 7.3 Energy Generation...................................................91 7.3.1 Solar Cells...........................................91 7.3.2 Power Output..........................................91 7.3.3 Power Transfer Assembly...............................91 7.4 Energy Storage......................................................92 7.4.1 Batteries.............................................92 7.4.2 Battery Charge Management.............................92 7.4.3 Cell Failure..........................................93 7.4.4 Battery Removal and Storage...........................93 7.5 Power Conditioning and Control......................................93 7.5.1 Bus Configuration.....................................93 7.5.2 Failure Modes and Shutdown Sequence...................94 7.5.3 Bus Undervoltage and Overvoltage......................95 7.5.4 Interaction Between the Communications and Power Subsystems.....................................95 7.6 TT&C Interfaces.....................................................95 8. THERMAL CONTROL SUBSYSTEM..................................................96 8.1 Functional Description..............................................96 8.2 Performance Requirements............................................96 8.3 Subsystem Design Requirements.......................................97 8.3.1 Instrumentation.......................................98 8.3.2 Materials.............................................98 8.3.3 Venting...............................................98 8.3.4 Grounding.............................................99 8.3.5 Multi-Layer Insulating Blanket (MLI)..................99 8.3.6 Contamination Control.................................99 8.4 TT&C Interfaces....................................................100 9. STRUCTURE SUBSYSTEM.......................................................101 9.1 Functional Description.............................................101 9.2 Performance Requirements...........................................101 9.3 Design Requirements................................................101 10 MECHANISMS................................................................103 10.1 Design Requirements...............................................103 10.2 TT&C Interfaces...................................................104 11. PYROTECHNIC AND ELECTROEXPLOSIVE DEVICES.................................105 Attachment: Annex A Radiation Environment Specification, Issue C, 13 October 1995 13 October 1995 Issue C CONFIDENTIAL PART 3(A) ANNEX A RADIATION ENVIRONMENT SPECIFICATION 'REDLINED' AND AMENDED 10 OCTOBER 1995 'REDLINED' AND AMENDED 13 OCTOBER 1995 -------------------------------------- Part 3(A) Annex A Radiation Environment Specification Page i TABLE OF CONTENTS 1. INTRODUCTION..............................................................1 2. SYNCHRONOUS ORBIT CONDITIONS..............................................1 2.1 Electrons........................................................1 2.2 Protons..........................................................2 2.3 Alpha Particles..................................................2 2.4 Cosmic Ray Radiation.............................................3 2.5 Ultraviolet Radiation............................................4 2.6 Plasma...........................................................4 2.7 Micrometeroids...................................................5 3. TRANSFER ORBIT CONDITIONS.................................................5 3.1 Transfer Orbit Electron Flux Values..............................5 3.2 Transfer Orbit Proton Flux Values................................5 Part 3(A) Annex A Radiation Environment Specification Page ii CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PAGES 212 TO 314 OF THIS DOCUMENT. 28 June 1996 CONFIDENTIAL Issue 3 ORION SATELLITE CORPORATION PART 3(B) ORION 2 SPACECRAFT PRODUCT ASSURANCE REQUIREMENTS Issue: 3 Dated: 28 June 1996 Signed: Date: On behalf of ORION Satellite Corporation Signed: Date: On behalf of Matra Marconi Space UK Limited Part 3(B) ORION 2 Spacecraft Product Assurance Requirements page i TABLE OF CONTENTS 1. INTRODUCTION..............................................................1 1.1 Scope............................................................1 1.2 Product Assurance Objectives.....................................1 2. PRODUCT ASSURANCE REQUIREMENTS............................................3 2.1 Product Assurance Plan...........................................3 2.2 Organization and Management......................................3 2.3 Reporting........................................................3 2.4 Non-Conformance..................................................4 2.5 Contract Change Management.......................................4 2.5.1 Change Classification...................................4 2.5.2 Preliminary Change Assessment...........................5 2.5.3 Change Request (CR).....................................5 2.5.4 Contract Change Notice (CCN)............................6 2.5.5 Review and Approval of a Change.........................7 2.5.6 Change Review Board.....................................7 2.5.7 Implementation of a Change by the Contractor............8 2.5.8 Directed Changes........................................8 2.5.9 Go Ahead Procedure......................................8 2.5.10 CR/CCN Log..............................................9 2.5.11 Waivers and Deviations..................................9 3. REVIEWS AND AUDITS.......................................................11 3.1 Design Reviews..................................................11 3.1.1 Review Chairperson and Review Board....................12 3.1.2 Review Notification....................................12 3.1.3 Data Packages..........................................12 3.1.4 Review Procedures......................................12 3.1.5 Review Summary.........................................13 3.1.6 Review Completion......................................13 3.1.7 Subsystem and Unit Design Reviews......................13 3.1.7.1 Unit and Subsystem Preliminary Design Reviews..........14 3.1.7.2 Unit and Subsystem Critical Design Reviews.............14 3.1.7.3 Communications Subsystem Final Design Review...........15 3.1.7.4 Unit Qualification Design Review.......................15 3.1.8 Spacecraft System Design Reviews.......................15 3.1.8.1 System Preliminary Design Review.......................16 3.1.8.2 System Critical Design Review..........................16 3.1.8.3 System Final Design Review.............................16 3.2 Test Reviews....................................................17 3.3 Preshipment Review..............................................17 3.4 Further Reviews and Inspections.................................18 3.5 Design Review Documentation.....................................19 3.6 Test Review Documentation.......................................19 3.7 Program Audits..................................................20 3.8 ORION Right of Access...........................................20 4. SUBCONTRACTOR AND SUPPLIER MANAGEMENT....................................21 4.1 Subcontractor/Supplier Product Assurance Plan...................21 4.2 Requirements....................................................21 4.3 Reviews and Controls............................................21 5. RELIABILITY ASSURANCE....................................................22 5.1 Reliability Analysis............................................22 5.2 Parts Derating and Stress Analysis..............................23 5.3 Failure Modes, Effects, and Criticality Analyses................23 5.4 Worst-Case Analysis (WCA).......................................24 5.5 Critical Items Control..........................................25 5.6 Design Verification Matrix (DVM)................................26 5.7 Qualification Status List (QSL).................................26 6. QUALITY ASSURANCE........................................................27 6.1 Quality Assurance...............................................27 6.2 Procurement and Fabrication.....................................27 6.3 Test and Inspection.............................................27 6.4 Workmanship Standards...........................................28 6.5 Quality Records and Traceability................................28 6.6 Non-Conformance Control.........................................28 6.6.1 Non-Conformance Reporting..............................29 6.6.2 Non-Conformance/Failure Review and Disposition.........29 6.6.3 Failure Analysis and Corrective Action.................29 7. PARTS PROCUREMENT........................................................30 7.1 Parts Procurement and Control...................................30 7.2 Organization and Responsibilities...............................30 7.3 Selection and Application.......................................30 7.4 Quality Provisions..............................................31 7.5 Radiation.......................................................32 7.6 Lot Transfer....................................................32 7.7 Traceability....................................................32 7.8 Hybrids, MCMs, Battery Cells, TWTs, and Magnetics...............32 7.9 Traveling Wave Tube Amplifiers..................................33 7.10 Parts Documentation............................................34 8. MATERIALS AND PROCESSES..................................................35 8.1 Materials and Process Control...................................35 8.2 Organization....................................................35 8.3 Critical Materials and Processes................................35 8.4 Materials and Process Selection.................................35 8.5 Materials and Process Documentation.............................36 9. SOFTWARE QUALITY ASSURANCE...............................................37 9.1 Software Quality Assurance Plan.................................37 9.2 Software Development............................................37 9.3 Configuration Control...........................................37 9.4 Verification and Acceptance Testing.............................37 9.5 Non-Conformance Control.........................................38 10. CONFIGURATION MANAGEMENT.................................................39 10.1 Configuration Management.......................................39 10.2 Configuration Identification and Control.......................39 10.3 Change Control.................................................40 10.4 Configuration Verification.....................................40 10.5 Configuration Status Accounting and Documentation..............40 11. SAFETY...................................................................41 11.1 General........................................................41 11.2 Hazardous Conditions...........................................41 11.3 Safety and Hazard Analyses.....................................41 12. Launch Vehicle............................................................42 12.1 Introduction...................................................42 12.2 Reporting......................................................42 12.3 Reviews........................................................42 12.3.1 Interface Control Document Review (ICDR)............42 12.3.2 Mission Peculiar Design Review (MPDR)...............42 12.3.3 Launch Vehicle System Review (LVSR).................42 12.3.4 Certificate of Completion Review (COCR).............43 12.3.5 Review Summary and Action Items.....................43 12.4 Launch Readiness Review........................................43 APPENDIX 1 REVIEW ITEM DISCREPANCY FORM......................................44 APPENDIX 2 CHANGE REQUEST FORM...............................................45 APPENDIX 3 CONTRACT CHANGE NOTICE FORM.......................................46 APPENDIX 4 REQUEST FOR DEVIATION/WAIVER FORM.................................47 APPENDIX 5 NON-CONFORMANCE REPORT FORM.......................................48 28 June 1996 CONFIDENTIAL Issue 3 ORION SATELLITE CORPORATION PART 3(C) ORION 2 SPACECRAFT ON-GROUND TEST REQUIREMENTS Issue: 3 Dated: 28 June 1996 Signed: Date: On behalf of ORION Satellite Corporation Signed: Date: On Behalf of Matra Marconi Space UK Limited Part 3(c) ORION 2 Spacecraft On-Ground Test Requirement Page i TABLE OF CONTENTS 1. INTRODUCTION..............................................................1 2. GENERAL COMMENTS..........................................................2 2.1 TEST PHILOSOPHY........................................................2 2.2 DEFINITIONS............................................................3 2.3 TEST REQUIREMENTS......................................................4 2.3.1 GENERAL............................................................5 2.3.2 TEST EQUIPMENT AND TEST FACILITY REQUIREMENTS......................6 2.3.3 ZERO-G TESTING.....................................................6 2.3.4 ACCEPTANCE TESTS...................................................7 2.3.5 PROTOFLIGHT TESTS..................................................7 2.3.6 QUALIFICATION TESTS................................................ 2.4 WITNESSING OF TESTS....................................................8 2.5 TEST DATA..............................................................9 2.6 TEST REVIEWS...........................................................9 2.7 DOCUMENTATION..........................................................9 2.8 ORGANIZATION...........................................................9 3. UNIT, SUBSYSTEM AND SPACECRAFT TEST PROGRAM .............................10 3.1 EQUIPMENT CATEGORIZATION............................................... 3.2 TEST PROGRAM OVERVIEW.................................................10 4. PROTOFLIGHT TESTS........................................................25 4.1 UNIT PROTOFLIGHT TESTS.................................................25 4.2 SUBSYSTEM PROTOFLIGHT TESTS............................................31 4.2.1 REPEATER SUBSYSTEM................................................31 4.2.2 ANTENNA SUBSYSTEM.................................................32 4.2.3 TELEMETRY, TRACKING, AND COMMAND (TT&C) SUBSYSTEM.................35 4.2.4 AOCS SUBSYSTEM PROTOFLIGHT DYNAMIC TEST...........................35 4.2.5 PROPULSION SUBSYSTEM..............................................36 4.2.6 POWER SUBSYSTEM...................................................36 4.2.6.1 SOLAR ARRAY.....................................................36 4.2.6.2 BATTERY ASSEMBLY................................................38 4.2.7 STRUCTURE SUBSYSTEM PROTOFLIGHT TEST..............................38 4.2.8 THERMAL SUBSYSTEM PROTOFLIGHT TEST....................37 4.3 SPACECRAFT PROTOFLIGHT TEST............................................38 4.3.1 INTEGRATION TESTS................................................38 4.3.2 INTEGRATED SYSTEM TEST...........................................38 4.3.3 ELECTRO MAGNETIC COMPATIBILITY (EMC) TEST........................40 4.3.4 RF HEALTH CHECK..................................................40 4.3.5 ELECTRO STATIC DISCHARGE (ESD) TEST..............................41 4.3.6 SPACECRAFT ALIGNMENT TEST........................................42 4.3.7 SINUSOIDAL VIBRATION.............................................42 4.3.8 POST-SINUSOIDAL VIBRATION FUNCTIONAL TESTS.......................42 4.3.9 ACOUSTIC VIBRATION TEST..........................................43 4.3.10 POST-ACOUSTIC VIBRATION FUNCTIONAL TESTS.........................43 4.3.11 SHOCK AND DEPLOYMENT TESTS.......................................43 4.3.12 POST-LAUNCH ENVIRONMENT PERFORMANCE TEST.........................44 4.3.13 THERMAL BALANCE/THERMAL VACUUM TEST..............................44 4.3.14 FINAL PERFORMANCE TEST...........................................46 4.3.15 RF RANGE TEST....................................................45 4.3.16 SPACECRAFT MASS PROPERTIES MEASUREMENTS..........................46 5. FLIGHT ACCEPTANCE TESTS..................................................54 5.1 UNIT ACCEPTANCE TESTS..................................................54 5.1.1 PIM............................................................55 5.1.2 POWER HANDLING MP AND GP......................................55 5.2 SUBSYSTEM ACCEPTANCE TESTS.............................................55 5.2.1 ANTENNA SUBSYSTEM.................................................55 5.2.2 ATTITUDE AND ORBIT CONTROL SUBSYSTEM (AOCS).......................55 5.2.3 POWER SUBSYSTEM...................................................55 5.2.4 STRUCTURE SUBSYSTEM ACCEPTANCE TESTS..............................56 5.2.5 THERMAL SUBSYSTEM.................................................56 5.2.6 PLATFORM HARNESS..................................................56 5.3 SPACECRAFT ACCEPTANCE TEST.............................................56 6. LIFE TESTS...............................................................58 7. DEVELOPMENT AND QUALIFICATION TEST.......................................59 7.1 COMMUNICATIONS SUBSYSTEM TESTS.........................................59 7.1.1 ANTENNA UNIT AND SUBSYSTEM TEST...................................59 7.1.2 REPEATER UNITS....................................................60 7.2 STRUCTURE SUBSYSTEM TESTS..............................................60 7.2.1 STRUCTURE STATIC TEST.............................................60 7.3 AOCS SUBSYSTEM QUALIFICATION TESTS.....................................60 7.3.1 AOCS SUBSYSTEM DYNAMIC TESTS......................................60 7.3.2 LIQUID SLOSH TEST.................................................60 7.4 PROPULSION SUBSYSTEM QUALIFICATION TESTS...............................61 7.4.1 GENERAL...........................................................61 7.4.2 THRUSTERS.........................................................61 7.4.3 LIQUID APOGEE/PERIGEE ENGINES.....................................62 7.4.4 PROPELLANT TANK...................................................62 7.4.5 SUBSYSTEM VERIFICATION TEST.......................................62 7.5 THERMAL SUBSYSTEM......................................................63 7.5.1 THERMAL SURFACES..................................................63 7.5.2 HEAT PIPES........................................................63 7.6 MECHANISMS.............................................................64 8. INTERFACE COMPATIBILITY TESTS............................................65 8.1 GROUND CONTROL SYSTEM COMPATIBILITY....................................65 8.2 LAUNCH VEHICLE COMPATIBILITY...........................................65 9. LAUNCH PREPARATION TEST..................................................66 9.1 GENERAL................................................................66 9.2 LAUNCH SITE FUNCTIONAL TEST............................................66 9.3 LAUNCH PREPARATION FUNCTIONAL TESTS....................................67 9.4 POST-ENCAPSULATION AND LAUNCH PAD TESTS................................68 10. DESIGN VERIFICATION MATRICES (DVM)...................................69 10.1 DESIGN VERIFICATION...................................................69 11. TEST CONFIGURATION MATRICES..........................................87 11.1 INTRODUCTION..........................................................87 11.2 REPEATER TEST CONFIGURATIONS..........................................87 11.2.1 OVERALL GUIDELINES...................................87 11.2.2 SUBSYSTEM LEVEL......................................88 11.2.3 SPACECRAFT LEVEL.....................................88 11.2.4 RF LINK CALIBRATIONS.................................89 11.2.5 PERFORMANCE PARAMETERS...............................89 11.3 ANTENNA TEST CONFIGURATIONS...........................................90 11.3.1 UNIT/SUBSYSTEM LEVEL.................................90 11.3.2 SPACECRAFT LEVEL.....................................91 28 June 1996 CONFIDENTIAL Issue 3 ORION SATELLITE CORPORATION PART 3(D) ORION 2 IN-ORBIT COMMISSIONING AND ACCEPTANCE TEST REQUIREMENTS Issue: 3 Dated: 28 June 1996 Signed: Date: On behalf of ORION Satellite Corporation Signed: Date: On behalf of Matra Marconi Space UK Limited Part 3(D) ORION 2 In-Orbit Commissioning and Acceptance Test Requirements Page i 28 June 1996 CONFIDENTIAL Issue 3 PART 3(D) IN-ORBIT COMMISSIONING AND ACCEPTANCE TEST REQUIREMENTS CONTENTS PAGE NO. 1. SCOPE.................................................................1 2. DEFINITIONS...........................................................1 3. INTRODUCTION..........................................................2 4. COMMISSIONING.........................................................4 4.1 Commissioning Activities.......................................4 4.2 Documentation..................................................5 5. ACCEPTANCE TESTING....................................................6 5.1 Aggregate Predicted Transponder Life...........................6 5.2 Transponder Acceptance Tests...................................8 5.3 Determination of other Spacecraft Parameters..................12 5.4 Documentation.................................................15 6. POST ACCEPTANCE TRANSPONDER TESTING..................................18 ANNEX A GROUND TEST FACILITY CONCEPT..................................20 ANNEX B COMMISSIONING ACTIVITIES......................................23 ANNEX C TRANSPONDER PERFORMANCE TESTS.................................30 ANNEX A GROUND TEST FACILITY CONCEPT ANNEX B COMMISSIONING ACTIVITIES ANNEX C TRANSPONDER PERFORMANCE TESTS PART IV TO ORION 2 SPACECRAFT PURCHASE CONTRACT [GRAPHIC OMITTED] MEMORANDUM TO: DISTRIBUTION FROM: G. Jansson SUBJECT: ORION 2 Contract - Technical Documentation Rev A DATE: 23 July 1996 cc: F. Weber, D. Curtin, R. Sorbello, P. Phung, D. Shay, S. Lewis, B. Randall, L. Tang, J. Dealy (The Dealy Strategy Group), J. Sullivan (Shaw, Pittman, Potts & Trowbridge) - -------------------------------------------------------------------------------- Please find the attached sheets which represent revisions to the appropriate pages of their respective document. The attached is delineated below:
Document Page(s) -------- ------- Part 3(A) ORION 2 Spacecraft Specifications ii, iii, iv, v, vi, 20, 42 Part 3(B) ORION 2 Spacecraft Product Assurance Requirements iv, v, 42, 43 Part 3 (D) In-Orbit Commissioning and Acceptance Test Requirements ii
The above changes have not affected the revision status of the pages mentioned nor the complete document; each remains at Issue 3. Please insert the attached pages into your existing documents and discard the previous pages. [GRAPHIC OMITTED] MEMORANDUM TO: DISTRIBUTION FROM: G. Jansson SUBJECT: ORION 2 Contract - Technical Documentation Rev B DATE: 25 July 1996 cc: F. Weber, D. Curtin, R. Sorbello, P. Phung, D. Shay, S. Lewis, B. Randall, L. Tang, J. Dealy (The Dealy Strategy Group), J. Sullivan (Shaw, Pittman, Potts & Trowbridge) - -------------------------------------------------------------------------------- Please find the attached sheet(s) which represent revisions to the appropriate page(s) of their respective document. The attached is delineated below: Document Page(s) -------- ------- Part 3(B) ORION 2 Spacecraft Product Assurance Requirements iv Part 3(A) ORION 2 Spacecraft Specifications 1 The above change(s) have not affected the revision status of the pages mentioned nor the complete document; each remains at Issue 3. Please insert the attached page(s) into your existing documents and discard the previous page(s). EX-10.37 13 EXHIBIT 10.37 The portions of this Exhibit for which confidential treatment has been requested are marked by brackets ([ ]). In addition, an asterisk (*) appears in the right hand margin of each paragraph in which confidential information is included. OPTION AGREEMENT FOR PURCHASE OF ORION 2 SPACECRAFT This Option Agreement ("Agreement") is made this 10th day of December 1996 ("Effective Date") by and between International Private Satellite Partners, L.P., d/b/a Orion Atlantic, L.P., a Delaware limited partnership with its principal offices located at 2440 Research Boulevard, Rockville, Maryland 20850, U.S.A. ("ORION"), and Matra Marconi Space UK Limited, a company organized and existing under the laws of England and Wales with its registered office at The Grove, Warren Lane, Stanmore, Middlesex, HA7 4LY, England ("MMS"). WHEREAS, ORION desires to purchase from MMS, and MMS desires to sell to ORION, an option to purchase a communications satellite ("Orion 2 Spacecraft") designed, developed, built and delivered in orbit on an Atlas IIAS launch vehicle with the configuration, schedule and technical performance requirements set forth in the ORION 2 Purchase Contract signed by the Parties and dated July 31, 1996, as such contract is to be restated and amended with respect to price, payment schedule and other provisions set forth in the Memorandum of Agreement signed by the Parties on December 10, 1996; and NOW, THEREFORE, in consideration of the mutual promises and undertakings contained herein, the Parties, intending to be legally bound, agree as follows: 1. Grant of Option. MMS hereby grants to ORION the option ("Option") to purchase from MMS the ORION 2 Spacecraft constructed and delivered in accordance with the terms and conditions of the ORION 2 Purchase Contract, as amended. As of the date ORION exercises the Option, the ORION 2 Purchase Contract, as amended, shall be deemed to be fully effective and to have been in full force and effect from the Option Purchase Date. 2. Option Purchase Date and Period. For the purposes of this Agreement, the "Option Purchase Date" shall be the date upon which MMS receives Installment No. 2 as detailed in paragraph 3 hereof, but in no event later than February 28, 1997, and the "Option Period" shall be the period commencing on the Option Purchase Date and expiring on the last day of the 16th month following the date upon which MMS receives Installment No. 2, but in no event later than June 30, 1998. MMS agrees to extend the Option Period through July 31, 1998, provided ORION pays MMS an extension fee of $2 million on or before June 30, 1998; and, provided the Lockheed Martin price shall be increased by $700,000, said amount to be paid on or before June 30,1998. 3. Consideration for Option. ------------------------ (a) In consideration for the Option hereby granted, ORION shall pay MMS the sum of US$ 49.4 million (the "Option Price"), which sum shall be paid in Installments as specified in the table below on or before the dates specified in such table: Option Agreement -1- Installment Payment Date Total Option Installment Installment ----------- ------------ ------------ ----------- ----------- No. Installment Amount Amount --- ----------- ------ ------ Amount (Spacecraft) (Launcher) ------ ------------ ---------- 1 Dec. 31, 1996 US $ 1.0 Million [ ] [ ] 2 Feb. 28, 1997 US $ 2.0 Million [ ] [ ] 3 Mar. 31, 1997 US $22.0 Million [ ] [ ] 4 June 15, 1997 [ ] [ ] [ ] 5 July 31, 1997 [ ] [ ] [ ] 6 Dec. 31, 1997 [ ] [ ] [ ] - -------------------------------------------------------------------------------- Total US$ 49.4 Million US$ 40.0 Million US$ 9.4 Million *Consists of $200,000 already paid and $800,000 to be paid to Lockheed Martin (Launcher provider) for a Launch reservation (covering the period May 1, 1999 through July 31, 1999). (b) MMS shall provide ORION ten (10) days written notice of each payment due hereunder after Installment No.3; (c) The Option Price shall not be refundable in whole or in part under any circumstances, including the bankruptcy or insolvency of ORION; (d) The parties have agreed that, in the event ORION's planned financings are not closed and funds disbursed by March 31, 1997, ORION may extend Installment No.3 until April 30, 1997 by making a partial payment of $2.5 million _________________________________ ______________ on or before March 31, 1997. Moreover, to the extent net proceeds from ORION's planned public debt financings are greater than _________________ (exclusive of prefunded amounts to pay interest), ORION will accelerate Installments No.4 and No.6 of the Launcher Payments. 4. Manner of Exercise of Option. ORION may exercise the Option by paying to MMS, on or before the date the Option Period expires, the sum ("Option Exercise Price") of cumulative Milestone Payments and Progress Payments payable under the ORION 2 Purchase Contract through the exercise date, less the Option Price already paid under Section 3(a) above. 5. Title to Work. MMS shall retain title to all work in progress from the Effective Date unless and until ORION exercises the Option. In the event ORION exercises the Option in the manner provided by this Agreement, title to work in progress shall be governed by the ORION 2 Purchase Contract, as amended. Option Agreement -2- 6. MMS's Covenant. MMS covenants to ORION and ORION acknowledges that (a) upon receipt of Installment No. 2 detailed in Clause 3 hereof, MMS will commence to perform the Work (and MMS will continue to perform the Work through the expiration of the Option Period, provided ORION pays each Installment detailed in Clause 3 hereof on the Payment Date), as defined in the ORION 2 Purchase Contract, as though the ORION 2 Purchase Contract were then effective and (b) in order to perform the Work according to the schedule set forth in the ORION 2 Purchase Contract, MMS will be required to expend funds in excess of the Option Price. 7. Representations. (a) MMS represents, warrants and covenants that it has the authority and the right sufficient to grant the Option and to perform all of its obligations under this Agreement and that MMS's performance of such obligations will not violate any other agreement to which MMS is a party. (b) ORION represents and warrants that (1) it has the power and authority to execute, deliver, and perform this Option Agreement, (2) it is not entering into this Agreement with an intent to hinder, delay, or defraud any of its creditors, and (3) the making of the payments required to be made hereunder will not, at the time such payments are made, cause ORION to be insolvent. 8. Confidentiality. Each Party acknowledges that it may, in the course of performing its responsibilities under this Agreement, be exposed to or acquire information that is proprietary to or confidential to the other Party. Each Party agrees to hold such information in strict confidence and not to disclose such confidential information for any purpose whatsoever other than the performance of its obligations as contemplated by this Agreement (or as required by law or regulation) and to advise each of its employees who may be exposed to such proprietary and confidential information of his or her obligation to keep such information confidential. This obligation of confidentiality will survive the termination or expiration of this Agreement. 9. Failure to Exercise Option or to Make Payments -- Sole and Exclusive Remedy. In the event: (a) ORION fails to exercise the Option in the manner provided in this Agreement on or before the date the Option Period expires; or (b) ORION fails to make any Installment Payment detailed in Clause 3 hereof (after receipt of proper notice as set forth in Clause 3) on or before the dates specified in Clause 3; then, at its option, MMS may terminate this Option Agreement immediately upon written notice to ORION and retain all money paid by ORION to MMS pursuant to this Agreement and the ownership of all work in progress. This is MMS' sole remedy for ORION's failure to make any Option Installment Payments. 10. Term and Termination. The term of this Agreement will begin on the Effective Date and will continue until the earliest to occur of the following: (i) ORION exercises the Option in the manner provided in this Agreement; (ii) the last day of the Option Period expires; (iii) MMS terminates this Option Agreement in accordance with Section 9; and (iv) the date upon which ORION and MMS mutually agree to terminate this Agreement. In addition, MMS may terminate this Option Agreement, if on March 31, 1997 (or April 30, 1997, if extended pursuant to Section 3(d) hereof), Restated Amendment #10 of even date is not in full force and effect and there is no default thereunder. Option Agreement -3- 11. Notices. Any notice or other communication required or permitted to be made or given by either Party pursuant to this Agreement will be deemed to have been duly given: (i) five (5) business days after the date of mailing if sent by registered or certified U.S. mail, postage prepaid, with return receipt requested; (ii) when transmitted if sent by facsimile, confirmed by the specific addressee, with a copy of such facsimile promptly sent by another means specified in this section; or (iii) when delivered if delivered personally or sent by express courier service. All notices will be sent to the other party at its address as set forth below or at such other address as such Party will have specified in a notice given in accordance with this section: ---------------------------------------------------------------------------- In the case of ORION: with a copy to: ---------------------------------------------------------------------------- Orion Satellite Corporation Shaw, Pittman, Potts & Trowbridge 2440 Research Boulevard, Suite 400 2300 N Street, N.W. Rockville, MD 20850 Washington, D.C. 20037 Tel: (301) 258-8101 Tel: (202) 663-8181 Fax: (301) 258-3300 Fax: (202) 663-8007 Attn: Dr. Denis Curtin, Senior Vice Attn: John F. Dealy President, Engineering and Satellite Operations, for technical matters Attn: Richard Shay, Esquire, Vice President of Corporate and Legal Affairs, for contract matters ---------------------------------------------------------------------------- ------------------------------------ In the case of MMS: ------------------------------------ Matra Marconi Space UK Limited Gunnels Wood Road Stevenage, Hertfordshire SG1 2AS England Tel: + 44 (0) 1438 313456 Fax: + 44 (0) 1438 773637 Attn: Barrie Kirk, ORION Project Manager, for technical or management matters Attn: Arthur Blick, Commercial Manager, for commercial matters ------------------------------------ 12. Rights Cumulative. All rights, powers and privileges conferred hereunder upon the Parties, unless otherwise provided, shall be cumulative and shall not be restricted to those given by law. Failure to exercise any power given any party hereunder or to insist upon strict compliance by any other party shall not constitute a waiver of any party's right to demand exact compliance with the terms hereof. 13. General. This Agreement (and any Exhibits hereto) sets forth the entire understanding between the Parties with respect to its subject matter and supersedes all prior and Option Agreement -4- contemporaneous agreements and understandings with respect thereto other than the MOA and the ORION 2 Purchase Contract. This Agreement may be amended only by a written instrument signed by an authorised representative of each Party. This Agreement shall not constitute, give effect to, or otherwise imply, a joint venture, pooling arrangement, partnership, agency or formal business organisation of any kind. ORION may assign or transfer this Agreement to any party that (i) demonstrates to MMS's reasonable satisfaction that it has the financial ability to pay the Option Exercise Price and (ii) is within the scope of any export license requirements applicable to MMS's performance of the work. MMS shall not assign, delegate or in any manner transfer this Agreement without the prior written consent of ORION. No waiver, delay or discharge by a Party will be valid unless in writing and signed by an authorised representative of the Party against which its enforcement is sought. Provisions of this Agreement which by their express terms impose continuing obligations on the Parties will survive the expiration or termination of this Agreement for any reason. This Agreement will be governed by and construed in accordance with the substantive laws of the State of Maryland, exclusive of its choice of law rules. If any provision of this Agreement is declared invalid or otherwise unenforceable, the enforceability of the remaining provisions shall be unimpaired, and the Parties shall replace the invalid or unenforceable provision with a valid and enforceable provision that reflects the original intentions of the Parties as nearly as possible in accordance with applicable law. This Agreement shall benefit the Parties hereto only. IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed by their duly authorised representatives, with an Effective Date as set forth in the introductory paragraph of this Agreement. INTERNATIONAL PRIVATE MATRA MARCONI SPACE SATELLITE PARTNERS, L.P. UK LIMITED By: Orion Satellite Corporation, its General Partner By: /s/W. Neil Bauer By: /s/A. Carlier ---------------------------- -------------------------- (Signature) (Signature) W. NEIL BAUER A. CARLIER ---------------------------- --------------------------- (Name Printed) Name Printed) PRESIDENT & CEO CHAIRMAN AND CEO ---------------------------- --------------------------- (Title) (Title) Option Agreement -5- EX-10.38 14 EXHIBIT 10.38 The portions of this Exhibit for which confidential treatment has been requested are marked by brackets ([ ]). In addition, an asterisk (*) appears in the right hand margin of each paragraph in which confidential information is included. MEMORANDUM OF AGREEMENT FOR PROCUREMENT OF ORION 2 SPACECRAFT The following agreement ("Agreement") is effective as of December 10, 1996 ("Effective Date") by and between International Private Satellite Partners, L.P., d/b/a Orion Atlantic, L.P., a Delaware limited partnership with its principal offices located at 2440 Research Boulevard, Rockville, Maryland 20850, U.S.A. ("ORION") and Matra Marconi Space UK Limited, a company organised and existing under the laws of England and Wales with its registered office at The Grove, Warren Lane, Stanmore, Middlesex, HA7 4LY, England ("MMS"), hereinafter singularly known as "the Party" or collectively as "the Parties." WHEREAS, the Parties entered into an agreement (known as the "ORION 2 Purchase Contract") dated July 31, 1996 under which ORION agreed to purchase and MMS agreed to sell, subject to certain conditions, a follow-on spacecraft to the ORION 1 Spacecraft to provide coverage over the Atlantic and to be known as the "Orion 2 Spacecraft"; WHEREAS, the Parties desire to amend the Orion 2 Purchase Contract; WHEREAS, the Parties have reached agreement, as set forth below, on the basic terms acceptable to both Parties for the amendment to the ORION 2 Purchase Contract; and WHEREAS, the Parties intend to enter into (a) an option agreement substantially in the form attached hereto as Exhibit 1 pursuant to which the Contractor will grant to ORION an option to purchase the ORION 2 Spacecraft upon the terms and conditions set forth in such agreement (the "Option Agreement") and (b) the Restated Amendment No. 10 to the Second Amended and Restated Purchase Contract, dated as of 26th September 1991, between ORION and MMS Space Systems Limited attached hereto as Exhibit 2 ("Amendment No. 10"); NOW, THEREFORE, in consideration of the mutual promises and undertakings contained herein, the Parties, intending to be legally bound, hereby agree as follows: 1. All terms used herein and not defined shall have the meanings attributed to them in the ORION 2 Purchase Contract. Memorandum of Agreement -1- 2. Fixed Price. ----------- The Contract Price is comprised of the following elements: ______________ ORION 2 Spacecraft [ ] Launch Vehicle [ ] Launch Services [ ] Total Contract Price [______________] Launch Insurance is not included in the Contract Price. The Contract Price shall remain fixed until and through April 30, 1997. 3. Milestone Payments and Termination Liability Amounts. ---------------------------------------------------- Part 1(B) of the ORION 2 Purchase Contract shall be amended to reflect the new schedule developed pursuant to Section 8 hereof and, as revised, shall maintain the timing of payments in said Part 1(B). 4. Vendor Financing. The ORION 2 Purchase Contract shall be amended to delete all references to vendor financing. 5. Delivery Schedule. Subject to the availability of a Launch Slot, Delivery shall occur on or before 28.25 months from the date upon which MMS receives Installment No. 2 under the Option Agreement, provided ORION does not fail to make any payment under the Option Agreement when due. 6. Launch Provider and Launch Reservation. MMS shall use all reasonable commercial efforts to reserve with Lockheed Martin a Launch Slot occurring no later than July 1999 at a reservation cost not to exceed One Million U.S. Dollars ($U.S. 1,000,000), said reservation cost ($800,000 plus $200,000 already paid) to be paid by ORION no later than December 31, 1996. MMS shall arrange termination provisions with the selected launch provider such that MMS can enforce the termination and repayment provisions of the ORION 2 Purchase Contract, as amended. 7. Access. Appropriate provisions will be negotiated between the Parties and included in the Definitive Purchase Agreement. 8. Scheduling. The ORION 2 Spacecraft documents, as detailed in the ORION 2 Purchase Contract, as amended, shall be revised to reflect scheduling revisions of Reviews and Tests resulting from the new payment profile in the Option Agreement. Memorandum of Agreement -2- 9. Repeater Subcontractor. MMS has advised ORION that NEC presently is unwilling to proceed on the risk sharing basis set forth in this Agreement and the Option Agreement. MMS will continue to negotiate with NEC and, if unable to reach agreement by December 31, 1996, will proceed to perform the program without NEC as repeater subcontractor, unless ORION elects to provide additional consideration to NEC beyond that set forth in the Option Agreement. 10. Negotiation of Definitive Agreements. The Parties agree to negotiate diligently and in good faith to amend the ORION 2 Purchase Contract in accordance with the terms set forth herein and in the Option Agreement (the "Definitive Purchase Agreement"). The Parties intend that such negotiations commence promptly upon the Effective Date of this Agreement. 11. Term and Termination. The term of this Agreement shall begin on the Effective Date and shall continue until the earlier of (i) the execution of the Definitive Purchase Agreement, or (ii) April 30, 1997. 12. Confidentiality. Each Party acknowledges that it may, in the course of performing its responsibilities under this Agreement, be exposed to or acquire information that is proprietary or confidential to the other Party. Each Party agrees to hold such information in strict confidence and not to disclose such confidential information for any purpose whatsoever other than the performance of its obligations as contemplated by this Agreement (or as required by law or regulation) and to advise each of its employees who may be exposed to such proprietary and confidential information of his or her obligation to keep such information confidential. This obligation of confidentiality will survive the termination or expiration of this Agreement. 13. Rights Cumulative. All rights, powers and privileges conferred hereunder upon the Parties, unless otherwise provided, shall be cumulative and shall not be restricted to those given by law. Failure to exercise any power given any party hereunder or to insist upon strict compliance by any other party shall not constitute a waiver of any party's right to demand exact compliance with the terms hereof. 14. General. This Agreement (and any Exhibits hereto) sets forth the entire understanding between the Parties with respect to its subject matter and supersedes all prior and contemporaneous agreements and understandings with respect thereto. This Agreement shall not constitute, give effect to, or otherwise imply, a joint venture, pooling arrangement, partnership, agency or formal business organisation of any kind. Neither Party shall assign, delegate or in any manner transfer this Agreement without the prior written consent of the other Party, which consent shall not be unreasonably withheld, except that ORION may assign this Agreement to any party to whom ORION may assign the ORION 2 Purchase Contract. No waiver, delay or discharge by a Party will be valid unless in writing and signed by an authorised representative of the Party against which its enforcement is sought. Provisions of this Agreement that by their express terms or context impose continuing obligations on the Parties will survive the expiration or termination of this Agreement for any reason. This Agreement will be governed by and construed in accordance with the substantive laws of the Memorandum of Agreement -3- State of Maryland, exclusive of its choice of law rules. This Agreement may be amended only by a written instrument signed by an authorised representative of each Party. This Agreement is limited to the subject matter hereof and shall not bind, limit or otherwise affect either Party with regard to other spacecraft configurations or different orbital locations. IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed by their duly authorised representatives, with an Effective Date as set forth in the introductory paragraph of this Agreement. INTERNATIONAL PRIVATE MATRA MARCONI SPACE UK LIMITED SATELLITE PARTNERS, L.P. By: Orion Satellite Corporation, its General Partner /s/W. Neil Bauer /s/Armand Carlier - ----------------------------------- ------------------------------ (Signature) (Signature) W. NEIL BAUER ARMAND CARLIER - ----------------------------------- ------------------------------ (Name Printed) (Name Printed) PRESIDENT & CEO CHAIRMAN AND CEO - ----------------------------------- ------------------------------ (Title) (Title) Memorandum of Agreement -4- EX-10.39 15 EXHIBIT 10.39 The portions of this Exhibit for which confidential treatment has been requested are marked by brackets ([ ]). In addition, an asterisk (*) appears in the right hand margin of each paragraph in which confidential information is included. TT&C EARTH STATION AGREEMENT between ORION ASIA PACIFIC CORP. and DACOM CORP. Dated: November 11, 1996
Table of Contents ----------------- Page ARTICLE 1. FUNCTIONS TO BE PERFORMED BY THE TT&C EARTH STATION................................................................. 1 1.1. Purpose of the TT&C Earth Station ........................................... 1 1.2. Particular Functions of the TT&C Earth Station .............................. 1 1.3. Future Modification of Functions ............................................ 1 ARTICLE 2. SITE SELECTION ............................................................. 2 2.1. Site Selection .............................................................. 2 2.2. Government Approvals ........................................................ 2 2.3. Land Acquisition ............................................................ 2 2.4. Termination if Steps Not Taken .............................................. 2 ARTICLE 3. CONSTRUCTION; ANTENNA ...................................................... 2 3.1. General ..................................................................... 2 3.2. The Antenna ................................................................. 3 ARTICLE 4. TT&C EQUIPMENT ............................................................. 3 4.1. Supply of TT&C Equipment .................................................... 3 4.2. Shipments; Duties ........................................................... 3 4.3. Spares, Tooling, Supplies, etc. ............................................. 4 4.4. Title to TT&C Equipment ..................................................... 4 ARTICLE 5. TESTING .................................................................... 4 5.1. TT&C Equipment Testing and Acceptance ....................................... 4 5.2. Antenna Testing and Acceptance .............................................. 4 5.3. TT&C Earth Station Testing and Acceptance ................................... 5 5.4. Periodic Testing ............................................................ 5 ARTICLE 6. PERSONNEL .................................................................. 5 6.1. DACOM Personnel ............................................................. 5 6.2. Training .................................................................... 6 6.3. Initial Advisory Supervision and On-Site Training ........................... 6 6.4. Confidentiality Agreements .................................................. 6 ARTICLE 7. OPERATION OF THE TT&C EARTH STATION ........................................ 6 7.1. Operations .................................................................. 6 7.2. Personnel; Utilities and Supplies; Security; etc. ........................... 7 7.3. Maintenance and Repair ...................................................... 7 7.4. Destruction of the TT&C Earth Station ....................................... 8 i ARTICLE 8. REPORTS AND DOCUMENTATION .................................................. 8 8.1. Summaries ................................................................... 8 8.2. Logs ........................................................................ 9 8.3. Regular Periodic Reports .................................................... 9 8.4. Special Reports of Anomalous Events ......................................... 9 8.5. Format of Logs and Reports .................................................. 9 ARTICLE 9. CHARGES; PAYMENTS ......................................................... 9 9.1. Charges ..................................................................... 9 9.2. Payments, Taxes and Bank Charges ........................................... 10 9.3. Time of Payment ............................................................. 10 9.4. Interest .................................................................... 11 ARTICLE 10. TERM; TERMINATION .......................................................... 11 10.1. Term ........................................................................ 11 10.2. Termination ................................................................. 11 10.3. Payment of Charges .......................................................... 11 10.4. Certain Provisions Survive Termination ...................................... 11 10.5. Option to Purchase or Lease the Site and the TT&C Earth Station upon Termination .............................................. 12 10.6. Subsequent Modification or Expansion ........................................ 12 ARTICLE 11. FORCE MAJEURE .............................................................. 12 ARTICLE 12. GOVERNMENTAL APPROVALS ..................................................... 13 12.1. Korean Government Approvals ................................................. 13 12.2. United States Government Approvals .......................................... 13 ARTICLE 13. RISK ....................................................................... 13 13.1. Risk of Loss ................................................................ 13 13.2. Insurance ................................................................... 13 ARTICLE 14. INDEMNIFICATION; DAMAGES ................................................... 14 14.1. Indemnification ............................................................. 14 14.2. Consequential Damages ....................................................... 14 14.3. Procedure for Indemnification ............................................... 14 ARTICLE 15. CONFIDENTIALITY ............................................................ 15 15.1. Confidentiality ............................................................. 15 15.2. Confidentiality Agreements .................................................. 15 ARTICLE 16. ASSIGNMENT ................................................................. 16 16.1. Succession and Assignment ................................................... 16 16.2. Change of Control ........................................................... 16 ii ARTICLE 17. REPRESENTATIONS AND WARRANTIES OF ORION .................................... 16 17.1. Representation and Warranties ............................................... 16 17.2. Exclusion of Warranties ..................................................... 17 ARTICLE 18. REPRESENTATIONS AND WARRANTIES OF DACOM ..................................... 17 18.1. Incorporation, Power, etc. .................................................. 17 18.2. Due Authorization of Agreement; No Conflict with Other Instruments ........................................................... 17 18.3. Government Regulation ....................................................... 17 18.4. Exclusion of Warranties ..................................................... 17 ARTICLE 19. MISCELLANEOUS .............................................................. 18 19.1. Further Assurances .......................................................... 18 19.2. Taxes and Expenses .......................................................... 18 19.3. Press Releases and Public Announcements ..................................... 18 19.4. Notices ..................................................................... 18 19.5. No Third-Party Beneficiaries ................................................ 19 19.6. Governing Law; Arbitration .................................................. 19 19.7. Amendments and Waivers ...................................................... 19 19.8. Matters of Construction, Interpretation and the Like ........................ 20 ARTICLE 20. DEFINITIONS ................................................................ 20 EXHIBIT A FUNCTIONS TO BE PERFORMED BY THE TT&C EARTH STATION EXHIBIT B CONSTRUCTION SPECIFICATIONS FOR THE TT&C EARTH STATION EXHIBIT C1 ANTENNA SPECIFICATIONS EXHIBIT C2 RF/IF REQUIREMENTS INCLUDING TEST TRANSLATOR EXHIBIT D TT&C EQUIPMENT EXHIBIT E TESTING EXHIBIT F INITIAL JOB SPECIFICATIONS, NUMBER OF PERSONNEL AND QUALIFICATIONS EXHIBIT G FORM OF CONFIDENTIALITY AGREEMENT EXHIBIT H CONSTRUCTION CHARGES
iii TT&C EARTH STATION AGREEMENT ---------------------------- This TT&C EARTH STATION AGREEMENT, dated as of November 11, 1996 by and between ORION ASIA PACIFIC CORP., a corporation organized and existing under the laws of Delaware, U.S.A. ("Orion"), and DACOM CORP., a corporation organized and existing under the laws of Korea ("DACOM"), W I T N E S S E T H: WHEREAS, Orion intends to establish in Korea a facility for the transmission of tracking telemetry and command signals to the Orion 3 Satellite ("Orion 3") and under certain circumstances, to a replacement satellite and/or a successor satellite (collectively, the "Satellite"); and WHEREAS, DACOM wishes to establish and operate in Korea one of the facilities for the transmission to the Satellite of tracking, telemetry and command signals generated by Orion (the "TT&C Earth Station"), and Orion is willing to have the backup TT&C Earth Station located in Korea and operated by DACOM, upon the terms and conditions contained in this Agreement. Certain terms used herein are defined in Article 20. NOW, THEREFORE, in consideration of the foregoing, and intending to be legally bound, the parties hereto agree as follows: ARTICLE 1. FUNCTIONS TO BE PERFORMED BY THE TT&C EARTH STATION --------------------------------------------------- 1.1. Purpose of the TT&C Earth Station. The TT&C Earth Station is to be constructed and operated pursuant to this Agreement to transmit to the Satellite and receive from the Satellite electronic signals for the tracking, telemetry and command ("TT&C") of the Satellite, including stationkeeping, attitude control and other satellite maintenance and switching functions as shall be necessary to operate the Satellite and the transponders and other equipment thereon as contemplated by the Joint Investment Agreement and the various other agreements with users of the Satellite and of such transponders and other equipment, and to receive signals from the Satellite relating to the Satellite's condition and operations. The TT&C Earth Station is to be operational for such purpose on a twenty-four hours per day, seven days per week, fifty-two weeks per year basis from the TT&C Acceptance Date until the end of the Term of this Agreement. 1.2. Particular Functions of the TT&C Earth Station. On the TT&C Acceptance Date, the TT&C Earth Station and the personnel operating the TT&C Earth Station, including CSM Operations, are to be capable of performing the functions summarized in Exhibit A hereto, in accordance with the standards contained therein. 1.3. Future Modification of Functions. Orion and DACOM recognize that during the Term of this Agreement, it may become necessary or appropriate to modify or supplement the functions summarized in Exhibit A hereto in order to take account of changed conditions or new technology. If Orion concludes that such a modification or supplementation has become necessary or appropriate, Orion shall so notify DACOM at least 60 days before the date when such modification or supplementation is to be implemented. Orion and DACOM shall cooperate in effecting each such modification or supplementation, upon the terms provided in this Agreement for the original construction, equipping and operation of the TT&C Earth Station, or upon such other terms as Orion and DACOM may agree. ARTICLE 2. SITE SELECTION -------------- 2.1. Site Selection. The TT&C Earth Station shall be located at such place in ______ as shall be selected by DACOM, after consultation with Orion and with Orion's consent, which shall not be unreasonably withheld. It is anticipated that the site will be co-located with other similar DACOM satellite operations. Orion's consent shall be based upon technical factors such as the quality of the signals to be received by the Satellite from the Site, the availability of support services at the Site (such as reliable uninterruptible primary and backup electric power, water, heat, waste disposal, personnel, security services and the like), the availability of adequate and reliable communications and transportation to and from the Site, freedom from electromagnetic interference, and similar factors. Initial selection of the Site shall be made by DACOM as soon as practicable after execution and delivery of this Agreement. 2.2. Governmental Approvals. DACOM shall be responsible for obtaining all necessary governmental approvals from the government of _____, and from all other Governmental Bodies within Korea having jurisdiction, with respect to all aspects of the selection of the Site, the purchase or lease of real estate, the construction and equipping of the TT&C Earth Station, and the operation of the TT&C Earth Station, pursuant to this Agreement. 2.3. Land Acquisition. DACOM shall either purchase or lease sufficient land for the construction and operation of the TT&C Earth Station pursuant to this Agreement; provided, however, that the total purchase price for such land or the aggregate lease payments for the entire term of the lease, as the case may be, shall not exceed ________________________________________________. If the land is purchased or leased by DACOM, DACOM shall make the land available for uses contemplated herein and for the Term of this Agreement. 2.4. Termination if Steps Not Taken. If by June 30, 1997, (i) the Site has not been selected by DACOM and consented to by Orion pursuant to Section 2.1, or (ii) the land for the TT&C Earth Station has not been purchased or leased pursuant to Section 2.3, then Orion may terminate this Agreement upon notice to DACOM given not more than 60 days after June 30, 1997. ARTICLE 3. CONSTRUCTION; ANTENNA --------------------- 3.1. General. As soon as practicable after full compliance with Article 2, DACOM shall cause the Site to be prepared for construction and operation of the TT&C Earth Station (including ground preparation and construction of foundations for the Antenna and the other TT&C Equipment), shall cause the buildings to be located on the Site to be constructed, erected, equipped and supplied with all necessary utilities and other services, and shall cause all equipment (except equipment to be supplied by Orion pursuant to Article 4) to be constructed and installed at the Site, all in accordance with the Construction Specifications attached hereto as Exhibit B, and all at -2- the expense of DACOM except as provided in Section 3.2. Orion shall have the right, upon its request to DACOM, to inspect all civil, mechanical and electrical engineering and construction contracts, and all other contracts, with third parties relating to such construction, erection, equipping, supply and installation, as well as all site layout plans and detailed mechanical and electrical drawings related to the TT&C Earth Station. If such contracts, plans and drawings are not reasonably satisfactory to Orion, DACOM shall cause such contracts, plans and drawings to be modified to Orion's reasonable satisfaction. Orion shall have the right at any time with prior notification, at Orion's expense, to have personnel designated by Orion supervise, inspect and test any and all aspects of such construction, erection, equipping, supply and installation related to the TT&C Earth Station. 3.2. The Antenna. In coordination with its activities pursuant to Section 3.1, DACOM shall purchase, construct, install and erect an antenna and related systems and equipment to the interface point in accordance with the Antenna Specifications attached hereto as Exhibit C, and having the capabilities specified in Exhibit C. Orion shall have the right, upon its request to DACOM, to inspect all civil, mechanical and electrical engineering and construction contracts, and all other contracts, with third parties relating to such purchase, construction, installation and erection, as well as all site layout plans and detailed mechanical and electrical drawings. If such contracts, plans and drawings are not reasonably satisfactory to Orion, DACOM shall cause such contracts, plans and drawings to be modified to Orion's reasonable satisfaction. Orion shall have the right at any time, at Orion's expense, to have personnel designated by Orion supervise, inspect and test any and all aspects of such construction, installation and erection. Construction, installation and erection of the Antenna shall be completed by DACOM by such date as will permit acceptance of the Antenna to occur on or prior to April 30, 1998, or as to be agreed at the Final Design Review, as specified in Section 5.2 of this Agreement. ARTICLE 4. TT&C EQUIPMENT -------------- 4.1. Supply of TT&C Equipment. Orion shall cause to be delivered to the Site and installed the equipment specified in Exhibit D hereto (the "TT&C Equipment"). Exhibit D may be modified or supplemented by Orion in any respect at any time before the TT&C Acceptance Date, if in Orion's reasonable judgment such modification or supplementation is necessary or appropriate for the efficient and profitable operation of the Satellite. Orion shall notify DACOM of any such modification or supplementation. DACOM and its contractors and agents shall cooperate with Orion in such installation, at the expense of DACOM. Orion shall use its best efforts to cause the TT&C Equipment to be shipped and installed at times which coordinate with DACOM's construction schedule at the Site. The TT&C Equipment shall be assembled in the United States, unless otherwise agreed between Orion and DACOM. 4.2. Shipments; Duties. Orion shall be responsible for shipment of the TT&C Equipment to the Site, by such means as Orion may choose. DACOM shall, upon Orion's request, prepay all import duties and taxes, port charges, property taxes and similar governmental levies imposed upon Orion in connection with such shipment and the installation and use of the TT&C Equipment at the Site. If such import taxes, duties and similar fees are prepaid by DACOM at the request of Orion, Orion shall reimburse DACOM in full for such prepayment within 30 days after receipt of an invoice from DACOM detailing the amounts prepaid. DACOM shall use reasonable efforts to -3- expedite customs clearance of the TT&C Equipment and to minimize import and other duties, taxes, fees and costs imposed in connection with the shipment, installation and use of the TT&C Equipment at the Site. 4.3. Spares, Tooling, Supplies, etc. From time to time Orion shall cause to be delivered to the Site, and installed if appropriate, such spare and replacement equipment, tooling and supplies for the TT&C Equipment as in Orion's judgment is necessary or appropriate for the operation of the TT&C Equipment as contemplated by this Agreement. 4.4. Title to TT&C Equipment. All TT&C Equipment delivered to the Site pursuant to this Article 4, or otherwise obtained by Orion for the purposes of this Agreement, shall be and remain the property of Orion, and DACOM shall have no interest therein. Orion may sell, lease, mortgage, impose a Lien on or otherwise deal with or dispose of any or all TT&C Equipment at any time or from time to time, so long as such TT&C Equipment at the Site remains available to perform its functions as contemplated by this Agreement. During the Term, Orion shall have the right, at any time or from time to time, to remove any TT&C Equipment which is no longer needed at the Site for purposes of this Agreement. At the end of the Term, Orion shall have the right, at any time or from time to time within 180 days after the end of the Term, to remove or cause to be removed any or all of the TT&C Equipment then at the Site. If any of such TT&C Equipment is not so removed within such 180-day period, such TT&C Equipment shall be deemed to have been abandoned by Orion. ARTICLE 5. TESTING ------- 5.1. TT&C Equipment Testing and Acceptance. Prior to the shipment of the TT&C Equipment to the Site, Orion shall perform or cause the equipment manufacturers to perform testing to determine whether the TT&C Equipment is capable of performing the functions summarized in Exhibit A hereto. Such testing of the TT&C Equipment shall be in accordance with the Acceptance Test Plan contained in Exhibit E hereto. Within 30 days following the conclusion of such testing, Orion shall furnish to DACOM results of the test data in Orion's possession relating to the TT&C Equipment in a format consistent with the Acceptance Test Plan. At the conclusion of such testing and following the review of such test data by DACOM and Orion, if any of the TT&C Equipment is not capable of performing the functions summarized in Exhibit A hereto in all material respects, Orion shall use reasonable efforts to correct the deficiencies in the TT&C Equipment. Acceptance of the TT&C Equipment for purposes of the performance of services under Article 7 shall occur upon successful completion of the testing described in this Section 5.1, which shall be acknowledged by DACOM and Orion in writing upon completion. 5.2 Antenna Testing and Acceptance. At a time prior to the TT&C Acceptance Date which is mutually agreeable to Orion and DACOM, Orion and DACOM shall cooperate in performing testing of the Antenna to determine whether the Antenna is capable of performing the functions summarized in Exhibit A hereto. Such testing of the Antenna shall be in accordance with the Acceptance Test Plan contained in Exhibit E hereto. At the conclusion of such testing and following the review of such test data by DACOM and Orion, if the Antenna is not capable of performing the functions summarized in Exhibit A hereto in all material respects, DACOM shall use reasonable efforts to correct the deficiencies in the Antenna. Acceptance of the -4- Antenna for purposes of the performance of services under Article 7 shall occur upon successful completion of the testing described in this Section 5.2, which shall be acknowledged by DACOM and Orion in writing at the Site upon completion (the "Antenna Acceptance Date"); provided, however, that such acceptance shall occur no later than April 30, 1998 or as determined at the Final Design Review. 5.3. TT&C Earth Station Testing and Acceptance. Following the testing and acceptance of the TT&C Equipment pursuant to Section 5.1 and the testing and acceptance of the Antenna pursuant to Section 5.2, Orion and DACOM shall cooperate in performing testing of the TT&C Earth Station to determine whether the TT&C Earth Station is capable of commencing operations in accordance with the Acceptance Test Plan contained in Exhibit E. Upon successful completion of such testing, Orion shall notify DACOM that the TT&C Earth Station is ready for operation as contemplated by Article 1. Unless DACOM objects to such notice, by notice to Orion given within 5 days after such notice to DACOM, DACOM shall be deemed to have accepted the TT&C Earth Station as of the date of such notice from Orion to DACOM. If DACOM does give notice of such objection, DACOM and Orion shall negotiate in good faith to reach agreement on remedial measures, if any, to meet DACOM's objection, and if DACOM and Orion are unable to reach such agreement within 90 days after such notice by DACOM, this Agreement may be terminated by DACOM or Orion after the end of such 90-day period. The TT&C Acceptance Date shall be the date of such notice from Orion to DACOM or, if DACOM objects to such notice, shall be the date when DACOM and Orion reach agreement on any remedial measures and such measures are completed as contemplated by this Section 5.3. If the TT&C Acceptance Date does not occur on or before September 30, 1998, either Orion or DACOM may terminate this Agreement by notice given by the terminating party to the other party within 60 days after September 30, 1998. 5.4. Periodic Testing. After the TT&C Acceptance Date and during the Term, DACOM and/or Orion shall perform such tests of the TT&C Earth Station and the TT&C Equipment as are specified in Exhibit E hereto, at the times specified in said Exhibit E. Exhibit E may be modified or supplemented by Orion in any respect at any time during the Term, if in Orion's reasonable judgment such modification or supplementation is necessary or appropriate. Orion shall notify DACOM of any such modification or supplementation. ARTICLE 6. PERSONNEL --------- 6.1. DACOM Personnel. All personnel necessary or appropriate for the operation and maintenance of the TT&C Earth Station throughout the Term shall be supplied by DACOM, at the expense of DACOM. Such personnel may be employees or agents of DACOM or independent contractors. The number and qualifications of such personnel shall at least meet the job descriptions and other standards set forth in Exhibit F hereto. In addition, at all times during the Term, DACOM shall provide sufficient on-site personnel at the TT&C Earth Station who are fluent in English. Exhibit F may be modified or supplemented by Orion in any respect at any time during the Term, if in Orion's reasonable judgment such modification or supplementation is necessary or appropriate for the efficient and profitable operation of the Satellite. Orion shall notify DACOM of any such modification or supplementation. The technical abilities and job performance of such personnel shall be reasonably satisfactory to Orion, and if Orion notifies DACOM with appropriate justification that any of such -5- personnel are not satisfactory, DACOM shall promptly replace such personnel or take other appropriate action satisfactory to Orion. However, none of such personnel shall be deemed to be employees of Orion, and neither DACOM nor Orion shall take any action pursuant to this Agreement which might result in such personnel being treated as employees of Orion for tax, liability or any other purposes. 6.2. Training. At the request and at the expense of DACOM, Orion will cause up to 5 persons designated by DACOM to receive training by Orion's qualified personnel in such matters relating to the operation of the TT&C Earth Station as DACOM may request and Orion may deem appropriate. Each such training session shall take place prior to the TT&C Acceptance Date during normal business hours at the facilities in Rockville, Maryland, U.S.A., of Orion Network Systems, Inc., or at such other facilities in the United States as Orion may designate by notice to DACOM. The substance and duration of such training shall be within the complete discretion of Orion, and the formal training period for any individual shall be up to 4 weeks. Training material shall be provided prior to commencement of training. Orion shall not impose any charge for such training, but DACOM shall be responsible for the transportation, housing, maintenance and other support of such persons in connection with such training, and DACOM shall be responsible for any approvals of Governmental Bodies within the United States required for such persons to enter and remain in the United States for such training. In each year after the TT&C Acceptance Date, at the request of DACOM, Orion will cause up to 2 persons designated by DACOM to receive similar training, upon the same terms and conditions. 6.3. Initial Advisory Supervision and On-Site Training. During the period commencing 30 days before the TT&C Acceptance Date and ending 120 days after the TT&C Acceptance Date, Orion shall supply such numbers of qualified technical or supervisory personnel as Orion may deem necessary or appropriate to advise and train DACOM personnel concerning the start-up and initial operation of the TT&C Earth Station. Such Orion personnel shall be available at the Site at such times as DACOM or Orion deems appropriate. DACOM shall reimburse Orion for the cost of local transportation, housing including adequate hotel room or apartment, maintenance and other support of such personnel in connection with such activities, and DACOM shall be responsible for any approvals by Governmental Bodies in Korea required for such persons to enter and remain in Korea for such activities. DACOM shall not be responsible for costs of Orion personnel associated with in-orbit testing. 6.4. Confidentiality Agreements. Each person who receives training pursuant to Section 6.2 shall, prior to the beginning of such training, execute and deliver to Orion a confidentiality agreement in the form of Exhibit G hereto. ARTICLE 7. OPERATION OF THE TT&C EARTH STATION ----------------------------------- 7.1. Operations. DACOM shall operate the TT&C Earth Station after the TT&C Acceptance Date and at all times during the Term of this Agreement, on a twenty-four hours per day, seven days per week, fifty-two weeks per year basis, in such a manner that TT&C commands generated by Orion at other facilities and transmitted to the TT&C Earth Station by such electronic or other means as Orion may choose from time to time, will be transmitted to the Satellite as and when directed by Orion, and that signals from the Satellite relating to the Satellite's condition and operations will be received by the TT&C Earth Station and transmitted by the TT&C Earth Station to -6- Orion. DACOM shall not transmit any other signals to the Satellite, except as specifically directed by Orion. Such commands by Orion may be encrypted in whole or in part, and DACOM shall not de-encrypt any such encrypted commands or signals except as specifically authorized by Orion. Orion may interrupt, suspend or cease transmitting such commands or signals to the TT&C Earth Station at any time and for any reason deemed sufficient by Orion in Orion's sole discretion. DACOM hereby covenants and agrees, for itself and its employees, agents and independent contractors, to operate the TT&C Earth Station, at all times during the Term, in a workmanlike manner and in accordance with (a) generally accepted worldwide industry standards for the operation of such TT&C stations, and (b) any directions given by Orion from time to time with respect to such matters. 7.2. Personnel; Utilities and Supplies; Security; etc. (a) Personnel. DACOM shall have sufficient trained and capable personnel at the TT&C Earth Station at all times, and/or available on call near the TT&C Earth Station, to operate the TT&C Earth Station pursuant to Sections 6.1 and 7.1 and to carry out the other functions required of DACOM pursuant to this Article 7. At all times, the on-site personnel provided by DACOM shall include trained and capable personnel who are fluent in the English language. If in Orion's judgment the number or capabilities of such personnel are inadequate with appropriate justification, immediately upon notice from Orion to that effect DACOM shall provide such additional trained and capable personnel at the Site as Orion may request. (b) Utilities and Services. DACOM shall cause the TT&C Earth Station to be supplied with adequate light, heat, air conditioning and other climate control, uninterruptible primary and backup electric power, fire alarms and fire protection, spare equipment, tools, supplies and other services and materials necessary or appropriate in the judgment of Orion for the safe and efficient operation of the TT&C Earth Station pursuant to this Agreement. (c) Security. DACOM shall install and maintain such security devices at the Site of the TT&C Earth Station, and provide such guards and other security measures, as may be necessary or appropriate in the judgment of Orion to prevent unauthorized entry onto the Site and to maintain the confidentiality of all technological information concerning the design, construction, installation and operation of the TT&C Equipment, the commands and other signals sent to and from the TT&C Earth Station and all other Confidential Information. (d) Visitation Rights. Orion with prior notification to DACOM may at any time, at Orion's expense, send persons designated by Orion to the Site to observe the operation of the TT&C Earth Station, inspect and test the TT&C Equipment, and consult with TT&C personnel at the TT&C Earth Station or elsewhere. DACOM shall cooperate fully with such persons. 7.3. Maintenance and Repair. (a) Regular Maintenance and Routine Repairs. DACOM shall perform such periodic maintenance and routine repairs of the TT&C Earth Station, including the TT&C Equipment, as may be necessary or appropriate to cause the TT&C Earth Station and the TT&C Equipment to remain in good operating condition, reasonable wear and tear excepted. DACOM shall follow any instructions given by Orion with respect to such periodic maintenance and routine repairs. If all or part of the TT&C Equipment will be maintained and/or serviced pursuant to a contract between Orion -7- and the manufacturer and/or supplier of such equipment, Orion shall bear all expenses in connection with such maintenance or service contract. DACOM shall permit authorized representatives of such manufacturer and/or supplier to have access to the TT&C Earth Station for the purpose of performing maintenance and/or repairs to the TT&C Equipment. (b) Malfunctions and Breakdowns. If either party learns that any portion of the TT&C Earth Station, or any portion of the TT&C Equipment, has ceased to operate, or may soon cease to operate, in the manner contemplated by this Agreement, or that for any reason the TT&C Earth Station or the TT&C Equipment is no longer able, or may soon be unable, to receive commands from Orion and transmit such commands to the Satellite and receive signals from the Satellite and transmit such signals to Orion, as contemplated by Section 7.1, the party learning of such condition shall immediately notify the other party thereof, by telephonic or electronic communication. In that event (except as provided in Section 7.4) DACOM shall take such remedial action as Orion shall specify, and shall take no other action (except emergency action, if necessary) to remedy such condition. If such condition requires modifications to the TT&C Equipment or replacement of any TT&C Equipment and such replacement TT&C Equipment is not available at the Site, Orion shall use its best efforts (except as provided in Section 7.4) to cause such replacement TT&C Equipment to be delivered to the Site as soon as possible, and shall supply such technical personnel to the Site as may be necessary, in Orion's judgment, to make such modification or install such replacement TT&C Equipment. (c) Test Equipment and Spares. Orion shall provide the following test equipment as a minimum for general operation and maintenance purpose: ----------------------- ----------------------- ----------------------- ----------------------- Orion also shall provide necessary spares for _____ and ________ equipment such as manufacturers recommended spares for normal operations. During initial operation, manufacturers warranties will be utilized for maintenance and calibration. 7.4. Destruction of the TT&C Earth Station. If the TT&C Earth Station is destroyed, or is so damaged that it cannot reasonably be repaired within a reasonable time, by accident or natural catastrophe or by any other cause whatsoever, either Orion or DACOM may terminate this Agreement within 90 days after such destruction or damage. Each party may carry such insurance against such damage or destruction as such party chooses, in the sole discretion of such party, subject, however, to the provisions of Section 13.2. ARTICLE 8. REPORTS AND DOCUMENTATION ------------------------- 8.1. Summaries. DACOM shall provide a summary, in English, of all reports, procedures, including Antenna test plans and instruction manuals, and other -8- appropriate documentation with respect to the Antenna construction and operation of the TT&C facility. 8.2. Logs. DACOM shall keep daily operations logs in the English language recording such data as Orion may request from time to time concerning the use, maintenance, repair and replacement of TT&C Equipment and the operations of the TT&C Earth Station. Such logs shall be available at all times for inspection by Orion, and at the request of Orion DACOM shall make copies of such logs or portions thereof and supply such copies to Orion. 8.3. Regular Periodic Reports. At least once a month during the Term, DACOM shall give Orion a written report summarizing the operations of the TT&C Earth Station during the previous month, and containing such other information concerning the TT&C Earth Station and the TT&C Equipment as Orion may request from time to time. Such reports shall be in the English language and in such format, and with such accompanying data and detail, as Orion may request from time to time. 8.4. Special Reports of Anomalous Events. If the operations of the TT&C Earth Station are interrupted, or if any of the TT&C Equipment or the Antenna malfunctions in any material respect or is damaged or destroyed, or if any other unusual event occurs which Orion notifies DACOM should be the subject of a special report, DACOM shall give Orion a written report thereof containing such other information concerning the TT&C Earth Station and the TT&C Equipment as Orion may request from time to time. Such reports shall be given to Orion as soon as practicable after the event being reported, and shall be in the English language and in such format, and with such accompanying data and detail, as Orion may request from time to time. 8.5. Format of Logs and Reports. All logs and reports provided for by this Article 8 may be prepared and/or kept by DACOM in either a paper or electronic format. If such logs and reports are prepared and/or kept by DACOM electronically, back-up copies of such logs and reports also must be prepared and/or kept. ARTICLE 9. CHARGES; PAYMENTS ----------------- 9.1. Charges. DACOM and Orion shall pay the following Charges: (a) Land Acquisition Charges. Orion shall reimburse DACOM for the amount paid by DACOM to third parties who are not Affiliates of DACOM to purchase or lease the land for the Site pursuant to Section 2.3, provided that the total amount of such reimbursement shall not exceed Two-Thousand and Five-Hundred United States Dollars ($2,500 USD). If such land is purchased, ____________ of such land acquisition Charges shall be paid by Orion to DACOM on the Antenna Acceptance Date. The remaining ______________ of such land acquisition charges shall be paid by Orion to DACOM on the TT&C Acceptance Date. If the land is leased, Orion shall pay to DACOM on the Antenna Acceptance Date, _________________ of the aggregate amount of all lease payments theretofore paid by DACOM. During the period between the Antenna Acceptance Date and the TT&C Acceptance Date, Orion shall pay to DACOM ________________ of the aggregate amount of all lease payments paid by DACOM during such period within 15 days after Orion receives appropriate invoices for such Charges. The remaining ______________ of the -9- aggregate lease payments paid by DACOM prior to the TT&C Acceptance Date shall be paid by Orion to DACOM on the TT&C Acceptance Date. Orion shall reimburse DACOM for _______________________ of all lease payments for such land made by DACOM for periods after the TT&C Acceptance Date and through the end of the Term of this Agreement, within 15 days after Orion receives appropriate invoices for such Charges. If and when requested by Orion, DACOM shall provide Orion with evidence of the payment of such amounts by DACOM. (b) Construction Charges. Orion shall reimburse DACOM, subject to Section 4.2, for the amount paid by DACOM to third parties who are not Affiliates of DACOM to construct the TT&C Earth Station (which without Orion's consent shall not exceed $50,000 USD) pursuant to Article 3, provided that (i) no such reimbursement shall be payable with respect to portions of the TT&C Earth Station which are not necessary for the installation of the TT&C Equipment and the Antenna, as specified in Exhibit H hereto, and (ii) such reimbursement shall not exceed the total amount, and the amount per component or portion of the TT&C Earth Station, specified in Exhibit H hereto. If and when requested by Orion, DACOM shall provide Orion with such invoices and other evidence of the payment of such amounts by DACOM. The construction Charges payable by Orion to DACOM pursuant to this Section 9.1(b) shall be payable within 15 days after Orion receives appropriate invoices from DACOM for such charges, but in no event shall such invoices be payable before the TT&C Acceptance Date. (c) Antenna Charges. Orion shall reimburse DACOM, subject to Section 4.2, for the actual amount paid by DACOM to third parties who are not Affiliates of DACOM to purchase, construct and install the Antenna pursuant to Article 3. The payment for the antenna subsystem described in Exhibit C1 shall be a fixed amount at ____________. The payment for the RF/IF equipment and IFLs, including shipping, installation, testing, taxes and other levies, shall be reimbursed on the actual cost basis, but it shall not exceed ______________________________________________ ________. If and when requested by Orion, DACOM shall provide Orion with such invoices and other evidence of the payment of such amounts by DACOM. _______ ___________ of the Antenna Charges payable by Orion to DACOM pursuant to this Section 9.1(c) shall be payable on the Antenna Acceptance Date. The remaining ____ ___________ of the Antenna Charges payable by Orion to DACOM shall be payable on the TT&C Acceptance Date. (d) No Charge. All DACOM personnel and TT&C services shall be provided by DACOM to Orion without charge, except as expressly set forth herein. 9.2. Payments, Taxes and Bank Charges. All payments due to Orion or DACOM hereunder shall be made in United States Dollars by telegraphic transfer of immediately available funds to a bank account designated by Orion to DACOM from time to time, in the case of payments to Orion, or by DACOM to Orion from time to time, in the case of payments to DACOM, net of any bank fees, duties, taxes (withholding or otherwise) or similar charges that may be imposed by such banks or by any Governmental Bodies within Korea or the United States or any other nation. 9.3. Time of Payment. Each party shall be deemed to have received payment from the other party at the time the payment is received by the designated bank of the party to receive such payment. Each party acknowledges and agrees that any failure by it to pay any amount due to the other party hereunder within 10 days of receipt of a notice from such other party that such payment is due shall constitute a material breach of this Agreement. -10- 9.4. Interest. If any amount payable by either party hereunder is not received when due, such amount shall bear interest until paid at the rate of eighteen percent (18%) per annum, calculated daily. ARTICLE 10. TERM; TERMINATION ----------------- 10.1. Term. This Agreement shall be effective as of the date hereof, and shall terminate effective as of the expiration of the Term under the Joint Investment Agreement, except as otherwise provided in Sections 2.4, 5.3, 7.4, 10.2(a), 10.2(b), 10.2(c) and 10.2(d). 10.2. Termination. In addition to the termination rights of the parties specified in Sections 2.4, 5.3 and 7.4: (a) End of Joint Investment Agreement. If and when the Term of the Joint Investment Agreement ends, Orion or DACOM may terminate this Agreement at any time thereafter upon at least 6 months notice to the other party, unless this Agreement is modified or extended by the parties. (b) Force Majeure. If operation of the TT&C Earth Station as contemplated by this Agreement is prevented by Force Majeure for more than 15 consecutive days, either party may terminate this Agreement at any time after the end of such 15-day period and while such Force Majeure prevents such operation, upon at least 30 days notice to the other party, unless this Agreement is modified or extended by the parties. (c) Breach of Agreement. If either party commits a material breach of any of the provisions of this Agreement and such material breach has not been cured within thirty days after receipt by the breaching party of the other party's notice of such breach, then the non-breaching party may terminate this Agreement upon notice given to the breaching party at least ten and not more than sixty days after the expiration of such thirty-day period, unless this Agreement is modified or extended by the parties. (d) Bankruptcy, etc. If an Act of Bankruptcy occurs with respect to either party, then the other party may terminate this Agreement upon notice given to the party which is subject to such Act of Bankruptcy at least ten and not more than 180 days after such Act of Bankruptcy, unless this Agreement is modified or extended by the parties. 10.3. Payment of Charges. In the event of any termination of this Agreement for any reason whatsoever after the TT&C Acceptance Date, (i) each party shall promptly pay to the other party any Charges or other amounts which have accrued to the date of such termination and neither party shall be entitled to any refund or credit of any Charges theretofore paid by such party to the other party. In the event of any termination of this Agreement for any reason whatsoever before the TT&C Acceptance Date, neither party shall be entitled to receive any Charges after the date of such termination, whether or not such Charges may have accrued before the date of such termination, and neither party shall be entitled to any refund or credit for Charges previously paid. 10.4. Certain Provisions Survive Termination. The provisions of Section 4.5, Article 9, Section 10.3, this Section 10.4, Articles 13 and 14, Section 15.1 and Article 19 shall survive any termination of this Agreement and shall not be affected thereby. -11- 10.5. Option to Purchase or Lease the Site and the TT&C Earth Station upon Termination. If Orion has purchased the Site and the TT&C Earth Station, Orion shall, upon termination of this Agreement, offer to sell the Site and the TT&C Earth Station back to DACOM at Fair Market Value (as defined below). If the Site is leased to Orion, Orion shall, upon termination of this Agreement, permit DACOM to acquire the remaining lease term and the TT&C Earth Station at Fair Market Value. For purposes of this Section 10.5, "Fair Market Value" means the fair market value of the Site and the TT&C Earth Station as determined by the agreement of Orion and DACOM, or absent such agreement, the value determined by the appraisal process described below. In the event Orion and DACOM are unable to agree on the Fair Market Value of the Site and/or the TT&C Earth Station for purposes of this Section 10.5, the issue shall be submitted to appraisal before a panel of three appraisers. Orion and DACOM shall each have 15 days to appoint one appraiser. The two appraisers appointed by the parties shall appoint the third appraiser. The panel of appraisers shall determine, by unanimous or majority decision, the Fair Market Value of the Site and/or the TT&C Earth Station. The decision of the appraisers as to Fair Market Value shall be final. 10.6. Subsequent Modification or Expansion. If in the reasonable judgment of Orion changed conditions, technological developments or commercial opportunities make it desirable to modify or expand the TT&C Earth Station in the future, Orion shall give DACOM at least 60 days notice of Orion's determination to accomplish such modification or expansion. If such desired modification or expansion does not involve any significant capital expenditure, DACOM shall promptly carry out such requested modification or expansion. In all other cases, DACOM and Orion shall proceed with such modification or expansion upon the same basis as the original construction and equipping of the TT&C Earth Station, with the same responsibility of the parties for payment of Charges relating thereto. ARTICLE 11. FORCE MAJEURE ------------- Any failure or delay in the performance by either party of its obligations hereunder shall not be a breach of this Agreement if such failure or delay is caused by any acts of God, fire, flood, weather, receive earth station sun outage or other catastrophes, national emergencies, insurrections, riots or wars, strikes, lockouts, work stoppages or other labor difficulties, or any law, order, regulation, direction, action or request of any government, or of any department, agency, commission, bureau, corporation or other instrumentality of any government, or of any civil or military authority; provided that (i) the party whose performance is prevented or delayed takes all reasonable steps to avoid or remove such causes of nonperformance and continues performance whenever and to the extent that such causes are removed or end. If Force Majeure is claimed by either party, such party shall provide prompt notice to the other party of both the commencement and cessation dates of such Force Majeure event. The occurrence of a Force Majeure shall not entitle either party to any refunds of Charges hereunder or to any other remedy whatsoever, except that both parties shall have the termination right provided in Section 10.2(b) with the consequences provided in Section 10.3. -12- ARTICLE 12. GOVERNMENTAL APPROVALS ---------------------- 12.1. Korean Government Approvals. DACOM shall be responsible for obtaining all authorizations, licenses, permits, consents and other approvals or governmental actions, from or by the Government of Korea and any other Governmental Body within Korea having jurisdiction, which are required by Section 2.2 or otherwise necessary or appropriate to enable DACOM and Orion to carry out their respective obligations under this Agreement, to obtain necessary financing for the transactions contemplated hereby and to transfer any funds required hereunder. Upon DACOM's request, and to the extent feasible, Orion shall assist DACOM in obtaining any such governmental actions. Upon the request of Orion, DACOM shall assist Orion in obtaining the support of any such Korean Governmental Body to assist in the coordination or consultation of the Satellite and the frequencies on which the transponders on the Satellite will operate, all in accordance with ITU regulations and the INTELSAT Treaty. 12.2. United States Government Approvals. Orion shall be responsible for obtaining all authorizations, licenses, permits, consents and other approvals or governmental actions , from or by the Government of the United States and any other Governmental Body within the United States having jurisdiction, which are necessary or appropriate to enable Orion and DACOM to carry out their respective obligations under this Agreement. Upon Orion's request, and to the extent feasible, DACOM will assist Orion in obtaining any such governmental actions. Any consultation with INTELSAT regarding the operation of the Satellite will be the responsibility of Orion as Orion deems appropriate. ARTICLE 13. RISK ---- 13.1. Risk of Loss. All risk of damage, destruction or loss of the TT&C Earth Station shall be borne by Orion, and DACOM shall have no responsibility or liability therefor. Notwithstanding the foregoing, Orion shall have no liability, responsibility or obligation hereunder with respect to any damage to, or destruction or loss of, the Satellite or any transponder or other equipment on the Satellite resulting from any malfunction or failure of the Antenna or the TT&C Equipment, and DACOM's rights with respect to any such malfunction or failure shall be governed solely by the Transponder Agreement. No such damage, destruction, loss, malfunction or failure shall entitle either DACOM or Orion to any refunds of any Charges or any other remedies. 13.2. Insurance. Each party shall be responsible for obtaining and maintaining such insurance as such party may choose, in such party's sole discretion, to cover such party's insurable interests in the TT&C Earth Station or the TT&C Equipment, and the proceeds of any such insurance shall be payable to the party obtaining and maintaining it and not to the other party. At the request of either party, the other party shall use reasonable efforts to assist the requesting party in obtaining any such insurance. In addition, DACOM shall maintain insurance coverage in the amount of Two Million United States Dollars (2,000,000 USD), or other sums as mutually agreed, with respect to loss or damage to the TT&C Earth Station, the Antenna or the TT&C Equipment caused by or resulting from the negligence of DACOM's employees or agents. -13- ARTICLE 14. INDEMNIFICATION; DAMAGES ------------------------ 14.1. Indemnification. Each party shall indemnify and hold the other party, and such other party's shareholders, officers, directors, agents, employees and assigns, or any of them, whether acting through such other party or otherwise, harmless from and against any and all claims, liabilities, expenses, assessments, judgments and recoveries, including attorneys' fees, incurred by any of them and occasioned by, arising out of or resulting from any material misrepresentation, breach of warranty or covenant, or default or nonfulfillment of any terms and conditions, on the part of such indemnifying party under this Agreement. 14.2. Consequential Damages. In no event shall either party be liable for any indirect, incidental or consequential damages, whether foreseeable or not, occasioned by any cause whatsoever; except that DACOM's indemnification of Orion pursuant to Section 14.1 shall cover damages suffered by Orion, including loss of rentals, purchase price, income or profits, arising out of any damage to or loss of the Satellite or any transponders or other equipment thereon or any interruption of the Satellite's ability to transmit programming pursuant to the various agreements between Orion and users of the Satellite or transponders or other equipment thereon. 14.3. Procedure for Indemnification. In the event of a claim with respect to which a party is entitled to indemnification hereunder, such party ("Indemnified Party") shall notify the other party ("Indemnifying Party") in writing as soon as practicable, but in no event later than 15 days after receipt of such claim; provided that a delay in giving such notice shall not preclude the Indemnified Party from seeking indemnification hereunder if such delay has not materially prejudiced the Indemnifying Party's ability to defend such claim. The Indemnifying Party shall promptly defend such claim (by counsel of its own choosing and reasonably satisfactory to the Indemnified Party) and the Indemnified Party shall reasonably cooperate with the Indemnifying Party in the defense of such claim, including the settlement of the matter on the basis stipulated by the Indemnifying Party (with the Indemnifying Party being responsible for all costs and expenses of such settlement and the reasonable out-of-pocket expenses incurred by the Indemnified Party in cooperating with the Indemnifying Party), subject to the limitations on settlement described in subparagraphs (a) and (b) below. If a conflict of interest exists vis-a-vis the interests of the Indemnifying Party and the Indemnified Party, the Indemnified Party shall (i) be entitled to defend the claim, suit, or action or proceeding at the expense of, for the account of and at the risk of the Indemnifying Party; (ii) engage counsel of its own choosing reasonably acceptable to the Indemnifying Party, and at the expense of, for the account of and at the risk of the Indemnifying Party; and (if the actions specified in clauses (i) and (ii) above are taken, then (iii) take reasonable steps to monitor and control the fees and costs of counsel so chosen; and (iv) keep the Indemnifying Party reasonably informed of the status of such defense, including without limitation any settlement proposals by the claimant. If the Indemnifying Party, within a reasonable time after notice of a claim, fails to defend the Indemnified Party, the Indemnified Party shall be entitled to undertake the defense, compromise or settlement of such claim at the expense of, for the account and at the risk of Indemnifying Party. Upon the assumption by the Indemnifying Party of the defense of such claim, the Indemnifying Party may settle or compromise such claim as it sees fit; provided, however, that anything in this Section 14.3 to the contrary notwithstanding: -14- (a) Consent. If there is a reasonable probability that a settlement or compromise of a claim may materially and adversely affect the Indemnified Party, the Indemnifying Party shall not so settle or compromise such claim without the consent of the Indemnified Party, which consent shall not be unreasonably withheld; and (b) Counterclaim. If the facts giving rise to indemnification hereunder shall involve a possible claim by the Indemnified Party against a third party, the Indemnified Party shall have the right, at its own cost and expense, to undertake the prosecution, compromise, and settlement of such claim. ARTICLE 15. CONFIDENTIALITY --------------- 15.1. Confidentiality. Each party shall treat as confidential all of the Confidential Information, refrain from using any of the Confidential Information except in connection with this Agreement, and deliver promptly to the other party or destroy, at the request of the other party, all tangible embodiments, including all copies thereof, of the Confidential Information which are within the possession or control of such party. If either party is requested or required (by oral question or request for information or documents in any legal proceeding, interrogatory, subpoena, civil investigative demand or similar process) to disclose any Confidential Information, such party shall notify the other party promptly of such request or requirement so that the other party may seek an appropriate protective order or waive compliance with the provisions of this Section 15.1. If, in the absence of such a protective order or waiver, either party is, on the advice of counsel, compelled to disclose any Confidential Information to any tribunal or else be liable for contempt, such party may disclose such Confidential Information to such tribunal; provided, however, that the disclosing party shall use such party's best efforts to obtain, at the request and expense of the other party, an order or other assurance that confidential treatment will be accorded to such portion of the Confidential Information required to be disclosed as the other party shall designate. For purposes of this Section 15.1, "Confidential Information" means any information concerning the Site or the TT&C Earth Station, the operations of the TT&C Earth Station, the Satellite and its components, the TT&C Equipment, or the business and affairs of DACOM or Orion or their respective Affiliates, that is not already generally available to the public. The parties recognize that Orion's filing of this Agreement, including the Exhibits hereto, with the United States Securities and Exchange Commission may be required by law. Such filing shall not be subject to or a violation of this Section 15.1. 15.2. Confidentiality Agreements. At the request of Orion to DACOM at any time during the Term of this Agreement, DACOM shall cause any employee, agent, consultant or independent contractor of DACOM who may have access to Confidential Information to execute and deliver to Orion a confidentiality agreement in substantially the form of Exhibit G hereto, with such changes therein as Orion and DACOM may agree in light of changes in circumstances, technology and the like. If any such employee, agent, consultant or independent contractor refuses to execute and deliver such a confidentiality agreement, DACOM shall take such steps as may be necessary or appropriate, including denying such person access to the Site, so that such person will not have access to any Confidential Information. -15- ARTICLE 16. ASSIGNMENT ---------- 16.1. Succession and Assignment. This Agreement shall be binding upon and inure to the benefit of DACOM and Orion and their respective successors and permitted assigns. Neither party may assign this Agreement or any of such party's rights, interests or obligations hereunder without the prior approval of the other party hereto, except as follows: (a) Orion may (i) assign any or all of its rights and interests hereunder to one or more of its Affiliates or to a lender or other person providing financing to Orion or such Affiliate, and (ii) designate one or more of its Affiliates to perform its obligations hereunder; except that in any event Orion shall remain responsible for the performance, by itself or its assignee, of all of its obligations hereunder; and (b) Orion may assign and convey to any other person any or all of its title to or rights and interests in the TT&C Equipment, or impose a Lien on any or all of the TT&C Equipment, so long as the assignee agrees that the TT&C Equipment shall remain at the Site and be subject to use by DACOM in accordance with this Agreement. 16.2. Change of Control. In the event of any merger or sale of stock or assets of DACOM resulting in a change of control of DACOM, DACOM will provide assurance that the quality of service at the TT&C Station will be maintained. ARTICLE 17. REPRESENTATIONS AND WARRANTIES OF ORION --------------------------------------- 17.1. Representations and Warranties. Orion represents and warrants to DACOM as follows: (a) Incorporation, Power, etc. Orion is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, U.S.A., with all necessary corporate power to own and lease its properties and to carry on its business as and where such properties are now owned or leased and such business is now being carried on; (b) Due Authorization of Agreement; No Conflict With Other Instruments. Orion has full power and authority and has taken all necessary action to execute, deliver and consummate this Agreement and to perform all the terms and conditions hereof to be performed by Orion. This Agreement is a valid and binding obligation of Orion enforceable against Orion in accordance with its terms, except as the enforceability hereof may be limited by bankruptcy, insolvency or other laws of general application relating to or affecting the enforcement of creditors' rights or by general principles of equity limiting the availability of equitable remedies. The execution and delivery by Orion of this Agreement, the consummation by Orion of the transactions which this Agreement contemplates will be consummated by Orion, and Orion's fulfillment of and compliance with the terms and provisions hereof applicable to Orion, do not and will not (i) violate any law applicable to Orion, or (ii) conflict with, result in a breach of or constitute a default under Orion's articles of incorporation or bylaws. -16- 17.2. Exclusion of Warranties. ORION MAKES NO REPRESENTATIONS OR WARRANTIES OF ANY KIND OR NATURE WHATSOEVER, WHETHER EXPRESS OR IMPLIED, AS TO THE CONDITION OF THE TT&C EQUIPMENT, THE ANTENNA OR THE TT&C EARTH STATION, OR AS TO THEIR SUITABILITY FOR THEIR INTENDED USE. ALL SUCH WARRANTIES ARE HEREBY EXPRESSLY DISCLAIMED. DACOM ACKNOWLEDGES THAT ORION MAKES NO WARRANTY OF ANY KIND, AND IN PARTICULAR THAT THERE IS NO IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE ASSOCIATED WITH THE TT&C EQUIPMENT, THE ANTENNA OR THE TT&C EARTH STATION. ARTICLE 18. REPRESENTATIONS AND WARRANTIES OF DACOM --------------------------------------- DACOM represents and warrants to Orion as follows: 18.1. Incorporation, Power, etc. DACOM is a corporation duly organized, validly existing and in good standing under the laws of Korea, with all necessary corporate power to own and lease its properties and to carry on its business as and where such properties are now owned or leased and such business is now being carried on. 18.2. Due Authorization of Agreement; No Conflict With Other Instruments. DACOM has full power and authority and has taken all necessary action to execute, deliver and consummate this Agreement and to perform all the terms and conditions hereof to be performed by DACOM. This Agreement is a valid and binding obligation of DACOM enforceable against DACOM in accordance with its terms, except as the enforceability hereof may be limited by bankruptcy, insolvency or other laws of general application relating to or affecting the enforcement of creditors' rights or by general principles of equity limiting the availability of equitable remedies. The execution and delivery by DACOM of this Agreement, the consummation by DACOM of the transactions which this Agreement contemplates will be consummated by DACOM, and DACOM's fulfillment of and compliance with the terms and provisions hereof applicable to DACOM, do not and will not (i) violate any law applicable to DACOM, or (ii) conflict with, result in a breach of or constitute a default under the instruments and documents under which DACOM is organized and by which DACOM is governed. 18.3. Government Regulation. The terms and conditions of this Agreement, including the payments provided for herein, are not subject to regulation or review by or consent from any Governmental Body in Korea to which DACOM is subject. No such Governmental Body can require the amendment, modification or supplementation of this Agreement without the prior written consent of Orion. 18.4. Exclusion of Warranties. DACOM MAKES NO REPRESENTATIONS OR WARRANTIES OF ANY KIND OR NATURE WHATSOEVER, WHETHER EXPRESS OR IMPLIED, AS TO THE CONDITION OF THE TT&C EQUIPMENT, THE ANTENNA OR THE TT&C EARTH STATION, OR AS TO THEIR SUITABILITY FOR THEIR INTENDED USE. ALL SUCH WARRANTIES ARE HEREBY EXPRESSLY DISCLAIMED. ORION ACKNOWLEDGES THAT DACOM MAKES NO WARRANTY OF ANY KIND, AND IN PARTICULAR THAT THERE IS NO IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE ASSOCIATED WITH THE TT&C EQUIPMENT, THE ANTENNA OR THE TT&C EARTH STATION. -17- ARTICLE 19. MISCELLANEOUS ------------- 19.1. Further Assurances. DACOM and Orion shall take all appropriate action and execute all documents, instruments or conveyances of any kind which may be necessary or advisable to carry out any of the provisions hereof and to consummate the transactions contemplated hereby 19.2. Taxes and Expenses. Each party hereto shall bear all taxes and expenses incurred by such party in connection with the negotiation, preparation, execution and performance of this Agreement, except as otherwise provided in Sections 4.2, 9.1(d), 9.2 and Article 12. 19.3. Press Releases and Public Announcements. Except as otherwise required by law or by applicable rules of any securities exchange or association of securities dealers, neither party shall issue any press release, make any public announcement or otherwise disclose any information for the purpose of publication by any print, broadcast or other public media, relating to the transactions contemplated by this Agreement, without the prior approval of the other party. 19.4. Notices. All notices, demands, claims, requests, undertakings, consents, opinions and other communications which may or are required to be given hereunder or with respect hereto shall be in writing, and in the English language, shall be given either by personal delivery or by established international courier, charges prepaid, or by facsimile transmission, and shall be deemed to have been given or made when personally delivered, when delivered to the courier company, charges prepaid, and when transmitted by facsimile, addressed to the respective parties as follows: (a) If to Orion: Orion Asia Pacific Corp. 2440 Research Boulevard Rockville, Maryland 20850 Attention: Corporate Secretary Fax: 301-258-3360 With a copy to: Orion Asia Pacific Corp. 2440 Research Boulevard Rockville, Maryland 20850 Attention: Vice President, Engineering Fax: 301-258-3319 With copy to: Reed Smith Shaw & McClay 1301 K Street, N.W. Washington, D.C. 20005 Attention: Benjamin J. Griffin, Esq. Fax: 202-414-9299 -18- or to such other address as Orion may from time to time designate by notice to DACOM with respect to future notices, demands and other communications to Orion; or (b) If to DACOM: DACOM Corp. DACOM Building 65-228 3-GA, Hangang-Ro, Yongsan-Ku Seoul, Korea Attention: Youn Woo Lee Head of Satellite Communications Business Team Fax: 82-2-220-0761 With copy to: Bae, Kim & Lee Shin-A Bldg, 39-1 Seosomun-Dong Chung-Ku, Seoul, 100-752 Korea Attention: Suk Jin Chon, Esq. Fax: 82-2-755-7676 or to such other address as DACOM may from time to time designate by notice to Orion with respect to future notices, demands and other communications to DACOM. 19.5. No Third-Party Beneficiaries. This Agreement shall not confer any rights or remedies upon any person other than the parties to this Agreement and their respective successors and permitted assigns, and shall not create the relationship of principal and agent, partnership or joint venture or any fiduciary relationship between DACOM and Orion. 19.6. Governing Law; Arbitration. (a) Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York, U.S.A., without giving effect to any choice or conflict of law provision or rule (whether of the State of New York or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of New York. (b) Arbitration. All disputes, controversies or differences which may arise between the Parties, out of, or in relation to, or in connection with this Agreement, or for the breach thereof, shall be finally settled by arbitration in Vancouver, Canada, in accordance with the rules of the International Chamber of Commerce. The award rendered by the three arbitrators shall be final and binding upon both Parties concerned. 19.7. Amendments and Waivers. No amendment of any provision of this Agreement, and no postponement or waiver of any such provision or of any default, misrepresentation, or breach of warranty or covenant hereunder, whether intentional or not, shall be valid unless such amendment, postponement or waiver is in writing and signed by or on behalf of Orion and DACOM. No such amendment, postponement or waiver shall be deemed to extend to any prior or subsequent matter, whether or not similar to the subject-matter of such amendment, postponement or waiver. No failure or delay on the part of Orion or DACOM in exercising any right, power or privilege under -19- this Agreement shall operate as a waiver thereof nor shall any single or partial exercise of any right, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, power or privilege. 19.8. Matters of Construction, Interpretation and the Like. (a) Construction. Orion and DACOM have participated jointly in the negotiation and drafting of this Agreement. If an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by both parties and no presumption or burden of proof shall arise favoring or disfavoring either party because of the authorship of any of the provisions of this Agreement. Any reference to any law shall be deemed also to refer to all rules, regulations, orders or decrees promulgated thereunder, unless the context requires otherwise. The word "including" shall mean including without limitation. Each representation, warranty and covenant contained herein shall have independent significance. If either party breaches in any respect any representation, warranty, covenant or other obligation contained herein or created hereby, the fact that there exists another representation, warranty covenant or obligation relating to the same subject matter (regardless of the relative levels of specificity) which has not been breached shall not detract from or mitigate the consequences of such breach. The rights and remedies expressly specified in this Agreement are cumulative and are not exclusive of any rights or remedies which any party would otherwise have. The Exhibits specified in this Agreement are incorporated herein by reference and made a part hereof. The article and section headings hereof are for convenience only and shall not affect the meaning or interpretation of this Agreement. All representations and warranties in this Agreement shall survive for the duration of the Term. The English language version of this Agreement is controlling. (b) Severability. The invalidity or unenforceability of one or more of the provisions of this Agreement in any situation in any jurisdiction shall not affect the validity or enforceability of any other provision hereof or the validity or enforceability of the offending provision in any other situation or jurisdiction. (c) Entire Agreement; Counterparts. This Agreement (and the other documents referred to herein) constitutes the entire agreement between the parties and supersedes any prior understandings, agreements or representations by or among the parties, written or oral, to the extent they relate to the subject matter hereof. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument. It shall not be necessary in making proof of this Agreement to produce or account for more than one such counterpart. ARTICLE 20. DEFINITIONS ----------- As used in this Agreement, unless the context otherwise requires, the following terms shall have the following meanings: "Act of Bankruptcy" means the institution of any proceeding by one of the parties or by a third person seeking to have such party declared or found to be insolvent or seeking dissolution, liquidation, reorganization or similar relief with respect -20- to such party or such party's assets, or seeking appointment of a receiver, a trustee or other custodian for such party or such party's assets, or the voluntary cessation or suspension of the business of such party, or any similar relief or event, under any law relating to bankruptcy, insolvency or protection of creditors, unless such party contests such proceeding and such proceeding is dismissed within 30 days. "Affiliate," with respect to either party, means any entity that directly or indirectly through one or more intermediaries controls, is controlled by, or is under common control with, such party. "Agreement" means this Agreement as originally executed and delivered or, if amended or supplemented, as so amended or supplemented. "Antenna" means the antenna to be purchased, constructed and installed by DACOM pursuant to Section 3.2, and for purposes of this Agreement shall include HPA's, LNAs, switch gear, IFL's and up and down converters to the IF Patch Panel. "Antenna Acceptance Date" has the meaning set forth in Section 5.2. "Charge" means the various amounts payable pursuant to Section 9.1. "Confidential Information" has the meaning set forth in Section 15.1. "Construction Specifications" means the specifications referred to in Section 3.1 and attached hereto as Exhibit B. "CSM Operations" means the operation of communications system monitoring equipment. "DACOM" means DACOM Corp., a Korean corporation. "Fair Market Value" has the meaning set forth in Section 10.5. "Force Majeure" means one or more of the events or causes referred to in Article 11. "Governmental Body" means any national, state, provincial county, city, municipal, regional or local organ of government, including all courts, boards and agencies of any thereof. "Joint Investment Agreement" means the Joint Investment Agreement of even date herewith between Orion and DACOM. "Korea" means the Republic of Korea. "Law," whether or not capitalized, means statutes, rules, regulations, codes, plans, injunctions, judgments, orders, decrees and rulings of any Governmental Body. -21- "Lien" means any encumbrance, including any mortgage, deed of trust, pledge, hypothecation, assignment, statutory or other lien, security interest or other security arrangement, conditional sale, title retention agreement, financing lease and the filing of any financing statement or similar instrument under the Uniform Commercial Code of any state in the United States or comparable law of any other jurisdiction. "Orion" means Orion Asia Pacific Corp., a Delaware corporation. "Orion 3" has the meaning set forth in the recitals hereto. "Permitted Liens" means (i) Liens and charges for then current taxes, levies or assessments not then due and payable or which remain payable without interest or penalty, (ii) easements, rights of way, title exceptions and reservations, restrictions, zoning ordinances and other encumbrances which do not adversely affect the use of the properties subject thereto for the purpose contemplated by this Agreement, (iii) obligations and duties of DACOM, not interfering with the use of the properties subject thereto for the purpose contemplated by this Agreement, and (iv) such other Liens as Orion may approve in Orion's sole discretion. "Person," whether or not capitalized, means an individual, corporation, partnership, limited liability company or partnership, unincorporated organization, voluntary association, joint stock company, trust, joint venture or Governmental Body. "Satellite" means Orion 3 and any Replacement Satellite or Successor Satellite, as those terms are defined in the Transponder Agreement. "TT&C Earth Station" means the facilities to be constructed and operated on the Site pursuant to this Agreement. -22- "Site" means the location for the TT&C Earth Station selected as provided in Section 2.1. "Joint Investment Agreement" means the Joint Investment Agreement dated as of November 11, 1996 between DACOM and Orion, as originally executed and delivered or, if amended or supplemented, as so amended or supplemented. "Term" means the period of time during which this Agreement is in effect as provided in Section 10.1. "TT&C" has the meaning set forth in Section 1.1. "TT&C Acceptance Date" has the meaning set forth in Section 5.3. "TT&C Equipment" has the meaning set forth in Section 4.1. WITNESS the due execution hereof as of the day and year first above written.
ORION ASIA PACIFIC CORP. DACOM CORP. By: By: --------------------------------- -------------------------------- W. Neil Bauer Kwak, Chi-Young Chief Executive Officer Senior Executive Vice President Date: Date: --------------------------------- --------------------------- -23-
EXHIBIT A Confidential Treatment has been requested for this entire exhibit. FUNCTIONS TO BE PERFORMED BY THE TT&C EARTH STATION EXHIBIT B Confidential Treatment has been requested for this entire exhibit. CONSTRUCTION SPECIFICATIONS FOR THE TT&C EARTH STATION EXHIBIT C1 Confidential Treatment has been requested for this entire exhibit. ANTENNA SPECIFICATIONS EXHIBIT C2 Confidential Treatment has been requested for this entire exhibit. RF/IF REQUIREMENTS INCLUDING TEST TRANSLATOR EXHIBIT D Confidential Treatment has been requested for this entire exhibit. TT&C EQUIPMENT EXHIBIT E Confidential Treatment has been requested for this entire exhibit. TESTING EXHIBIT F Confidential Treatment has been requested for this entire exhibit. INITIAL JOB SPECIFICATIONS, NUMBER OF PERSONNEL AND QUALIFICATIONS EXHIBIT G FORM OF CONFIDENTIALITY AGREEMENT NON-DISCLOSURE AGREEMENT This Agreement is between Orion Network systems, inc., Orion satellite Corporation and OrionNet Inc., each Delaware Corporations, hereinafter collectively referred to as "ONS", and _________________________________, hereinafter referred to as "Recipient". Recipient will provide certain services to Orion Network Systems, Inc., or one of its subsidiaries, i.e., Orion Satellite Corporation, OrionNet Inc., and Orion Asia Pacific Corp. As a result, Recipient will receive and have access to certain information which is confidential and proprietary to ONS. ONS desires to protect all its proprietary and confidential information and, toward that end, Recipient hereby agrees and represents as follows: 1. Proprietary and Confidential Information: Recipient agrees that any information which is provided by ONS is subject to the terms of this Agreement. Recipient agrees that all information which he receives from ONS shall be deemed confidential, proprietary and secret whether or not any such information received is in tangible form or is clearly marked as confidential or proprietary or whether Recipient is expressly informed that such information is confidential and proprietary. Information which is received orally shall also be deemed confidential or proprietary. 2. Nondisclosure to Third Parties: The Recipient shall treat such information received from ONS as the proprietary and confidential information of ONS and shall not disclose said Information to any other person except as specifically authorized in writing by ONS, and shall safeguard such Information as he would his own proprietary and confidential information. The Recipient shall immediately notify the disclosing party of any subpoena, court order, administrative order, discovery request, or other event that could compel the recipient to disclose such Information. The Recipient shall cooperate with ONS in its efforts to protect the Information from disclosure. 3. Ownership and Use of Information: All written or oral data received by Recipient from ONS for purposes of performing his consulting services shall be and remain the property of ONS. Recipient shall not make copies of any tangible data or printed information except upon specific written permission from ONS. Any tangible data or printed information, and any copies thereof, shall be promptly destroyed or returned immediately to ONS upon the request of ONS. The Recipient shall not use the information received from ONS for any purpose except to perform the specific consulting services requested. G-1 4. Term of Agreement: The obligations under this Agreement shall continue and survive the completion of the aforesaid consulting services and shall remain binding for a period of five (5) years from the date of execution of this Agreement. 5. Employee Access and Control of Information: The Recipient shall maintain a list of the names of its employees or associates who have access to the information and shall furnish such list to ONS upon request. Each such employee or associate shall be deemed a Recipient and shall execute this Non-Disclosure Agreement prior to receiving such information. 6. Unauthorized Access to Information: If the Recipient has reason to believe any information under his control and provided to him by ONS has been accessed by unauthorized individuals, he shall immediately report the incident fully to ONS. 7. Exceptions: The obligations contained herein shall not apply to: (a) Information not public which hereafter is disclosed publicly without a breach of this Agreement; (b) Information known to the recipient prior to the time of disclosure by the disclosing party or independently developed by employees of the recipient without access to the Information; or (c) Information disclosed in good faith to the recipient by a third person legally entitled to disclose it. 8. Miscellaneous: The obligations of the parties shall be binding on and inure to the benefit of their respective heirs, successors, and assigns. This Agreement may be amended or modified only by a subsequent agreement in writing. This Agreement does not obligate either party to disclose any information to the other or enter into any other agreement or arrangement. The parties' obligations under this Agreement shall survive the termination of their association regardless of the manner of such termination. This Agreement shall be governed by the laws of the State of Maryland. I agree to the foregoing terms and conditions this ________ day of ________________, 1996. Orion Network Systems, Inc. _________________________ Recipient __________________________ _________________________ Signature Signature __________________________ _________________________ Print Name Print Name __________________________ _________________________ Title Title G-2 EXHIBIT H Confidential Treatment has been requested for this entire exhibit. CONSTRUCTION CHARGES EX-10.40 16 EXHIBIT 10.40 The portions of this Exhibit for which confidential treatment has been requested are marked by brackets ([ ]). In addition, an asterisk (*) appears in the right hand margin of each paragraph in which confidential information is included. JOINT INVESTMENT AGREEMENT BETWEEN ORION ASIA PACIFIC CORP. AND DACOM CORP. DATED: NOVEMBER 11, 1996 TABLE OF CONTENTS PAGE ------- ARTICLE 1. DEFINITIONS .................................................. 1 ARTICLE 2. ACQUISITION OF TRANSPONDER CAPACITY .......................... 4 2.1. Transponders ..................................................... 4 2.2. Spare Transponders ............................................... 4 2.3. Launch Failure or Transponder Failure;Replacement Satellite ...... 4 2.4. Successor Satellite .............................................. 4 ARTICLE 3. TESTING ...................................................... 5 3.1. Ground Testing ................................................... 5 3.2. In-Orbit Testing ................................................. 6 3.3. Conclusion of Tests .............................................. 6 3.4. Accommodation of DACOM Personnel ................................. 6 3.5. Qualifications of DACOM Personnel ................................ 7 3.6. Schedule ......................................................... 7 ARTICLE 4. TERM ......................................................... 7 4.1. Initial Term ..................................................... 7 4.2. Orion's Right at End of Term ..................................... 7 ARTICLE 5. PAYMENTS ..................................................... 7 5.1. Joint Investment Amount .......................................... 7 5.2. Payment Schedule ................................................. 7 5.3. Notice of Payment, Payments, Taxes and Bank Charges .............. 8 5.4. Time of Payment .................................................. 8 5.5. Late Payment Penalty Interest .................................... 8 5.6. Security ......................................................... 8 5.7. Adjustment ....................................................... 9 ARTICLE 6. TRANSPONDER FAILURE AND RESTORATION; OTHER FAILURE .......... 9 6.1. Spare Transponders; Transponder Failure; Restoration ............. 9 6.2. Risk of Transponder Failure ...................................... 10 6.3. In-Orbit Insurance ............................................... 10 ARTICLE 7. TRACKING, TELEMETRY AND COMMAND .............................. 10 ARTICLE 8. CONTRACT PARTICIPATION RIGHTS; REPORTS AND COMMUNICATIONS ... 11 -i- PAGE ------- 8.1. Participation in Satellite Construction Monitoring ............... 11 8.2. Schedule/Progress Reports/Meetings ............................... 11 8.3. Operational Reports and Communications ........................... 11 8.4. Anomalous Operation Notification ................................. 12 ARTICLE 9. USE OF TRANSPONDERS/ORION 3 SATELLITE ........................ 12 9.1. Use of and Right to Transponders ................................. 12 9.2. Technical Responsibilities of DACOM .............................. 12 9.3. Interruption Rights in Abnormal Circumstances .................... 13 9.4. Orion's Rights to Satellite ...................................... 13 9.5. Reactivation ..................................................... 13 9.6. Regional Beam Transponders ....................................... 14 ARTICLE 10. TERMINATION ................................................. 14 10.1. Termination by DACOM ............................................ 14 10.2. Termination by Orion ............................................ 15 10.3. Consequences of Termination ..................................... 15 10.4. Retirement of Orion 3 ........................................... 16 10.5. Launch Failure/Salvage .......................................... 17 ARTICLE 11. REPRESENTATIONS AND WARRANTIES OF ORION ..................... 17 11.1. Representations and Warranties .................................. 17 11.2. Exclusion of Warranties ......................................... 18 11.3. Manufacturer Reimbursement ...................................... 18 ARTICLE 12. REPRESENTATIONS AND WARRANTIES OF DACOM ..................... 18 12.1. Incorporation, Power, etc ....................................... 18 12.2. Due Authorization of Agreement; No Conflict With Other Instruments ........................................................... 18 12.3. Government Regulation ........................................... 19 ARTICLE 13. COORDINATION; GOVERNMENT APPROVALS .......................... 19 13.1. Coordination .................................................... 19 13.2. Government Approvals ............................................ 19 ARTICLE 14. LIMITATION OF LIABILITY AND INDEMNIFICATION ................. 20 14.1. Force Majeure ................................................... 20 14.2. Consequential Damages ........................................... 20 14.3. Remedies ........................................................ 20 -ii- PAGE ------- ARTICLE 15. INDEMNIFICATION ............................................. 20 15.1. Indemnification by DACOM ........................................ 20 15.2. Indemnification by Orion ........................................ 20 15.3. Procedure for Indemnification ................................... 21 ARTICLE 16. MISCELLANEOUS ............................................... 21 16.1. Further Assurances .............................................. 21 16.2. Taxes and Expenses .............................................. 22 16.3. Press Releases and Public Announcements ......................... 22 16.4. Notices.......................................................... 22 16.5. No Third-Party Beneficiaries .................................... 23 16.6. Governing Law; Arbitration ...................................... 23 16.7. Amendments and Waivers .......................................... 23 16.8. Succession and Assignment ....................................... 24 16.9. Confidentiality ................................................. 24 16.10. Matters of Construction, Interpretation and the Like ............ 25 16.11. Compliance ...................................................... 26 16.12. Registration .................................................... 26 EXHIBITS A ORION ACCESS PROCEDURES B TRANSPONDER PERFORMANCE SPECIFICATIONS C FORM LETTER OF CREDIT D OPERATIONAL REPORT ELEMENTS E LETTER RE ORION WARRANT -iii- JOINT INVESTMENT AGREEMENT This JOINT INVESTMENT AGREEMENT, dated as of November 11, 1996 (this "Agreement"), by and between ORION ASIA PACIFIC CORP., a corporation organized and existing under the laws of Delaware, U.S.A. ("Orion"), and DACOM CORP., a corporation organized and existing under the laws of the Republic of Korea ("DACOM"), W I T N E S S E T H: WHEREAS, Orion intends to procure and operate a communications satellite to be known as Orion 3, to be launched into an orbital location currently projected to be at 139 degrees East Longitude; WHEREAS, DACOM wishes to acquire certain rights to certain dedicated capacity on Orion 3 capable of serving the Korean Peninsula; and WHEREAS, Orion is willing to dedicate to DACOM's use a customized payload on Orion 3 consisting of eight (8) 36 MHz Ku-band transponders and three (3) spare transponders (as defined hereinafter) which will cover the Korean Peninsula as described in and on the terms and conditions set forth in this Agreement; NOW, THEREFORE, in consideration of the foregoing, and intending to be legally bound, the parties hereto agree as follows: ARTICLE 1. DEFINITIONS ----------- As used in this Agreement, unless the context otherwise requires, the following terms shall have the following meanings: "Acceptance Test Plan" means the plan for testing the Transponders and Spare Transponders, both prior to launch and in-orbit, to be agreed among Orion, DACOM and the satellite manufacturer consistent with customary and reasonable standards in the industry; "Agreement" means this Agreement as originally executed and delivered or, if amended or supplemented, as so amended or supplemented; "Commencement Date" means the date on which Orion (A) notifies DACOM that (i) Orion has accepted Orion 3 (or any Replacement Satellite, as applicable) from the satellite manufacturer after completion of the Acceptance Test Plan, and (ii) the Transponders are available for use, and (B) delivers the acknowledgment pursuant to Section 3.3; "Confidential Information" shall have the meaning set forth in Section 16.9; "DACOM" means DACOM Corp., a Korean corporation; "Effective Date" means the date of this Agreement; "EL" means East Longitude; "Force Majeure" means events or occurrences that are beyond the control of Orion and DACOM and which are described in detail in Section 14.1; "Initial Negotiations" shall have the meaning set forth in Section 2.4(a); "ITU" shall have the meaning set forth in Section 11.1(d); Joint Investment Amount" shall have the meaning set forth in Section 5.1; "Launch Failure" means the failure of Orion 3 within _______ days after launch (i) to reach its assigned orbital location, or (ii) to have at least ______________ of the transponders meeting their respective technical specifications, or (iii) to have sufficient stationkeeping fuel to maintain geosynchronous orbit for a minimum of _________ _____ of the Orion-3 thirteen (13) year life upon reaching its assigned orbital location, or (iv) to otherwise be commercially usable for any reason, including without limitation, as a result of destruction or damage incurred during launch; "New Offer" shall have the meaning set forth in Section 2.4(b); "Orion" means Orion Asia Pacific Corp., a Delaware corporation; "Orion Access Procedures" means the standards for ground stations that transmit to Orion 3, and the procedures for operators of such ground stations to follow when transmitting to Orion 3, as set forth in Exhibit A hereto; "Orion 3" means the communications satellite which Orion intends to cause to be launched on or before December 31, 1998, and to operate at the 139 degrees EL orbital location or within plus or minus three degrees of that orbital location (i.e., between 136 and 142 degrees EL), and any Replacement Satellite launched pursuant to Section 2.3; "Parties" means the signatories to this Agreement and a "Party" means either signatory; "Permitted User" means any sublessee or assignee of DACOM, or any other entity, that DACOM permits to use any of the Transponders in accordance with Sections 9.1 and 9.2; "Replacement Satellite" means a communications satellite which may be launched by Orion under the circumstances described in Section 2.3(c), if such satellite is designed to orbit at 139 degrees EL (plus or minus three (3) degrees) and is capable of providing capacity substantially similar to the capacity dedicated to DACOM's use under Section 2.1; "Regional Beam Transponders" means transponders on Orion 3, other than the Transponders and Spare Transponders, which cover the Asia-Pacific region, including the Korean Peninsula; -2- "Resale Costs" shall have the meaning set forth in Section 10.3(b); "Resale Proceeds" shall have the meaning set forth in Section 10.3(b); "Satellite Failure" means that, at any time after the Commencement Date, (A)(i) fewer than _______________ of the transponders on Orion 3 are performing pursuant to their technical specifications, or (ii) Orion 3 can no longer be maintained in its North/South and East/West orbit with tolerances of _____ degrees, and (B) Orion, by notice to DACOM, has declared Orion 3 to be a failure; "Spare Transponders" means certain redundant equipment units consisting of three (3) dedicated TWTAs and two (2) dedicated receivers; which are designed as substitutes for equipment component units, the failure of which units could cause a Transponder to fail to meet the Technical Specifications; "Successor Satellite" means any satellite (other than a Replacement Satellite) that Orion causes to be launched to substitute for Orion 3, containing Ku-band transponders designed to provide the same or similar service as the Transponders on Orion 3; "Term" shall have the meaning set forth in Section 4.1; "Transponder Failure," with respect to any Transponder, means that at any time after the Commencement Date (i) the Transponder fails to meet the Technical Specifications in any material respect for a cumulative period of more than ________ hours during any consecutive ________day period or (ii) ______ or more "outage units" occur within a period of _______ consecutive days (an outage unit being a failure of the Transponder to meet the Technical Specifications in any material respect for a period of _________ minutes or more). As used in this definition, the term "day" means a twenty-four (24) hour period of time commencing at 12:00 midnight Seoul time; "Technical Specifications" means those minimum specifications for the performance of the Transponders contained in Exhibit B hereto and also referred to as the "Orion Asia Pacific Technical Specifications for DACOM DTH Payload"; "Transponders" means the transponders which DACOM has the right to use hereunder, as specified in Section 2.1; and "TT&C" shall have the meaning set forth in Article 7. The Parties understand the terms "Launch Failure," "Satellite Failure" and "Transponder Failure" also may be defined in the contract for the manufacture or insurance of Orion 3. Orion shall notify DACOM of the final satellite manufacturing contract or insurance contract and shall provide a copy of the foregoing definitions therefrom to DACOM. The Parties will confer and determine which, if any such definitions are to be included, by amendment, to this Agreement. -3- ARTICLE 2. ACQUISITION OF TRANSPONDER CAPACITY ----------------------------------- 2.1. Transponders. DACOM shall acquire from Orion all rights to use as set forth in this Agreement eight (8) 36 MHz Ku-band Transponders on Orion 3 (designated as transponder numbers 1D through 8D) twenty-four (24) hours per day, each and every day of the year, and for the Term hereof. 2.2. Spare Transponders. Orion shall reserve for DACOM's exclusive use Spare Transponders on Orion 3 which shall be available to DACOM in the event of Transponder Failure under the conditions set forth in Section 6.1. 2.3. Launch Failure or Transponder Failure; Replacement Satellite. If a Launch Failure occurs with respect to Orion 3, or if at any time within the first _______ months after the Commencement Date there are fewer than _______ Transponders meeting the Technical Specifications as a result of a Transponder Failure which cannot be restored pursuant to Section 6.1(c) then, (a) Refund. DACOM's sole and exclusive remedy shall be that Orion shall unconditionally refund to DACOM all amounts previously paid to Orion by DACOM pursuant to Sections 5.2 (a)-(d); (b) Termination. Either Party may terminate this Agreement; and (c) Replacement Satellite. Orion may, in Orion's sole discretion, choose to launch a Replacement Satellite, in which case Orion shall so notify DACOM and, if such Replacement Satellite is scheduled to be launched within ____________ months after such Launch Failure, DACOM shall have the option to acquire the right to use up to eight (8) 36 MHz Ku-band transponders on the Replacement Satellite for a period of 13 years after the commencement date for such Replacement Satellite, on terms and conditions substantially equivalent to those contained in this Agreement (including charges and payments, but not including terms and conditions not applicable because of different or changed conditions). DACOM shall exercise such option by notice to Orion given within ninety (90) days after Orion notifies DACOM of its decision to launch such Replacement Satellite. Orion's present intention is to launch a Replacement Satellite within ___________ months after any Launch Failure, but Orion shall not be legally bound to do so. Notwithstanding the foregoing, the Parties will cooperate to determine if arrangements can be made with the manufacturer of the Orion 3 satellite to have available a Replacement Satellite in a period less than ___________ months after a Launch Failure, and the conditions, if any, under which each Party agrees to proceed. 2.4. Successor Satellite. (a) Initial Negotiations. In the event that Orion chooses to launch a Successor Satellite to succeed Orion 3, subject to Section 10.4(b), DACOM shall have the option to acquire the right to use capacity on the Successor Satellite equivalent to the capacity acquired by DACOM on Orion 3 hereunder for a period of 13 years after the commencement date for such Successor Satellite, on terms and conditions substantially equivalent to those contained in this Agreement (except charges and -4- payments, and except terms and conditions not applicable because of different or changed conditions). DACOM may exercise such option by notice to Orion given within ninety (90) days after Orion notifies DACOM of Orion's intention to launch a Successor Satellite. Such notice by Orion shall be given at least ____________________ days before Orion notifies the satellite manufacturer to proceed under its contract to manufacture the Successor Satellite but not earlier than __________ months prior to the end of the Term. DACOM and Orion agree to negotiate for a period of up to six (6) months in good faith with respect to the fees and charges to be paid by DACOM and the other terms and conditions relating to such agreement between them, taking into account the particular characteristics of the Successor Satellite and the transponders thereon, the costs to Orion of acquiring and operating the Successor Satellite, practices then common in the industry, and other relevant factors ("The Initial Negotiations"). Such Initial Negotiations shall be conducted on a mutually cooperative basis in consideration of the prior relationship of DACOM and Orion during the Term hereof. If Initial Negotiations are not successfully concluded with a binding agreement within such six (6) month period, neither Party shall have any further rights or obligations regarding Successor Satellites pursuant to this Section 2.4, except as set forth in Section 2.4 (b). (b) New offer. If the Initial Negotiations do not lead to a binding agreement, and if within six (6) months after the end of the six (6) month Initial Negotiations period, Orion has received a bona fide offer that Orion is willing to accept from a third party for the equivalent capacity which was the subject of Initial Negotiations pursuant to 2.4(a), which offer is based on terms, which as a whole, are more favorable than those previously proposed to DACOM, Orion shall notify DACOM of said terms and conditions ( "New Offer"). DACOM shall have a period of thirty (30) days from such notice to accept the New Offer by written notice to Orion. If DACOM does not accept the New Offer, Orion shall be free to enter into an agreement with the third party and shall have no further obligation to DACOM for Successor Satellite capacity. (c) No Successor Satellite. In the event Orion chooses not to launch a Successor Satellite, at the request of DACOM, Orion shall consult with DACOM regarding the process by which DACOM might launch a DACOM owned and operated satellite to continue its DTH service then being operated on Orion 3, consistent with Orion's business needs and appropriate international regulatory procedures. Orion shall not oppose DACOM's applications to operate a DACOM satellite at the same frequencies as the Transponders, at the orbital location of Orion 3 so long as DACOM's operations would not interfere with the intended operations of Orion. ARTICLE 3. TESTING ------- 3.1. Ground Testing. Prior to the shipment of Orion 3 to its launch site, Orion shall perform or cause the Orion 3 satellite manufacturer to perform ground testing to determine whether the Transponders and Spare Transponders on Orion 3 are capable of meeting the Technical Specifications. Such ground testing shall be in accordance with the Acceptance Test Plan. Subject to the requirements of the Orion 3 satellite manufacturer, at DACOM's expense, up to three (3) representatives of DACOM may be -5- present at such testing and observe such testing. Within thirty (30) days following the conclusion of such ground testing, Orion shall furnish to DACOM results of the ground test data in Orion's possession relating to the Transponders and Spare Transponders in a format consistent with the Acceptance Test Plan. At the conclusion of the ground testing and DACOM's review of such ground test data, if any of the Transponders or Spare Transponders do not meet the Technical Specifications in all material respects, Orion shall use the same level of effort it would use with respect to other transponders on Orion 3, and consistent with the Orion 3 manufacturing contract, to raise issues (including those raised by DACOM) regarding the performance of the Transponders and Spare Transponders and to cause the Orion 3 satellite manufacturer, consistent with program schedule and the best interests of the overall program, to correct the deficiencies and to re-test the Transponders and Spare Transponders so that all of the Transponders and Spare Transponders meet the Technical Specifications in all material respects. 3.2. In-Orbit Testing. Following the launch of Orion 3 and prior to the Commencement Date, Orion shall perform or cause to be performed in-orbit testing of the Transponders and all relevant sub-systems of Orion 3 in accordance with industry standards. Such in-orbit testing shall be in accordance with the Acceptance Test Plan, and shall be designed to confirm that the Transponders and Spare Transponders perform in accordance with the Technical Specifications in all material respects. If the test results indicate that any of the Transponders or Spare Transponders do not perform in accordance with the Technical Specifications in all material respects, to the extent technically feasible, Orion shall use the same level of effort it would use with respect to other transponders on Orion 3, and consistent with the Orion 3 manufacturing contract, to raise issues (including those raised by DACOM) regarding the performance of the Transponders and Spare Transponders. Subject to the requirements of the Orion 3 satellite manufacturer, at DACOM's expense, up to three (3) representatives of DACOM may be present during such in-orbit testing, observe such testing, and be supplied with results of the in-orbit test data relating to the Transponders and Spare Transponders in a format consistent with the Acceptance Test Plan. 3.3. Conclusion of Tests. At the satisfactory conclusion of the in-orbit testing described in Section 3.2, Orion shall acknowledge to DACOM in writing that the Orion 3 satellite manufacturer has delivered its certification regarding the performance of Orion 3 and either that (i) all of the Transponders meet the Technical Specifications in all material respects or (ii) that some or all of the Transponders do not meet the Technical Specifications in all material respects and the extent of any deficiencies. Simultaneously with the delivery of the acknowledgment with the manufacturer's certificate attached by Orion to DACOM, the Commencement Date shall occur, subject to DACOM's rights under Section 2.3 hereof if acknowledgment by Orion is pursuant to clause (ii) above. Upon the Commencement Date, DACOM may commence the use of the Transponders and Spare Transponders pursuant to this Agreement for any business purpose of DACOM including without limitation the DTH trial service.. 3.4. Accommodation of DACOM Personnel. ORION shall permit the representatives of DACOM that observe the tests pursuant to Article 3 and monitor the construction pursuant to Article 8, to share any office space and facilities supplied to Orion by the Orion 3 satellite manufacturer. To the extent such space and facilities are not made available by the manufacturer, Orion shall, at its expense, provide for the use -6- of office space and computer and communications equipment (but not including long distance or international charges for the use thereof) by such DACOM personnel. 3.5. Qualifications of DACOM Personnel. All DACOM personnel that observe the tests pursuant to Article 3 and monitor the construction pursuant to Article 8, shall be fully qualified, in the reasonable good faith judgment of Orion, to perform the functions involved with the test observations and construction monitoring. DACOM shall provide to Orion the qualifications of its personnel, and Orion shall approve or disapprove such qualifications, prior to such personnel leaving Korea. 3.6. Schedule. The schedule that the manufacturer of Orion 3 has offered to Orion projects a launch date for Orion 3 on or before December 31, 1998, and a Commencement Date on or before January 31, 1999. Orion shall use reasonable efforts to negotiate with the Orion 3 satellite manufacturer to obtain an earlier launch date and Commencement Date, consistent with maintaining quality control. If the Commencement Date is delayed and if, due to such delay, Orion receives any damages from the Orion 3 satellite manufacturer, Orion shall pay to DACOM ______ ___________ of the amount of such damages that Orion receives from the satellite manufacturer, unless DACOM has exercised its rights to terminate this Agreement pursuant to Section 10.1(a) hereof and to receive a refund. ARTICLE 4. TERM ---- 4.1. Term. The period during which DACOM shall have the right to use the Transponders shall begin as of the Commencement Date, and shall end on the thirteenth (13th) anniversary of the Commencement Date (the "Term") unless terminated earlier pursuant to Article 10. 4.2. Orion's Right at End of Term. At the end of the Term, Orion shall have no further obligations to DACOM hereunder. ARTICLE 5. PAYMENTS -------- 5.1. Joint Investment Amount. The Joint Investment Amount payable by DACOM for its right to use the Transponders and Spare Transponders, shall be Eighty Nine Million United States Dollars (89,000,000 USD) (the "Joint Investment Amount"), which may be subject to adjustment pursuant to Section 5.7. 5.2. Payment Schedule. The Joint Investment Amount due hereunder shall be due and payable to Orion as follows: ------------------------------------------------------ -7- ------------------------------------------------------ ------------------------------------------------------ ------------------------------------------------------ ------------------------------------------------------ 5.3. Notice of Payment, Payments, Taxes and Bank Charges. Orion shall submit a Notice of Payment to DACOM for all payments due hereunder thirty (30) days in advance of the payment date. Such Notice shall be transmitted by facsimile with an original by U.S. first class mail. All payments due to Orion hereunder shall be made by electronic transfer of immediately available funds to a bank account designated by Orion to DACOM from time to time, net of any bank fees, duties, taxes (withholding or otherwise) or similar charges that may be imposed by DACOM's bank or by any governmental authority of Korea or any other nation or any political subdivision. 5.4. Time of Payment. The due dates for all payments required to be made to Orion shall be as specified in Section 5.2. Orion shall be deemed to have received payment from DACOM at the time the payment is received by Orion's designated bank. DACOM acknowledges and agrees that any failure by it to pay any amount due to Orion hereunder within fifteen (15) days of receipt of a notice from Orion that such payment is due shall constitute a material breach of this Agreement. 5.5. Late Payment Penalty Interest. If any amount payable by DACOM hereunder is not received when due, such amount shall bear interest until paid at the rate of 18% per annum, calculated daily. 5.6. Security. (a) DACOM. On or before March 31, 1997, DACOM shall deliver to Orion an irrevocable stand by letter of credit, in the form of Exhibit C hereto, of Citibank, N.A., or another bank satisfactory to Orion in Orion's sole discretion, securing in full the obligations of DACOM to make when due the payments to Orion required by clauses (d) and (e) of Section 5.2 and any interest required by Section 5.5. (b) Orion. Concurrent with the receipt of payments pursuant to Sections 5.2(a), (b), (c) and (d), Orion shall deliver to DACOM an irrevocable stand by letter of credit, in the form of Exhibit C hereto, of Citibank, N.A., or another bank satisfactory to DACOM in DACOM's sole discretion, securing the obligations of Orion to refund in accordance with the terms of this Agreement, amounts received by Orion pursuant to Sections 5.2(a), (b), (c) and (d). -8- (c) Insurance as Security. After the launch date of Orion 3, the Parties will cooperate to determine if Orion can obtain an insurance policy that after the Commencement Date, could substitute for, or replace the letters of credit required herein and that would provide DACOM, in its reasonable judgment, with security for any refunds reasonably comparable to the security provided by the letters of credit. DACOM is under no legal obligation to accept such substitute for the letters of credit. 5.7. Adjustment. If, at the end of the ______ month anniversary of the Commencement Date, there have been no unrestored Transponder Failures that would entitle DACOM to a refund pursuant to Section 2.3(a), but the Orion 3 satellite has experienced a partial failure such that the fuel on board is sufficient to maintain normal stationkeeping for more than ___________________ years after the Commencement Date but for less than _______ years after the Commencement Date, DACOM shall be entitled to an adjustment in the Joint Investment Amount calculated as follows: Amount of Adjustment = ________ x 89,000,000 USD where A = the number of years of projected fuel life of Orion 3 from the Commencement Date The amount of the adjustment, if any, shall be credited against the payment due from DACOM pursuant to Section 5.2(e), and if the adjustment is greater than the amount of such payment, the balance of the adjustment shall be refunded to DACOM by Orion. ARTICLE 6. TRANSPONDER FAILURE AND RESTORATION; OTHER FAILURE -------------------------------------------------- 6.1. Spare Transponders; Transponder Failure; Restoration. (a) Spare Transponders. After the Commencement Date DACOM shall have the right to use Spare Transponders on Orion 3 in the event of a Transponder Failure, if Spare Transponders are then available for DACOM's use and are not then being used for the benefit of DACOM. Orion shall have the right to utilize any and all Spare Transponders in any manner it deems fit in performance of its obligations under Section 6.1(c). (b) Notice of Transponder Failure. Each Party shall notify the other Party as soon as reasonably possible upon learning of the commencement of any event which, with the passage of time, could result in a Transponder Failure and of the relevant facts known to it concerning such event. For purposes of determining whether a Transponder Failure has occurred, the point when a Transponder fails to meet its Technical Specifications shall be deemed to have commenced upon receipt by Orion of notification thereof from DACOM, subject to Orion's verification that the Transponder is not performing pursuant to the Technical Specifications in any material respect. The event which, with the passage of time, could result in a Transponder Failure shall be deemed to have ended, and the Transponder shall be deemed to have been restored, when Orion notifies DACOM that such Transponder has resumed performance in accordance with the Technical Specifications in all material respects or that a Spare Transponder has been made available to DACOM. -9- (c) Restoration. In the event that a Transponder becomes a Transponder Failure, it shall be restored as soon as possible and to the extent technically feasible (and in all events if technically feasible within twelve (12) hours) by a Spare Transponder on Orion 3 that meets the Technical Specifications in all material respects. Orion shall have no obligation to restore a Transponder Failure if, for any reason, there is no such Spare Transponder then available. 6.2. Risk of Transponder Failure. After the ____month period referred to in Section 2.3 has expired, Orion shall have no liability, responsibility or obligation with respect to any Transponder Failure or loss of use of the Transponders for any reason whatsoever, except as provided in Section 6.1 and DACOM shall have no rights to refunds of any Joint Investment Amounts or any other remedies, whether or not a Transponder that has become a Transponder Failure is restored, and regardless of whether Orion 3 becomes a Satellite Failure or is otherwise retired pursuant to this Agreement. DACOM will be responsible for obtaining and maintaining any insurance to cover its insurable interests on the Transponders or the operations of Orion 3 as DACOM chooses to obtain and maintain in DACOM's sole discretion, and the proceeds of any such insurance shall be payable to DACOM and not to Orion. At DACOM's request, Orion shall use reasonable efforts to assist DACOM in obtaining any such insurance. 6.3 In-Orbit Insurance. Orion and DACOM shall cooperate in the procurement of a commitment for insurance on or before June 30, 1997, to cover the loss of the Orion 3 Satellite and the Transponders for a period at least twelve (12) months after launch of Orion 3 and for such additional period as DACOM wishes to have and that is available from the insurance market. Orion shall be responsible for the cost of the insurance coverage and shall be the loss payee during the period ending six (6) months after the Commencement Date. DACOM shall be responsible for the cost of the insurance coverage and shall be the loss payee during the period beginning six (6) months after the Commencement Date through the end of the term of the insurance policy. DACOM shall be solely responsible for any additional insurance on the Transponders it wishes to obtain. Orion represents that it has been advised that an insurance product is currently available in the market that would provide coverage for a period of at least twelve (12) months. ARTICLE 7. TRACKING, TELEMETRY AND COMMAND ------------------------------- Throughout the Term, Orion or its affiliates, at Orion's cost and expense shall provide for all the functions of tracking, telemetry and command ("TT&C") including, without limitation, operational monitoring of Orion 3, the Transponders and the other transponders and equipment on Orion 3, stationkeeping, attitude control, and other satellite maintenance and switching functions as shall be necessary to maintain the Transponders in accordance with the Technical Specifications. Such TT&C shall be accomplished from facilities located as Orion may determine. Orion shall promptly notify DACOM of its selection of the primary sites for TT&C facilities. -10- ARTICLE 8. CONTRACT PARTICIPATION RIGHTS; REPORTS AND COMMUNICATIONS --------------------------------------------------------- Orion will provide DACOM with the following participation rights, reports and communications regarding the construction and operation of Orion 3: 8.1. Participation In Satellite Construction Monitoring. Subject to the requirements of the manufacturer of the Orion 3 satellite, representatives of DACOM may participate with Orion in the monitoring activities associated with the construction of Orion 3. The number of DACOM monitoring representatives may not exceed the number of Orion monitoring representatives and in no event shall exceed three (3). Such representatives shall be qualified, shall be permanent throughout the construction period (unless prohibited by disease, injury or death) and shall conduct themselves and their activities in accordance with all relevant requirements of the satellite manufacturer. DACOM representatives shall be permitted to participate in such monitoring activities and to receive documentation (including drawings) to the extent allowed by the manufacturer. Orion shall maintain sole responsibility and control over the monitoring of the construction of Orion 3. Any representatives of DACOM permitted to monitor satellite construction shall do so under the strict supervision of Orion and the manufacturer of Orion 3 and shall abide by the instructions and requirements of Orion and the manufacturer in every respect. Such representatives shall have no rights whatsoever to direct or authorize any activities related to the construction of Orion 3, including but not limited to, ordering or approving any changes in the design or specifications of Orion 3 or any component thereof. DACOM shall be solely responsible for salaries, living expenses, and all other expenses associated with any of its representatives permitted to participate in the monitoring of satellite construction. In no event shall such representatives be considered employees, agents, or consultants of Orion. 8.2. Schedule/Progress Reports/Meetings. Between the Effective Date and the Commencement Date, on the same general schedule as Orion receives progress reports from the Orion 3 satellite manufacturer, Orion shall submit to DACOM a report on the frequency coordination, construction, launch and testing of Orion 3. Orion shall conduct quarterly progress report meetings with up to five (5) DACOM representatives to discuss matters related to the satellite orbit and frequency coordination, construction, launch, and testing of Orion 3. An agenda for each meeting shall be submitted to DACOM at least seven (7) days in advance thereof, along with any materials Orion has then prepared for such meeting. Such meetings shall be scheduled at mutually convenient times and shall be held either at Orion's offices in Rockville, Maryland or at the facilities of the Orion 3 satellite manufacturer in California. DACOM shall be responsible for the expenses of its representatives participating in the progress report meetings. Orion shall notify DACOM promptly of any event that would have a material adverse effect on the current schedule for construction, launch, and testing of Orion 3. 8.3. Operational Reports and Communications. Following the Commencement Date, Orion shall provide DACOM with quarterly written operational reports concerning Orion 3 and the Transponders and Spare Transponders. Such reports shall contain the elements set forth in Exhibit D hereto. Orion shall promptly furnish DACOM with copies of written communications to or from Orion to or from any governmental authority or its insurance carrier (and any Orion responses thereto) -11- which concern Orion 3, the contents of which materially affect operation of Orion 3 or the Transponders. 8.4. Anomalous Operation Notification. Orion shall notify DACOM as soon as reasonably possible, by telephone or in writing, of any significant incidents (and any Orion responses thereto ) that have a potential material effect on Orion 3 or on the Transponders. Orion shall also notify DACOM promptly of any circumstances that make it clearly ascertainable or predictable that any of such incidents will occur (and any Orion response thereto). ARTICLE 9. USE OF TRANSPONDERS/ORION 3 SATELLITE ------------------------------------- 9.1. Use of and Right to Transponders. DACOM agrees, and DACOM shall require any of its Permitted Users to agree, that its or their use of Orion 3 and the Transponders, and its or their transmissions to the Transponders, shall comply in all respects with the laws and regulations (including, without limitation, any subversive, obscenity or other content standards) of (i) all countries having jurisdiction over DACOM or such use or transmissions, (ii) all countries from which DACOM or Permitted Users uplink transmissions to Orion 3 and (iii) all countries in which DACOM's or Permitted Users' transmissions are authorized for reception by DACOM and Permitted Users. Upon receipt by Orion of a written communication from a government agency, and with prior notice to and consultation with DACOM, Orion shall have the right to suspend the use of the Transponders by DACOM, and/or DACOM's Permitted Users, if and so long as, in Orion's reasonable judgment, the continued use of Orion 3 or the Transponders by DACOM or such Permitted Users in violation of the above laws and regulations may jeopardize Orion's right to operate Orion 3 or may have a material adverse effect upon Orion. 9.2. Technical Responsibilities of DACOM. DACOM shall be responsible, at its cost and expense, for providing all uplink facilities and services necessary to transmit information to Orion 3 and the Transponders and all reception facilities and services necessary to receive transmissions from Orion 3 and the Transponders. DACOM and Permitted Users shall have the right to uplink, or arrange for uplinking, to the Transponders from any uplink facilities in any locations within the uplink footprint of the Transponders that meet the Orion Access Procedures. When signals are being transmitted to the Transponders, DACOM and/or its Permitted Users shall be responsible for proper illumination of the Transponders in compliance with the Orion Access Procedures, so as not to interfere with the use of or cause harm to the Transponders, any other transponders, Orion 3 or any other satellite. For purposes of this Section 9.2, interference shall include causing a transponder to fail to meet its technical specifications. Should improper illumination be detected by Orion, Orion shall immediately notify and consult with DACOM or its Permitted Users and DACOM or the Permitted Users shall be responsible for taking corrective measures immediately. If DACOM or the Permitted Users fail to take such action within ten (10) minutes of notification from Orion, Orion may suspend the non-conforming transmissions and Orion may take all action reasonably needed to effect such suspension, including but not limited to deactivation of the Transponders until such non-conformance has been corrected. DACOM and each Permitted User that transmits to Orion 3 shall provide -12- Orion with a telephone and facsimile number for each such uplink facility and shall maintain personnel fluent in English at each such uplink facility on a twenty-four (24) hours per day, seven (7) days per week basis. Such personnel shall be under strict instructions from DACOM or the Permitted User to cease transmissions to Orion 3 immediately upon request from Orion. DACOM and all of its Permitted Users shall submit its or their frequency and transmission plans, as specified in the Orion Access Procedures, and any proposed changes thereto, to Orion for approval prior to transmission or any proposed change thereof and shall take all necessary precautions to ensure that its or their use of the Transponders is in conformity with such approved frequency and transmission plans and is in all other respects consistent with the Orion Access Procedures. Orion's approval or disapproval of DACOM's transmission plans shall be based on the criteria set forth in the Orion Access Procedures and shall not be unreasonably withheld, conditioned or delayed. 9.3. Interruption Rights in Abnormal Circumstances. DACOM recognizes that it may be necessary, in unusual or abnormal technical situations or certain unforeseen conditions, for Orion to deliberately interrupt the Transponders in order to protect the overall health and performance of Orion 3. Such decisions shall be made by Orion in its sole discretion, but Orion shall treat DACOM and other transponder users or lessees, equally in determining which transponders shall be interrupted or preempted. Orion shall give DACOM as much advance notice as practicable of the need to interrupt any of the Transponders. DACOM and any affected Permitted User shall immediately cease transmission to Orion 3 at such time as a Transponder is interrupted pursuant to this Section 9.3. 9.4. Orion's Rights to Satellite. Unless other provisions of this Agreement stipulate otherwise, Orion shall have the right to use Orion 3 and any other transponders or spare transponders on Orion 3 for any purpose whatsoever, and Orion shall have sole responsibility for the operation and maintenance of Orion 3. Orion shall have the right to assign or transfer its interest in Orion 3, or any portions thereof, to any entity, including an assignment or transfer to a financing entity as security for loans or other advances made to Orion provided that Orion shall not attempt to transfer any of DACOM's interest in the Transponders or Spare Transponders without DACOM's consent. Orion shall notify DACOM of any such assignment or transfer, and the assignee or transferee shall acknowledge in writing, DACOM's rights to use the Transponders and Spare Transponders hereunder. Orion shall supply DACOM with a copy of such acknowledgment. If Orion transfers Orion 3 to another entity, Orion shall assure that Orion 3 is operated by an entity technically competent to maintain proper operation of the Transponders and Spare Transponders. 9.5. Reactivation. If Orion takes any action to suspend or deactivate DACOM's or any Permitted User's transmissions pursuant to this Article 9, Orion shall promptly reactivate such transmissions upon the resolution favorable to DACOM or such Permitted User of any issue that led to such suspension or deactivation. Under no circumstances shall Orion be responsible for any loss or damage to DACOM or a Permitted User for any action taken by Orion in conformity with Orion's rights under this Article 9. -13- 9.6 Regional Beam Transponders. At the request of DACOM, Orion shall negotiate in good faith the terms and conditions pursuant to which DACOM might acquire the use of capacity on any available Regional Beam Transponders. Such negotiations shall be conducted on a mutually cooperative basis in consideration of the relationship between DACOM and Orion. ARTICLE 10 TERMINATION ----------- 10.1. Termination by DACOM. DACOM may terminate this Agreement upon thirty (30) days' (except as specified in Section 10.1(a)(ii) below) prior written notice under the following circumstances: (a) For Cause. (i) Launch Delay; Launch Failure; Loss of Orbital Position. Subject to clause (ii) below, if Orion 3 is not launched by ______ or if the Commencement Date is delayed beyond ______ or if there is a Launch Failure and DACOM does not timely exercise its option to acquire the right to use transponders on a Replacement Satellite pursuant to Section 2.3 (or if such Replacement Satellite option is not made available to DACOM by Orion), or if the orbital position in which Orion 3 is located is not within the range of 136 degrees EL to 142 degrees EL; (ii) Anticipated Delay. If, prior to the shipment of the Orion 3 satellite to the launch site, the manufacturer of the Orion 3 satellite certifies that, because of termination of the Orion 3 satellite construction contract or for other reasons, the launch date will not occur by ____________ or the Commencement Date will not occur by ____________ then Orion shall promptly notify DACOM and advise DACOM of the rescheduled launch date and Commencement Date, and, within ten (10) days of such notice, DACOM may elect to terminate this Agreement, provided that if DACOM does not terminate within such ten (10) day period, it shall not be permitted to terminate this Agreement for delay or obtain a refund for failure to meet the launch date and Commencement Date set forth in Section 10.1.(a)(i) unless the Orion 3 satellite manufacturer fails to meet the rescheduled launch date or Commencement Date; (iii) Transponder Failure. If, at any time within the first ______ months after the Commencement Date there are fewer than eight (8) Transponders meeting the Technical Specifications as a result of a Transponder Failure which cannot be restored pursuant to Section 6.1(c) and DACOM does not timely exercise its option to acquire the right to use transponders on a Replacement Satellite pursuant to Section 2.3 (or if such Replacement Satellite option is not made available to DACOM by Orion); (iv) Insolvency. If, prior to the Commencement Date, any bankruptcy, liquidation or insolvency proceedings are instituted involving Orion or its parent, Orion Network Systems, Inc., as the debtor or insolvent party and such proceeding is not dismissed within sixty (60) days; or -14- (v) Misrepresentation. If, between the Effective Date and ______ months after the Commencement Date, any material representation by Orion under Article 11 hereof proves to be incorrect in any material respect, and such incorrect representation cannot be cured by Orion within thirty (30) days after notice from DACOM, and such incorrect representation will have a material adverse effect on DACOM's rights to use the Transponders and Spare Transponders for the Term. (b) For DACOM's Convenience. If DACOM fails, by _________ to obtain all necessary approvals of Korean governmental authorities, as contemplated by Section 12.3, in which case DACOM shall notify Orion of such termination on or before _____________ and shall forfeit to Orion as a termination payment the sum of Ten Million United States Dollars (10,000,000 USD) paid to Orion pursuant to section 5.2(a). If DACOM has not provided notice of termination under this Section 10.1(b) on or before ____________, DACOM's right to terminate for convenience under this Section shall expire. 10.2 Termination by Orion. Orion may terminate this Agreement upon thirty (30) days' prior written notice under the following circumstances: (a) Launch Delay; Launch Failure. If Orion 3 is not launched by May 31, 1999, or if the Commencement Date is delayed beyond ___________ or if Orion is unable, for any reason, to enter into an agreement with a satellite manufacturer to deliver Orion 3 by such dates;; (b) Satellite Failure. If Orion 3 is a Satellite Failure prior to the end of the Term and Orion cannot provide continued use of the Transponders and elects not to provide transponders on a Successor Satellite pursuant to Section 10.4; (c) Governmental Restriction. If, prior to the Commencement Date, the performance of this Agreement pursuant to the terms hereof has been prohibited by any court, governmental or regulatory body with jurisdiction over Orion and such prohibition is no longer subject to further proceedings or review at any administrative or judicial level and no stay has been granted or request for stay is pending; (d) Force Majeure. If, prior to the Commencement Date, Orion's operation of Orion 3 or the Transponders is prevented by reason of Force Majeure for a period of thirty (30) consecutive days; or (e) Breach of Agreement. If DACOM commits a material breach of any of the provisions of this Agreement and such material breach has not been cured within thirty (30) days after receipt by DACOM of Orion's notice of such breach. 10.3. Consequences of Termination. (a) Refund. If DACOM terminates this Agreement pursuant to clauses (i) through (v) of Section 10.1(a) and elects a refund pursuant to Section 2.3(a), or if Orion terminates this Agreement pursuant to Sections 10.2(a), (c) or (d), DACOM, as -15- its sole and exclusive remedy, shall be entitled to a refund of all amounts it has theretofore paid to Orion for Joint Investment Amount pursuant to Section 5.2. In addition Orion shall be relieved of any further obligation or liability under this Agreement. If this Agreement is terminated for any other reason, DACOM shall not be entitled to any refund of Joint Investment Amounts or any other remedy of any kind. Upon termination of this Agreement for any reason, and refund by Orion of any Joint Investment Amounts as may be specifically required by this Section 10.3(a), neither Party shall have any further obligations to the other Party, and Orion shall be free to lease, sell, use or dispose of Orion 3 and any of the Transponders and Spare Transponders in any manner Orion deems appropriate. (b) Resale by Orion. If Orion terminates this Agreement pursuant to subparagraph (e) of Section 10.2, DACOM shall be obligated to pay the unpaid portion of the Joint Investment Amount and Orion may call any DACOM letters of credit and retain the proceeds thereof and those payments made to date by DACOM under this Agreement, and if Orion chooses to and does sell, lease or otherwise dispose of the right to use any of the Transponders, the Parties shall make payments as follows: (i) If the amount of purchase price, lease payments or capacity charge to be realized by Orion from such sale, lease or disposition of the Transponders and Spare Transponders ("Resale Proceeds") is less than the sum of Orion's Resale Costs (as defined below) plus _________________ ___________________________ then DACOM shall pay to Orion the difference between the Resale Proceeds and the sum of the Resale Costs plus _________ _____________________________ provided, if DACOM's Joint Investment Amounts paid to date exceed said difference, DACOM shall make no further payments, and Orion shall refund to DACOM ___________________________ of such excess; and (ii) If the Resale Proceeds are more than the sum of Orion's Resale Costs plus ______________________________________________ then Orion shall refund to DACOM ______________________ of the aggregate amount of Joint Investment Amounts theretofore paid by DACOM to Orion. For purposes of this Section 10.3, "Resale Costs" means all costs and expenses incurred by Orion as a result of such termination and in connection with such sale, lease or other disposition. 10.4. Retirement of Orion 3. If at any time during the Term Orion 3 is a Satellite Failure: (a) Continue Operations. Orion shall (unless this Agreement is terminated by DACOM) use reasonable efforts (including negotiations with any insurance carrier entitled to salvage value of Orion 3) to continue operating the Transponders for the remainder of the Term, if such operation is technically and administratively practicable; or (b) Successor Satellite. Orion may retire Orion 3 and choose to launch a Successor Satellite, in which case Orion shall so notify DACOM and, if such Successor Satellite is launched within ____________ months after such retirement of Orion 3, DACOM shall have the option to acquire the right to use capacity on the -16- Successor Satellite equivalent to the capacity acquired by DACOM on Orion 3 for a term of up to thirteen (13) years from the date when such transponders are available for service, on terms and conditions substantially equivalent to those contained in this Agreement (except charges and payments, and except terms and conditions not applicable because of different or changed conditions). The process for exercising DACOM's Successor Satellite option, and for negotiation of an agreement for such Successor Satellite, shall be governed by Section 2.4. 10.5. Launch Failure/Salvage. If (a) Orion 3 is a Launch Failure, and (b) DACOM exercises its right to a refund under Section 2.3, and (c) some of the Transponders are still operational, and (d) the Transponders have been transferred to the Orion 3 satellite insurer or manufacturer, then, at the request of DACOM, Orion shall use reasonable efforts to acquire from such insurer or manufacturer the rights for DACOM to use such Transponders, at DACOM's expense, under terms and conditions acceptable to DACOM and Orion, including appropriate consideration to Orion. ARTICLE 11. REPRESENTATIONS AND WARRANTIES OF ORION --------------------------------------- 11.1. Representations and Warranties. Orion represents and warrants to DACOM as follows: (a) Incorporation, power, etc. Orion is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, U.S.A., with all necessary corporate power to own and lease its properties and to carry on its business as and where such properties are now owned or leased and such business is now being carried on; (b) Due Authorization of Agreement; No Conflict With Other Instruments. Orion has full power and authority and has taken all necessary action to execute, deliver and consummate this Agreement and to perform all the terms and conditions hereof to be performed by Orion. This Agreement is a valid and binding obligation of Orion enforceable against Orion in accordance with its terms, except as the enforceability hereof may be limited by bankruptcy, insolvency or other laws of general application relating to or affecting the enforcement of creditors' rights or by general principles of equity limiting the availability of equitable remedies. The execution and delivery by Orion of this Agreement, the consummation by Orion of the transactions which this Agreement contemplates will be consummated by Orion, and Orion's fulfillment of and compliance with the terms and provisions hereof applicable to Orion, do not and will not (i) violate any law applicable to Orion (although Orion makes no representation or warranty concerning any right to the orbital location proposed for Orion 3), or (ii) conflict with, result in a breach of or constitute a default under Orion's articles of incorporation or bylaws; (c) Government Regulation. The terms and conditions of this Agreement, including the payments provided for herein, are not subject to regulation or review by or consent from any governmental or administrative agency in the United States to which Orion is subject and cannot be amended, modified or changed without the prior written consent of Orion and DACOM. There is no requirement for a waiver -17- from the Federal Communications Commission under Section 319(d) of the United States Federal Communications Act or for any other authorizations from the Federal Communications Commission for Orion to construct the Orion 3 satellite; and (d) Treaties. For the avoidance of doubt and the sake of clarity, under the current INTELSAT Treaty and the current rules of the International Telecommunications Union ("ITU"), there are no provisions that would permit INTELSAT or the ITU, as organizations, to order a delay in the launch of the Orion 3 satellite. 11.2. Exclusion of Warranties. ORION MAKES NO REPRESENTATIONS OR WARRANTIES OF ANY KIND OR NATURE WHATSOEVER, WHETHER EXPRESS OR IMPLIED, AS TO THE CONDITION OF ORION 3 OR THE TRANSPONDERS OR SPARE TRANSPONDERS. ALL SUCH WARRANTIES ARE HEREBY EXPRESSLY DISCLAIMED. DACOM ACKNOWLEDGES THAT ORION MAKES NO WARRANTY OF ANY KIND, AND IN PARTICULAR THAT THERE IS NO IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE ASSOCIATED WITH ORION 3 OR THE TRANSPONDERS OR SPARE TRANSPONDERS. DACOM SHALL INDEMNIFY ORION AND HOLD ORION HARMLESS FROM ANY CLAIMS MADE UNDER ANY WARRANTY OR REPRESENTATION BY DACOM TO ANY THIRD PARTY AS TO ORION 3 OR THE TRANSPONDERS. 11.3 Manufacturer Reimbursement. To the extent that, after the sixth (6th) month anniversary of the Commencement Date, one (1) or more of DACOM's Transponders becomes a Transponder Failure that cannot be restored and, if Orion receives any compensation for such Transponder Failure from the manufacturer of the Orion 3 satellite, Orion shall pay to DACOM the amount of any compensation received from the manufacturer allocable to the Transponder Failure, taking into account any other transponders on Orion 3 that may also have failed. ARTICLE 12. REPRESENTATIONS AND WARRANTIES OF DACOM --------------------------------------- DACOM represents and warrants to Orion as follows: 12.1. Incorporation, Power, etc. DACOM is a corporation duly organized, validly existing and in good standing under the laws of Korea, with all necessary corporate power to own and lease its properties and to carry on its business as and where such properties are now owned or leased and such business is now being carried on; 12.2. Due Authorization of Agreement; No Conflict With Other Instruments. DACOM has full power and authority and has taken all necessary action to execute, deliver and consummate this Agreement and to perform all the terms and conditions hereof to be performed by DACOM. This Agreement is a valid and binding obligation of DACOM enforceable against DACOM in accordance with its terms, except as the enforceability hereof may be limited by bankruptcy, insolvency or other laws of general application relating to or affecting the enforcement of creditors' rights or by general principles of equity limiting the availability of equitable remedies. The execution and -18- delivery by DACOM of this Agreement, the consummation by DACOM of the transactions which this Agreement contemplates will be consummated by DACOM, and DACOM's fulfillment of and compliance with the terms and provisions hereof applicable to DACOM, do not and will not (i) violate any law applicable to DACOM, or (ii) conflict with, result in a breach of or constitute a default under the instruments and documents under which DACOM is organized and by which DACOM is governed; and 12.3. Government Regulation. Except for authorizations for overseas investments from the Bank of Korea and the Korean Ministry of Information, the terms and conditions of this Agreement, including the payments provided for herein, are not subject to regulation or review by or consent from any governmental or administrative agency in Korea to which DACOM is subject. No such governmental or administrative agency can require the amendment, modification or supplementation of this Agreement without the prior written consent of Orion. DACOM will advise Orion of DACOM's progress toward obtaining the necessary approvals of the Bank of Korea and the Korean Ministry of Information and any final decisions thereon. ARTICLE 13. COORDINATION; GOVERNMENT APPROVALS ---------------------------------- 13.1. Coordination. Prior to the Commencement Date and throughout the Term, Orion shall use reasonable efforts to (i) coordinate the orbital location of Orion 3, (ii) resolve frequency coordination issues with governmental agencies having jurisdiction over the operation of Orion 3 or having claims of interference by Orion 3 with other existing or planned satellites, and (iii) maintain Orion 3 in the orbital location specified herein so that the Transponders will comply in all material respects with the Technical Specifications at all times. In connection with its coordination activities, Orion shall use reasonable efforts to coordinate uplink frequencies of _____ GHz to ____ GHz and downlink frequencies of _____ GHz to ____ GHz so that the Transponders may operate on such frequencies. Orion shall notify DACOM of the frequencies on which the Transponders will operate on or before June 30, 1997. Upon the request of Orion, DACOM shall assist Orion in obtaining the support of the government of the Republic of Korea to assist in the coordination or consultation of Orion 3 and the frequencies on which the Transponders will operate, all in accordance with ITU regulations and the INTELSAT Treaty. Any consultation with INTELSAT regarding the operation of Orion 3 will be the responsibility of Orion as Orion deems appropriate. 13.2. Government Approvals. DACOM shall be responsible for obtaining any authorizations or approvals from the Government of the Republic of Korea as may be necessary for DACOM to enter into this Agreement, to obtain necessary financing for the transaction and to transfer any funds required hereunder. DACOM and its Permitted Users shall be responsible for obtaining any governmental approvals or authorizations necessary to transmit to Orion 3 and the Transponders from any country and to receive and distribute any material transmitted over the Transponders in any country. Upon DACOM's request, and to the extent feasible, Orion will assist DACOM in obtaining any such approvals or authorizations. -19- ARTICLE 14. LIMITATION OF LIABILITY AND INDEMNIFICATION ------------------------------------------- 14.1. Force Majeure. Neither Party shall be liable to the other Party for any failure of performance hereunder (except for the obligation to pay money when due) due to acts of God, fire, flood, weather, receive earth station sun outage or other catastrophes, national emergencies, insurrections, riots or wars, strikes, lockouts, work stoppages or other labor difficulties, or due to any law, order, regulation, direction, action or request of any government, or of any department, agency, commission, bureau, corporation or other instrumentality of any government, or of any civil or military authority. If Force Majeure is claimed by either Party, such Party shall provide prompt notice to the other Party of both the commencement and cessation dates of such Force Majeure event. The occurrence of a Force Majeure shall not entitle DACOM to any refunds of Joint Investment Amounts hereunder or to any other remedy whatsoever, except for a refund if Orion terminates for Force Majeure pursuant to Section 10.2(d). 14.2. Consequential Damages. In no event shall either Party be liable for any indirect, incidental or consequential damages, whether foreseeable or not, occasioned by any defect in Orion 3 or the Transponders, delay in making available the Transponders, failure of the Transponders to perform, or any other cause whatsoever. 14.3. Remedies. The remedies of each Party for nonperformance of this Agreement by the other Party shall be limited to those specifically set forth herein, and there shall be no other remedies. ARTICLE 15. INDEMNIFICATION --------------- 15.1. Indemnification by DACOM. DACOM shall indemnify and hold Orion and its shareholders, officers, directors, agents, employees and assigns, or any of them, whether acting through Orion or otherwise, harmless from and against any and all claims, liabilities, expenses, assessments, judgments and recoveries, including attorneys' fees, incurred by any of them and occasioned by, arising out of or resulting from (i) any claims for libel, slander, infringement of copyright or any other matter arising from the material transmitted by DACOM or a Permitted User over Orion 3 or the Transponders, and (ii) the willful misconduct of DACOM or a Permitted User relating to use of any Transponder. 15.2. Indemnification by ORION. Orion shall indemnify and hold DACOM and its shareholders, officers, directors, agents, employees and assigns, or any of them, whether acting through DACOM or otherwise, harmless from and against any and all claims, liabilities, expenses, assessments, judgments and recoveries, including attorneys' fees, incurred by any of them and occasioned by, arising out of or resulting from the willful misconduct of Orion relating to its operation of the Orion 3 satellite. -20- 15.3. Procedure For Indemnification. In the event of a claim with respect to which a Party is entitled to indemnification hereunder, such Party ("Indemnified Party") shall notify the other Party ("Indemnifying Party") in writing as soon as practicable, but in no event later than fifteen (15) days after receipt of such claim; provided that a delay in giving such notice shall not preclude the Indemnified Party from seeking indemnification hereunder if such delay has not materially prejudiced the Indemnifying Party's ability to defend such claim. The Indemnifying Party shall promptly defend such claim (by counsel of its own choosing and reasonably satisfactory to the Indemnified Party) and the Indemnified Party shall reasonably cooperate with the Indemnifying Party in the defense of such claim, including the settlement of the matter on the basis stipulated by the Indemnifying Party (with the Indemnifying Party being responsible for all costs and expenses of such settlement and the reasonable out-of-pocket expenses incurred by the Indemnified Party in cooperating with the Indemnifying Party), subject to the limitations on settlement described in subparagraphs (a) and (b) below. If a conflict of interest exists vis-a-vis the interests of the Indemnifying Party and the Indemnified Party, the Indemnified Party shall (i) be entitled to defend the claim, suit, or action or proceeding at the expense of, for the account of and at the risk of the Indemnifying Party; (ii) engage counsel of its own choosing reasonably acceptable to the Indemnifying Party, and at the expense of, for the account of and at the risk of the Indemnifying Party; (iii) take reasonable steps to monitor and control the fees and costs of counsel so chosen; and (iv) keep the Indemnifying Party reasonably informed of the status of such defense, including without limitation any settlement proposals by the claimant. If the Indemnifying Party, within a reasonable time after notice of a claim, fails to defend the Indemnified Party, the Indemnified Party shall be entitled to undertake the defense, compromise or settlement of such claim at the expense of, for the account and at the risk of Indemnifying Party. Upon the assumption by the Indemnifying Party of the defense of such claim, the Indemnifying Party may settle or compromise such claim as it sees fit; provided, however, that anything in this Section to the contrary notwithstanding: (a) Consent. If there is a reasonable probability that a settlement or compromise of a claim may materially and adversely affect the Indemnified Party, the Indemnifying Party shall not so settle or compromise such claim without the consent of the Indemnified Party, which consent shall not be unreasonably withheld; and (b) Counterclaim. If the facts giving rise to indemnification hereunder shall involve a possible claim by the Indemnified Party against a third party, the Indemnified Party shall have the right, at its own cost and expense, to undertake the prosecution, compromise, and settlement of such claim. ARTICLE 16. MISCELLANEOUS ------------- 16.1. Further Assurances. DACOM and Orion shall take all appropriate action and execute all documents, instruments or conveyances of any kind which may be necessary or advisable to carry out any of the provisions hereof and to consummate the transactions contemplated hereby. Orion hereby agrees that (i) the Korean National Flag and DACOM's logo shall be affixed or marked on the Orion 3 launching vehicle conspicuous from the observation decks; (ii) the name of Orion 3 in Korea shall -21- be Orion 3/DACOM, and such name may be used in documents and marketing materials distributed in Korea; (iii) throughout the Term, DACOM shall have the exclusive right to use the Transponders for direct-to-home satellite service in Korea and Orion will not provide comparable transponders on Orion 3 to any other entity for the purpose of providing DTH service in Korea; (iv) Orion shall inform DACOM of any matters related to the construction, launch and financing of Orion 3 that would have a material adverse effect on DACOM's rights to the Transponders and Spare Transponders hereunder or delay of launch of Orion 3; and (v) Orion shall deliver to DACOM Orion's form of warrant containing the terms set forth in the letter attached hereto as Exhibit E. 16.2. Taxes and Expenses. Each Party hereto shall bear all taxes and expenses incurred by such Party in connection with the negotiation, preparation, execution and performance of this Agreement. 16.3. Press Releases and Public Announcements. Except as otherwise required by law or by applicable rules of any securities exchange or association of securities dealers, neither Party shall issue any press release, make any public announcement or otherwise disclose any information for the purpose of publication by any print, broadcast or other public media, relating to the transactions contemplated by this Agreement, without the prior approval of the other Party. 16.4. Notices. All notices, demands, claims, requests, undertakings, consents, opinions and other communications which may or are required to be given hereunder or with respect hereto shall be in writing, and in the English language, shall be given either by personal delivery or by established international courier, charges prepaid, or by facsimile transmission, and shall be deemed to have been given or made when personally delivered, when delivered to the courier company, charges prepaid, and when transmitted by facsimile, addressed to the respective parties as follows: (a) If to Orion: Orion Asia Pacific Corp. 2440 Research Boulevard Rockville, Maryland 20850 Attention: Corporate Secretary Fax: 301-258-3360 With copy to: Reed Smith Shaw & McClay 1301 K Street, - Washington, D.C. 20005 Attention: Benjamin J. Griffin, Esq. Fax: 202-414-9299 or to such other address as Orion may from time to time designate by notice to DACOM with respect to future notices, demands and other communications to Orion; or -22- (b) If to DACOM: DACOM Corp. DACOM Building 65-228 3-GA, Hangang-Ro, Yongsan-Ku Seoul, Korea Attention: Youn Woo Lee Head of Satellite Communications Business Team Fax: 82-2-220-0761 With copy to: Bae, Kim & Lee Shin-A Bldg, 39-1 Seosomun-Dong Chung-Ku, Seoul, 100-752 Korea Attention: Suk Jin Chon, Esq. Fax: 82-2-755-7676 or to such other address as DACOM may from time to time designate by notice to Orion with respect to future notices, demands and other communications to DACOM. Notwithstanding the foregoing, notices required under Sections 6.1, 8.4, 9.2, and 9.3 of this Agreement shall be deemed to be duly given by telephone notice, provided written confirmation is received within three (3) days thereafter. 16.5. No Third-Party Beneficiaries. This Agreement shall not confer any rights or remedies upon any person other than the Parties to this Agreement and their respective successors and permitted assigns, and shall not create the relationship of principal and agent, partnership or joint venture or any fiduciary relationship between DACOM and Orion. 16.6. Governing Law; Arbitration. (a) Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York, U.S.A., without giving effect to any choice or conflict of law provision or rule (whether of the State of New York or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of New York. (b) Arbitration. All disputes, controversies or differences which may arise between the Parties, out of, or in relation to, or in connection with this Agreement, or for the breach thereof, shall be finally settled by arbitration in Vancouver, Canada, in accordance with the rules of the International Chamber of Commerce. The award rendered by the three arbitrators shall be final and binding upon both Parties concerned. 16.7. Amendments and Waivers. No amendment of any provision of this Agreement, and no postponement or waiver of any such provision or of any default, misrepresentation, or breach of warranty or covenant hereunder, whether intentional or not, shall be valid unless such amendment, postponement or waiver is in writing and -23- signed by or on behalf of Orion and DACOM. No such amendment, postponement or waiver shall be deemed to extend to any prior or subsequent matter, whether or not similar to the subject-matter of such amendment, postponement or waiver. No failure or delay on the part of Orion or DACOM in exercising any right, power or privilege under this Agreement shall operate as a waiver thereof nor shall any single or partial exercise of any right, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, power or privilege. 16.8. Succession and Assignment. This Agreement shall be binding upon and inure to the benefit of the Parties and their respective successors and permitted assigns. Neither Party may assign this Agreement or any of such Party's rights, interests or obligations hereunder without the prior approval of the other Party hereto except that either Party may (a) assign any or all of its rights and interests hereunder to one or more of its affiliates or to a lender or other person providing financing to such Party, (b) designate one or more of its affiliates to perform its obligations hereunder; and (c) DACOM may assign its rights to use the Transponders or sublease such Transponders to third parties who shall be obligated to use the Transponders in accordance with this Agreement, except that in any event the assigning Party shall remain responsible for the performance, by itself or its assignee, of all of its obligations hereunder. Orion shall notify DACOM upon the occurrence of any change of control of Orion Network Systems, Inc. For purposes of the foregoing, a change of control shall mean that at least thirty percent (30%) of the voting equity of Orion Network Systems, Inc. becomes held by an individual shareholder or a control group of shareholders that are not currently controlling group shareholders of Orion Network Systems, Inc. 16.9. Confidentiality. Each Party shall treat as confidential all of the Confidential Information, refrain from using any of the Confidential Information except in connection with this Agreement, and deliver promptly to the other Party or destroy, at the request of the other Party, all tangible embodiments, including all copies thereof, of the Confidential Information which are within the possession or control of such Party. If either Party is requested or required (by oral question or request for information or documents in any legal proceeding, interrogatory, subpoena, civil investigative demand or similar process) to disclose any Confidential Information, such Party shall notify the other Party promptly of such request or requirement so that the other Party may seek an appropriate protective order or waive compliance with the provisions of this Section 16.9. If, in the absence of such a protective order or waiver, either Party is, on the advice of counsel, compelled to disclose any Confidential Information to any tribunal or else be liable for contempt, such Party may disclose such Confidential Information to such tribunal; provided, however, that the disclosing Party shall use such Party's best efforts to obtain, at the request and expense of the other Party, an order or other assurance that confidential treatment will be accorded to such portion of the Confidential Information required to be disclosed as the other Party shall designate. For purposes of this Section 16.9, "Confidential Information" means any information concerning the business and affairs of DACOM or Orion or their respective affiliates that is not already generally available to the public. The Parties recognize that Orion's filing of this Agreement, including the Exhibits hereto, with the United States Securities and Exchange Commission may be required by law. Such filing shall not be subject to or a violation of this Section 16.9. -24- 16.10. Matters of Construction, Interpretation and the Like. (a) Construction. Orion and DACOM have participated jointly in the negotiation and drafting of this Agreement. If an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by both Parties and no presumption or burden of proof shall arise favoring or disfavoring either Party because of the authorship of any of the provisions of this Agreement. Any reference to any law shall be deemed also to refer to all rules, regulations, orders or decrees promulgated thereunder, unless the context requires otherwise. The word "including" shall mean including without limitation. Each representation, warranty and covenant contained herein shall have independent significance. If either Party breaches in any respect any representation, warranty, covenant or other obligation contained herein or created hereby, the fact that there exists another representation, warranty covenant or obligation relating to the same subject matter (regardless of the relative levels of specificity) which has not been breached shall not detract from or mitigate the consequences of such breach. The Exhibits specified in this Agreement are incorporated herein by reference and made a part hereof. The article and section headings hereof are for convenience only and shall not affect the meaning or interpretation of this Agreement. All representations and warranties in this Agreement shall survive for the duration of the Term. The English language version of this Agreement is controlling. (b) Severability. The invalidity or unenforceability of one or more of the provisions of this Agreement in any situation in any jurisdiction shall not affect the validity or enforceability of any other provision hereof or the validity or enforceability of the offending provision in any other situation or jurisdiction. (c) Entire Agreement; Counterparts. This Agreement (and the other documents referred to herein) constitutes the entire agreement between the Parties and supersedes any prior understandings, agreements or representations by or among the Parties, written or oral, to the extent they relate to the subject matter hereof. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument. It shall not be necessary in making proof of this Agreement to produce or account for more than one such counterpart. / / / / / -25- 16.11. Compliance. The Parties acknowledge that their participation in matters specified herein shall be subject to applicable laws, rules and regulations, including those affecting technology transfer and export controls. 16.12. Registration. DACOM reserves the right, at its expense, to register this Agreement in any jurisdiction. WITNESS the due execution hereof as of the day and year first above written. ORION ASIA PACIFIC CORP. DACOM CORP. By: /s/ By: /s/ -------------------------- ------------------------------- W. Neil Bauer Kwak, Chi-Young Chief Executive Officer Senior Executive Vice President Date: Date: ------------------------- ----------------------------- -26- EXHIBIT A Confidential Treatment has been requested for this entire exhibit. ORION ACCESS PROCEDURES EXHIBIT A Access Procedures for the Orion Satellite System Version: 1.2 11 November 1996 CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PAGES 33 TO 33 OF THIS DOCUMENT. CONTENTS SECTION PAGE - -------------------------------------------------------------------------------- 1.0 INTRODUCTION..............................................................1 2.0 SUMMARY OF PROCEDURES TO ACCESS ORION SATELLITES..........................2 3.0 ORION'S RESPONSIBILITIES..................................................3 3.1 Transmission Plan.......................................................3 3.2 Telephone Contact and Coordintion.......................................4 4.0 RESPONSIBILITIES OF ALL SATELLITE USERS...................................4 4.1 Obtain Contract via Orion Satellite Services Sales......................5 4.2 Schedule Occasional-Use Access via Orion Satellite Services Scheduling Office.......................................................5 4.3 Identify Person Responsible for Uplink..................................5 4.4 Complete and Forward the Earth Station Description Forms to Orion.......5 4.5 Perform Initial Earth Station Performance Verification..................6 4.6 Contact Orion Operations Center when Ready to Initiate Circuit..........7 4.7 Maintain a Log of Transmitted Signals...................................7 4.8 Notify Orion Operations Center prior to Cessation of Transmission.......7 4.9 Retesting Earth Station Performance.....................................8 4.10 Fault Isolation.........................................................8 4.11 Cessation of Transmissio for Anomalous Conditions.......................8 APPENDIX 1: DEFINITIONS.....................................................1-1 APPENDIX 2: EARTH STATION PERFORMANCE REQUIREMENTS..........................2.1 1.0 Scope.................................................................2-1 1.1 Mandatory and Recommended Standards...................................2.1 1.2 Requirements 7 Recommendations for RF Parameters......................2-2 1.3 Frequency Band........................................................2-2 1.4 Frequency Resolution..................................................2-2 1.5 Polarization Angle Steerability.......................................2-2 1.6 Transmit Cross Polarization Isolation.................................2.3 1.7 Receive Cross Polariztion Isolation...................................2-3 1.8 Maximum Emission Levels Outside Allocated Bandwidth...................2-3 1.9 EIRP Stability and Control............................................2-3 1.10 Earth Station Transmitter Termination.................................2-4 1.11 Uplink Power Limits...................................................2-5 1.12 Antenna Transmit Co-Polarized Sidelobe Pattern........................2-5 1.13 Antenna Transmit Cross-Polarized Sidelobe Pattern.....................2-6 1.14 Antenna Receive Co-Polarized Sidelobe Pattern.........................2-7 1.15 Antenna Receive Cross-Polarized Sidelobe Pattern......................2-8 1.16 Pointing Stability....................................................2-8 1.17 Local Control and Monitoring..........................................2-8 APPENDIX 3: EARTH STATION DESCRIPTION FORMS.................................3-1 APPENDIX 4: SPECIFIC STEPS FOR CUSTOMERS ACCESSING THE ORION SATELLITE SYSTEM..........................................................4-1 - -------------------------------------------------------------------------------- Page iii Summary...............................................................4-1 Steps Prior to Access.................................................4-1 Steps to Access the Orion Satellite System............................4-2 - -------------------------------------------------------------------------------- Page iv EXHIBIT B TRANSPONDER PERFORMANCE SPECIFICATIONS EXHIBIT B ORION ASIA PACIFIC TECHNICAL SPECIFICATION FOR DACOM DTH PAYLOAD Issue 2.2 Revised: November 11, 1996 Signed: /s/ Date: On Behalf of Orion Satellite Corporation Signed: /s/ Date: On Behalf of DACOM Corporation EXHIBIT C FORM LETTER OF CREDIT IRREVOCABLE STANDBY LETTER OF CREDIT ISSUANCE DATE: CREDIT NUMBER: Dear Sirs: 1. [Name of issuing Bank] (the "Bank") hereby establishes, in your favor, at the request and for the account of __________________________, a _____________________ corporation at [Address] (the "Paying Party"), the Bank's IRREVOCABLE STANDBY LETTER OF CREDIT NO. __ (this "Letter of Credit), in an amount not to exceed _____________________ United States Dollars (___________ USD) (such amount, as it may be reduced from time to time in accordance with Section 3 hereof, being called the "Maximum Drawing Amount"). This Letter of Credit is being issued pursuant to the JOINT INVESTMENT AGREEMENT dated as of November 11, 1996 (the "Agreement"), between DACOM CORP. and ORION ASIA PACIFIC CORP. This Letter of Credit is effective immediately and will expire at 4:00 p.m., _______ time, on the earlier of (a) the date (the "Surrender Date") upon which ____________ presents to the Bank a certificate in the form of Annex A hereto or (b) __________________________________________________ (the "Expiry Date") (the earlier of the Surrender Date or the Expiry Date being referred to herein as the "Termination Date"). 2. The Bank hereby irrevocably authorizes __________ to draw on the Bank, in accordance with the terms and conditions hereinafter set forth, an amount not in excess of the Maximum Drawing Amount on the date of such drawing (the "Date of Drawing"). 3. The Maximum Drawing Amount shall be modified from time to time as follows: (a) upon payment by the Bank of a drawing hereunder, the Maximum Drawing Amount applicable to each Date of Drawing subsequent to such payment but prior to the first day after the next succeeding Modification Date (as hereinafter defined) shall be automatically reduced by an amount equal to the amount of the drawing so paid. 4. Funds under this Letter of Credit are available to ___________ against presentation of a draft of _____ in the form of Annex B hereto and a certificate signed by ____________ in the form of Annex C hereto. Each such draft and certificate shall be dated the date of presentation and shall be presented at the Bank's office at [beneficiary's country] (telecopy No. ___________). The Bank agrees that, so long as this Letter of Credit is in effect, it will maintain an office in, or an arrangement reasonably satisfactory to ___________ with a paying bank having an office in [beneficiary's country] where such presentation may be made. The aforesaid drafts and certificates shall have all blanks appropriately completed, shall be signed by a person purporting to be an authorized officer of _____________ and shall be either in the form of a letter or a communication by telecopier delivered to the Bank. Any communication by telecopier pursuant to which a drawing is made hereunder shall be promptly confirmed to the Bank in writing. 5. The Bank hereby agrees that all drafts drawn under the terms of this Letter of Credit will be duly honored by the Bank upon delivery, or transmission by telecopier (promptly confirmed in writing), of the draft and the certificate as specified in Section 2 and if presented (by such delivery or transmission) at our aforesaid office on or before 4:00 p.m., ______ time, on the Termination Date. If a drawing is made by _______ hereunder at or prior to 11:00 a.m., _____ time, on a Business Day (as hereinafter defined), and provided that such draft and certificate presented in connection therewith conform to the terms and conditions hereof, payment shall be made of the amount specified in immediately available funds not later than 3:00 p.m., ____________ time, on the same Business Day. If a drawing is made by __________________ hereunder after 11:00 a.m., ____________ time, and provided that such draft and certificate presented in connection therewith conform to the terms and conditions hereof, payment shall be made of the amount specified in immediately available funds not later than ____________ p.m., __________ time, on the next succeeding Business Day. Payment under this Letter of Credit shall be by wire transfer of immediately available funds to the account specified in the the draft. As used in this Letter of Credit, "Business Day" shall mean any day, other than a Saturday, Sunday or other day on which commercial banks in ______________, __________ are authorized by law to close. 6. Upon receipt of a draft and certificate which are not in conformity with terms and conditions of this Letter of Credit, the Bank will promptly (and in any event within one Business Day of such receipt) notify ___________ of such nonconformity and the reason therefor. 7. Multiple drawings may be made hereunder. 8. Only ____________ may make drawings under this Letter of Credit. Upon payments as provided in Section 5 of the amount specified in a draft hereunder, the Bank shall be fully discharged of its obligation under this Letter of Credit with respect to such draft. 9. Should the Expiry Date be a date prior to the time in which [payments] [refunds] covered by this Letter of Credit could potentially be due from the Paying Party under the Agreement, then at least 30 days prior to the Expiry Date, this Letter of Credit shall be replaced with a substitute Letter of Credit in an equal Maximum Drawing Amount. If it is not so replaced, then ____________ may draw upon this Letter of Credit in full. 10. To the extent not inconsistent with the express terms hereof, this Letter of Credit shall be governed by the Uniform Customs and Practice for Documentary Credits -2- (revision effective October 1, 1984) International Chamber of Commerce Publication No. 400. Communications with respect to this Letter of Credit shall be in writing or shall be transmitted by telecopier (promptly confirmed in writing) and shall be addressed to the Bank at ___________________________ (telecopy No. ______________) and shall specifically refer to the number of this Letter of Credit. 11. Any drawing under this Letter of Credit will be paid from the general funds of the Bank and not directly or indirectly from funds or collateral deposited with or for the account of the Bank by or on behalf of the Paying Party, or pledged with or for the account of the Bank will seek reimbursement for payments made pursuant to a drawing under this Letter of Credit only after such payments have been made. 12. This Letter of Credit sets forth in full the Bank's undertaking, and such undertaking shall not in anyway be modified, amended, amplified or limited by reference to any document, instrument or agreement referred to herein, except only Annexes A, B and C, and the notices referred to herein; and any such reference shall not be deemed to incorporate herein by reference any document, instrument or agreement except as set forth above. Very truly yours, [ISSUING BANK] By:_____________________________________ [Title] -3- ANNEX A [ISSUING BANK] [ADDRESS] Attention: Dear Sirs: Reference is made to that certain IRREVOCABLE STANDBY LETTER OF CREDIT bearing Letter of Credit No. __________ dated [Date of Issuance], which has been established by you in favor of ___________________________________________. The undersigned, a duly authorized representative of _____________, hereby surrenders the Letter of Credit for immediate cancellation on behalf of __________________. The Letter or Credit is returned herewith and we request that you cancel the Letter of Credit as of the date hereof. Capitalized terms used herein and not otherwise defined shall have the meanings given to them in the Letter of Credit. _____________________________ By:____________________________________ [Name and Title of Authorized Representative of _____________] ANNEX B [Place] [Date] ON [Business Day of presentation if presented before ll:00 a.m. (_______ time); next Business Day if presented after 11:00 a.m.] PAY TO: ________________________________ US$[not to exceed the Maximum Drawing Amount] DOLLARS [Insert wire instructions] FOR VALUE RECEIVED AND CHARGE TO ACCOUNT OF LETTER OF CREDIT NO. _________ OF ___________________________________ [Issuing Bank] [Address] ________________________ By:___________________________ [Name and Title of Authorized Representative of _____________] ANNEX C CERTIFICATE FOR DRAWING The undersigned, a duly authorized representative of __________________, as a beneficiary under that certain IRREVOCABLE STANDBY LETTER OF CREDIT No. ___________________, dated [the Date of Issuance], established by [Issuing Bank] (the "Bank") (the "Letter of Credit"), hereby certifies as follows: 1. A payment in the amount of US$ _________________________required to be made to _________________________by the Paying Party pursuant to the Agreement is overdue. 2. The aggregate amount of the accompanying draft does not exceed the Maximum Drawing Amount. Capitalized Terms used herein and not otherwise defined herein shall have the meaning given to them in the Letter of Credit. IN WITNESS WHEREOF, each of the undersigned has executed this Certificate as of [Date]. ____________________________ By:________________________________ [Name and Title of Authorized Representative] EXHIBIT D OPERATIONAL REPORT ELEMENTS EXHIBIT D Operational Report Elements The following reports will be provided on a quarterly basis by ORION. 1) Health status of the satellite. o Overall health of the satellite. o Number, frequency and type of maneuvers. o Status of major subsystems. o Number and type of configuration changes. o Fuel state and calculated life expectancy. o Predicted events - eclipses; solar lunar and terrestrial. o Unusual events or anomalies. o Current power bus margins. 2) Status of the DACOM payload. o Transponder status. o TWT status. o Receiver status. o Status of spare equipment. o Number and type of configuration changes. EXHIBIT E LETTER RE ORION WARRANT The portions of this Exhibit for which confidential treatment has been requested are marked by brackets ([ ]). In addition, an asterisk (*) appears in the right hand margin of each paragraph in which confidential information is included. [GRAPHIC OMITTED] ORION Network Systems, Inc. November 11, 1996 Mr. Chi-Young Kwak Senior Executive Vice President DACOM Corporation 140-716 DACOM Bldg. 65-228, 3GA Hangang-Ro, Yongsan-Ku Seoul, Korea Dear Mr. Kwak: In the spirit of cooperation between Orion and Dacom and the execution of the Joint Investment Agreement between our companies, Orion intends, subject to its Board of Directors' approval, to issue a Warrant to Dacom Corporation. This Warrant will entitle Dacom to purchase up to 50,000 shares of Orion Network Systems, Inc. common stock at a price of $14.00 per share. The Warrant will be exercisable for a six (6) month period beginning six (6) months after the Commencement Date, as defined in the Joint Investment Agreement, and ending one (1) year after Commencement Date and will terminate at that time or at any time the Joint Investment Agreement is terminated. We look forward to a successful and rewarding relationship for both companies. Yours truly, /s/ W. Neil Bauer W. Neil Bauer President & CEO 2440 Research Blvd., Suite 400 Rockville, MD 20850 (301) 258-8101 November 11, 1996 Mr. Youn Woo Lee Managing Director, Satellite Communication Business Team DACOM Corporation 140-013 Sungji Bldg. 40-712, 3-Ga, Hangang-Ro Yongsan-Ku, Seoul, Korea Ref: Joint Investment Agreement Dear Mr. Lee As you are aware, today DACOM and Orion Asia Pacific entered into the Joint Investment Agreement for certain specific transponders on the Orion 3 satellite for a period of 13 years. There is some possibility that the Orion 3 lifetime may be extended to one or perhaps two additional years. Therefore, I wish to extend to DACOM the opportunity to acquire the use of the DACOM transponders covered by the Joint Investment Agreement ( the "Agreement") under certain circumstances set forth herein. If Orion determines to operate Orion 3 for a year longer than the Term of the Joint Investment Agreement ( the "First Extended Term"), it shall so notify DACOM at least fourteen (14) months prior to the end of the Term of the Agreement. DACOM shall have an option to continue to use the Transponders for the First Extended Term; provided that not later than twelve (12) months prior to the end of the Term, DACOM shall notify Orion of its election to use all the Transponders then operating in accordance with the Technical Specifications, for the First Extended Term. Ninety (90) days after such notice DACOM shall pay to Orion a cash sum equal to the number of said operating Transponders times _______________________________ ____________________________. If, at any time during the twelve (12) month period of the first Extended Term, any of the Transponders for which DACOM has paid becomes a Transponder Failure and cannot be restored, Orion shall refund to DACOM the amount of ____________________ __________________________________________ times the number of quarters (three (3) month periods) then remaining in the First Extended Term, and DACOM shall surrender the failed Transponder to Orion. If Orion determines to operate Orion 3 for a year longer than the First Extended Term, (the "Second Extended Term"), Orion shall notify DACOM not later than ten (10) days prior to the end of the Term. Not later than the first day of the First Extended Term, DACOM shall notify Orion of its election to use all the Transponders then operating in accordance with the Technical Specifications, for the period of Second Extended Term. Ninety (90) days after such notice DACOM shall pay to Orion a cash sum equal to the number of said operating Transponders times __________________________ ______________________________. If, at any time during the Second Extended Term, any of the Transponders for which DACOM has paid becomes a Transponder Failure and cannot be restored, Orion shall refund to DACOM the amount of ____________________________________ ___________________ times the number of quarters (three (3) month periods) then remaining in the Second Extended Term, and DACOM shall surrender the failed Transponder to Orion. If DACOM does not provide the notices and pay the amounts set forth hereinabove Orion shall be relieved of any obligation to permit DACOM to use the Transponders and Spare Transponders for the applicable Extended Term. If you have any questions regarding the foregoing, please do not hesitate calling. If you concur in the proposed arrangement, please execute a copy of this letter in the space provided. Sincerely, Hans Giner President Orion Asia Pacific I accept the foregoing: November 11, 1996 DACOM Corporation By _________________ Lee, Youn Woo Managing Director, Satellite Communication Business Team EX-10.43 17 EXHIBIT 10.43 Exhibit 1 ORION NETWORK SYSTEMS, INC. NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN ORION NETWORK SYSTEMS, INC., a Delaware corporation (the "Corporation"), sets forth herein the terms of the Non-Employee Director Stock Option Plan (the "Plan") as follows: 1. PURPOSE 1.1 The Plan is intended to attract and retain the best possible members of the Board and to provide additional incentives to those directors to promote the success of the Corporation. The Plan provides Eligible Directors an opportunity to purchase shares of the Stock pursuant to Options. No stock option granted under the Plan is intended to be an "incentive stock option" within the meaning of Section 422 of the Internal Revenue Code of 1986, or the corresponding provision of any subsequently enacted tax statute, as amended from time to time. In addition, the Prior Options are hereby confirmed and incorporated into the Plan. 1.2 The Plan is intended to constitute a "formula plan" and Eligible Directors are intended to be "disinterested administrators" of other plans maintained by the Corporation for purposes of Rule 16b-3 under the Exchange Act. 2. DEFINITIONS For purposes of interpreting the Plan and related documents (including Stock Option Agreements), the following definitions shall apply: 2.1. "Additional Option" means any Option other than an Initial Option or a Prior Option. 2.2. "Administrator" means the Secretary of the Corporation or, as to any State where any other person is registered as an agent of the Corporation for the sale of securities, such other person with respect to such State, or (in either case) such other person as is appointed by the Board to serve as Administrator. 2.3. "Anniversary Date" means the date of the annual meeting of the shareholders of the Corporation at which Directors are elected. 2.4. "Board" means the board of directors of the Corporation. 2.5. "Code" means the Internal Revenue Code of 1986, as amended. 2.6. "Commencement of Service" means the date of election or appointment of an Eligible Director to his or her first term as a Director. 2.7. "Corporation" means Orion Network Systems, Inc., a Delaware corporation. 2.8. "Current Eligible Director" means a member of the Board who is not an officer or employee of the Corporation or any of its subsidiaries and who received a grant of a Prior Option prior to the Effective Date. 2.9. "Effective Date" means the date of adoption of the Plan by the Board. 2.10. "Eligible Director" means a member of the Board who is not an officer or employee of the Corporation or any of its subsidiaries. 2.11. "Exchange Act" means the Securities Exchange Act of 1934, as now in effect or hereafter amended. 2.12. "Exercise Price" means the Option Price multiplied by the number of shares of Stock purchased pursuant to exercise of an Option. 2.13. "Expiration Date" means the fifth anniversary of the Grant Date or, if earlier, the termination of the Option pursuant to Section 4.2(c) hereof. 2.14. "Fair Market Value" means the value of each share of Stock subject to the Plan determined as follows: If on the Grant Date or other determination date the Stock is listed on an established national or regional stock exchange, is admitted to quotation on the National Association of Securities Dealers Automated Quotation System, or is publicly traded on an established securities market, the Fair Market Value of the Stock shall be the average closing price of the Stock on such exchange or in such market over the twenty (20) trading days immediately preceding the Grant Date or other determination date. If there is more than one such exchange or market, then the closing price of the Stock on each day shall be the highest of the multiple closing prices. If the Stock is not listed on such an exchange, quoted on such system or traded on such a market, Fair Market Value shall be determined by the Administrator in good faith. 2.15. "Grant Date" means the date on which an Option grant takes effect pursuant to Section 7 hereof. 2.16. "Initial Option" means an Option received by each Eligible Director as of the Effective Date or thereafter as of an Eligible Director's Commencement of Service. 2.17. "New Eligible Director" means a member of the Board who is not an officer or employee of the Corporation or any of its subsidiaries and who is not a Current Eligible Director. 2.18. "Option" means any option to purchase one or more shares of Stock pursuant to the Plan, including Prior Options, Initial Options, and Additional Options. 2.19. "Optionee" means an Eligible Director who holds an Option. 2.20. "Option Period" means the period during which Options may be exercised as defined in Section 9 hereof. 2.21. "Option Price" means the purchase price for each share of Stock subject to an Option. 2.22. "Prior Option" means each Option to purchase 10,000 shares of Stock granted by the Corporation to each Current Eligible Director prior to the Effective Date. 2.23. "Reelection Date" means the date of election of an Eligible Director to a term as a Director, other than his or her first term. 2.24. "Securities Act" means the Securities Act of 1933, as now in effect or as hereafter amended. 2.25. "Stock" means the Common Stock ($0.01 par value per share) of the Corporation. 2.26. "Stock Option Agreement" means the written agreement evidencing grant of an Option hereunder. 3. ADMINISTRATION The Plan shall be administered by the Administrator. The Administrator's responsibilities under the Plan shall be limited to taking all legal actions necessary to document the Options provided herein, to maintain appropriate records and reports regarding those Options, and to take all acts authorized or required by the Plan. 4. STOCK SUBJECT TO THE PLAN 4.1. There are 80,000 Prior Options that are subject to the Plan. Initial Options and Additional Options to purchase not more than 300,000 shares of Stock may be granted under the Plan (subject to increase as a result of expiration, termination or cancellation of a Prior Option as provided below in this Section). If any Option expires, terminates or is terminated or canceled for any reason before it is exercised in full, the shares of Stock that were subject to the unexercised portion of the Option shall be available for future Options granted under the Plan. If any Prior Option expires, terminates or is terminated or canceled for any reason before it is exercised in full, then additional Initial Options and Additional Options to purchase the number of shares of Stock that were subject to the unexercised portion of the Prior Option may be granted under the Plan. In the aggregate, Options to purchase not more than 380,000 shares of Stock may be granted under the Plan. 4.2(a). If the outstanding shares of Stock are increased or decreased or changed into or exchanged for a different number or kind of shares or other securities of the Corporation by reason of any recapitalization, reclassification, stock split-up, combination of shares, exchange of shares, stock dividend or other distribution payable on capital stock, or other increase or decrease in such shares effected without receipt of consideration by the Corporation, occurring after the Effective Date, the number and kinds of shares for the purchase of which Options may be granted under the Plan shall be adjusted proportionately and accordingly by the Corporation. In addition, the number and kind of shares for which Options are outstanding shall be adjusted proportionately and accordingly so that the proportionate interest of the holder of the Option immediately following such event shall, to the extent practicable, be the same as immediately prior to such event. Any such adjustment in outstanding Options shall not change the aggregate Option Price payable with respect to shares subject to the unexercised portion of the Option outstanding but shall include a corresponding proportionate adjustment in the Option Price per share. 4.2(b). Subject to Section 4.2(c) hereof, if the Corporation shall be the surviving corporation in any reorganization, merger or consolidation of the Corporation with one or more other corporations, any Option theretofore granted pursuant to the Plan shall pertain to and apply to the securities to which a holder of the number of shares of Stock subject to such Option would have been entitled immediately following such reorganization, merger or consolidation, with a corresponding proportionate adjustment of the Option Price per share so that the aggregate Option Price thereafter shall be the same as the aggregate Option Price of the shares remaining subject to the Option immediately prior to such reorganization, merger or consolidation. 4.2(c). Upon the dissolution or liquidation of the Corporation, or upon a merger, consolidation or reorganization of the Corporation with one or more other corporations in which the Corporation is not the surviving corporation, or upon a sale of substantially all of the assets of the Corporation to another corporation, or upon any transaction (including, without limitation, a merger or reorganization in which the Corporation is the surviving corporation) approved by the Board which results in any person or entity owning 80 percent or more of the combined voting power of all classes of stock of the Corporation, the Plan and all Options outstanding hereunder shall terminate, except to the extent provision is made in writing in connection with such transaction for the continuation of the Plan, the assumption of the Options theretofore granted, or for the substitution for such Options of new options covering the stock of a successor corporation, or a parent or subsidiary thereof, with appropriate adjustments as to the number and kinds of shares and exercise prices, in which event the Plan (if applicable) and Options theretofore granted shall continue in the manner and under the terms so provided. In the event of any such termination of the Plan and Options, each individual holding an Option shall have the right immediately prior to the occurrence of such termination and during such period occurring prior to such termination as the Board in its sole discretion shall determine and designate, to exercise such Option to the extent that such Option was otherwise exercisable at the time such termination occurs. The Administrator shall send written notice of an event that will result in such a termination to all individuals who hold Options not later than the time at which the Corporation gives notice thereof to its stockholders. 4.2(d). Adjustments under this Section 4.2 related to stock or securities of the Corporation shall be made by the Administrator, whose determination in that respect shall be final and conclusive. No fractional shares of Stock or units of other securities shall be issued pursuant to any such adjustment, and any fractions resulting from any such adjustment shall be eliminated in each case by rounding downward to the nearest whole share or unit. 4.2(e). The grant of an Option pursuant to the Plan shall not affect or limit in any way the right or power of the Corporation to make adjustments, reclassifications, reorganizations or changes of its capital or business structure or to merge, consolidate, dissolve or liquidate, or to sell or transfer all of any part of its business or assets. 5. ELIGIBILITY Eligibility under the Plan is limited to Eligible Directors. 6. OPTION PRICE The Option Price of the Stock covered by each Option granted under the Plan shall be the greater of the Fair Market Value or the par value of such Stock on the Grant Date. The Option Price shall be subject to adjustment as provided in Section 4.2 hereof. 7. NUMBER OF SHARES AND GRANT DATES 7.1 Each Current Eligible Director has received a Prior Option, granted January 17, 1996 (subject to occurrence of the Effective Date, but with a Grant Date of January 17, 1996). Each Current Eligible Director shall be annually granted an Additional Option to purchase 10,000 shares of Stock as of the day after each Anniversary Date if the Eligible Director continues to be an Eligible Director on the day after such Anniversary Date. 7.2 Each New Eligible Director serving on the Board on the Effective Date and each New Eligible Director whose Commencement of Service is after the Effective Date shall be granted an Initial Option, as of the Effective Date or as of the day after the New Eligible Director's Commencement of Service, respectively, to purchase the number of shares of Stock equal to (i) the number of complete and partial years in the term to which such New Eligible Director was elected or appointed, multiplied by (ii) 10,000. Each New Eligible Director also shall be annually granted an Additional Option to purchase 10,000 shares of Stock as of each of (i) the day after the New Eligible Director's first Reelection Date and (ii) the day after each Anniversary Date after the New Eligible Director's first Reelection Date if the New Eligible Director continues to be a New Eligible Director on the day after such Anniversary Date. 8. VESTING OF OPTIONS The Optionee may exercise each Option granted to such Optionee in installments as follows: on the first Anniversary Date after the date of grant of the Option as set forth in Section 7 above, the Option shall be exercisable in respect of 10,000 shares, and, in the case of an Initial Option which is an Option to purchase of more than 10,000 shares, the Option shall be exercisable in respect of an additional 10,000 shares on the second Anniversary Dates after the date of grant and (if the Initial Option is an Option to purchase of more than 20,000 shares) on the third Anniversary Dates after the date of grant, in each case as set forth in Section 7 above. The foregoing installments, to the extent not exercised, shall accumulate and be exercisable, in whole or in part, at any time and from time to time, after becoming exercisable and prior to the termination of the Option; provided, that no single exercise of the Option shall be for less than 100 shares, unless the number of shares purchased is the total number at the time available for purchase under this Option. Upon the termination of service (a "Service Termination") of the Optionee in all capacities as an employee and/or director of the Corporation and all of its affiliated companies, any Option granted to an Optionee pursuant to the Plan shall terminate to the extent it is not then exercisable, and such Optionee shall have no further right to purchase shares of Stock to the extent of such termination. 9. OPTION PERIOD An Option shall be exercisable only during the Option Period. The Option Period shall commence on the date of grant, as set forth in Section 7 above, and shall end at the close of business on the fifth anniversary of the date of grant. An Optionee shall have no further right to purchase shares of Stock after the end of the Option Period. 10. TIMING AND METHOD OF EXERCISE Subject to Sections 8 and 9 hereof, an Optionee may, at any time, exercise an Option with respect to all or any part of the shares of Stock then subject to such Option by giving the Corporation written notice of exercise, specifying the number of shares as to which the Option is being exercised. Such notice shall be addressed to the Administrator at the Corporation's principal office, and shall be effective when actually received (by personal delivery, fax or other delivery) by the Administrator. Such notice shall be accompanied by an amount equal to the Exercise Price of such shares, in the form of any one or combination of the following: cash or cash equivalents, or shares of Stock valued at Fair Market Value in accordance with the Plan. Shares of Stock acquired by the Optionee through exercise of an Option may be surrendered in payment of the Exercise Price of Options; provided, however, that any Stock surrendered in payment must have been (a) held by the Optionee for more than six months at the time of surrender or (b) acquired under an Option granted not less than six months prior to the time of surrender. Payment in full of the Exercise Price need not accompany the written notice of exercise provided the notice directs that the Stock certificate or certificates for the shares for which the Option is exercised be delivered to a licensed broker acceptable to the Corporation as the agent for the individual exercising the Option and, at the time such Stock certificate or certificates are delivered, the broker tenders to the Corporation cash (or cash equivalents acceptable to the Corporation) equal to the Exercise Price. 11. NO STOCKHOLDER RIGHTS UNDER OPTION Neither an Optionee nor any person entitled to exercise an Optionee's rights in the event of an Optionee's death shall have any of the rights of a stockholder with respect to the shares of Stock subject to an Option except to the extent the certificates for such shares shall have been issued upon the exercise of the Option. 12. CONTINUATION OF SERVICE Nothing in the Plan shall confer upon any person any right to continue as a member of the Board or interfere in any way with the right of the Corporation to terminate such relationship. 13. STOCK OPTION AGREEMENT Each Option granted pursuant to the Plan shall be evidenced by a written Stock Option Agreement notifying the Optionee of the grant and incorporating the terms of the Plan. The Stock Option Agreement shall be executed by the Corporation and the Optionee. 14. WITHHOLDING The Corporation shall have the right to withhold, or require an Optionee to remit to the Corporation, an amount sufficient to satisfy any applicable federal, state or local withholding tax requirements imposed with respect to exercise of Options. To the extent permissible under applicable tax, securities and other laws, the Optionee may satisfy a tax withholding requirement by directing the Corporation to apply shares of Stock to which the Optionee is entitled as a result of the exercise of an Option to satisfy withholding requirements under this Section 14. 15. NON-TRANSFERABILITY OF OPTIONS Each Option granted pursuant to the Plan shall, during Optionee's lifetime, be exercisable only by Optionee, and neither the Option nor any right thereunder shall be transferable by the Optionee by operation of law or otherwise other than by will or the laws of descent and distribution, and shall not be pledged or hypothecated (by operation of law or otherwise) or subject to execution, attachment or similar processes. 16. USE OF PROCEEDS The proceeds received by the Corporation from the sale of Stock pursuant to Options granted under the Plan shall constitute general funds of the Corporation. 17. ADOPTION, AMENDMENT, SUSPENSION AND TERMINATION 17.1. The Plan shall be effective as of the date of adoption by the Board, subject to stockholders' approval of the Plan within one year of the Effective Date by a majority of the votes cast at a duly held meeting of the stockholders of the Corporation at which a quorum representing a majority of all outstanding stock is present, either in person or by proxy, and voting on the matter, or by written consent in accordance with applicable state law and the Certificate of Incorporation and Bylaws of the Corporation and in a manner that satisfies the requirements of Rule 16b-3(b) of the Exchange Act; provided, however, that upon approval of the Plan by the stockholders of the Corporation, all Options granted under the Plan on or after the Effective Date shall be fully effective as if the stockholders of the Corporation had approved the Plan on the Effective Date. If the stockholders fail to approve the Plan within one year of the Effective Date, any Options granted hereunder shall be null, void and of no effect. 17.2. Subject to the limitation of Section 17.4 hereof, the Board may at any time suspend or terminate the Plan, and may amend it from time to time in such respects as the Board may deem advisable; provided, however, the Board shall not amend the Plan in the following respects without the approval of stockholders then sufficient to approve the Plan in the first instance: (a) To materially increase the benefits provided under the Plan; (b) To increase the maximum number of shares which may be granted; (c) To change the designation or class of persons eligible to receive Options under the Plan. 17.3. No Option may be granted during any suspension or after the termination of the Plan, and no amendment, suspension or termination of the Plan shall, without the Optionee's consent, alter or impair any rights or obligations under any Stock Option Agreement previously entered into under the Plan. The Plan shall terminate ten years after the Effective Date unless previously terminated pursuant to Section 4.2 hereof or by the Board pursuant to this Section 17. 17.4. Notwithstanding the provisions of Section 17.2 hereof, the Plan shall not be amended more than once in any six-month period other than to comport with changes in the Code, the Employee Retirement Income Security Act of 1974, or the rules promulgated thereunder. 18. SECURITIES LAWS 18.1. The Corporation shall not be required to sell or issue any shares of Stock under any Option if the sale or issuance of such shares would constitute a violation by the individual exercising the Option or the Corporation of any provisions of any law or regulation of any governmental authority, including without limitation any federal or state securities laws or regulations. Specifically in connection with the Securities Act, upon exercise of any Option, unless a registration statement under the Securities Act is in effect with respect to the shares of Stock covered by such Option, the Corporation shall not be required to sell or issue such shares unless the Administrator has received evidence satisfactory to the Administrator that the holder of such Option may acquire such shares pursuant to an exemption from registration under the Securities Act. Any determination in this connection by the Administrator shall be final and conclusive. The Corporation may, but shall in no event be obligated to, register any securities covered hereby pursuant to the Securities Act. The Corporation shall not be obligated to take any affirmative action in order to cause the exercise of an Option or the issuance of shares pursuant thereto to comply with any law or regulation of any governmental authority. As to any jurisdiction that expressly imposes the requirement that an Option shall not be exercisable unless and until the shares of Stock covered by such Option are registered or are subject to an available exemption from registration, the exercise of such Option (under circumstances in which the laws of such jurisdiction apply) shall be deemed conditioned upon the effectiveness of such registration or the availability of such an exemption. 18.2. The intent of the Plan is to qualify for the exemption provided by Rule 16b-3 under the Exchange Act. To the extent any provision of the Plan does not comply with the requirements of Rule 16b-3, it shall be deemed inoperative and shall not affect the validity of the Plan. In the event Rule 16b-3 is revised or replaced, the Administrator may exercise discretion to modify the Plan in any respect necessary to satisfy the requirements of the revised exemption or its replacement. 19. INDEMNIFICATION 19.1. To the extent permitted by applicable law, the Administrator shall be indemnified and held harmless by the Corporation against and from any and all loss, cost, liability or expense that may be imposed upon or reasonably incurred by the Administrator in connection with or resulting from any claim, action, suit or proceeding to which the Administrator may be a party or in which the Administrator may be involved by reason of any action taken or failure to act under the Plan, and against and from any and all amounts paid by the Administrator (with the Corporation's written approval) in the settlement thereof, or paid by the Administrator in satisfaction of a judgment in any such action, suit or proceeding except a judgment in favor of the Corporation; subject, however, to the conditions that upon the institution of any claim, action, suit or proceeding against the Administrator, the Administrator shall give the Corporation an opportunity in writing, at its own expense, to handle and defend the same before the Administrator undertakes to handle and defend it on the Administrator's own behalf. The foregoing right of indemnification shall not be exclusive of any other right to which such person may be entitled as a matter of law or otherwise, or any power the Corporation may have to indemnify the Administrator or hold the Administrator harmless. 19.2. The Administrator and each officer and employee of the Corporation shall be fully justified in reasonably relying or acting upon any information furnished in connection with the administration of the Plan by the Corporation or any employee of the Corporation. In no event shall any person who is or shall have been the Administrator, or an officer or employee of the Corporation, be liable for any determination made or other action taken or any omission to act in reliance upon any such information, or for any action (including furnishing of information) taken or any failure to act, if in good faith. 20. GOVERNING LAW The validity, interpretation and effect of the Plan, and the rights of all persons hereunder, shall be governed by and determined in accordance with the laws of Delaware, other than the choice of law rules thereof. The Plan was duly adopted and approved by the Board on March 20, 1996 and was duly approved by the stockholders of the Corporation on ________ __, 1996. -------------------------------------- Richard H. Shay Secretary EX-10.45 18 EXHIBIT 10.45 FIRST AMENDMENT TO SECTION 351 EXCHANGE AGREEMENT AND PLAN ---------------------------------------------------------- OF CONVERSION ------------- THIS FIRST AMENDMENT TO SECTION 351 EXCHANGE AGREEMENT AND PLAN OF CONVERSION (this "Amendment") is entered into as of December __, 1996, by and among International Private Satellite Partners, L.P., a Delaware limited partnership ("Orion Atlantic"); Orion Network Systems, Inc., a Delaware corporation ("ONS"); Orion Satellite Corporation, a Delaware corporation ("OrionSat"); and each of the following entities: British Aerospace Communications, Inc., a Delaware corporation, COM DEV Satellite Communications Limited, a Canadian corporation, Kingston Communications International Limited, a company incorporated under the laws of England, Lockheed Martin Commercial Launch Services, Inc., a Delaware corporation, MCN Sat US, Inc., a Delaware corporation, and Trans Atlantic Satellite, Inc., a Delaware corporation (collectively, the "Exchanging Partners") under the Section 351 Exchange Agreement and Plan of Conversion, dated as of June __, 1996, between and among Orion Atlantic, ONS, OrionSat and the Exchanging Partners (the "Exchange Agreement"). WHEREAS, Orion Atlantic, ONS and OrionSat are currently pursuing and will continue to pursue certain financing transactions that were contemplated by the Exchange Agreement, and the parties hereto desire to amend the Exchange Agreement to extend potentially the termination date to provide for the possibility that such financings will not be completed by January 30, 1997 and to refund certain payments. NOW, THEREFORE, for and in consideration of the foregoing and of the mutual covenants and agreements hereinafter set forth, the parties hereto agree as follows: 1. CLOSING TERMINATION DATE EXTENSION The first paragraph of Section 13.1(b) of the Exchange Agreement is hereby amended to read in its entirety as follows: (b) by ONS and OrionSat or by the Exchanging Partners collectively or (as to a particular Exchanging Partner), by such Exchanging Partner, by written notice of termination to the other parties hereto, if the Closing has not occurred by April 30, 1997 (the "Closing Termination Date"); provided, however, that the terminating party is not in breach of any obligations or agreements hereunder that are causing any of the conditions precedent to Closing not to be satisfied. 2. REFUND OF CERTAIN PAYMENTS Section 3.2(c) of the Exchange Agreement is hereby amended by adding, at the end thereof, the following: Notwithstanding the foregoing provisions of this Section 3.2(c), to the extent that amounts are paid by one or more Exchanging Partners (or Affiliates of such Exchanging Partners) (i) pursuant to the Capacity Agreements and which are subject to being refunded under the Refund Agreement ("Firm Capacity Payments") during the Adjustment Period for obligations of such Exchanging Partners (or Affiliates) arising after January 29, 1997 and prior to the Closing Date, and (ii) pursuant to the Contingent Capacity Agreements ("Contingent Capacity Payments") during the Adjustment Period for obligations of such Exchanging Partners (or Affiliates) arising after the date hereof and prior to the Closing Date (collectively, "Payments Subject to Refund"), then if (and only if) ONS or Newco completes a Bond Offering prior to the Closing Termination Date, (x) to the extent that the gross proceeds from the Bond Offering (excluding any amounts required to be set aside or pledged for the purpose of pre-funding interest payments) for ONS or Newco, plus the gross proceeds from the sale of Convertible Subordinated Debentures to BAe and Matra Marconi Space UK Limited ("Matra Marconi Space") or their Affiliates, exceeds the sum of (1) the amounts necessary to effect the Credit Facility Refinancing and all other obligations relating thereto or arising therefrom, including without limitation all principal and accrued interest due with respect to the Credit Facility and all breakage fees and costs arising from termination of the interest rate hedge relating to the Credit Facility, (2) $49.4 million, representing the proposed initial payments to be made by ONS or Newco under the Orion 2 Satellite Contract and related Orion 2 Option Agreement, (3) $13 million, representing the incentive payments that will be payable to Matra Marconi Space or its Affiliates with respect to Orion 1 upon or immediately following the Credit Facility Refinancing, (4) $3.5 million, representing the amounts that will be payable to STET upon or immediately following the Credit Facility Refinancing, (5) an amount reasonably determined by ONS or Newco to be necessary working capital for ONS or Newco to conduct operations following the Bond Offering and other transactions (not to exceed $10 million), and (6) the costs and expenses of the Bond Offering, the Convertible Subordinated Debenture financings and related transactions (not to exceed $14.3 million), the excess (the "Available Funds") shall be used to refund the amounts of the Payments Subject to Refund to the respective Exchanging Partners at the Closing (or, if such excess is not sufficient to refund all of the Payments Subject to Refund to the respective Exchanging Partners, the Available Funds shall be used first to refund Contingent Capacity Payments to the extent of such Available Funds, and second to refund Firm Capacity Payments to the extent of any remaining Available Funds, in each case with partial refunds to be made pro rata among the Exchanging Partners in proportion to their respective applicable -2- Payments Subject to Refund), and amounts so refunded shall not be included in clause (i)(A) of this Section 3.2(c); and (y) any portions of the Payments Subject to Refund not so refunded to the respective Exchanging Partners at the Closing shall be included in clause (i)(A) of this Section 3.2(c) as part of the Adjustment Amounts of such Exchanging Partners. The refund of Available Funds shall be made at or within three business days after the Closing. ONS and Newco shall deliver to the Exchanging Partners simultaneously with such refund a certificate of their respective chief financial officers setting forth in reasonable detail all calculations or computations required or contemplated by this Section 3.2(c), including the amount and application of the Available Funds. ONS and Newco shall provide promptly, to any Exchanging Partner requesting the same, such additional detail supporting such calculations and computations and such back-up or supporting documentation as such Exchanging Partner may reasonably request. 3. TAX ADJUSTMENT Section 3.2(c)(ii) of the Exchange Agreement is hereby amended to read in its entirety as follows: (ii) the product of the number of days in the Adjustment Period through and including (but not beyond) January 29, 1997 multiplied by the Tax Adjustment Factor for such Exchanging Partner, divided by 4. SALE OF CONVERTIBLE SUBORDINATED DEBENTURES Notwithstanding the provisions of Section 5.8 of the Exchange Agreement contemplating that Newco will, as of the Closing Date, complete a Convertible Subordinated Debenture Offering of approximately $100 million, it is presently intended that the Convertible Subordinated Debenture Offering consist only of purchases of $50 million of Convertible Subordinated Debentures by BAe and $10 million of Convertible Subordinated Debentures by Matra Marconi Space, or Affiliates thereof. Accordingly, all references in the Exchange Agreement to the Convertible Subordinated Debenture Offering shall refer only to the $60 million of Convertible Subordinated Debentures to be purchased by BAe and Matra Marconi Space, or Affiliates thereof. While not intended to be legally binding, BAe hereby reconfirms that it or its Affiliates intend to purchase from Newco $50 million of Convertible Subordinated Debentures on terms being negotiated between BAe and ONS, and MCN Sat hereby confirms that Matra Marconi Space or its Affiliates intends to purchase from Newco $10 million of Convertible Subordinated Debentures on terms substantially the same as those ultimately agreed upon by -3- BAe and ONS for the BAe investment. Section 10.8 of the Exchange Agreement is hereby amended to read in its entirety as follows: Newco shall have raised at least $60 million from the sale of Convertible Subordinated Debentures, including the sale of $50 million of Convertible Subordinated Debentures to BAe or its Affiliates and the sale of $10 million of Convertible Subordinated Debentures to Matra Marconi Space or its Affiliates. 5. ELIMINATION OF KINGSTON INVESTMENT IN PPU INTEREST SHARES Section 3.2(d) of the Exchange Agreement is hereby amended to delete such Section in its entirety; Section 3.2(a)(iii) of the Exchange Agreement is hereby amended to delete the language "other than interest paid to Kingston under Section 3.2(d)" in its entirety; Section 3.2(b)(iii) of the Exchange Agreement is hereby amended to delete the language "and PPU Interest Shares calculated as set forth in Section 3.2(d)" in its entirety; the last paragraph of Section 3.2(b) of the Exchange Agreement is hereby amended to replace the language "Section 3.2(b), in Sections 3.2(c) and 3.2(d)" with the language "Section 3.2(b) and in Section 3.2(c); and Section 3.2(c) of the Exchange Agreement is hereby amended to delete the language "other than Kingston (or an Affiliate of Kingston)" in its entirety. 6. ORION 2 SATELLITE CONTRACT Section 9.7 of the Exchange Agreement shall be amended to read in its entirety as follows: The Option Agreement, dated December 10, 1996, between Orion Atlantic and Matra Marconi Space ("Orion 2 Option Agreement"), shall be in full force and effect; Orion Atlantic shall not be in default thereunder; and Orion Atlantic shall have made all payments required to be made thereunder through the earlier of the Closing Date and March 31, 1997. Restated Amendment #10, dated December 10, 1996, to the Second Amended and Restated Purchase Contract, dated as of September 26, 1991, between Orion Atlantic and Matra Marconi Space, as amended, shall be in full force and effect, and Orion Atlantic shall not be in default thereunder. 7. MISCELLANEOUS 7(a) Defined Terms Capitalized terms used in this Amendment and not otherwise defined in this Amendment shall have the meanings provided for in the Exchange Agreement. -4- 7(b) Governing Law This Amendment, the rights and obligations of the parties hereto, and any claims or disputes relating thereto, shall be governed by and construed in accordance with the same laws as govern the Exchange Agreement. 7(c) Counterparts To facilitate execution, this Amendment may be executed in as many counterparts as may be required; and it shall not be necessary that the signatures of, or on behalf of, each party, or that the signatures of all persons required to bind any party, appear on each counterpart; but it shall be sufficient that the signature of, or on behalf of, each party, or that the signatures of the persons required to bind any party, appear on one or more of the counterparts. All counterparts shall collectively constitute a single agreement. It shall not be necessary in making proof of this Amendment to produce or account for more than a number of counterparts containing the respective signatures of, or on behalf of, all of the parties hereto. 7(d) Facsimile Execution To facilitate execution, this Amendment may be executed through the use of facsimile transmission, and a counterpart of this Amendment that contains the facsimile signature of a party, which counterpart has been transmitted by facsimile transmission to each of the other parties hereto at such facsimile numbers as such other parties shall request, shall constitute an executed counterpart of this Amendment. 7(e) Ratification The Exchange Agreement, as amended and modified by this First Amendment, is in all respects ratified and confirmed and the terms, covenants and agreements thereof shall be and remain in full force and effect. The parties executing this First Amendment agree that the Exchange Agreement, as amended and modified by this First Amendment, shall be remain valid and binding upon such parties, notwithstanding the failure of one or more Exchanging Partners to execute this First Amendment and notwithstanding any such non-executing Exchanging Partner seeking to terminate the Exchange Agreement as to such non-executing Exchanging Partner under Section 13.1(b) of the Exchange Agreement after January 30, 1997 and before April 30, 1997. 7(f) Effectiveness of the Amendment This First Amendment to Section 351 Exchange Agreement and Plan of Conversion is being made pursuant to Section 14.5 of the Exchange Agreement -5- which provides that an amendment to the Exchange Agreement shall be valid and binding when set forth in writing and duly executed and delivered by the party against whom enforcement of the amendment is sought. The parties executing this First Amendment agree that this First Amendment shall be valid and binding upon such parties, notwithstanding the failure of one or more Exchanging Partners to execute this First Amendment. -6- IN WITNESS WHEREOF, the undersigned have duly executed this Amendment, or have caused this Amendment to be duly executed on their behalf, as of the day and year first hereinabove set forth. INTERNATIONAL PRIVATE SATELLITE PARTNERS, L.P. By: Orion Satellite Corporation, its general partner By: ----------------------------------- Title: -------------------------------- ORION NETWORK SYSTEMS, INC. By: ----------------------------------- Title: ------------------------------ ORION SATELLITE CORPORATION By: ----------------------------------- Title: ------------------------------- -7- BRITISH AEROSPACE COMMUNICATIONS, INC. By: ----------------------------------- Title: --------------------------------- COM DEV SATELLITE COMMUNICATIONS LIMITED By: ----------------------------------- Title: --------------------------------- KINGSTON COMMUNICATIONS INTERNATIONAL LIMITED By: ----------------------------------- Title: --------------------------------- LOCKHEED MARTIN COMMERCIAL LAUNCH SERVICES, INC. By: ----------------------------------- Title: --------------------------------- MCN SAT US, INC. By: ----------------------------------- Title: --------------------------------- -8- TRANS-ATLANTIC SATELLITE, INC. By: ----------------------------------- Title: --------------------------------- -9- EX-10.51 19 EXHIBIT 10.51 REGISTRATION RIGHTS AGREEMENT THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made and entered into as of __________, 1997, between and among Orion Newco Services, Inc., a Delaware corporation (the "Company"), British Aerospace Holdings, Inc., a Delaware corporation ("BAe"), and Matra Marconi Space UK Limited, a company organized under the laws of England and Wales ("Matra") (together, the "Purchasers"). WHEREAS, the Company proposes to issue and sell to the Purchasers $60,000,000 aggregate principal amount of its Convertible Junior Subordinated Debentures Due February 1, 2012 (Interest Payable in Common Stock) (the "Debentures"), pursuant to the terms of a Debenture Purchase Agreement, dated as of January , 1997 (the "Debenture Purchase Agreement"); WHEREAS, as a condition to the Purchasers' obligations under the Debenture Purchase Agreement, the Company agrees with each of the Purchasers for their benefit and for the benefit of the holders from time to time of the Registrable Securities (as defined herein) whose names appear in the register maintained by the Company's registrar in accordance with the provisions of the Debenture Purchase Agreement (each of the foregoing a "Holder," and collectively the "Holders"), to grant to the Purchasers certain registration rights; WHEREAS, the purchase of the Debentures under the Debenture Purchase Agreement and this Agreement are conditioned upon, among other things, the consummation of the transactions contemplated under the Section 351 Exchange Agreement and Plan of Conversion, dated as of June, 1996, as amended, and as may be further amended from time to time (the "Exchange Agreement"), among Orion Network Systems, Inc., a Delaware corporation ("ONS"), International Private Satellite Partners, L.P., a Delaware limited partnership, Orion Satellite Corporation, a Delaware corporation, and British Aerospace Communications, Inc. ("BAC"); COM DEV Satellite Communications Limited, a Canadian corporation ("COM DEV"); Kingston Communications International Limited, a company incorporated under the laws of England ("Kingston"); Lockheed Martin Commercial Launch Services, Inc., a Delaware corporation ("Lockheed Martin"); MCN Sat US, Inc., a Delaware corporation ("MCN Sat"); and TransAtlantic Satellite, Inc., a Delaware corporation ("TA Sat") (collectively, BAC, COM DEV, Kingston, Lockheed Martin, MCN Sat, and TA Sat are referred to herein as the "Exchanging Partners"). NOW, THEREFORE, in consideration of the premises, the parties hereby consent and agree, as follows: 1. Definitions. ----------- As used in this Agreement, the following capitalized defined terms shall have the following meanings: Business Day: any day other than a Saturday or Sunday or day on which banking institutions in the State of New York are not required to be open. Closing Date: the date of closing of the Company's sale of the Debentures to the Purchasers as contemplated by the Debenture Purchase Agreement. Commission: the Securities and Exchange Commission. ---------- Common Stock: the common stock, par value $.01 per share, of the Company. Company: the meaning set forth in the preamble and shall also include the Company's successors or other parties who succeed to the Company's obligations hereunder. Debentures: the Convertible Junior Subordinated Debentures Due February 1, 2012 (Interest Payable in Common Stock) of the Company. Debenture Purchase Agreement: the meaning set forth in the preamble. ---------------------------- Eligible Series C Securities: the Series C Securities which a holder thereof is permitted to sell under the terms of the Transfer Restrictions Agreements. Exchange Act: the Securities Exchange Act of 1934, as amended from time to time. Exchange Agreement: the meaning set forth in the preamble. ------------------ Exchanging Partner: the meaning set forth in the preamble. ------------------ Holder: any holder of Registrable Securities. ------ Initial Shelf Registrable Securities: Registrable Securities, excluding the shares of Common Stock or other securities issued or issuable upon conversion of the Debentures. Initial Shelf Registration Statement: the Shelf Registration Statement filed by the Company pursuant to Section 2(a). Losses: any losses, claims, damages, liabilities, costs and expenses, including, but not limited to, reasonable attorney's fees. -2- Managing Underwriters: the investment banker or investment bankers and manager ormanagers that shall administer an Underwritten Offering of the securities covered by any registration statement. Market Value: with respect to a specified date, the aggregate closing price of such shares of Common Stock on the principal national stock exchange or automated quotation system upon which the Common Stock is listed or quoted, averaged over a period of twenty (20) consecutive Business Days prior to such date. If during this period the Common Stock is not listed on any securities exchange, quoted on the Nasdaq National Market, or quoted in the over-the-counter market, the Market Value will be the fair value of the Common Stock determined by agreement between the Company and the holders of a majority of the Registrable Securities. If such parties are unable to reach agreement within a reasonable period of time, the fair value of the Common Stock shall be determined by an independent appraiser experienced in valuing such type of consideration jointly selected by the Company and the holders of a majority of the Registrable Securities. The determination of such appraiser shall be final and binding upon the parties, and the fees and expenses of such appraiser shall be borne by the Company. Other Registrable Stock: shares of Common Stock which the Company is obligated to register, or include in a registration statement under the Securities Act, under any Other Registration Rights Agreement. Other Registration Rights Agreement: the following agreements entered into by ONS on or before the date of the Exchange Agreement under which ONS is obligated to register, or include in a registration statement under the Securities Act, shares of capital stock of ONS, and amendments and supplements to any such agreement entered into on or before the date of the Exchange Agreement, in each case as such agreement will be amended prior to the closing under the Exchange Agreement to transfer all of the ONS rights and obligations under each of such agreements to the Company: (i) the Registration Rights Agreement dated as of June 17, 1994, among ONS and the Schedule of Investors set forth therein, as amended (the "Recent PRRAA")); (ii) the Registration Rights Agreement, dated as of April 29, 1994, between ONS and Space Systems/Loral, Inc. (the "SS/L RR Agreement"); and (iii) the Series C Registration Rights Agreement. Person: any individual, partnership, corporation, limited liability company, trust, or unincorporated organization, or a government or agency or political subdivision thereof. Piggyback Registration: the registration by the Company of the Common Stock (whether for its own account or for the account of others) under the Securities Act, other than pursuant to a registration statement filed pursuant to the provisions of Section 2 or Section 3 hereof or a registration of securities in connection with a business acquisition or combination or an employee benefit plan. Proceeding: any action, suit, proceeding or investigation or written threat thereof. -3- Registrable Securities: regardless of who holds such securities at the applicable time, (i)the shares of Common Stock of the Company received by BAe in connection with the purchase by ONS of BAe's interest in Asia Pacific Space and Communications Ltd.; (ii) the shares of Common Stock or other securities issued or issuable upon conversion of the Debentures or issued as interest payments pursuant to the Debenture Purchase Agreement; and (iii) the 86,505 shares of Common Stock issued pursuant to the respective Warrants of ONS dated as of December 20, 1991, granted to BAC, exercised on December 31, 1996; provided, however, that such securities shall cease to be Registrable Securities when a registration statement with respect to the registration of such securities shall have been declared effective under the Securities Act and such securities shall have been disposed of pursuant to such registration statement. Registration Expenses: any and all expenses incident to the filing and effectiveness of each registration statement and performance of or compliance by the Company with this Agreement, including without limitation: (i) all Commission, stock exchange or National Association of Securities Dealers, Inc. ("NASD") registration and filing fees, (ii) all fees and expenses incurred in connection with compliance with state securities or Blue Sky laws (including reasonable fees and disbursements of counsel in connection with Blue Sky qualification of any of the Registrable Securities and the preparation of a Blue Sky memorandum and compliance with the rules of the NASD, (iii) all expenses of any Persons in preparing or assisting in preparing, word processing, printing and distributing any registration statement, any prospectus, any amendments or supplements thereto, any underwriting agreements, securities sales agreements, certificates and other documents relating to the performance of and compliance with this Agreement, (iv) all fees and expenses incurred in connection with the listing of any of the Registrable Securities on any securities exchange or the Nasdaq National Market, (v) the fees and disbursements of counsel for the Company and of the independent public accountants of the Company, including the expenses of any special audits or "cold comfort" letters required by or incident to such performance and compliance, (vi) the reasonable fees and disbursements of one special counsel representing the Holders of Registrable Securities, such special counsel to be selected by the Holders of a majority of the Registrable Securities being registered, (vii) the fees and expenses of a "qualified independent underwriter" if required by Rule 2720(c) of the rules of the NASD in connection with the offering of any of the Registrable Securities, (viii) the fees and expenses of any escrow agent or custodian, and (ix) any fees and disbursements of any Underwriters customarily paid by issuers or sellers of securities and the reasonable fees and expenses of any special experts retained by the Company in connection with any registration statement, but excluding underwriting discounts and commissions and transfer taxes, if any, relating to the sale or disposition of Registrable Securities by a Holder. Registration Period: a period terminating fifteen (15) years following the Closing Date. Securities Act: the Securities Act of 1933, as amended from time to time. Series C Preferred Stock: the Series C 6% Cumulative Redeemable Convertible Preferred Stock of the Company. -4- Series C Registration Rights Agreement: the Registration Rights Agreement dated as of ____________ 1996, among ONS and the Exchanging Partners and as amended through the Closing Date. Series C Securities: the shares of Common Stock or other securities issued or issuable upon conversion of the Series C Preferred Stock purchased by the Exchanging Partners pursuant to the Exchange Agreement or issued as dividends or distributions pursuant to the Certificate of Designations, Rights and Preferences establishing the terms and relative rights and preferences of the Series C Preferred Stock. Shelf Registration: a registration required to be effected pursuant to Section 2(a). Shelf Registration Statement: a "shelf" registration statement of the Company which covers the registration of Registrable Securities on a Form S-3, and all amendments and supplements to such registration statement, including post-effective amendments, in each case including the prospectus contained therein, all exhibits thereto and all material incorporated by reference therein; "Shelf Registration Statement" shall include the Initial Shelf Registration Statement and each Top-up Shelf Registration Statement. Top-up Shelf Registration Statement: the meaning set forth in Section 2(b). Transfer Restriction Agreement: means (i) each agreement, dated on or about the Closing Date, between the Company and any Exchanging Partner and (ii) each subsequent agreement entered into between the Company and any Exchanging Partner, any affiliate thereof, any transferee of Series C Preferred Stock or Common Stock into which such Series C Preferred Stock is converted or which is issued as a dividend on such Series C Preferred Stock or any other party pursuant to the terms of another Transfer Restriction Agreement, in each case which provides for restrictions on transfer of the Series C Preferred Stock or Common Stock into which such Series C Preferred Stock is converted or which is issued as a dividend on such Series C Preferred Stock. Underwriter: each Person who participates as an underwriter of securities in a registered offering under the Securities Act. Underwritten Offering: a sale of Company securities by the Company or a holder of such securities to an Underwriter or Underwriters for reoffering to the public. 2. Shelf Registration. ----------------- 2(a) Filing of Initial Shelf Registration Statement. The Company shall prepare and cause to be filed as soon as practicable after the date that is one hundred eighty (180) days after the Closing Date (but not later than fifteen (15) days thereafter), the Initial Shelf Registration Statement providing for the registration of all of the Initial Shelf Registrable Securities. The Company shall use all its best efforts to have the Initial Shelf Registration Statement declared -5- effective by the Commission as soon as practicable after filing. The Company shall use its best efforts to keep the Initial Shelf Registration Statement continuously effective for the Registration Period, or such shorter period which will terminate when all of the Registrable Securities covered by the Initial Shelf Registration Statement, as amended from time to time pursuant to Section 2(b), have been sold pursuant to the Initial Shelf Registration Statement. Notwithstanding the foregoing, except as set forth below, any Holder who does not provide information reasonably requested by the Company in connection with the Initial Shelf Registration Statement shall not be entitled to have its Registrable Securities included in the Initial Shelf Registration Statement. 2(b) Filing of Subsequent Shelf Registration Statements or Amendments. The Company shall prepare and cause to be filed on or as soon as practicable after the first anniversary of the Closing Date (but no later than ten (10) days thereafter) and as soon as practicable after each of the successive semi-annual interest payment dates provided for in the Debenture Purchase Agreement (but no later than ten (10) days thereafter) an additional Shelf Registration Statement or, at the Company's option, a post-effective amendment to any then- effective Shelf Registration Statement (a "Top-up Shelf Registration Statement") providing for the registration of all of the Registrable Securities comprising shares of Common Stock or other securities issued as interest payments pursuant to the Debenture Purchase Agreement which have not been registered previously. The Company shall also use all reasonable efforts to cause to be filed, as soon as practicable each time after receipt of a written demand from a Holder (but no later than thirty (30) days thereafter), provided, however, that such demand shall not be effective before the first anniversary of the Closing Date or after the end of the Registration Period, an additional Shelf Registration Statement or, at the Company's option, a post-effective amendment to any then-effective Shelf Registration Statement (also a "Top-up Shelf Registration Statement") providing for the registration of any and all of the Registrable Securities each Holder demands to be included in such Top-up Shelf Registration Statement which have not been registered previously. The Company shall use its best efforts to have each such Shelf Registration Statement or post-effective amendment declared effective by the Commission as soon as practicable after filing. The Company shall use its best efforts to keep each Top-up Shelf Registration Statement continuously effective for the Registration Period, or such shorter period which will terminate when all of the Registrable Securities covered by such Top-up Shelf Registration Statement, as amended from time to time pursuant to this Section 2(b), have been sold pursuant to such Top-up Shelf Registration Statement. Notwithstanding the foregoing, except as set forth below, any Holder who does not provide information reasonably requested by the Company in connection with the Top-up Shelf Registration Statement shall not be entitled to have its Registrable Securities included in the Top-up Shelf Registration Statement. 2(c) Effective Registration Statement, Amendments. A Shelf Registration Statement pursuant to this Section 2 will not be deemed to have become effective unless it has been declared effective by the Commission; provided, however that if, after it has been declared effective, the offering of any Registrable Securities pursuant to such registration statement is interfered with by any stop order, injunction or other order or requirement of the Commission or any other governmental agency or court, such registration statement will be deemed not to have become effective, and the Company shall be required to continue to use its best efforts to have such -6- registration statement declared effective. Further, the Company shall, if necessary, supplement or amend each Shelf Registration Statement, if required by the rules, regulations or instructions applicable to the registration form used by the Company for such Shelf Registration Statement or by the Securities Act or by any other rules and regulations thereunder for shelf registration. 2(d) Expenses. The Company shall pay any and all Registration Expenses incident to the filing of each Shelf Registration Statement or otherwise incident to the performance of or compliance by the Company with this Section 2. Each Holder shall pay all underwriting discounts and commissions and transfer taxes, if any, relating to the sale or disposition of such Holder's Registrable Securities pursuant to the Shelf Registration Statement. 3. Demand Registration of Underwritten Offerings. --------------------------------------------- 3(a) Requests for Underwritten Registration. At any time following one hundred eighty (180) days after the Closing Date, one or more Holders may request that the Company effect a registration under the Securities Act of all or any of their Registrable Securities in an Underwritten Offering; provided, however, that, unless the requesting Holder is Matra, the requesting Holders must request registration of Registrable Securities with a Market Value, on the date of such request, of at least $20 million; and provided, further, that if the requesting Holder is Matra, Matra must request registration of Registrable Securities with a Market Value, as of the date of such request, of at least $10 million. Each request for an Underwritten Offering shall specify the approximate number of shares of Registrable Securities requested to be registered and the anticipated per share price range for such offering. Within ten (10) days after receipt of any such request, the Company will give written notice of such requested demand registration to all other Holders and, subject to Section 3(b), will include in any such registration which constitutes an Underwritten Offering satisfying the requirements of this Section 3(a) all Registrable Securities with respect to which the Company has received written requests for inclusion therein within fifteen (15) days after the date the Company's notice is given. 3(b) Priority on Underwritten Offering. If the Managing Underwriters for an Underwritten Offering advise the Company in writing that in their reasonable opinion the aggregate number of Registrable Securities to be included in an Underwritten Offering (together with any other shares of Common Stock which the Company is required to include in such registration) exceeds the number of shares which can be sold in an orderly manner in such offering within a price range acceptable to the holders of a majority of the Registrable Securities and Other Registrable Stock requested to be included in such registration, the Company will include in such registration (i) first, the maximum amount of Registrable Securities requested to be included therein, pro rata among the respective Holders thereof on the basis of the amount of Registrable Securities requested to be included in such registration by each such Holder, and (ii) second, the maximum amount of Other Registrable Stock and any other securities requested to be included therein (including by the Company, subject to Section 3(e)), pro rata among the Company and the holders of such Other Registrable Stock and other securities on the basis of the number of shares requested to be included in such registration by the Company and each such holder, in each case up to the greatest number of shares of Common Stock which in the reasonable opinion of such underwriters can be sold in an orderly manner in the price range of such offering. In no event shall any Other Registrable Stock or any other securities be included in an Underwritten Offering under this Section 3 unless all -7- Registrable Securities requested to be sold in any such offering have been included therein. 3(c) Restrictions on Underwritten Offerings. The Company will not be obligated to effect more than one Underwritten Offering for Holders of Registrable Securities within any twelve (12) month period, except as provided in the following sentence, and will not be obligated to effect an Underwritten Offering for Holders of Registrable Securities at any time before ninety (90) days after the earlier of (i) the date the previous registration statement prepared in connection with an Underwritten Offering for holders of Registrable Securities ceases to be effective or (ii) the date that all shares registered thereunder have been sold. The foregoing limitation on Underwritten Offerings within any twelve (12) month period shall not apply to a single Underwritten Offering with respect to Registrable Securities of any Holder (other than Matra) if the Company effected an Underwritten Offering made at Matra's request within the preceding twelve (12) months or to a single Underwritten Offering requested by Matra if the Company effected an Underwritten Offering with respect to Registrable Securities of any other Holder within the preceding twelve (12) months. 3(d) Selection of Underwriters. The Holders of a majority of the Registrable Securities requested to be included in such Underwritten Offering will have the right to select the Managing Underwriter(s) to administer the offering; provided, first, that if the Company is successful in obtaining the services of one or more Underwriters who have been the Managing Underwriters for an Underwritten Offering of the Company's securities previously, such Underwriters shall be the Managing Underwriter(s) to administer the offering; provided, however, that such Managing Underwriter(s) shall be nationally recognized investment banking firms approved by the Holders, which approval shall not be unreasonably withheld; and provided, second, that if the Company participates in the Underwritten Offering under Section 3(e), such Holders shall obtain the Company's consent with respect to any Managing Underwriter(s) to administer the offering, which consent shall not be unreasonably withheld. 3(e) Inclusion by the Company of its Common Stock in an Underwritten Offering. If the Managing Underwriters for an Underwritten Offering advise the Company in writing that in their opinion the aggregate number of Registrable Securities to be included in an Underwritten Offering (together with any Other Registrable Stock) is less than the number of shares which can be sold in an orderly manner in such offering within a price range acceptable to the holders of a majority of the Registrable Securities and Other Registrable Stock requested to be included in such registration, the Company may include in such registration, on its own behalf, up to the greatest number of shares of Common Stock which in the opinion of such underwriters can be sold (together with the Registrable Securities and Other Registrable Stock requested to be included in such registration) in an orderly manner in the price range of such offering. 3(f) Participation in Underwritten Registrations. Notwithstanding any other provision of this Section 3 to the contrary, no Person may participate in any Underwritten Offering hereunder unless such Person (a) agrees to sell such Person's securities on the basis provided in the applicable underwriting arrangements and (b) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents required under the terms of such underwriting arrangements; provided, however, that no Holder of Registrable Securities included in any Underwritten Offering shall be required to make any representations or warranties to the Company or the underwriters other than representations and warranties regarding such Holder and such Holder's intended method of distribution. -8- 3(g) Expenses of Underwriting Offering. The Company shall pay any and all Registration Expenses incident to the filing of each registration statement or otherwise incident to the performance of or compliance by the Company with this Section 3. Each Holder shall pay all underwriting discounts and commissions and transfer taxes, if any, relating to the sale or disposition of such Holder's Registrable Securities included in the Underwritten Offering. 3(h) Relationship to Shelf Registration. The rights and obligations of the parties hereto under Section 3 shall be in addition to, and not in lieu of, their respective rights and obligations under Section 2. 4. Piggyback Registration Rights. ----------------------------- 4(a) Requests for Piggyback Registration. If at any time following the date of this Agreement, the Company proposes to effect a Piggyback Registration, the Company will give written notice to all Holders of its intention to effect such a registration and, subject to Section 4(b) and Section 4(c), will include in such registration all Registrable Securities with respect to which the Company has received written requests for inclusion therein within fifteen (15) days after the date the Company's notice is given. 4(b) Priority on Primary Registrations. If the proposed Piggyback Registration is an underwritten primary registration on behalf of the Company, and the Managing Underwriters advise the Company in writing that in their opinion the number of securities requested to be included in such registration exceeds the number which can be sold in such offering in an orderly manner within a price range acceptable to the Company, the Company will include in such registration (i) first, the securities the Company proposes to sell and the High Priority Registrable Securities (as defined in the Recent PRRAA), pro rata among the Company and the holders of such High Priority Registrable Securities on the basis of the number of shares requested to be included by the Company and each such holder, (ii) second, any Other Registrable Stock requested to be included therein, pro rata among the holders of such Other Registrable Stock on the basis of the number of shares requested to be included in such registration by each such holder, and (iii) third, the Registrable Securities requested to be included in such registration, pro rata among the Holders thereof on the basis of the amount of Registrable Securities requested to be included by each such Holder, in each case up to the greatest number of shares of Common Stock which in the reasonable opinion of such underwriters can be sold in an orderly manner in the price range of such offering. 4(c) Priority on Secondary Registrations. If a Piggyback Registration is an underwritten secondary registration on behalf of holders of the Company's securities (other than the Registrable Securities), and the Managing Underwriters advise the Company in writing that in their opinion the number of securities requested to be included in such registration exceeds the number which can be sold in such offering without adversely affecting the marketability of the offering, the Company will include in such registration (A) if such registration is on behalf of holders of the Eligible Series C Securities, (i) first, the securities requested to be included in such registration under the Series C Registration Agreement, and (ii) second, the Registrable Securities requested to be -9- included in such registration and any Other Registrable Stock (excluding Eligible Series C Securities) and any other securities requested to be included therein (including by the Company, subject to Section 3(e)), pro rata among such Holders and the holders of such Other Registrable Stock and other securities on the basis of the number of shares requested to be included in such registration by each such holder, in each case up to the greatest number of shares of Common Stock which in the reasonable opinion of such underwriters can be sold in an orderly manner in the price range of such offering; or (B) if such registration is not on behalf of holders of Series C Securities (i) first, the securities requested to be included therein by the holders requesting such registration, and (ii) second, the greatest number of the Registrable Securities, Other Registrable Stock and any other securities requested to be included therein (including by the Company, subject to Section 3(e)), pro rata among such Holders and the holders of such Other Registrable Stock and other securities on the basis of the number of shares requested to be included in such registration by each such holder, in each case up to the greatest number of shares of Common Stock which in the reasonable opinion of such underwriters can be sold in an orderly manner in the price range of such offering. 4(d) Participation in Piggyback Registrations. Notwithstanding any other provision of this Section 4 to the contrary, no Person may participate in any Piggyback Registrations hereunder unless such Person (i) agrees to sell such Person's securities on the basis provided in the applicable underwriting arrangements and (ii) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents required under the terms of such underwriting arrangements; provided, however, that no Holder of Registrable Securities included in any Piggyback Registrations shall be required to make any representations or warranties to the Company or the underwriters other than representations and warranties regarding such Holder and such Holder's intended method of distribution. 4(e) Expenses of Piggyback Registration. The Company shall pay any and all Registration Expenses incident to the filing of each registration statement or otherwise incident to the performance of or compliance by the Company with this Section 4. Each Holder shall pay all underwriting discounts and commissions and transfer taxes, if any, relating to the sale or disposition of such Holder's Registrable Securities included in the Piggyback Registration. 5. Registration Procedures. ----------------------- In connection with the obligations of the Company with respect to a registration statement pursuant to Section 2, Section 3 or Section 4 hereof, the Company shall effect or cause to be effected the registration of the Registrable Securities under the Securities Act to permit the sale of such Registrable Securities by the Holders in accordance with their intended method or methods of distribution, and the Company shall: 5(a) prepare and file with the Commission a registration statement with respect to such Registrable Securities and use its best efforts to cause such registration statement to become effective within the time period required hereunder (provided that before filing a registration statement or prospectus or any amendments or supplements thereto, the Company will furnish to one -10- counsel selected by the holders of 70% of the Registrable Securities (together with any Other Registrable Stock) covered by such registration statement copies of all such documents proposed to be filed, which documents will be subject to the review of such counsel, and the Company will incorporate in such registration statement the reasonable comments of such counsel not inconsistent with the Company's disclosure obligations under applicable securities laws; 5(b) prepare and file with the Commission such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective for the period required hereunder (or if no period is so required, a period of not less than one hundred eighty (180) days or such shorter period which is sufficient to complete the distribution of the securities registered under the registration statement) and comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement during such period in accordance with the intended methods of disposition by the sellers thereof set forth in such registration statement; 5(c) furnish to each seller of Registrable Securities, the Managing Underwriters, if any, and their respective counsel, not less than five (5) Business Days prior to the filing thereof with the Commission, such number of copies of such registration statement, each amendment and supplement thereto, the prospectus included in such registration statement (including each preliminary prospectus) and such other documents as such seller may reasonably request in order to facilitate the disposition of the Registrable Securities owned by such seller and to use its best efforts to reflect in each such document, when so filed with the Commission, such comments as the sellers of Registrable Securities or their counsel shall reasonably propose; 5(d) use its best efforts to register or qualify such Registrable Securities under such other securities or blue sky laws of such jurisdictions as any seller reasonably requests and do any and all other acts and things which may be reasonably necessary or advisable to enable such seller to consummate the disposition in such jurisdictions of the Registrable Securities owned by such seller (provided that the Company will not be required to (i) qualify generally to do business in any jurisdiction where it would not otherwise be required to qualify but for this subparagraph, (ii) subject itself to taxation in any such jurisdiction or (iii) consent to general service of process in any such jurisdiction); 5(e) notify each seller of such Registrable Securities as promptly as practicable in any of the following circumstances: (i) at any time when a prospectus relating thereto is required to be delivered under the Securities Act, of the happening of any event as a result of which the prospectus included in such registration statement contains an untrue statement of a material fact or omits any fact necessary to make the statements therein not misleading, and, at the request of any such seller, the Company will prepare a supplement or amendment to such prospectus so that, as thereafter delivered to the purchasers of such Registrable Securities, such prospectus will not contain an untrue statement of a material fact or omit to state any fact necessary to make the statements therein not misleading; (ii) when a registration statement and any amendment thereto has been filed with the Commission and when the registration statement or any post-effective amendment thereto -11- has become effective; (iii) of any request by the Commission for amendment or supplements to the registration statement or the prospectus included therein or for additional information; (iv) of the issuance by the Commission of any stop order suspending the effectiveness of the registration statement or the initiation of any proceedings for that purpose; and (v) the receipt by the Company of any notification with respect to the suspension of the qualification of the securities included therein for sale in any jurisdiction or the initiation of any proceeding for such purpose; 5(f) cause all such Registrable Securities to be listed on each securities exchange on which similar securities issued by the Company are then listed and, if not so listed, to be listed on the NASD automated quotation system and, if listed on the NASD automated quotation system, use its best efforts to secure designation of all such Registrable Securities covered by such registration statement as a Nasdaq "national market system security" within the meaning of Rule 11Aa2-1 of the Exchange Act or, failing that, to secure Nasdaq authorization for such Registrable Securities and without limiting the generality of the foregoing, to arrange for at least two market makers to register as such with respect to such Registrable Securities with the NASD; 5(g) provide a transfer agent and registrar for all such Registrable Securities not later than the effective date of such registration statement; 5(h) if requested, promptly incorporate in any registration statement or prospectus, if necessary, pursuant to a supplement or post-effective amendment to such registration statement, such information as the Managing Underwriters, if any, or the holders of a majority of Registrable Securities and Other Registrable Securities being registered reasonably request to have included therein and shall make all required filings of such prospectus supplement or post-effective amendment as soon as practicable after the Company is notified of the matters to be incorporated in such prospectus supplement or post-effective amendment. 5(i) enter into such agreements on terms reasonably acceptable to the Company (including underwriting agreements) in form, scope and substance as are customary in underwritten offerings, and take all other reasonable actions necessary to facilitate the registration or the disposition of the Registrable Securities included in any registration statement. 5(j) (i) make reasonably available at reasonable times for inspection by the Holders of Registrable Securities to be registered thereunder, any underwriter participating in any disposition pursuant to such registration statement, and any attorney, accountant or other agent retained by the Holders or such underwriters, at the office where normally kept during normal business hours, all financial and other records, pertinent corporation documents and properties of the Company and its subsidiaries, and cause the Company's officers, directors and employees to supply all relevant information reasonably requested by the Holders, underwriters, attorney, accountant or other agent in connection with the registration statement as is customary for similar due diligence examinations, provided, however, that such persons shall first agree in writing with the Company that any information that is reasonably and in good faith designated by the Company in writing as confidential at the time of delivery of such information shall be kept confidential by such persons; -12- (ii) obtain opinions of counsel to the Company and updates thereof (which counsel, if different from counsel to the Company referred to in the Debenture Purchase Agreement, shall be reasonably satisfactory to the holders of a majority of the Registrable Securities to be registered thereunder, the underwriters, if any, and their respective counsel) addressed to each selling Holder covering such matters in form, scope and substance as are customary in underwritten offerings; (iii) obtain "cold comfort" letters (or, in the case of any person that does not satisfy the conditions for receipt of a "cold comfort" letter specified in Statement on Auditing Standards No. 72, an "agreed-upon procedures letter") and updates thereof from the independent certified public accountants of the Company (and, if necessary, any other independent certified public accountants of any subsidiary of the Company or of any business acquired by the Company for which financial statements and financial data are, or are required to be, included in the registration statement), addressed where reasonably practicable to each selling Holder of Registrable Securities registered thereunder, and the underwriters, if any, in customary form and covering matters of the type customarily covered in "cold comfort" letters in connection with primary underwritten offerings; and (iv) deliver such documents and certificates as may be reasonably requested by the holders of a majority of the Registrable Securities and Other Registrable Securities to be registered and the Managing Underwriters, if any, including those to evidence compliance with Section 5(e). The foregoing actions set forth in clauses (ii), (iii) and (iv) of this Section 5(j) shall be performed at (A) the effectiveness of such registration statement and each post-effective amendment thereto and (B) each closing under any underwriting or similar agreement as and to the extent required thereunder; 5(k) otherwise use its best efforts to comply with all applicable rules and regulations of the Commission; 5(l) use its best efforts to cause such Registrable Securities covered by such registration statement to be registered with or approved by such other governmental agencies or authorities as may be necessary to enable the sellers thereof to consummate the disposition of such Registrable Securities; 5(m) take all such action as may be necessary so that (i) any registration statement and any amendment thereto and any prospectus forming part thereof and any amendment or supplement thereto (and each report or other document incorporated therein by reference in each case) complies in all material respects with the Securities Act and the Exchange Act and the respective rules and regulations thereunder; (ii) any registration statement and any amendment thereto does not, when it becomes effective, contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading; and (iii) any prospectus forming part of any registration statement, and any amendment or supplement to such prospectus, does not include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. 5(n) use its best efforts to prevent the issuance, and if issued to obtain the withdrawal, of any order suspending the effectiveness of any registration statement at the earliest -13- possible time; 5(o) unless any Registrable Securities shall be in book-entry form, cooperate with the Holders to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be sold pursuant to any registration statement free of any restrictive legend and in such permitted denominations and registered in such names as the Holders may request in connection with the sale of Registrable Securities pursuant to such registration statement; and 5(p) use its best efforts to comply with all applicable rules and regulations of the Commission and make generally available to its security holders in a regular filing on Form 10-Q or Form 10-K or otherwise provide in accordance with Section 11(a) of the Securities Act within the period required after the effective date of the applicable registration statement an earnings statement satisfying the provisions of Section 11(a) of the Securities Act and Rule 158 thereof. The Company may require each Holder of Registrable Securities (i) to furnish to the Company such information regarding the proposed distribution by such Holder of such Registrable Securities as the Company may from time to time reasonably request in writing, and (ii) to enter into an underwriting agreement and securities sales agreement in the form contemplated by Section 5(i). Each Holder agrees that, upon receipt of any notice from the Company of the happening of any event of the kind described in Section 5(e) hereof, such Holder will immediately discontinue disposition of Registrable Securities pursuant to a registration statement until such Holder's receipt of the copies of the supplemented or amended prospectus contemplated by Section 5(e) hereof, and, if so directed by the Company, such Holder will deliver to the Company (at the expense of the Company) all copies in its possession, other than permanent file copies then in such Holder's possession, of the prospectus covering such Registrable Securities current at the time of receipt of such notice. If the Company shall give any such notice to suspend the disposition of Registrable Securities pursuant to a registration statement, the Company shall extend the period during which the registration statement shall be maintained effective pursuant to this Agreement by the number of days during the period from and including the date of the giving of such notice to and including the date when the Holders shall have received copies of the supplemented or amended prospectus necessary to resume such dispositions. 6. Hold-Back Agreements. -------------------- 6(a) Restrictions on Public Sale by Holders. By electing to include Registrable Securities in a registration statement filed pursuant to Section 3 or Section 4 hereof, each such Holder of Registrable Securities shall be deemed to have agreed not to effect any public sale or public distribution of securities of the Company of the same or similar class or classes of the securities included in the registration statement or any securities convertible into or exchangeable or exercisable for such securities, including a sale pursuant to Rule 144 or Rule 144A under the Securities Act, during the 15-day period prior to, and during such period of time as may be required by the Underwriters, but not to exceed a 180-day period beginning on, the effective date of the -14- registration statement (except pursuant to the registration statement), except to the extent otherwise agreed in writing by the Managing Underwriter. 6(b) Restrictions on Public Sale by the Company. The Company shall not effect any public sale or public distribution of any securities which are the same as or substantially similar to the Registrable Securities being registered pursuant to a registration statement filed pursuant to Section 3 or Section 4 hereof, or any securities convertible into or exchangeable or exercisable for such securities during the 15-day period prior to, and during the 180-day period beginning on, the effective date of a registration statement (except pursuant to the registration statement). 7. Black-Out Periods for Shelf Registration Statements. --------------------------------------------------- Notwithstanding anything to the contrary in this Agreement, (A) commencing ninety (90) days after the effectiveness of a Shelf Registration Statement, the Company may, not more than once in any 12-month period, and one additional time during the term of this Agreement (but not during any other Suspension Event or within ninety (90) days after termination of any other Suspension Event), direct the Holders to suspend sales of Registrable Securities registered thereunder, as provided herein, if one or more of the following events (a "Suspension Event") occurs: (i) an underwritten primary offering by the Company where the Company is advised by the Managing Underwriter(s) for such offering that sale of Registrable Securities under the Shelf Registration Statement would have a material adverse effect on the primary offering, or (ii) pending negotiations relating to, or consummation of, a material corporate transaction (x) that would require additional disclosure of material information by the Company in the Shelf Registration Statement (or such filings), (y) as to which the Company has a bona fide business purpose for preserving confidentiality and (z) which renders the Company unable to comply with SEC requirements, in each case under circumstances that would make it impractical or inadvisable to cause the Shelf Registration Statement (or such filings) to become effective or to promptly amend or supplement the Shelf Registration Statement on a post-effective basis, as applicable; and (B) the Company may, not more than once during the term of this Agreement, direct the Holders to suspend sales of Registrable Securities registered thereunder, as provided herein, upon the commencement (or such earlier date as may be required by law) of an underwritten secondary offering covering not less than 5,250,000 Series C Securities, with an aggregate minimum Market Value of $75,000,000 (a "Series C Offering Event"). In the case of a Suspension Event, the Company may give notice (a "Suspension Notice") to the Holders to suspend sales of the Registrable Securities so that the Company may correct or update the Shelf Registration Statement (or such filings). Each such suspension shall continue only for so long as the Suspension Event or its effect is continuing, and in no event will any such suspension exceed ninety (90) days. In the case of a Series C Offering Event, the Company may give notice (also a "Suspension Notice") to the Holders to suspend sales of Registrable Securities for so long as the Company reasonably determines is necessary and in no event shall such suspension exceed the date one hundred and eighty (180) days after the close of the Series C Offering Event. The Holders agree that they will not effect any sales of the Registrable Securities -15- pursuant to such Shelf Registration Statement (or such filings) at any time after they have received a Suspension Notice from the Company. If so directed by the Company, Holders will deliver to the Company all copies of the prospectus covering the Registrable Securities held by them at the time of receipt of the Suspension Notice. The Holders may recommence effecting sales of the Registrable Securities pursuant to the Shelf Registration Statement (or such filings) following further notice to such effect (an "End of Suspension Notice") from the Company, which End of Suspension Notice shall, in the case of a Suspension Event, be given by the Company not later than five (5) days after the conclusion of any Suspension Event and shall be accompanied by copies of the supplemented or amended prospectus necessary to resume such sales. In the case of a Series C Offering Event, the holders may recommence effecting sales immediately following the conclusion of the one hundred and eighty (180) day period. Notwithstanding Section 2, if the Company shall give a Suspension Notice pursuant to this Section 7, the Company shall extend the period during which the Shelf Registration Statement shall be maintained effective pursuant to this Agreement by the number of days during the period from the date of the giving of the Suspension Notice to and including the date when the Holders shall have received the End of Suspension Notice and copies of the supplemented or amended prospectus necessary to resume sales. 8. Indemnification. --------------- 8(a) Indemnification by the Company. The Company shall indemnify, to the extent permitted by law, each Holder of Registrable Securities, each Person who controls such Holder (within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act) and their respective officers, directors, partners, employees, agents and representatives, against all Losses caused by any untrue or alleged untrue statement of material fact contained in any registration statement, prospectus or preliminary prospectus or any amendment thereof or supplement thereto or any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which made, not misleading, except insofar as the same are caused by or contained in any information furnished in writing to the Company by such Holder expressly for use therein or by such Holder's failure to deliver a copy of the registration statement or prospectus or any amendments or supplements thereto after the Company has furnished such Holder with a sufficient number of copies of the same and except insofar as the same are caused by or contained in any prospectus if such Holder failed to send or deliver a copy of any subsequent prospectus or prospectus supplement which would have corrected such untrue or alleged untrue statement of material fact or such omission or alleged omission of a material fact with or prior to the delivery of written confirmation of the sale by such Holder after the Company has furnished such Holder with a sufficient number of copies of the same. In connection with an Underwritten Offering, the Company will indemnify such Underwriters, each Person who controls such Underwriters (within the meaning of Section 15 of the Securities Act or Section 20 of the Securities Exchange Act) and their respective officers, directors, partners, employees, agents and representatives to the same extent as provided above with respect to the indemnification of the Holders of Registrable Securities. -16- 8(b) Indemnification by Holders. In connection with any registration statement in which Holders of Registrable Securities are participating, each such Holder will furnish to the Company in writing such information as the Company reasonably requests for use in connection with any such registration statement or prospectus and, to the extent permitted by law, will indemnify the Company, each Person who controls the Company (within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act) and their respective officers, directors, partners, employees, agents and representatives against any Losses arising out of or based upon any untrue or alleged untrue statement of a material fact contained in any registration statement, prospectus, or form of prospectus, or arising out of or based upon any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which made, not misleading, to the extent, but only to the extent, that such untrue or alleged untrue statement is contained in, or such omission or alleged omission is required to be contained in, any information so furnished in writing by such Holder to the Company expressly for use in such registration statement or prospectus and that such statement or omission was relied upon by the Company in preparation of such registration statement, prospectus or form of prospectus; provided, however, that such Holder of Registrable Securities shall not be liable in any such case to the extent that the Holder has furnished in writing to the Company prior to the filing of any such registration statement or prospectus or amendment or supplement thereto information expressly for use in such registration statement or prospectus or any amendment or supplement thereto which corrected or made not misleading, information previously furnished to the Company, and the Company failed to include such information therein. In no event shall the liability of any selling Holder of Registrable Securities hereunder be greater in amount than the dollar amount of the proceeds (net of payment of all expenses) received by such Holder upon the sale of the Registrable Securities giving rise to such indemnification obligation. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of such indemnified party. 8(c) Conduct of Indemnification Proceedings. If any Person shall be entitled to indemnity hereunder such indemnified party shall give prompt notice to the party or parties from which such indemnity is sought of the commencement of any Proceeding with respect to which such indemnified party seeks indemnification or contribution pursuant hereto; provided, however, that the failure to so notify the indemnifying parties shall not relieve the indemnifying parties from any obligation or liability except to the extent that the indemnifying parties have been prejudiced by such failure. The indemnifying parties shall have the right, exercisable by giving written notice to an indemnified party promptly after the receipt of written notice from such indemnified party of such Proceeding, to assume, at the indemnifying parties' expense, the defense of any such Proceeding, with counsel reasonably satisfactory to such indemnified party; provided, however, that an indemnified party or parties (if more than one such indemnified party is named in any Proceeding) shall have the right to employ separate counsel in any such Proceeding and to participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such indemnified party or parties unless the parties to such Proceeding include both the indemnified party or parties and the indemnifying party or parties, and there exists, in the opinion of the parties' counsel, a conflict between one or more indemnifying parties and one or more indemnified parties, -17- in which case the indemnifying parties shall, in connection with any one such Proceeding or separate but substantially similar or related Proceedings in the same jurisdiction, arising out of the same general allegations or circumstances, be liable for the fees and expenses of not more than one separate firm of attorneys (together with appropriate local counsel) at any time for such indemnified party or parties. If an indemnifying party assumes the defense of such Proceeding, the indemnifying, parties will not be subject to any liability for any settlement made by the indemnified party without its or their consent (such consent not to be unreasonably withheld). 8(d) Contribution. If the indemnification provided for in this Section 7 is unavailable to an indemnified party or is insufficient to hold such indemnified party harmless for any Losses in respect of which this Section 8 would otherwise apply by its terms, then each applicable indemnifying party, in lieu of indemnifying such indemnified party, shall have an obligation to contribute to the amount paid or payable by such indemnified party as a result of such Losses, in such proportion as is appropriate to reflect the relative fault of the indemnifying party, on the one hand, and such indemnified party, on the other hand, in connection with the actions, statements or omissions that resulted in such Losses as well as any other relevant equitable considerations. The relative fault of such indemnifying party, on the one hand, and indemnified party, on the other hand, shall be determined by reference to, among other things, whether any action in question, including any untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact, has been taken by, or relates to information supplied by, such indemnifying party or indemnified party, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent any such action, statement or omission. The amount paid or payable by a party as a result of any Losses shall be deemed to include any legal or other fees or expenses incurred by such party in connection with any Proceeding, to the extent such party would have been indemnified for such expenses under Section 8(c), if the indemnification provided for in Section 8(a) or Section 8(b) was available to such party. The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 8(d) were determined by pro rata allocation or by any other method of allocation that does not take account of the equitable considerations referred to in the immediately preceding paragraph. Notwithstanding the provisions of this Section 8(d), an indemnifying party that is a selling Holder of Registrable Securities shall not be required to contribute any amount in excess of the amount by which the net proceeds received by such indemnifying party exceeds the amount of any damages that such indemnifying party has otherwise been required to pay by reasons of such untrue or alleged untrue statement or omission or alleged omission. No person adjudged guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation. 9. Miscellaneous. ------------ 9(a) Amendments and Waivers. The provisions of this Agreement, including the provisions of this sentence, may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given unless the Company has obtained the written consent of the Holders of a majority of the Registrable Securities; provided, however, that -18- no amendment, modification or supplement or waiver or consent to the departure with respect to the provisions of Section 2, Section 3, Section 4, Section 7, or Section 8 hereof shall be effective as against any Holder of Registrable Securities unless consented to in writing by such Holder of Registrable Securities. 9(b) Notices. All notices and other communications provided for or permitted hereunder shall be made in writing by hand-delivery, registered first-class mail, telex, telecopier, or any courier guaranteeing overnight delivery (i) if to a Holder, at the most current address given by such Holder to the Company by means of a notice given in accordance with the provisions of this Section 9(b) (ii) if to the Company, at 2440 Research Boulevard, Suite 400, Rockville, MD 20850, Attention: General Counsel, and thereafter at such other address, notice of which is given in accordance with the provisions of this Section 9(b). All such notices and communications shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; five business days after being deposited in the mail, postage prepaid, if mailed; when answered back, if telexed; when receipt is acknowledged, if telecopied; and on the next business day if timely delivered to an air courier guaranteeing overnight delivery. 9(c) Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the successors, assigns and transferees of each of the parties, including, without limitation and without the need for an express assignment, subsequent Holders. If any successor, assignee or transferee of any Holder shall acquire Registrable Securities, in any manner, whether by operation of law or otherwise, such Registrable Securities shall be held subject to the terms of this Agreement, and by taking and holding such Registrable Securities such Person shall be entitled to receive the benefits hereof and shall be conclusively deemed to have agreed to be bound by all of the terms and provisions hereof. Notwithstanding the foregoing, only Matra, as a Holder of Registrable Securities, may request an Underwritten Offering pursuant to Section 3(a) with respect to Registrable Securities with a Market Value, as of the date of such request, of less than $20 million. 9(d) Counterparts. This Agreement may be executed in any number of counterparts and by the parties hereto in, separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. 9(e) Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. 9(f) Governing Law; Consent to Jurisdiction. THIS AGREEMENT AND THE DUTIES AND OBLIGATIONS OF THE PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF DELAWARE, WITHOUT GIVING EFFECT TO THE CONFLICTS OF LAW PROVISIONS THEREOF. EACH OF THE PARTIES HERETO AGREES TO SUBMIT TO THE NON-EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF DELAWARE IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT. -19- 9(g) Severability. In the event that any one or more of the provisions contained herein, or the application thereof in any circumstance, is held invalid, illegal or unenforceable, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions contained herein shall not be affected or impaired thereby. 9(h) Specific Performance. The parties hereto acknowledge that there would be no adequate remedy at law if any party fails to perform any of its obligations hereunder, and accordingly agree that each party, in addition to any other remedy to which it may be entitled at law or in equity, shall be entitled to compel specific performance of the obligations of any other party under this Agreement in accordance with the terms and conditions of this Agreement in any court of the United States of America or any State thereof having jurisdiction. 9(i) Entire Agreement. This Agreement is intended by the parties as a final expression of their agreement and intended to be a complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein. This Agreement supersedes an prior oral or written agreements, commitments or understandings between the parties with respect to the matters provided for herein. -20- IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. ORION NEWCO SERVICES, INC. By: ------------------------------- Name: Title: BRITISH AEROSPACE HOLDINGS, INC. By: ------------------------------- Name: Title: MATRA MARCONI SPACE UK LIMITED By: -------------------------------- Name: Title: -21- EX-21.1 20 EXHIBIT 21.1 EXHIBIT 21.1 ORION SUBSIDIARIES LIST ----------------- Orion Network Systems, Inc.* Orion Satellite Corporation International Private Satellite Partners, L.P. OrionNet, Inc. Orion Asia Pacific Corporation Asia Pacific Space and Communications, Ltd. Orion Atlantic Europe, Inc. OrionNet Finance Corporation - --------------- *The issuer of the Units is a newly-formed Delaware corporation presently named Orion Newco Services, Inc. The issuer will become the parent holding company of the existing public company, Orion Network Systems, Inc. ("Old ONSI"), and will change its name to Orion Network Systems, Inc., at which time Old ONSI will change its name to_____________________. EX-23.1 21 EXHIBIT 23.1 EXHIBIT 23.1(A) CONSENT OF INDEPENDENT AUDITORS We consent to the references to our firm under the captions "Summary: The Merger - - Certain Federal Income Tax Consequences of the Merger," "Summary: The Exchange - - Conditions to Closing," "The Merger, The Exchange and the Debenture Investments: Background of the Merger Transactions and the Debenture Investments," "The Merger, The Exchange and the Debenture Investments: The Merger Agreement - Conditions to Obligations to Effect the Merger," "The Merger, The Exchange and the Debenture Investments: The Exchange Agreement - Results of the Exchange - Conditions to the Exchange," "The Merger, The Exchange and the Debenture Investments: Certain Federal Income Tax Consequences," and "Experts" and to the use of our report dated February 9, 1996, included in the Proxy Statement of Orion Network Systems, Inc. that is made a part of the Registration Statement (Form S-4 No. 333-xxxxx) and Prospectus of Orion Network Systems, Inc. dated January 14, 1997. ERNST & YOUNG LLP Washington, D.C. January 10, 1997 EX-23.3 22 EXHIBIT 23.3 [Draft--01/06/97] Consent of Salomon Brothers Inc ------------------------------- We hereby consent to the use of our name and the description of our opinion letter, dated December 10, 1996, under the caption "THE MERGER AND THE EXCHANGE--Opinion of Orion's Financial Advisor" in, and to the inclusion of such opinion letter as Attachment C to, the Proxy Statement/Prospectus of Orion Network Systems, Inc., which Proxy Statement/Prospectus is part of the Registration Statement on Form S-4 (file number - ) of Orion Newco Services, Inc. By giving such consent we do not thereby admit that we are experts with respect to any part of such Registration Statement within the meaning of the term "expert" as used in, or that we come within the category of persons whose consent is required under, the Securities Act of 1933, as amended, or the rules and regulations of the Securities and Exchange Commission promulgated thereunder. SALOMON BROTHERS INC By________________________________ Managing Director New York, New York January _____, 1997 EX-99.2 23 EXHIBIT 99.2 ATTACHMENT D SALOMON BROTHERS December 10, 1996 Orion Network Systems, Inc. 2440 Research Boulevard Suite 400 Rockville, MD 20850 Dear Sirs: You have requested our opinion, as investment bankers, as to the fairness, from a financial point of view, to Orion Network Systems, Inc. ("Orion"), of the consideration to be paid by Orion in connection with the Exchange (as defined below). Pursuant to a Section 351 Exchange Agreement and Plan of Conversion (the "Exchange Agreement") with Orion Satellite Corporation, a Delaware corporation that is a wholly owned subsidiary of Orion ("OrionSat") and the sole general partner of International Private Satellite Partners, L.P., a Delaware limited partnership ("Orion Atlantic"), and each of the existing limited partners of Orion Atlantic other than Orion (the "Exchanging Partners"), Orion has agreed, among other things, to have Orion Newco Services, Inc., a newly formed Delaware corporation with a certificate of incorporation, bylaws, capital structure (before the issuance of the Newco Preferred Stock defined below) and management substantially identical in all material respects to those of Orion ("Orion Newco"), issue 121,988 shares of Orion Newco's Series C 6% Cumulative Redeemable Convertible Preferred Stock (the "Newco Preferred Stock") in exchange for the Exchanging Partners' limited partnership interests in Orion Atlantic and other rights relating thereto (the "Exchange"). The Exchange is intended to qualify as tax-free under Section 351 of the Internal Revenue Code of 1986, as amended. As a result of the Exchange, Orion Newco will become the owner of all the partnership interests in Orion Atlantic (through Orion Newco and Orion as limited partners and OrionSat as the sole general partner of Orion Atlantic). In addition, Orion Newco will acquire certain rights currently held by the Exchanging Partners, including rights to receive repayment of various advances (aggregating approximately $37.6 million at September 30, 1996) made to Orion Atlantic. The 121,988 shares of Newco Preferred Stock expected to be issued in the Exchange will be convertible into approximately 6.9971 million (assuming a closing of the Exchange as of January 30, 1997; the number of shares will increase if the closing occurs after that date) shares of common stock, par value $.01 per share, of Orion Newco ("Orion Newco Common Stock"). We understand that concurrently with, and as a condition to, the consummation of the Exchange, (i) Orion Newco intends to consummate financings (the "Financings") consisting of (a) notes and warrants with expected net proceeds of approximately $250 million to refinance the indebtedness of Orion Atlantic outstanding under the existing Credit Agreement dated December 6, 1991 among Orion Atlantic, the banks named therein and Chase Manhattan Bank (National Association), as agent (the "Orion 1 Credit Facility"), and to release Orion's and the Exchanging Limited Partners' (including their respective affiliates) existing commitments and guarantees supporting the Orion 1 Credit Facility, (b) the issuance and sale of approximately $50 million of Orion Newco's convertible subordinated debentures to British Aerospace Public Limited Company, an affiliate of one of the Exchanging Partners and (c) the execution by Orion or one of its affiliates of an amendment to the satellite procurement contract with Matra Marconi Space U.K. Limited for the Orion 2 satellite, which was entered into in July 1996 and is expected to include an agreement by the manufacturer to commence construction of the Orion 2 satellite based upon a $40 million initial payment, and (ii) a wholly-owned subsidiary of Orion Newco will be merged with and into Orion in a tax-free reorganization (the "Merger"). We have not been asked to express an opinion, and we do not express any opinion, with regard to the Financings or the Merger. In arriving at our opinion, we have reviewed certain publicly available business and financial information relating to Orion, as well as certain other information, including financial projections, provided to us by Orion. We have discussed the past and current operations and financial condition and prospects D-1 of Orion and Orion Atlantic with members of the respective senior management of such entities. We have also considered such other information, financial studies, analyses, investigations and financial, economic, market and trading criteria which we deemed relevant. We have assumed and relied on the accuracy and completeness of the information reviewed by us for the purpose of this opinion and we have not assumed any responsibility for independent verification of such information or for any independent evaluation or appraisal of the assets of Orion or Orion Atlantic. With respect to Orion's and Orion Atlantic's financial projections, we have assumed that they have been reasonably prepared on bases reflecting the best currently available estimates and judgments of Orion's and Orion Atlantic's management, as the case may be, as to the future financial performance of such entity, and while we express no opinion with respect to such forecasts or the assumptions on which they are based, we have relied on management's assumption that the Financings will occur concurrently with the Exchange. Our opinion is necessarily based upon business, market, economic and other conditions as they exist on, and can be evaluated as of, the date of this letter and does not address Orion's underlying business decision to effect the Exchange or constitute a recommendation to any holder of Orion common stock as to how such holder should vote with respect to the Merger or the Exchange. Our opinion as expressed below does not imply any conclusion as to the likely trading range for the Orion Newco Common Stock following the consummation of the Exchange, which may vary depending on, among other factors, changes in interest rates, dividend rates, market conditions, general economic conditions and other factors that generally influence the price of securities. We have acted as financial advisor to the Board of Directors of Orion in connection with the Exchange and will receive a fee for our services, part of which was paid upon execution by Orion of the engagement agreement with respect to the Exchange, part of which is payable upon the initial submission of this opinion and the remainder of which is payable upon consummation of the Financings. In the ordinary course of our business, we actively trade the securities of Orion for our own account and for the accounts of customers and, accordingly, may at any time hold a long or short position in such securities. Based upon and subject to the foregoing, it is our opinion as investment bankers that, as of the date hereof, the consideration to be paid in the Exchange is fair, from a financial point of view, to Orion. Very truly yours, SALOMON BROTHERS INC D-2 EX-99.3 24 EXHIBIT 99.3 REVOCABLE PROXY ORION NETWORK SYSTEMS, INC. THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS The undersigned stockholder of Orion Network Systems, Inc. (the "Corporation") hereby appoints John G. Puente, W. Neil Bauer, David J. Frear and Richard H. Shay, or any of them, attorneys and proxies of the undersigned, with full power of substitution and with authority in each of them to act in the absence of the other, to vote and act for the undersigned stockholder at the Special Meeting of Stockholders to be held at 9:00 a.m., local time, on January 30, 1997, at 2440 Research Boulevard, Suite 400, Rockville, Maryland, and at any adjournments thereof, upon the following matters: Proposal 1: Ratification of the Agreement and Plan of Merger, dated as of January 8, 1997, among Orion Network Systems, Inc. ("Orion"), Orion Newco Services, Inc. ("Orion Newco"), a newly formed Delaware corporation, and Orion Merger Company, Inc., a newly formed Delaware corporation and a wholly owned subsidiary of Orion Newco, and the transactions contemplated thereby. [ ] FOR [ ]AGAINST [ ] ABSTAIN Proposal 2: Approval and adoption of the Section 351 Exchange Agreement and Plan of Conversion, dated as of June 1996, as amended, among Orion, Orion Satellite Corporation, a Delaware corporation that is a wholly owned subsidiary of Orion and the sole general partner of International Private Satellite Partners, L.P., a Delaware limited partnership ("Orion Atlantic"), and each of the existing limited partners of Orion Atlantic other than Orion, and the transactions contemplated thereby. [ ] FOR [ ]AGAINST [ ] ABSTAIN Proposal 3: Approval of the Debenture Investments, among Orion, Orion Newco and each of British Aerospace Holdings, Inc. and Matra Marconi Space UK Limited. [ ] FOR [ ]AGAINST [ ] ABSTAIN This proxy will be voted as directed by the undersigned stockholder. IF NO DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED FOR PROPOSALS 1, 2 AND 3. In addition, this proxy may be voted upon such other business as may properly come before the Special Meeting or any adjournments or postponements thereof as may be determined by a majority of the Corporation's Board of Directors.The undersigned stockholder may revoke this proxy at any time before it is voted by delivering to the Secretary of the Corporation either a written revocation of the proxy or a duly executed proxy bearing a later date, or by appearing at the Special Meeting and voting in person. The undersigned stockholder hereby acknowledges receipt of notice of the Special Meeting and Proxy Statement/Prospectus dated January 5, 1997 and hereby revokes any proxy or proxies heretofore given. If you receive more than one proxy card, please sign and return all cards in the accompanying envelope. (Continued and to be dated and signed on reverse side) (Continued from other side) PLEASE MARK, DATE AND SIGN THIS PROXY AND RETURN IT PROMPTLY TO ENSURE A QUORUM AT THE SPECIAL MEETING. IT IS IMPORTANT WHETHER YOU OWN FEW OR MANY SHARES. DELAY IN RETURNING YOUR PROXY MAY SUBJECT ORION TO ADDITIONAL EXPENSE. Date: , 1997 (Signature of Stockholder or Authorized Representative) (Print name) Please date and sign exactly as name appears hereon. Each executor, administrator, trustee, guardian, attorney-in-fact and other fiduciary should sign and indicate his or her full title. In the case of stock ownership in the name of two or more persons, both persons should sign. [ ] I PLAN TO ATTEND THE JANUARY 30, 1997 SPECIAL STOCKHOLDERS MEETING -----END PRIVACY-ENHANCED MESSAGE-----