-----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, Tv+fMPkmX1hF+ZpCC+ziXFqZmk+/J+XcgB7Jq/iR6imtnBSJ5Ne2iqB365nddxTn 5XdI7m/6zJDaOc5alDFDag== 0001005150-99-000268.txt : 19990405 0001005150-99-000268.hdr.sgml : 19990405 ACCESSION NUMBER: 0001005150-99-000268 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990331 DATE AS OF CHANGE: 19990402 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ORION NETWORK SYSTEMS INC/NEW/ CENTRAL INDEX KEY: 0001029850 STANDARD INDUSTRIAL CLASSIFICATION: 3663 IRS NUMBER: 522008654 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 333-19167 FILM NUMBER: 99586716 BUSINESS ADDRESS: STREET 1: 2440 RESEARCH BLVD STE 400 CITY: ROCKVILLE STATE: MD ZIP: 20850 BUSINESS PHONE: 3012588101 MAIL ADDRESS: STREET 1: 2440 RESEARCH BLVD STREET 2: SUITE 400 CITY: ROCKVILLE STATE: MD ZIP: 20850 FORMER COMPANY: FORMER CONFORMED NAME: ORION NEWCO SERVICES INC DATE OF NAME CHANGE: 19961231 10-K 1 FORM 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998 Commission file number 0-22085 --------- LORAL ORION, INC. ---------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 52-2008654 - - ------------------------------------ -------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 2440 Research Boulevard, Suite 400, Rockville, Maryland 20850 ------------------------------------------------------------- (Address of principal executive offices ) 301-258-8101 -------------------------------------------------- (Registrant's telephone number, including area code) Securities registered pursuant to Section 12 (b) of the Act: ------------------------------------------------------------ None ---- Securities registered pursuant to Section 12 (g) of the Act: ------------------------------------------------------------ 11 1/4% Senior Notes Due 2007 12 1/2% Senior Discount Notes Due 2007 (Title of Class) ---------------- Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No_ - - --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [Not Applicable] The number of shares of common stock, par value $.01 per share of the registrant outstanding as of March 15, 1999 was 100, all of which were owned, directly or indirectly by Loral Space & Communications Ltd. THE REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION I (1)(a) AND (b) OF FORM 10-K AND IS THEREFORE FILING WITH THE REDUCED DISCLOSURE FORMAT PURSUANT TO GENERAL INSTRUCTION I (2) OF FORM 10-K. DOCUMENTS INCORPORATED BY REFERENCE ----------------------------------- None PART I ITEM 1. BUSINESS. GENERAL Loral Orion, Inc. ("Orion" or the "Company"), formerly known as Orion Network Systems, Inc. prior to its acquisition by Loral Space & Communications Ltd. ("Loral") on March 20, 1998, is a rapidly growing provider of satellite-based communications services, providing Satellite Capacity Services, including video distribution and other satellite transmission services and Data Network Services, including managed data network services, Internet services and broadband data services. Orion believes that demand for satellite-based communications services will continue to grow due to the expansion of businesses beyond the limit of wide bandwidth terrestrial infrastructure, accelerating demand for high speed data and broadband multimedia services, and for Internet and intranet services, especially outside the United States, increased size and scope of television programming distribution, worldwide deregulation of telecommunications markets and continuing technological advancement. Satellites are able to provide reliable, high bandwidth services anywhere in their coverage areas, and Orion believes that it is well positioned to satisfy market demand for these services. Orion commenced operations of Orion 1, a high power Ku-band satellite with 34 Ku-band transponders, in January 1995. Orion 1 provides coverage of 34 European countries, most 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 most European countries, portions of the United States and a limited number of Latin American countries. The Orion 1 satellite's 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. Orion 2, which will be a high power satellite with 38 Ku-band transponders for operation in the Atlantic Ocean Region, will expand Orion's European coverage and extend coverage to portions of the Commonwealth of Independent States, Latin America, the Middle East and South Africa. Orion 2 is being constructed by Space Systems/Loral, Inc., a wholly owned subsidiary of Orion's parent, Loral Space & Communications Ltd. Orion has established an early market presence in Latin America in preparation for the launch of Orion 2 scheduled to occur in the third quarter of 1999. Orion 3, which will be a high power satellite with 33 Ku-band transponders and 10 C-band transponders, will cover broad areas of the Asia Pacific region, including China, Japan, Korea, India, Southeast Asia, Australia, New Zealand, Eastern Russia and Hawaii. Orion 3's footprint will provide Orion with the ability to provide its services between the United States via Hawaii and most of the Asia Pacific region. Orion has also established an early market presence in Asia, including entering into an $89 million contract with DACOM Corporation ("DACOM") for eight of Orion 3's transponders. Orion 3 is scheduled to be launched in April 1999. In the aggregate, the footprints of Orion 1, Orion 2 and Orion 3 will cover over 85 percent of the world's population. BUSINESS SEGMENTS Fixed Satellite Services Orion provides transmission capacity to cable and television programmers, news and information networks, telecommunications companies and other carriers for a variety of applications. A majority of Orion's transmission capacity services consist of video services. The Company generally offers transmission capacity services under long term contracts and also offers occasional use services for periods of up to a few hundred hours. Data Services Very Small Aperture Terminal ("VSAT") Services. Orion's Digital Link service 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. Dynalink is a service that allows the customer with occasional bandwidth requirements to control the activation and deactivation of links within a "point-to-point" or "point-to-multipoint" network. Orion's patented international data networking service, "Virtual Integrated Sky Network" ("VISN") is a fully meshed, frame relay-based satellite network service that dynamically consolidates the full range of voice and data applications through a single access point. The service provides seamless connectivity, not merely from a central point to up to 254 remote sites, but also among the remote locations. 2 Internet Services. Orion offers a family of innovative Internet/intranet solutions, responding to international Internet Service Providers' (ISPs) and multinational corporations' bandwidth and quality of service concerns. Orion's WorldCast (patent pending) family of services are designed to provide cost-effective, high-performance connectivity to ISPs, content providers, carriers and multinational businesses needing access to the North American Internet backbone. WorldCast is a multicast satellite communications technology that takes advantage of the broadcast nature of satellites and the asymmetric nature of Internet traffic. Worldcast can be configured to provide a hybrid solution of terrestrial connectivity for small requests sent to the Internet and a satellite connection for the larger, high-bandwidth files sent from the Internet. ACQUISITION OF THE COMPANY BY LORAL On March 20, 1998, Orion was acquired by Loral Space & Communications Ltd. ("Loral"), through the merger (the "Merger") of a wholly owned subsidiary of Loral, Loral Satellite Corporation, with and into Orion. Loral consummated the acquisition by issuing 18 million shares of its common stock and assuming existing Orion vested options and warrants to purchase 1.4 million shares of Loral common stock representing an aggregate purchase price of $472.5 million. Orion was the surviving corporation of the Merger and thereby became a subsidiary of Loral. At the effective date of the Merger, Loral contributed its investment in Orion to Loral Space & Communications Corporation, a wholly owned subsidiary of Loral, and Orion changed its name to "Loral Orion Network Systems, Inc." The name has since been changed to "Loral Orion, Inc." Following the Merger, the capital stock of Orion ceased to be publicly traded. However, the Company continues to have registered bonds outstanding and will continue to have filing requirements with the SEC. The foregoing description of the Merger does not purport to be complete and is qualified in its entirety by the terms and conditions of the Merger Agreement, filed as Exhibits 2.1 and 2.2 to Registration Statement No. 333-46407 on Form S-4. AGREEMENTS WITH LORAL SKYNET Orion and Loral Skynet, a division of Loral SpaceCom Corporation, which is in turn a wholly-owned subsidiary of Loral, have entered into agreements (the "Loral Skynet Agreements") effective on January 1, 1999, whereby Loral Skynet provides to Orion (i) marketing and sales of Satellite Capacity Services on the Orion satellite network and related billing and administration of customer contracts for those services (the "Sales Services") and (ii) telemetry, tracking and control services for the Orion satellite network (the "Technical Services", and together with the Sales Services, the "Services"). Orion will be charged Loral Skynet's costs for providing these services plus a 5 percent administrative fee. Loral Skynet currently provides the Services for its own Telstar satellite network and Technical Services for other third parties. Orion believes that it will achieve cost savings as a result of the consolidation of the Services with Loral Skynet pursuant to the Loral Skynet Agreements and allow Orion to place greater resources and focus on its business of providing Data Services. SUMMARY SATELLITE DATA The following table presents a brief description of the Company's proposed satellite network. All satellite systems are subject to international frequency coordination requirements and must obtain appropriate authority to provide service in a given territory.
ORION 1 ORION 2 ORION 3 ------- ------- ------- Region Covered................... Europe, Southeastern Eastern U.S., Southeastern Canada China, Japan, Korea, India, Canada, U.S., East of the Europe, Commonwealth of Independent Hawaii, Southeast Asia, Rockies and parts of States, Middle East, North Africa, Latin Australia, New Zealand, Mexico America and South Africa Eastern Russia and Oceania Expected Launch.................. Operational(1) Third quarter of 1999 April 1999 Satellite Manufacturer........... MMS Space Systems Space Systems/Loral Hughes Space (subsidiary of Matra Marconi Space) Transponders(2).................. 34 38 43 Ku-Band(3)....................... 28@0054 MHz 38@0054 MHz 23@0054 MHz 6@0036 MHz 2@0027 MHz 8@0036 MHz (4) C-Band(5)........................ -- -- 10@0036 MHz Usable Bandwidth(6).............. 1728 MHz 2052 MHz 1944 MHz EIRP(7).......................... 47 to 52 dBW 47 to 50 dBW 44 to 52 for Ku-Band; 34 to 38 for C-band returns Total Prime Power(8) ............ 4500 Watts 7000 Watts 8000 Watts Expected End of Useful Life(9)... 2005 2012 2013 Approximate Percentage of World Population Covered by Satellite(10).................... 17.9% 27.0% 57.0%
(1) Orion 1 was launched on November 29, 1994 and commenced commercial operations on January 20, 1995. (2) Satellite transponders receive signals up from earth stations and then convert, amplify and transmit the signals back down to other earth stations. (3) Ku-band frequencies are higher than C-band frequencies and are used worldwide for commercial satellite communications. (4) Orion has entered into a contract with DACOM under which Orion will provide eight dedicated transponders on Orion 3 for direct-to-home television service and other satellite services, provided that Orion 3 is delivered in orbit and fully operational by June 30, 1999. (5) C-band frequencies minimize interference from atmospheric conditions such as rain. C-band satellites share frequencies with terrestrial based microwave systems and therefore require more on-ground coordination to avoid interference problems and generally are lower power, requiring the use of large earth stations to receive signals. A portion of Orion 3 is designed to transmit over C-band frequencies, since Orion 3 is to cover areas of Asia where satellite signals experience significant interference from rain during several months of the year. (6) Bandwidth is a measure of the transponder resource which determines the information carrying capacity. The actual information carrying capacity of a transponder is determined by a combination of the transponder's bandwidth and radio-frequency ("RF") power. (7) Equivalent isotropic radiated power ("EIRP") is a measure of the RF power of each transponder. Smaller and less expensive earth terminal antennas can be used with higher EIRP transponders. 4 (8) Total prime power is the total amount of power that is required to support all of the communications and electronics functions of the satellite. (9) The expected end of a satellite's in-orbit useful life is based on the period during which the satellite's on board fuel permits proper station keeping maneuvers for the satellite. The information for Orion 1 is based on 1998 fuel level estimates. The information for Orion 2 and Orion 3 is based on their expected launch dates and their respective construction and launch contracts. (10) The approximate percentages of world population covered or to be covered by the Orion satellites are not additive. In the aggregate, the footprints of the Orion satellites would cover over 85 percent of the world's population. INSURANCE Orion has obtained satellite in-orbit insurance for Orion 1 covering the period from August 1998 to August 2003 in an amount of approximately $195 million providing protection against partial or total loss of the satellite's communications capability, including loss of transponders, power, fuel, or ability to control the positioning of the satellite. Orion is in the process of obtaining launch and in-orbit life insurance for Orion 2 and Orion 3 covering the period from launch to five years after launch in an amount of $261,404,000 for Orion 2 and up to $265,606,000 for Orion 3. This coverage provides protection against partial or total loss of the satellite's communications capability, including loss of transponders, power, fuel or ability to control the positioning of the satellite. 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. EMPLOYEES As of December 31, 1998, Orion and its subsidiaries had 305 full-time employees, none of whom are subject to collective bargaining agreements. CERTAIN FACTORS THAT MAY EFFECT FUTURE RESULTS This annual report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. In addition, from time to time, the Company or its representatives have made or may make forward-looking statements, orally or in writing. Such forward-looking statements may be included in, but are not limited to, various filings made by the Company or Loral with the Securities and Exchange Commission, press releases or oral statements made by or with the approval of an authorized executive officer of the Company or Loral. Actual results could differ materially from those projected or suggested in any forward-looking statements as a result of a wide variety of factors and conditions, including, but not limited to, the factors summarized below. LAUNCH FAILURES MAY DELAY SOME OF OUR OPERATIONS IN THE FUTURE. Satellite launches are risky. About 15% of launch attempts end in failure. We ordinarily insure against launch failures, but at considerable cost. The cost and the availability of insurance vary depending on market conditions and the launch vehicle used. Our insurance typically does not cover business interruption, and so both launch failures and in-orbit satellite failures result in uninsured losses. Replacement of a lost satellite typically requires up to 18 months from the time a contract is executed until the launch date of the replacement satellite. Orion 3 is currently scheduled to be launched on the second flight of a Delta 3 rocket in April 1999. A Delta 3 rocket failed in August 1998 on its maiden flight. Although the manufacturer has assured us that the cause of that failure has been identified and corrected, we can't be certain that the second flight will succeed. AFTER LAUNCH, OUR SATELLITES REMAIN VULNERABLE TO IN-ORBIT FAILURE. Random failure of satellite components may result in damage to or loss of a satellite before the end of its expected life. Satellites are carefully built and tested and have certain redundant systems in case of failure. However, in-orbit failure may result from the various causes, including they remain vulnerable to failure and degradation from hazards in space that include: 5 o component failure; o loss of power or fuel; o inability to control positioning of the satellite; o solar and other astronomical events; and o space debris. Repair of satellites in space is not feasible. Many factors affect the useful lives of satellites. These factors include the quality of construction, gradual degradation of solar panels and the durability of components. Our Orion 2 and Orion 3 are expected to have useful live of approximately 16 years and 15 years, respectively. At December 31, 1998, Orion 1 has a remaining useful life of 7 years. Although some failures may be covered in part by insurance, they may result in uninsured losses as well. In November 1995, a component on Orion 1 malfunctioned, resulting in a 2-hour service interruption. The malfunctioning component supported nine transponders serving the European portion of Orion 1's footprint. Full service was restored using a back-up component. If that back-up component fails, Orion 1 would lose a significant amount of usable capacity. IMPACT OF A DELAY IN THE LAUNCH OR OPERATIONS OF ORION 3 DACOM has agreed to buy eight transponders on Orion 3 for $89 million. If Orion 3 is not launched by May 31, 1999, or if the related transponders are not ready for operation by June 30, 1999, DACOM can terminate the agreement. If DACOM were to terminate its transponder agreement with us due to a delay in the launch or operation of Orion 3, we will have to refund amounts received from DACOM ($35.5 million as of December 31, 1998), we may not have enough cash to pay our debt. WE HAVE SUBSTANTIAL DEBT. We have approximately $933 million of outstanding debt. Our debt is non-recourse to Loral. If our business plan does not succeed, our operations might not generate enough cash to pay our obligations. Our business is capital intensive. We are subject to substantial financial risks from possible delays or reductions in revenue, unforeseen capital needs or unforeseen expenses. Our ability to satisfy our obligations will depend upon our future financial performance which is subject to: o the successful execution of our business plan; o general economic conditions; and o financial, business, regulatory and other factors, including international conditions. These factors are to some extent beyond our control. THERE ARE RISKS IN CONDUCTING BUSINESS INTERNATIONALLY. Much of our business is conducted outside the United States, which imposes more risks. We could be harmed financially and operationally by changes in foreign regulations and telecommunications standards, tariffs or taxes and other trade barriers. Customers outside of the developed world could have difficulty in obtaining the U.S. dollars they owe us, as a result of exchange controls. Additionally, exchange rate fluctuations may adversely affect the ability of our customers to pay us in U.S. dollars. Moreover, if we ever need to pursue legal remedies against our foreign customers and business partners, we may have to sue them abroad, where it could be hard for us to enforce our rights. OUR BUSINESS IS REGULATED, CAUSING UNCERTAINTY AND ADDITIONAL COSTS. Our business is regulated by authorities in more than 100 jurisdictions, including the FCC, the International Telecommunications Union and the European Union. As a result, some of the activities which are important to our strategy are beyond our control. The proposed launch and operation of Orion 2 and Orion 3 and our international service offerings are strategically important activities which are regulated by various government and quasi-government authorities and organizations. 6 Regulatory authorities in the various jurisdictions in which we operate can modify, withdraw or impose charges or conditions upon the licenses which we need, and so increase our cost of doing business. The regulatory process also requires that we negotiate with third parties operating or intending to operate satellites at or near orbital locations where we place our satellites so that the frequencies of the satellites do not interfere. Because we cannot guarantee the results of negotiations with third parties, "frequency coordination" is an additional source of uncertainty. We cannot guarantee successful frequency coordination for our satellites. In particular, we have learned that Eutelsat, which may claim a priority filing with the International Telecommunications Union, has recently placed a satellite that is beyond its useful life at 12.5(0) W.L, near the 12(0) W.L. orbital location intended for Orion 2. If Eutelsat launches a replacement satellite into the 12.5(0) W.L. orbital location, it would interfere with the Orion 2 satellite at 12(0) W.L. We have entered into discussions with Eutelsat to resolve the issues relating to this orbital location, however, we cannot guarantee a successful resolution. Failure to successfully coordinate our satellites' frequencies or to receive other required regulatory approvals could have a material adverse effect on our financial condition and on our results of operations. WE HAVE MANY COMPETITORS. We compete with well-capitalized companies. These companies have considerable financial resources, which they may use to gain advantages in marketing and in technological innovation. This could have a material adverse effect on our financial condition and on our results of operations. Each of our businesses is subject to intense competition, including from: o several of the world's largest corporations, such as Hughes Space & Communications, Inc., a subsidiary of General Motors Corporation, and Lockheed Martin Corporation; o governments and quasi-government organizations, such as Intelsat and Eutelsat; o companies with competitive services, such as PanAmSat Corporation; and o others using alternative technologies, such as terrestrial telecommunications and cable television, who are constantly pursuing advanced technologies in order to enhance their competitive positions. We compete for customers and for market share. We also compete for local regulatory approval in places in which both we and a competitor may want to operate. We also compete for scarce frequency assignments and geosynchromous orbital positions. IMPACT OF YEAR 2000 The Company is evaluating the potential effect of the year 2000 on its information processing systems. It is not known at this time what modifications, if any, will be required. All costs associated with any modification will be expensed as incurred. The Company's Year 2000 Program is proceeding on schedule. The Year 2000 Issue is the result of computer programs which were written using two digits rather than four to signify a year (i.e., the year 1999 is denoted as "99" and not "1999"). Computer progra ms written using only two digits may recognize the year 2000 as the year 1900. This could result in a system failure or miscalculations causing disruption of operations. The Company has implemented a Year 2000 program (the "Year 2000 Program") for its internal products, system and equipment, as well as for key vendor and customer supplied products, systems and equipment. As part of the Year 2000 Program, the Company is assessing the Year 2000 capabilities of, among other things, its satellite, ground equipment, research and development activities, and facility management systems. The Year 2000 Program consists of the following phases: Inventory of Year 2000 items, Assessment (including prioritization), Remediation (including modification, upgrading and replacement), Testing and Auditing. This five-step program is divided into six major sections covering both information and non-information technology systems: 1) business systems, 2) technical systems, 3) products and services, 4) imbedded hardware/firmware, 5) vendor supplied products and 6) customer provided products. As of February 28, 1999, the Company has completed approximately 95 percent of the inventory phase and approximately 95 percent of its assessment phase. The Company expects to complete the first four phases, through the testing phase, of the Year 2000 Program during the third quarter of 1999, which is prior to any anticipated material impact on the operations of the Company. The fifth phase, the audit phase, commenced in January 1999, and is expected to continue through the third quarter of 1999 to accommodate re-audits if necessary. 7 Both internal and external resources are being utilized to execute the Company's plan. The program to address Year 2000 has been underway since July 1997. The incremental costs incurred to date for this effort by the Company were approximately $50,000. Based on the efforts of the Company to date, the Company anticipates additional incremental expenses of approximately $165,000 will be incurred to substantially complete the effort. Based upon the accomplishments to date, no contingency plans are expected to be needed. As risks are identified, contingency plans will be developed and implemented as necessary. However, because of the progress achieved to date and the Company's expectations that its Year 2000 program will be substantially complete in the third quarter of calendar 1999, the Company believes adequate time will be available to insure alternatives can be developed, assessed and implemented prior to a Year 2000 issue having a material negative impact on the operations of the Company. However, there can be no assurance that such modifications and conversions, if required, will be completed on a timely basis. The cost of the program and the dates on which the Company believes it will substantially complete Year 2000 modifications are based on management's best estimates. Such estimates were derived using software surveys and programs to evaluate calendar date exposures and numerous assumptions of future events, including the continued availability of certain resources, third-party year 2000 readiness and other factors. Because none of these estimates can be guaranteed, actual results could differ materially and adversely from those anticipated. Specific factors that might cause an adjustment of costs are: number of personnel trained in this area, the ability to locate and correct all relevant computer codes, the ability to validate supplier certification and similar uncertainties. The Company's failure to remediate a material Year 2000 problem could result in an interruption or failure of certain basic business operations. These failures could materially and adversely effect the Company's results of operations, liquidity and financial condition. The Company is also assessing the Year 2000 readiness of key third-party suppliers. Information requests have been distributed to such suppliers and replies are being evaluated. If the risk is deemed material, on-site visits to suppliers will be conducted to verify the adequacy of the information received. However, due to the general uncertainty of the Year 2000 problem, including uncertainty with regard to third-party suppliers and customers, the Company is unable to determine at this time whether the consequences of Year 2000 failures will have an adverse material impact on the Company's results of operations, liquidity or financial condition. There can be no assurance given that the Company's Year 2000 Program will be successful in avoiding any interruption or failure of certain basic business operations, which may have a material adverse effect on the Company's results of operations or financial position. THERE ARE RISKS REGARDING FORWARD-LOOKING STATEMENTS. Some statements or information contained in this Form 10-K are not historical facts but are "forward-looking statements" (as such term is defined in the Private Securities Litigation Reform Act of 1995). They can be identified by the use of forward-looking words such as "believes", "expects", "plans", "may", "will", "should", or "anticipates" or their negatives or other variations of these words or other comparable words, or by discussions of strategy that involve risks and uncertainties. Some of the factors which may cause future results and performance to differ from what we may imply here are: o the space environment, where our satellites operate, is a harsh environment; o governments may change regulations or institute new rules, which could have an impact on our operations; o we may not successfully coordinate satellite frequencies with third parties; o there is severe competition in our business; and o we owe significant amounts of money. We warn you that forward-looking statements are only predictions. Actual events or results may differ materially as a result of risks that we face, including those set forth elsewhere in this section. These are representative of factors that could affect the outcome of the forward-looking statements. ITEM 2. PROPERTIES. Loral Orion owns seven acres of land in Mt. Jackson, Virginia and leases approximately 78,000 square feet for office space and its operations center. Management believes that the facilities are sufficient for its current operations. 8 ITEM 3. LEGAL PROCEEDINGS. While Orion is party to legal and 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. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. Omitted pursuant to General Instruction I of Form 10-K. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. All of the Company's outstanding common stock is owned by Loral Space & Communications Corporation, a wholly owned subsidiary of Loral. Therefore, there is no public trading market for the Company's common stock. The Company has never paid dividends on its common stock. Loral Orion's indentures relating to its Senior Notes and Senior Discount Notes include certain restrictions on Loral Orion's ability to pay dividends or make loans to Loral. ITEM 6. SELECTED FINANCIAL DATA. Omitted pursuant to General Instruction I of Form 10-K. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Except for the historical information contained herein, the matters discussed in this Management's Discussion and Analysis of Financial Condition and Results of Operations, and elsewhere in this Form 10-K, are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. In addition, from time to time, Loral Orion, Loral or their representatives have made or may make forward-looking statements, orally or in writing. Such forward-looking statements may be included in, but are not limited to, various filings made by Loral Orion or Loral with the Securities and Exchange Commission, press releases or oral statements made by or with the approval of an authorized executive officer of Loral Orion or Loral. Actual results could differ materially from those projected or suggested in any forward-looking statements as a result of a wide variety of factors or conditions. GENERAL Loral Orion, Inc. (the "Company" or "Loral Orion"), formerly known as Loral Orion Network Systems, Inc., is a holding company with no assets or operations other than its investments in its subsidiaries. Through the operations of its subsidiary Guarantors, the Company's principal business is providing satellite-based communications services for private communications networks and video distribution and other satellite transmission services. In 1998, Loral Orion organized its business into two distinct operating segments as follows (see Note 8 to the consolidated financial statements): Fixed Satellite Services: Leasing transponder capacity and providing value-added services to customers for a wide variety of applications, including the distribution of broadcast programming, news gathering, business television, distance learning and direct-to-home ("DTH") services. The Company's fixed satellite services ("FSS") assets, will be managed by Loral Skynet effective January 1, 1999, and Data Services: Business in development, providing managed communications networks and Internet and intranet services, using transponder capacity on the Loral Skynet Telstar and Loral Orion fleets. No restrictions exist on the ability of any of the subsidiaries of Loral Orion ("Subsidiary Guarantors") other than inconsequential subsidiaries, to pay dividends or make other distributions to the Company, except to the extent provided by law generally (e.g., adequate capital to pay dividends under state corporate laws). 9 LORAL ORION, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) OVERVIEW The Company's revenues are principally generated from two to five year contracts for delivery of communications services derived principally from recurring monthly fees from its customers. The revenues from each contract vary, depending upon the type of service, amount of capacity, data handling ability of the network, the number of very small aperture terminals ("VSATs") (which generally are owned by the Company), value-added services and other factors. Substantially all of the Company's contracts are denominated in U.S. dollars. The Company begins to record revenues under its contracts upon service commencement to customers. The services provided by the Company have been subject to decreasing prices over recent years due to increased competition. This pricing pressure is expected to continue (and may accelerate) for the foreseeable future, particularly if, as expected, capacity continues to increase. The Company will need to increase its volume of sales in order to compensate for such price reductions. The Company believes that customers will increase the data speed 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. The Company expects to continue to incur net losses and have negative cash flow (after payments for capital expenditures and interest) for the foreseeable future. The Company'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); (iii) in-orbit insurance premiums; and (iv) personnel costs and travel related to telemetry, tracking and control facility ("TT&C"), network monitoring, network design and similar activities. Regarding TT&C costs, the Company and Loral Skynet, a division of Loral SpaceCom Corporation, which is in turn a wholly-owned subsidiary of Loral, have entered into agreements (the "Loral Skynet Agreements") effective on January 1, 1999, whereby Loral Skynet provides to Orion (i) marketing and sales of satellite capacity services on the Orion satellite network and related billing and administration of customer contracts for those services (the "Sales Services") and (ii) telemetry, tracking and control services for the Orion satellite network (the "Technical Services", and together with the Sales Services, the "Services"). Orion will be charged Loral Skynet's costs for providing these services plus a 5 percent administrative fee. Loral Skynet currently provides the Services for its own Telstar satellite network and Technical Services for other third parties. Orion believes that it will achieve cost savings as a result of the consolidation of the Services with Loral Skynet pursuant to the Loral Skynet Agreements and allow Orion to place greater resources and focus on the business of providing Data Services, which will increase as the Company's business grows. Sales and marketing expenses consist of salaries, sales commissions (including commissions to third party sales representatives), travel and promotional expenses. The Company commenced a significant expansion of its marketing program in 1997 which continued in 1998. Due to the complexity of the Company's services, and the continued expansion of sales personnel, sales and marketing expenses increased significantly during 1998. Sales and marketing expenses are expected to decrease in 1999 as a result of the Services agreement with Skynet. General and administrative expenses consist of personnel costs other than for selling and engineering and include information systems, professional services, and occupancy costs. These costs will increase generally as the Company's operations expand. Depreciation and amortization expenses result mainly from the depreciation of the Orion 1 satellite, amortization of goodwill and other intangibles and the depreciation of VSATs and the related equipment to service the expansion of the private network communication services business. Interest income is primarily the result of interest earned on the proceeds from the Company's debt and equity offerings. Interest costs stem primarily from the Company's outstanding Senior Notes and Senior Discount Notes. ORION 2 AND ORION 3 Orion 2. During the second quarter of 1998, the Company entered into a satellite procurement contract with Space Systems/Loral ("SS/L"), a wholly owned subsidiary of Loral SpaceCom Corporation for the construction and launch of the Orion 2 satellite for operation in the Atlantic Ocean region at 12(degree) W.L. (the "SS/L Contract"). The SS/L Contract provides for delivery in-orbit of the Orion 2 aboard an Ariane 44L launch vehicle in the third quarter of 1999. The SS/L satellite design provides for 38 Ku-band transponders with a footprint covering the Eastern United States, Southeastern Canada, Europe, the Commonwealth of Independent States, the Middle East, North and South Africa and South America. The Company also notified Matra Marconi Space ("Matra") that it cancelled its satellite procurement contract with Matra for the construction and launch of a satellite for operation in the Atlantic Ocean region at 12(degree) W.L. (the "Matra Contract"). As a result of the cancellation of the Matra Contract, the Company will have no obligation to make further payments to Matra, but Matra retained amounts previously paid by the Company of $49.1 million. 10 LORAL ORION, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) The Company believes that the Orion 2 satellite being procured from SS/L offers significant benefits compared to the Matra satellite. Orion's cash will be used to fund the SS/L Contract up to an amount that when added to the amounts previously paid to Matra, will not exceed $202 million, the total amount that would otherwise have been due to Matra if the Matra Contract had not been canceled. Any requirements to SS/L in excess of $202 million for Orion 2 will be funded with additional equity contributed from Loral. Moreover, the SS/L-designed satellite is both larger and more powerful than the Matra-designed satellite. The SS/L satellite will have 8 additional transponders and will provide greater transmitted power to Orion's customers. The expected in-orbit life of the SS/L satellite is approximately 16 years compared to 13 years for the Matra satellite. The SS/L satellite is designed to provide enhanced transponder switching capabilities as compared to the Matra satellite and also allows for both uplinking and downlinking of transmissions from South Africa, while the Matra satellite would not have allowed for uplinking. Orion 3. The Company entered into a satellite contract with Hughes Space and Communications International, Inc. in 1997 for the construction and launch of Orion 3. The contract provides for delivery in orbit of Orion 3 for a firm fixed price of $203 million excluding launch insurance. Orion 3 will cover broad areas of the Asia Pacific region including China, Japan, Korea, Southeast Asia, Australia, New Zealand, Eastern Russia and Hawaii. Pre-Construction Sale of Transponders on Orion 3. The Company has entered into a contract with DACOM Corporation, a Korean communications company ("DACOM"), under which DACOM will, subject to certain conditions, purchase eight dedicated transponders on Orion 3 for 13 years, in return for approximately $89 million, payable over a period from December 1996 through seven months following the lease commencement date for the transponders. Payments are subject to refund if Orion 3 fails to commence commercial operation by June 30, 1999. Through December 31, 1998, the Company has received $35.5 million from DACOM, including interest earned on the investment of these payments of $1.5 million. Satellite Launch and Operation Risk. There can be no assurance that Orion 2 or Orion 3 will be successfully launched or operate in accordance with their design. While the Company intends to procure launch insurance for the satellites, a total or partial loss of either satellite will involve delays and loss of revenue which will impair the Company's ability to service its indebtedness and such insurance will not protect the Company against business interruption, loss or delay of revenues or similar losses and may not fully reimburse the Company for its expenditures. RESULTS OF OPERATIONS On March 20, 1998, Orion Network Systems, Inc. ("Orion") was acquired by Loral Space & Communications Ltd. ("Loral"), through the merger (the "Merger") of a wholly owned subsidiary of Loral, Loral Satellite Corporation ("Merger Sub"), with and into Orion. Loral consummated the acquisition by issuing 18 million shares of its common stock and assuming existing Orion vested options and warrants to purchase 1.4 million shares of Loral common stock representing an aggregate purchase price of $472.5 million. Orion was the surviving corporation (the "Surviving Corporation") of the Merger and thereby became a wholly owned subsidiary of Loral. At the effective date of the Merger, Loral contributed its investment in Orion to Loral Space & Communications Corporation, a wholly owned subsidiary of Loral, and Orion changed its name to "Loral Orion Network Systems, Inc." The name has since been changed to "Loral Orion, Inc." Following the Merger, the capital stock of Loral Orion ceased to be publicly traded. However, the Company continued to have registered bonds outstanding and will continue to have filing requirements with the SEC. For accounting purposes, the Merger was accounted for as of March 31, 1998 using the purchase method. Accordingly, the consolidated balance sheet at December 31, 1998 reflects the push-down of the purchase price allocations. The purchase price represented $447.7 million in excess of Orion's net book value, which was primarily allocated to costs in excess of net assets acquired of $619.7 million and a fair value adjustment of $153.4 million to increase the carrying value of Orion's senior notes and senior discount notes. 11 LORAL ORION, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Acquisition of Teleport Europe GmbH. On March 26, 1997, the Company acquired German-based Teleport Europe GmbH (a communications company specializing in private satellite networks for voice and data services), whose name was subsequently changed to Loral Orion-Europe GmbH ("Orion Europe"). The Company has consolidated the operations of Orion Europe for the year ended December 31, 1997, retroactively to January 1, 1997. The effect of this consolidation on operations prior to acquisition was to increase consolidated revenues by approximately $4.1 million, increase total operating expenses by approximately $4.0 million and other expenses by approximately $0.7 million. The preacquisition loss of Orion Europe of $0.6 million has been deducted from the consolidated statement of operations for the year ended December 31, 1997. In evaluating financial performance, management uses revenues and earnings before interest, taxes, depreciation and amortization ("EBITDA") as a measure of a segment's profit or loss. The following discussion of revenues and EBITDA reflects the results of Loral Orion's operating segments for the two years ending December 31, 1998 and 1997, on a pro forma basis. Also see Note 8 to the consolidated financial statements for additional information on segment results. In order to provide an understanding of the Company, the results of operations discusses the results for the year ended December 31, 1998 and December 31, 1997, on a pro forma basis. The following pro forma results of operations for the years ended December 31, 1998 and 1997 have been presented to give the effect as of January 1, 1997, of the Merger with Loral, and the Exchange, the Orion Merger, and the Financings (the "Transactions") all as described in Note 1 to the Company's financial statements. The pro forma results of operations does not purport to present the actual results of operations of the Company had the Transactions in fact occurred on January 1, 1997, nor is it indicative of the results of operations that may be achieved in the future. As a result of these Transactions, the pro forma adjustments resulted in an increase in depreciation and amortization expenses of approximately $3.9 million and $17.6 million for the years ended December 31, 1998 and 1997, respectively. This increase primarily relates to the step up in the book value of Orion 1 and increased amortization expenses for cost in excess of net assets acquired associated with the Loral Merger. The pro forma results for 1998 include a $12.8 million adjustment to eliminate merger costs. Pro forma interest expense for the years ended December 31, 1998 and 1997 was $67.1 million and $77.8 million, a decrease of $0.4 million and $6.0 million from historical amounts, respectively. The decrease in interest expense is primarily attributable to the additional capitalized interest costs attributable to two satellites under construction, amortization of bond premium relating to the fair value adjustments and the elimination of the debentures, as a result of the Loral Merger. 12 LORAL ORION, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) OPERATING REVENUES (IN MILLIONS):
PRO FORMA YEAR ENDED PRO FORMA DECEMBER 31, YEAR ENDED 1997 DECEMBER 31, PREDECESSOR 1998 COMPANY ------------ ------------- Fixed satellite services ................ $ 33.1 $ 31.3 Data services ........................... 50.3 41.4 ------------ ------------- Operating revenues ....................... $ 83.4 $ 72.7 ============= ============= EBITDA (1) (IN MILLIONS): PRO FORMA YEAR ENDED PRO FORMA DECEMBER 31, YEAR ENDED 1997 DECEMBER 31, PREDECESSOR 1998 COMPANY ------------- ------------ Fixed satellite services ................. $ 27.9 $ 26.5 Data services ........................... (18.9) (21.4) ------------ ------------- EBITDA.................................... $ 9.0 $ 5.1 ============= =============
- - ------------------------ (1) Pro forma EBITDA (which is equivalent to operating income (loss) before depreciation and amortization) is provided because it is used as the measure of segment profit or loss and because it is a measure commonly used in the communications industry to analyze companies on the basis of operating performance, leverage and liquidity and is presented to enhance the understanding of Loral Orion's operating results. However, EBITDA should not be construed as an alternative to net income as an indicator of a company's operating performance, or cash flow from operations as a measure of a company's liquidity. EBITDA may be calculated differently and, therefore, may not be comparable to similarly titled measures reported by other companies. 13 LORAL ORION, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Revenue and Backlog. Pro forma revenues for the year ended December 31, 1998 and 1997 were $83.4 million and $72.7 million, respectively, an increase of $10.7 million or 15 percent. This increase is primarily attributable to private communications network services operations, which added 159 customer sites during 1998. At December 31, 1998, the Company had a contracted backlog (representing future revenues under customer contracts) of approximately $308.5 million compared to $269.5 million at December 31, 1997, an increase of 14 percent. Revenue from contracted backlog is typically earned over two to five years. Direct Expenses. Direct expenses on a pro forma basis for 1998 were $26.3 million, or 32 percent of sales compared to $26.5 million, or 36 percent of sales for the same period in 1997. This decrease was primarily attributable to reduced Internet access and terrestrial link charges during the fourth quarter of 1998. These costs support the Worldcast Internet access product ("Worldcast"), which provides international internet connectivity through Orion 1. Sales and Marketing Expenses. Sales and marketing expenses on a pro forma basis were $25.1 million for the year ended December 31, 1998, as compared to $19.4 million for the same period in 1997, an increase of $5.7 million or 29 percent. This increase primarily relates to additional sales salaries and commissions, independent contractor fees and advertising associated with the growth in the private communications network service business and Worldcast. Engineering and Technical Services Expenses. Engineering and technical services expenses on a pro forma basis for the year ended December 31, 1998 were $8.4 million compared to $7.8 million for the same period in 1997, an increase of $0.6 million or 8 percent. These increases are primarily due to additional salaries associated with support of Worldcast. General Administrative Expenses. General and administrative expenses on a pro forma basis were $14.5 million for the year ended December 31, 1998, compared to $14.0 million for the same period in 1997, an increase of $0.5 million or 4 percent. Depreciation and Amortization. Depreciation and amortization expense on a pro forma basis for the years ended December 31, 1998 and 1997 were $67.8 million and $65.8 million, respectively, an increase of $2.0 million or 3 percent. The increase was primarily a result of depreciation of ground equipment to service the expansion of the private network communication services business. Merger Costs. Merger costs associated with the acquisition of the Company by Loral were $12.8 million for the year ended December 31, 1998, which were eliminated in the pro forma adjustments. Interest. Pro forma interest income was $14.7 million for the year ended December 31, 1998, compared to $24.7 million for the same period in 1997. The decrease in interest income is due to a reduction in the balance held in the Company's segregated and restricted funds, which were used for the construction of satellites and to fund interest payments on the Company's senior notes. Pro forma interest expense for the years ended December 31, 1998 and 1997 was $67.1 million and $77.8 million, respectively. The decrease in interest expense is primarily attributable to the additional capitalized interest costs attributable to two satellites under construction, amortization of bond premium relating to the fair value adjustments and the elimination of the debentures, as a result of the Loral Merger. Income Taxes. The Company is included in the consolidated U.S. federal income tax return of Loral. Pursuant to a tax sharing agreement for 1998 with Loral, the Company is entitled to reimbursement for the use of its tax losses when such losses are utilized by Loral. For the year ended December 31, 1998, the Company recorded a receivable under this tax sharing agreement of approximately $4.9 million and a deferred tax provision of $3.8 million. The deferred tax asset of $53.9 million on the accompanying balance sheet arises primarily from the tax effect of the temporary differences between the carrying amount of the senior notes and the senior discount notes payable for financial and income tax purposes. Net Loss. As a result of the above, the Company's pro forma net losses for the years ended December 31, 1998 and 1997 were $110.3 million and $113.7 million, respectively. 14 LORAL ORION, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) RESULTS BY OPERATING SEGMENT Fixed Satellite Service Revenues and EBITDA for the fixed satellite services segment increased 6 percent and 5 percent, respectively, in 1998 versus 1997. FSS revenue for 1998 was $33.1 million versus $31.3 million in 1997. EBITDA on the same basis was $27.9 million in 1998, or 84 percent of revenues, versus EBITDA of $26.5 million, or 85 percent of revenues, in 1997. Funded backlog for the fixed satellite services segment totaled $164.3 million at the end of 1998, versus $163.2 million in backlog at year end 1997. Capital expenditures for 1998 were approximately $286.9 million. In 1999, capital expenditures are expected to decrease due to the expected launches of the Orion 2 and Orion 3 satellites. During the fourth quarter of 1998, Loral completed its integration plan for Loral Orion and transferred management of Loral Orion's satellite capacity leasing and satellite operations to Loral Skynet, effective January 1, 1999. In addition to increasing the operational efficiency, the realignment permits Loral Orion to focus on and leverage its experience in the global data services market. Data Services Revenues for the data services segment in 1998 were approximately $50.3 million versus $41.4 million in 1997, primarily from Loral Orion's corporate data networking and Internet and Intranet services businesses. EBITDA for 1998 was a loss of approximately $18.9 million in 1998 versus a loss of $21.4 million in 1997. At December 31, 1998, funded backlog for the segment was $144.2 million, at the end of 1998, versus $106.3 at year end 1997, which was all from external sources. Approximately 40 percent of 1998 external funded backlog is expected to be realized in 1999. Capital expenditures in 1998 were approximately $15.6 and are estimated to increase in 1999. OTHER MATTERS IMPACT OF YEAR 2000 The Company is evaluating the potential effect of the year 2000 on its information processing systems. It is not known at this time what modifications, if any, will be required. All costs associated with any modification will be expensed as incurred. The Company's Year 2000 Program is proceeding on schedule. The Year 2000 Issue is the result of computer programs which were written using two digits rather than four to signify a year (i.e., the year 1999 is denoted as "99" and not "1999"). Computer programs written using only two digits may recognize the year 2000 as the year 1900. This could result in a system failure or miscalculations causing disruption of operations. The Company has implemented a Year 2000 program (the "Year 2000 Program") for its internal products, system and equipment, as well as for key vendor and customer supplied products, systems and equipment. As part of the Year 2000 Program, the Company is assessing the Year 2000 capabilities of, among other things, its satellite, ground equipment, research and development activities, and facility management systems. The Year 2000 Program consists of the following phases: Inventory of Year 2000 items, Assessment (including prioritization), Remediation (including modification, upgrading and replacement), Testing and Auditing. This five-step program is divided into six major sections covering both information and non-information technology systems: 1) business systems, 2) technical systems, 3) products and services, 4) imbedded hardware/firmware, 5) vendor supplied products and 6) customer provided products. As of February 28, 1999, the Company completed approximately 95 percent of the inventory phase and approximately 95 percent of its assessment phase. The Company expects to complete the first four phases, through the testing phase, of the Year 2000 Program during the third quarter of 1999, which is prior to any anticipated material impact on the operations of the Company. The fifth phase, the audit phase, commenced in January 1999, and is expected continue through the third quarter of 1999 to accommodate re-audits if necessary. 15 LORAL ORION, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Both internal and external resources are being utilized to execute the Company's plan. The program to address Year 2000 has been underway since July 1997. The incremental costs incurred to date for this effort by the Company was approximately $50,000. Based on the efforts of the Company to date, the Company anticipates additional incremental expenses of approximately $165,000 will be incurred to substantially complete the effort. Based upon the accomplishments to date, no contingency plans are expected to be needed. As risks are identified, contingency plans will be developed and implemented as necessary. However, because of the progress achieved to date and the Company's expectations that its Year 2000 program will be substantially complete in the third quarter of calendar 1999, the Company believes adequate time will be available to insure alternatives can be developed, assessed and implemented prior to a Year 2000 issue having a material negative impact on the operations of the Company. However, there can be no assurance that such modifications and conversions, if required, will be completed on a timely basis. The cost of the program and the dates on which the Company believes it will substantially complete Year 2000 modifications are based on management's best estimates. Such estimates were derived using software surveys and programs to evaluate calendar date exposures and numerous assumptions of future events, including the continued availability of certain resources, third-party year 2000 readiness and other factors. Because none of these estimates can be guaranteed, actual results could differ materially and adversely from those anticipated. Specific factors that might cause an adjustment of costs are: number of personnel trained in this area, the ability to locate and correct all relevant computer codes, the ability to validate supplier certification and similar uncertainties. The Company's failure to remediate a material Year 2000 problem could result in an interruption or failure of certain basic business operations. These failures could materially and adversely effect the Company's results of operations, liquidity and financial condition. The Company is also assessing the Year 2000 readiness of key third-party suppliers. Information requests have been distributed to such suppliers and replies are being evaluated. If the risk is deemed material, on-site visits to suppliers will be conducted to verify the adequacy of the information received. However, due to the general uncertainty of the Year 2000 problem, including uncertainty with regard to third-party suppliers and customers, the Company is unable to determine at this time whether the consequences of Year 2000 failures will have an adverse material impact on the Company's results of operations, liquidity or financial condition. The Company's Year 2000 Program is expected to have considerably reduced the Company's level of exposure in regard to third-party supplier Year 2000 problems. There can be no assurance given that the Company's Year 2000 Program will be successful in avoiding any interruption or failure of certain basic business operations, which may have a material adverse effect on the Company's results of operations or financial position. ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board issued Statement No. 133 Accounting for Derivative Instruments and Hedging Activities ("SFAS 133"), which requires that all derivative instruments be recorded on the balance sheet at their fair value. Changes in the fair value of derivatives are recorded each period in current earnings or other comprehensive income, depending on whether a derivative is designated as part of a hedge transaction and, if it is, the type of hedge transaction. The Company has not yet determined the impact that the adoption of SFAS 133 will have on its earnings or financial position. The Company is required to adopt SFAS 133 on January 1, 2000. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Interest As of December 31, 1998, the fair value of the Company's long-term debt is estimated to be $761 million using quoted market prices, for the Company's Senior Notes and Senior Discount Notes. The long-term debt carrying value exceeded fair value by $173 million. Market risk on debt is estimated as the potential increase in annual interest expense resulting from a hypothetical one percent increase in the interest rates and amounts to $9 million. 16 ITEM 8. INDEPENDENT AUDITORS' REPORT To the Shareholder of Loral Orion, Inc.: We have audited the accompanying consolidated balance sheet of Loral Orion, Inc. and its subsidiaries (collectively, the Successor Company), a wholly-owned subsidiary of Loral Space & Communications Corporation, as of December 31, 1998 and the related consolidated statements of operations, changes in stockholders' equity and cash flows for the nine months ended December 31, 1998. We have also audited the consolidated statements of operations, changes in stockholders' equity and cash flows of Orion Network Systems, Inc. and its subsidiaries (collectively, the Predecessor Company) for the three months ended March 31, 1998. These financial statements are the responsibility of the Successor and Predecessor Companies' 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 our audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidences 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 overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Loral Orion, Inc. and its subsidiaries as of December 31, 1998, and the results of their operations and their cash flows for the nine months ended December 31, 1998 in conformity with generally accepted accounting principles. Further, in our opinion, the Predecessor Company's consolidated financial statements referred to above present fairly, in all material respects, the results of their operations and their cash flows for the three months ended March 31, 1998 in conformity with generally accepted accounting principles. As discussed in Note 1 to the consolidated financial statements, the Successor Company adopted a new accounting basis effective March 31, 1998 in connection with a change of ownership and recorded net assets as of that date at the new owner's acquisition cost. Accordingly, the book values of assets and liabilities and related depreciation, amortization and interest charges in the accompanying consolidated balance sheet as of December 31, 1998 and consolidated statement of operations for the nine months ended December 31, 1998, are not comparable to those of earlier periods presented. DELOITTE & TOUCHE LLP Washington, DC February 16, 1999 17 ITEM 8 (CONTINUED). REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS To the Board of Directors of Loral Orion, Inc. (formerly Orion Network Systems, Inc.): We have audited the accompanying consolidated balance sheet of Loral Orion, Inc. (formerly Orion Network Systems, Inc.) as of December 31, 1997, and the related consolidated statements of operations, changes in stockholders' equity (deficit), and cash flows for each of the two years in the period ended December 31, 1997. 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 Loral Orion, Inc. at December 31, 1997, and the consolidated results of its operations and its cash flows for each of the two years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. /s/ Ernst & Young LLP Washington, DC February 20, 1998 18 LORAL ORION, INC. (A WHOLLY OWNED SUBSIDIARY OF LORAL SPACE & COMMUNICATIONS CORPORATION) CONSOLIDATED BALANCE SHEETS (in thousands)
DECEMBER 31, -------------------------------------------- 1997 PREDECESSOR 1998 COMPANY ---------------- ---------------- ASSETS Current assets: Cash and cash equivalents $ 35,861 $ 70,009 Restricted assets 50,180 50,064 Accounts receivable (less allowance for doubtful accounts of $1,019 and $734 at December 31, 1998 and 1997, respectively) 15,292 11,781 Prepaid expenses and other current assets 4,299 6,846 -------------- --------------- Total current assets 105,632 138,700 Restricted and segregated assets 22,675 306,826 Property and equipment, at cost: Land 74 74 Satellite and related equipment 263,188 322,159 Telecommunications equipment 35,630 40,654 Furniture and computer equipment 8,693 8,627 307,585 371,514 -------------- --------------- Less accumulated depreciation (38,706) (77,080) Satellite construction in progress, including capitalized interest of $20,198 and $7,346 at December 31, 1998 and 1997, respectively 331,861 106,843 -------------- --------------- Net property and equipment 600,740 401,277 Due from Loral 3,619 -- Deferred financing costs, net -- 22,510 Cost in excess of net assets acquired associated with the Loral merger, net 608,015 -- Deferred income taxes 53,915 -- Other assets, net 22,908 27,179 -------------- --------------- Total assets $ 1,417,504 $ 896,492 ============== ===============
See notes to consolidated financial statements. 19 LORAL ORION, INC. (A WHOLLY OWNED SUBSIDIARY OF LORAL SPACE & COMMUNICATIONS CORPORATION) CONSOLIDATED BALANCE SHEETS (in thousands, except share and par amounts) (continued)
DECEMBER 31, -------------------------------------------- 1997 PREDECESSOR 1998 COMPANY ---------------- ---------------- LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities: Current portion of long-term debt $ 1,826 $ 6,406 Accounts payable 2,035 5,231 Accrued and other current liabilities 16,162 11,604 Customer deposits 7,897 2,801 Deferred revenue 35,841 3,320 Interest payable 22,842 24,771 -------------- -------------- Total current liabilities 86,603 54,133 Long-term debt 931,669 790,671 Other long-term liabilities 141 21,803 Series A 8% Cumulative Redeemable Convertible Preferred Stock, $.01 par value; 15,000 shares authorized; 0 and 6,933 shares issued and outstanding at December 31, 1998 and 1997, respectively, plus accrued dividends -- Series B 8% Cumulative Redeemable Convertible Preferred Stock, $.01 par value; 5,000 shares authorized; 0 and 2,059 shares issued and outstanding at December 31, 1998 and 1997, respectively, plus accrued dividends -- 2,467 Series C 6% Cumulative Redeemable Convertible Preferred Stock, $.01 par value; 150,000 shares authorized; 0 and 82,641 shares issued and outstanding at December 31, 1998 and 1997, respectively, plus accrued dividends and accretion -- 65,654 Commitments and contingencies: Stockholders' equity (deficit): Common stock, $.01 par value; 1,000 and 40,000,000 shares authorized; 100 and 15,959,089 outstanding at December 31, 1998 and 1997, respectively -- 160 Capital in excess of par value 481,791 153,294 Treasury stock, 0 and 269,274 shares at December 31, 1998 and 1997, respectively -- (91) Unearned compensation (3,347) -- Accumulated other comprehensive income (loss) 616 (956) Accumulated deficit (79,969) (199,256) -------------- -------------- Total stockholders' equity (deficit) 399,091 (46,849) -------------- -------------- Total liabilities and stockholders' equity (deficit) $ 1,417,504 $ 896,492 ============== ==============
See notes to consolidated financial statements. 20 LORAL ORION, INC. (A WHOLLY OWNED SUBSIDIARY OF LORAL SPACE & COMMUNICATIONS CORPORATION) CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands)
PREDECESSOR COMPANY ------------------------------------------------------ NINE MONTHS THREE MONTHS YEARS ENDED DECEMBER 31, ENDED ENDED ---------------------------------- DECEMBER 31, 1998 MARCH 31, 1998 1997 1996 ------------------- --------------- --------------- ---------------- Service revenue $ 64,608 $ 18,790 $ 72,741 $ 41,847 Operating expenses: Direct 19,906 6,406 26,531 15,457 Sales and marketing 19,365 5,790 19,424 11,465 Engineering and technical services 6,486 1,898 7,750 5,191 General and administrative 10,834 3,707 13,956 9,139 Depreciation and amortization 51,434 12,483 48,161 36,948 Merger costs 612 12,145 -- -- ------------------- --------------- --------------- ---------------- Total operating expenses 108,637 42,429 115,822 78,200 ------------------- --------------- --------------- ---------------- Loss from operations (44,029) (23,639) (43,081) (36,353) Interest (income) (9,299) (5,425) (24,711) (2,314) Interest expense 46,439 21,190 83,769 27,764 Other (income) expense (167) 287 507 23 ------------------- --------------- --------------- ---------------- Loss before income taxes, extraordinary loss on extinguishment of debt, minority interest and preacquisition loss of acquired subsidiary (81,002) (39,691) (102,646) (61,826) Income tax benefit 1,033 -- -- -- Extraordinary loss on extinguishment of debt -- -- (15,763) -- Limited Partners' interest in the net loss of Orion Atlantic -- -- 12,043 34,631 Preacquisition loss of acquired subsidiary -- -- 626 -- ------------------- --------------- --------------- ---------------- Net loss (79,969) (39,691) (105,740) (27,195) Preferred stock dividend, net of forfeitures -- (1,387) 6,034 1,370 ------------------- --------------- --------------- ---------------- Net loss attributable to common stockholders $ (79,969) $ (38,304) $ (111,774) $ (28,565) =================== =============== =============== ================
See notes to consolidated financial statements. LORAL ORION, INC. (A WHOLLY OWNED SUBSIDIARY OF LORAL SPACE & COMMUNICATIONS CORPORATION) CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT) (in thousands)
COMMON STOCK -------------- CAPITAL IN NUMBER EXCESS OF ACCUMULATED TREASURY OF SHARES AMOUNT PAR VALUE DEFICIT STOCK 1 --------- ------ --------- ------- ------- Balance December 31, 1995 (Predecessor Company) 11,116 $ 111 $ 85,486 $ (58,917) $ -- Conversion of preferred stock 91 1 804 -- -- Issuance of stock warrants -- -- 300 -- -- Exercise of stock options and warrants 38 -- 342 -- -- Preferred stock dividend, net of -- -- -- (1,370) -- forfeitures 1996 net loss -- -- -- (27,195) -- ------------ -------------- -------------- ---------------- ------------ Balance December 31, 1996 (Predecessor Company) 11,245 112 86,932 (87,482) -- Issuance of common stock 11 -- 142 -- -- Conversion of preferred stock 3,352 34 38,812 -- -- Conversion of debentures 735 7 10,285 -- -- Issuance of common stock for the purchase of APSC 86 1 1,199 -- -- Issuance of common stock for interest payments 205 2 2,623 -- -- Issuance of common stock for preferred 121 1 2,069 stock dividend payments -- -- Issuance of warrants relating to Senior Notes and Senior -- -- 9,224 -- -- Discount Notes, net Exercise of stock options and warrants 176 2 1,764 -- -- Employee stock purchase plan 28 1 244 -- -- Preferred stock dividend and accretion, net of forfeitures -- -- -- (6,034) -- Purchase of treasury stock -- -- -- -- (91) 1997 net loss -- -- -- (105,740) -- Other comprehensive loss -- -- -- -- -- Comprehensive loss -- -- -- -- -- Balance December 31, 1997 (Predecessor Company) 15,959 $ 160 $ 153,294 $ (199,256) $ (91) ============ ============== ============== ================ ============
ACCUMULATED OTHER TOTAL UNEARNED COMPREHENSIVE STOCKHOLDERS' COMPENSATION INCOME (LOSS) EQUITY (DEFICIT) ------------ ------------- ------------------- Balance December 31, 1995 (Predecessor Company) $ -- $ -- $ 26,680 Conversion of preferred stock -- -- 805 Issuance of stock warrants -- -- 300 Exercise of stock options and warrants -- -- 342 Preferred stock dividend, net of -- -- (1,370) forfeitures 1996 net loss -- -- (27,195) -------------- -------------- -------------- Balance December 31, 1996 (Predecessor Company) -- -- (438) Issuance of common stock -- -- 142 Conversion of preferred stock -- -- 38,846 Conversion of debentures -- -- 10,292 Issuance of common stock for the purchase of APSC -- -- 1,200 Issuance of common stock for interest payments -- -- 2,625 Issuance of common stock for preferred 2,070 stock dividend payments -- -- Issuance of warrants relating to Senior Notes and Senior -- -- 9,224 Discount Notes, net Exercise of stock options and warrants -- -- 1,766 Employee stock purchase plan -- -- 245 Preferred stock dividend and accretion, net of forfeitures -- -- (6,034) Purchase of treasury stock -- -- (91) 1997 net loss -- -- Other comprehensive loss -- (956) Comprehensive loss -- -- (106,696) Balance December 31, 1997 (Predecessor Company) $ -- $ (956) $ (46,849) =============== ============== ===============
See notes to consolidated financial statements. (continued on next page) 22 LORAL ORION, INC. (A WHOLLY OWNED SUBSIDIARY OF LORAL SPACE & COMMUNICATIONS CORPORATION) CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT) (continued) (in thousands)
COMMON STOCK -------------- CAPITAL IN NUMBER EXCESS OF ACCUMULATED TREASURY OF SHARES AMOUNT PAR VALUE DEFICIT STOCK (1) --------- ------ --------- ------- --------- Balance December 31, 1997 (Predecessor Company) 15,959 $ 160 $ 153,294 $ (199,256) $ (91) Issuance of common stock 14 -- 246 -- -- Conversion of preferred stock 5,739 57 69,831 -- -- Conversion of debentures 3,572 36 49,964 -- -- Issuance of common stock for interest payments 184 2 2,577 -- -- Issuance of common stock for preferred stock dividend payments 316 3 5,455 -- -- Exercise of stock options and warrants 165 2 1,638 -- -- Employee stock purchase plan 20 -- 292 -- -- Preferred stock dividends and accretion, net of forfeiture -- -- -- 1,387 -- Recapitalization related to purchase by (25,969) (260) 195,215 237,560 91 Loral Increase purchase price -- -- 3,491 -- -- Net loss for the three months ended March 31, 1998 -- -- (39,691) -- Other comprehensive loss -- -- -- -- -- Comprehensive Loss ------------ ------------ -------------- --------------- ------------ Balance March 31, 1998 -- $ -- $ 482,003 $ -- $ -- ============ ============ ============== =============== ============ Amortization of unearned compensation -- -- -- -- -- Stock option forfeitures -- -- (212) -- -- Net loss for the nine months ended December 31, 1998 -- -- -- (79,969) -- Other comprehensive income -- -- -- -- -- Comprehensive loss -- -- -- -- -- ------------ ------------ -------------- --------------- ------------ Balance December 31, 1998 -- $ -- $ 481,791 $ (79,969) $ -- ============ ============ ============== =============== ============
ACCUMULATED OTHER TOTAL UNEARNED COMPREHENSIVE STOCKHOLDERS' COMPENSATION INCOME (LOSS) EQUITY (DEFICIT) ------------ ------------- ---------------- Balance December 31, 1997 (Predecessor Company) ) $ -- $ (956) $ (46,849) Issuance of common stock -- -- 246 Conversion of preferred stock -- -- 69,888 Conversion of debentures -- -- 50,000 Issuance of common stock for interest payments -- -- 2,579 Issuance of common stock for preferred stock dividend payments -- -- 5,458 Exercise of stock options and warrants -- -- 1,640 Employee stock purchase plan -- -- 292 Preferred stock dividends and accretion, net of forfeiture -- -- 1,387 Recapitalization related to purchase by (4,512) 1,473 429,567 Loral Increase purchase price -- -- 3,491 Net loss for the three months ended March 31, 1998 -- -- Other comprehensive loss -- (517) Comprehensive Loss (40,208) --------------- --------------- -------------- Balance March 31, 1998 $ (4,512) $ -- $ 477,491 =============== =============== ============== Amortization of unearned compensation 953 -- 953 Stock option forfeitures 212 -- -- Net loss for the nine months ended December 31, 1998 -- -- Other comprehensive income -- 616 Comprehensive loss -- -- (79,353) --------------- --------------- -------------- Balance December 31, 1998 $ (3,347) $ 616 $ 399,091 =============== =============== ==============
- - -------- (1) Includes 269,274 treasury shares of which 259,515 were carried at no cost through March 31, 1998. See notes to consolidated financial statements. 23 LORAL ORION, INC. (A WHOLLY OWNED SUBSIDIARY OF LORAL SPACE & COMMUNICATIONS CORPORATION) CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
PREDECESSOR COMPANY ----------------------------------------------------- NINE MONTHS THREE MONTHS YEARS ENDED DECEMBER 31, ----------- ----------- ------------------------ ENDED ENDED DECEMBER 31, MARCH 31, 1998 1998 1997 1996 ---------------- --------------- --------------- ---------------- OPERATING ACTIVITIES: Net loss $ (79,969) $ (39,691) $ (105,740) $ (27,195) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Extraordinary loss on extinguishment of debt -- -- 15,763 -- Amortization of deferred taxes 3,771 -- -- -- Depreciation and amortization 51,434 12,483 48,161 36,948 Amortization of deferred financing costs -- 609 2,410 2,131 Provision for bad debts 1,325 150 1,022 919 Non-cash interest expense 24,606 11,048 34,347 2,371 Interest earned on restricted assets (6,896) (4,629) (18,203) -- Other (291) 1,644 -- (55) Limited Partners' interest in net loss of Orion Atlantic -- -- (12,043) (34,631) Changes in operating assets and liabilities: Accounts receivable (3,578) (1,408) (2,923) (2,203) Prepaid expenses and other current assets (502) 693 (2,277) (286) Other assets (1,352) 201 (3,640) (69) Accounts payable, accrued liabilities and other current liabilities (1,367) (2,186) (2,393) (3,163) Interest payable 12,403 (12,510) 16,180 579 Customer deposits 5,071 23 1,612 177 Deferred revenue 10,768 297 11,935 12,562 Due from Loral (3,619) -- -- -- -------------- -------------- --------------- --------------- Net cash provided by (used in) operating activities 11,804 (33,276) (15,789) (11,915) Investing activities: Increase in restricted and segregated assets (12,000) -- (419,187) (10,000) Uses of and transfers from restricted and segregated 273,960 35,938 90,500 -- assets Satellite construction costs (270,429) (14,575) (102,282) (3,750) Capital expenditures (13,667) (3,805) (11,062) (12,625) Purchase of Teleport Europe GmbH, net of cash acquired -- -- (8,375) -- Other -- -- -- (38) -------------- -------------- --------------- --------------- Net cash provided by (used in) investing activities (22,136) 17,558 (450,406) (26,413) Financing activities: Limited Partners' capital contributions -- -- -- 30,135 Debt and equity financing costs -- -- (26,122) (2,265) Proceeds from issuance of common stock, net of issuance costs -- 2,117 2,153 343 Treasury stock purchase -- -- (91) -- Proceeds from issuance of debt -- -- 770,397 -- Repayment of senior notes and notes payable (2,815) (254) (216,723) (27,802) Swap termination fee -- -- (5,288) -- Payment of satellite incentives (5,861) (1,302) (18,621) -- Other 1,068 (1,051) (1,689) 14,993 -------------- -------------- --------------- --------------- Net cash provided by (used in) financing activities (7,608) (490) 504,016 15,404 -------------- -------------- --------------- --------------- Net increase (decrease) in cash and cash equivalents (17,940) (16,208) 37,821 (22,924) Cash and cash equivalents at beginning of period 53,801 70,009 32,188 55,112 -------------- -------------- --------------- --------------- Cash and cash equivalents at end of period $ 35,861 $ 53,801 $ 70,009 $ 32,188 ============== ============== =============== ===============
See notes to consolidated financial statements. 24 LORAL ORION, INC. (A WHOLLY OWNED SUBSIDIARY OF LORAL SPACE & COMMUNICATIONS CORPORATION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands unless otherwise indicated) 1. ORGANIZATION AND BUSINESS Loral Orion, Inc. (the "Company" or "Loral Orion"), formerly known as Loral Orion Network Systems, Inc., is a holding company with no assets or operations other than its investments in its subsidiaries. Through the operations of its subsidiary Guarantors, the Company's principal business is providing satellite-based communications services for private communications networks and video distribution and other satellite transmission services. In 1998, Loral Orion organized its business into two distinct operating segments as follows (see Note 8): Fixed Satellite Services: Leasing transponder capacity and providing value-added services to customers for a wide variety of applications, including the distribution of broadcast programming, news gathering, business television, distance learning and direct-to-home ("DTH") services. The Company's fixed satellite services ("FSS") assets, will be managed by Loral Skynet effective January 1, 1999, and Data Services: Business in development, providing managed communications networks and Internet and intranet services, using transponder capacity on the Loral Skynet Telstar and Loral Orion fleets. ACQUISITION OF THE COMPANY BY LORAL On March 20, 1998, Orion Network Systems, Inc. ("Orion" or the "Predecessor Company") was acquired by Loral Space & Communications Ltd. ("Loral"), through the merger (the "Merger") of a wholly owned subsidiary of Loral, Loral Satellite Corporation ("Merger Sub"), with and into Orion. Loral consummated the acquisition by issuing 18 million shares of its common stock and assuming existing Orion vested options and warrants to purchase 1.4 million shares of Loral common stock representing an aggregate purchase price of $472.5 million. Orion was the surviving corporation (the "Surviving Corporation") of the Merger and thereby became a subsidiary of Loral. At the effective date of the Merger, Loral contributed its investment in Orion to Loral Space & Communications Corporation, a wholly owned subsidiary of Loral, and Orion changed its name to "Loral Orion Network Systems, Inc." The name has since been changed to "Loral Orion, Inc." The consolidated financial statements for the three months ended March 31, 1998 and as of and for the two years ended December 31, 1997 and 1996, respectively, reflect the results of operations of the Predecessor Company. The consolidated financial statements as of and for the nine months ended December 31, 1998 reflect the results of operations of Loral Orion, Inc. Hereafter, references to the "Company" include both Loral Orion, Inc and its predecessor, Orion Network Systems, Inc. Following the Merger, the capital stock of Loral Orion ceased to be publicly traded. However, the Company continues to have registered bonds outstanding. For accounting purposes, the Merger was accounted for as of March 31, 1998, using the purchase method. Accordingly, the consolidated balance sheet at December 31, 1998 reflects the push-down of the purchase price allocations to the assets and liabilities. The purchase price represented $447.7 million in excess of Orion's net book value, which was primarily allocated to costs in excess of net assets acquired of $619.7 million, and a fair value adjustment of $153.4 million to increase the carrying value of Orion's senior notes and senior discount notes. In addition, Loral agreed to assume Orion's unvested employee stock options, which resulted in a new measurement date and an unearned compensation charge of $4.3 million, to be amortized over the vesting period of the options. Had the acquisition of the Company occurred on January 1, 1997, the unaudited pro forma sales, operating loss and net loss for the years ended December 31, 1998 and 1997 would have been $83.4 million and $72.7 million; $58.8 million and $60.7 million; and $110.3 million and $113.7 million, respectively. These results, which are based on various assumptions are not necessarily indicative of what would have occurred had the acquisition been consummated on January 1, 1997. 25 LORAL ORION, INC. (A WHOLLY OWNED SUBSIDIARY OF LORAL SPACE & COMMUNICATIONS CORPORATION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) 1. ORGANIZATION AND BUSINESS - (CONTINUED) LORAL ORION SUBSIDIARIES All subsidiaries of Loral Orion ("Subsidiary Guarantors"), other than inconsequential subsidiaries, have unconditionally guaranteed the Notes (as defined below) on a joint and several basis. No restrictions exist on the ability of Subsidiary Guarantors to pay dividends or make other distributions to Loral Orion, except to the extent provided by law generally (e.g., adequate capital to pay dividends under state corporate laws).
Jurisdiction of Organization Subsidiary Name or Incorporation - - --------------------------------------------------------------- ---------------------------- Asia Pacific Space and Communications, Ltd. Delaware (merged with Loral Orion-Asia Pacific, Inc.) International Private Satellite Partners, L.P. Delaware (doing business as Orion Atlantic, L.P.) (merged with Loral Orion Services, Inc.) Loral Global Services, Inc. Delaware Loral Orion-Americas, Inc. Delaware Loral Orion-Asia Pacific, Inc. Delaware (formerly known as Orion Asia Pacific Corporation) Loral Orion-Europe, Inc. Delaware (formerly known as Orion Atlantic Europe, Inc.) Loral Orion Global Services, Inc. Delaware Orion Oldco Services, Inc. Delaware (formerly known as Orion Network Systems, Inc.) OrionNet Finance Corporation Delaware OrionNet, Inc. Delaware Loral Orion Services, Inc. Delaware (formerly known as Orion Satellite Corporation) Loral Orion-Europe GmbH Federal Republic of Germany (formerly known as Teleport Europe GmbH)
Each of the Subsidiary Guarantors is a wholly owned subsidiary of the Company. The Subsidiary Guarantors comprise all of the direct and indirect subsidiaries of the Company (other than inconsequential subsidiaries). Separate financial statements of the Subsidiary Guarantors are not required to be presented. ACQUISITION OF ORION ATLANTIC LIMITED PARTNERSHIP INTERESTS IN THE EXCHANGE Through January 31, 1997, Orion Satellite Corporation (whose name was previously changed to Loral Orion Services, Inc.) was the sole general partner in Orion Atlantic L.P. ("Orion Atlantic") and Loral Orion had a combined 41 2/3 percent equity interest in Orion Atlantic. As a result of Loral Orion's control of Orion Atlantic, Loral Orion's consolidated financial statements include the accounts of Orion Atlantic. All of Orion Atlantic's revenues and expenses are included in Loral Orion's consolidated financial statements, with appropriate adjustment to reflect the interests of the Limited Partners in Orion Atlantic's losses prior to the Exchange as described below. Loral Orion acquired all the remaining interests in Orion Atlantic 26 LORAL ORION, INC. (A WHOLLY OWNED SUBSIDIARY OF LORAL SPACE & COMMUNICATIONS CORPORATION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) 1. ORGANIZATION AND BUSINESS - (CONTINUED) on January 31, 1997 during the Exchange as described below. Loral Orion's consolidated financial statements also include the accounts of all other subsidiaries of Loral Orion. On January 31, 1997, the Company acquired all of the limited partnership interests which it did not already own in the Company's former operating subsidiary, Orion Atlantic, that owned the Orion 1 satellite prior to its merger with Loral Orion Services, Inc. Specifically, the Company acquired the Orion Atlantic limited partnership interests and other rights relating thereto held by British Aerospace Communications, Inc., COM DEV Satellite Communications Limited, Kingston Communications International Limited, Lockheed Martin Commercial Launch Services, Inc., MCN Sat US, Inc., an affiliate of Matra Hachette, and Trans-Atlantic Satellite, Inc., an affiliate of Nissho Iwai Corp. (collectively, the "Exchanging Partners"). The Company accounted for this transaction as an acquisition of minority interest, and as a result, approximately $34.3 million was allocated to the cost of the Orion 1 satellite and related equipment. Pursuant to a Section 351 Exchange Agreement and Plan of Conversion (the "Exchange Agreement"), the Exchanging Partners exchanged their Orion Atlantic limited partnership interests for 123,172 shares of a newly created class of the Company's Series C Preferred Stock (the "Exchange"). In addition, the Company acquired certain rights held by certain of the Exchanging Partners to receive repayment of various advances (aggregating approximately $41.6 million at January 31, 1997. The 123,172 shares of Series C Preferred Stock issued in the Exchange were convertible into approximately 7 million shares of the Company's common stock. As a result of the Exchange, certain of the Exchanging Partners became principal stockholders of the Company. The exchange is described in greater detail under the caption "The Merger, the Exchange and the Debenture Investments" in the Company's Registration Statement on Form S-4 (Registration No. 333-19795). The Exchange and the acquisition by the Company of the only outstanding minority interest in the Company's subsidiary Asia Pacific Space and Communications, Ltd. from British Aerospace Satellite Investments, Inc. on January 8, 1997 (in exchange for approximately 86,000 shares of the Company's common stock) resulted in the Company owning 100 percent of Orion Atlantic and its other significant subsidiaries and, therefore, a greatly simplified corporate structure. THE ORION MERGER The Exchange was conducted on a tax-free basis by means of an Orion Merger (defined below) that was consummated on January 31, 1997. Pursuant to the Exchange Agreement, Orion Oldco Services, Inc., formerly known as Orion Network Systems, Inc. ("Old Orion"), formed the Company as a new Delaware corporation with a certificate of incorporation, bylaws and capital structure substantially identical in all material respects with those of Old Orion. Also pursuant to the Exchange Agreement, the Company formed a wholly-owned subsidiary, Orion Merger Company, Inc. ("Orion Merger Subsidiary"). Pursuant to an Agreement and Plan of Merger, Orion Merger Subsidiary was merged with and into Old Orion, and Old Orion became a wholly-owned subsidiary of the Company (the "Orion Merger"). On January 31, 1997, the effective time of the Orion Merger, all of the stockholders of Old Orion received stock in the Company with substantially identical rights to the Old Orion stock they held prior to the effective time of the Orion Merger. Following the Orion Merger, the Company changed its name from Orion Newco Services, Inc. to Orion Network Systems, Inc. and the Company's wholly-owned subsidiary Orion Network Systems, Inc. changed its name to Orion Oldco Services, Inc. The Exchange and Orion Merger are described in greater detail under the caption "The Merger, the Exchange and Debenture Investments" in the Company's Registration Statement on Form S-4 (Registration No. 333-19795). FINANCINGS On January 31, 1997, the Company completed a $710 million bond offering (the "Bond Offering") comprised of approximately $445 million of Senior Note Units, each of which consists of one 11.25 percent Senior Note due 2007 (a "Senior Note") and one Warrant to purchase 0.8463 shares of common stock, par value $.01 per share ("Common Stock") of the Company (a "Senior Note Warrant"), and approximately $265.4 million of Senior Discount Note Units, each of which consists of one 12.5 percent Senior Discount Note due 2007 (a "Senior Discount Note," and together with the Senior Notes, the "Notes") and one Warrant to purchase 0.6628 shares of Common Stock of the Company (a "Senior Discount Note Warrant, and together with Senior Note Warrants, the "Warrants"). Interest on the Senior Notes will be payable semi-annually in cash on January 15 and July 15 of each year, with the first payment made on July 15, 1997. The Senior Discount Notes will not pay cash interest prior to July 15, 2002. Thereafter, cash interest will accrue until maturity at an annual rate of 12.5 percent payable semi-annually on January 15 and July 15 of each year, commencing July 15, 2002. The exercise price 27 LORAL ORION, INC. (A WHOLLY OWNED SUBSIDIARY OF LORAL SPACE & COMMUNICATIONS CORPORATION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) 1. ORGANIZATION AND BUSINESS - (CONTINUED) for the Warrants will be $.01 per share of common stock. There were 697,400 Warrants issued in connection with the Notes (see Note 6). In addition, on January 31, 1997, the Company also completed the sale of $60 million of its convertible junior subordinated debentures (the "Debentures") to two investors, British Aerospace Holdings, Inc. ("British Aerospace") and Matra Marconi Space UK Limited ("Matra Marconi Space"). British Aerospace purchased $50 million of the Debentures and Matra Marconi Space purchased $10 million of the Debentures (collectively, the "Debentures Offering", and together with the Bond Offering, the "Financings"). The Convertible Debentures were to mature in 2012, and bore interest at a rate of 8.75 percent per annum payable semi-annually in arrears solely in Common Stock of the Company. The Convertible Debentures were subordinated to all other indebtedness of the Company, including the Notes. Prior to the acquisition of the Company by Loral, all of the debentures had been converted to common stock. The net proceeds of the Bond Offering and Debentures Offering were used by the Company to repay the Orion 1 credit facility, pre-fund the first three years of interest payments on certain of the Notes, and will be used to build and launch two additional satellites, Orion 2 and Orion 3. The extraordinary loss on extinguishment of debt of $15.8 million in 1997 was the result of expensing unamortized deferred financing costs associated with the Orion 1 credit facility which was refinanced with the proceeds from the Bond Offering and termination of a interest rate cap agreement. ACQUISITION OF TELEPORT EUROPE GMBH On March 26, 1997, the Company acquired German-based Teleport Europe GmbH (now known as Loral Orion-Europe GmbH) ("Loral Orion Europe") a communications company specializing in private satellite networks for voice and data services. The Company purchased the shares of Loral Orion Europe held by the German companies, Vebacom GmbH and RWE Telliance AG, now known as o.tel.o for approximately $9 million. In addition, the Company acquired Loral Orion Europe's licenses and operating agreements to provide satellite network services in 40 countries, including 17 countries in which the Company previously did not provide service. The net purchase price of Orion Europe was $8.4 million and was allocated as follows:
(in thousands) Working capital deficit, net of cash acquired.... $ (683) Property and equipment ........................... 9,346 Other, net ...................................... (288) ----------- $ 8,375 ===========
The pro forma effect on net loss assuming the acquisition took place January 1, 1997 was not material. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONSOLIDATION POLICY The consolidated financial statements for the nine months ended December 31, 1998, for the three months ended March 31, 1998, and for the year ended December 31, 1997, include the accounts of Loral Orion, Inc., its wholly-owned subsidiaries and Orion Financial Partnership (OFP), in which Loral Orion holds a 50 percent interest. The consolidated financial statements for the year ended December 31, 1996, include the accounts of Orion, its two wholly-owned subsidiaries OrionNet, Inc. (OrionNet) and Orion Network Services, Inc., its former 83 percent owned subsidiary, Asia Pacific Space and Communications Ltd. (Asia Pacific), the OFP, in which Orion holds a 50 percent interest, and Orion Atlantic, in which Orion held a 41 2/3 percent ownership interest. Orion Network Services, Inc. as the general partner of Orion Atlantic, exercised control of Orion Atlantic through the provisions of the partnership agreement. All significant intercompany accounts and transactions have been eliminated. In January 1997, all of the outside interest in these entities, except for outside interests of OFP, were acquired. 28 LORAL ORION, INC. (A WHOLLY OWNED SUBSIDIARY OF LORAL SPACE & COMMUNICATIONS CORPORATION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED) CASH AND CASH EQUIVALENTS Orion considers all highly liquid investments purchased with a maturity of three months or less to be cash equivalents. Cash and cash equivalents includes (in thousands):
DECEMBER 31, -------------------------- 1997 PREDECESSOR 1998 COMPANY ----------- -------------- Cash .................. $ 3,919 $ 2,256 Money market funds .... 4,985 2,544 Commercial paper ...... 26,957 65,209 -------------- -------------- $ 35,861 $ 70,009 ============== ==============
RESTRICTED AND SEGREGATED ASSETS Restricted and segregated assets are classified as held to maturity and are recorded at cost and consist of the following (in thousands):
DECEMBER 31, -------------------------- 1997 PREDECESSOR 1998 COMPANY ----------- -------------- U.S. treasury notes .................... $ 72,855 $ 117,800 Commercial paper ....................... -- 216,697 Time deposits........................... -- 22,393 Total restricted and segregated assets . 72,855 356,890 Less current portion ................... (50,180) (50,064) -------------- -------------- Long-term portion ...................... $ 22,675 $ 306,826 ============== ===============
Included in restricted and segregated assets is $2.1 million and $3.7 million of accrued interest at December 31, 1998 and 1997, respectively. The balance at December 31, 1998 is restricted for use for interest payments on the Senior Notes through January 2000. The U.S. treasury notes held at December 31, 1998 mature between January 1999 and January 2000. CONCENTRATION OF CREDIT RISK Financial instruments which potentially subject Loral Orion to concentrations of credit risk consist principally of cash and cash equivalents, restricted and segregated assets and accounts receivable. The Company's cash and cash equivalents and restricted and segregated assets are maintained with high-credit-quality financial institutions. Management believes that its credit evaluation, approval and monitoring processes combined with negotiated billing arrangements mitigate potential credit risks with regard to the Company's current customer base. 29 LORAL ORION, INC. (A WHOLLY OWNED SUBSIDIARY OF LORAL SPACE & COMMUNICATIONS CORPORATION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED) PROPERTY AND EQUIPMENT Property and equipment are carried at cost except for the Orion 1 satellite which is recorded at estimated fair market value as of March 31, 1998, the date of the Loral Merger. Depreciation expense is calculated using the straight-line method over the 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 Orion 1 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. Similar costs for Orion 2 and Orion 3 are included in "Satellite construction in progress." Orion began depreciating the Orion 1 satellite over its estimated useful life commencing on the date of operational delivery in orbit, January 1995. VALUATION OF LONG-LIVED ASSETS AND COSTS IN EXCESS OF NET ASSETS ACQUIRED The carrying value of Loral Orion's long-lived assets and costs in excess of net assets acquired is reviewed for impairment whenever events or changes in circumstances indicate that an asset may not be recoverable. The Company looks to current and future profitability, as well as current and future undiscounted cash flows, excluding financing costs, as primary indicators of recoverability. If an impairment is determined to exist, any related impairment loss is calculated based on fair value. DEFERRED FINANCING COSTS Deferred financing costs related to a debt financing that was being amortized over the period the debt was expected to be outstanding. The net deferred financing costs outstanding at March 31, 1998 were written off to costs in excess of net assets acquired associated with the Loral Merger. Accumulated amortization at December 31, 1998 and 1997 was $0 and $2.3 million, respectively. Deferred financing costs of $10.5 million relating to the Orion 1 Credit Facility were expensed in January 1997 in connection with the Financings and are included in the caption "Extraordinary loss on extinguishment of debt" for 1997. COST IN EXCESS OF NET ASSETS ACQUIRED Cost in excess of net assets acquired associated with the Merger with Loral amounted to $619.7 million, which is being amortized over 40 years using the straight-line method. Accumulated amortization relating to cost in excess of net assets acquired at December 31, 1998 was $11.7 million. OTHER ASSETS Intangibles assets associated with the Loral Merger in 1998 are primarily amortized over the remaining useful life of Orion 1, which was approximately seven years at December 31, 1998. The net goodwill at December 31, 1997 was written off to costs in excess of net assets acquired associated with the Loral Merger. Accumulated amortization relating to other assets at December 31, 1998 and 1997 was $2.6 million and $6.2 million, respectively. The Company amortizes the FCC License application costs related to Orion 1 over the estimated useful life of the satellite. 30 LORAL ORION, INC. (A WHOLLY OWNED SUBSIDIARY OF LORAL SPACE & COMMUNICATIONS CORPORATION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED) Other assets, net of amortization as of December 31, 1998 and 1997, was as follows (in thousands):
DECEMBER 31, ------------------------------ 1997 PREDECESSOR 1998 COMPANY ----------- ------------------ Goodwill (related to prior acquisition).................. $ -- $ 20,332 Note receivable ......................................... 2,476 3,039 FCC license application costs ........................... 1,767 1,781 Intangible assets ....................................... 15,261 -- Other .................................................. 3,404 2,027 -------------- --------------- $ 22,908 $ 27,179 ============== ===============
FOREIGN CURRENCY TRANSLATION Results of operations for foreign entities, primarily the Company's Loral Orion-Europe GmbH subsidiary, are translated using average exchange rates during the period. Assets and liabilities are translated to U.S. dollars using the exchange rate in effect at the balance sheet date. The resulting translation adjustments are reflected in stockholders' equity (deficit) as accumulated other comprehensive income (loss). INTEREST RATE MODIFICATION AGREEMENT Orion entered into an interest-rate swap and cap agreement to modify the interest characteristics of the Orion 1 Credit Facility from a floating to a fixed-rate basis. This agreement involved the receipt of floating rate amount in exchange for fixed-rate interest payments over the life of the agreement without an exchange of the underlying principal amount. The differential paid or received was accrued as interest rates changed and was recognized as an adjustment to interest expense. The fair value of the swap agreement was not recognized in the financial statements. This agreement was terminated in January 1997 in connection with the Financings discussed in Note 1. The Company had no such agreements in place at December 31, 1998 or 1997. REVENUE RECOGNITION Revenue is recognized as earned in the period in which telecommunications and related services are provided. The following summarizes the Company's domestic and foreign revenues (in thousands):
PREDECESSOR COMPANY ----------------------------------------------- NINE MONTHS THREE MONTHS YEARS ENDED DECEMBER 31, ENDED ENDED ----------------------------- DECEMBER 31, MARCH 31, 1998 1998 1997 1996 ------------ ------------ ------------- ------------ Revenues from unaffiliated customers: United States....................... $ 24,001 $ 6,895 $ 30,927 $ 21,262 Germany ........................... 14,617 4,517 15,437 -- Other foreign ...................... 25,990 7,378 22,284 14,572 Revenues from related parties........... -- -- 4,093 6,013 ------------- ------------- ------------ ------------ Total services revenue.................. $ 64,608 $ 18,790 $ 72,741 $ 41,847 ============= ============= ============ ============
31 LORAL ORION, INC. (A WHOLLY OWNED SUBSIDIARY OF LORAL SPACE & COMMUNICATIONS CORPORATION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED) INCOME TAXES The Company recognizes deferred tax assets and liabilities for the expected future consequences of temporary differences between financial reporting and tax bases of assets and liabilities using enacted tax rates that will be in effect when the differences are expected to reverse. Following is a summary of components of the net deferred asset balance at December 31, 1998 and 1997 (in thousands):
DECEMBER 31, -------------------------------- 1997 PREDECESSOR 1998 COMPANY -------------- ---------------- Deferred tax assets: Net operating loss carryforward ................. $ 78,642 $ 61,648 Amortization of premium and discount on Senior Notes and Senior Discount Notes ........ 69,203 11,917 Amortization of intangibles ..................... (928) 2,947 Other ........................................... 4,560 3,385 -------------- -------------- 151,477 79,897 Deferred tax liabilities: Depreciation .................................... (3,678) (16,289) Other ........................................... (351) (741) -------------- -------------- (4,029) (17,030) -------------- -------------- Net deferred tax asset .......................... 147,448 62,867 Valuation allowance.............................. (93,533) (62,867) -------------- -------------- Net deferred tax asset, after valuation allowance............................ $ 53,915 $ -- ============== ==============
At December 31, 1998, Loral Orion had approximately $225.9 million in net operating loss carryforwards which expire at varying dates from 2004 through 2013. The use of these loss carryforwards, may be limited under the Internal Revenue Code as a result of ownership changes experienced by Loral Orion. Due to uncertainty regarding its ability to realize the benefits of such net operating loss carryforwards and certain other net deferred tax assets, the Company established a valuation allowance against deferred tax assets of $93.5 million. In 1998, the Company is included in the U.S. federal income tax return for Loral. Pursuant to a tax sharing agreement for 1998 with Loral, the Company is entitled to reimbursement for the use of its tax losses when such losses are utilized by Loral. For the nine months ended December 31, 1998, the Company recorded a receivable under this tax sharing agreement of approximately $4.9 million and a deferred tax provision of approximately $3.8 million, resulting in a net tax benefit of approximately $1.1 million. The Company's effective tax benefit rate (1%) differs from the federal statutory rate (35%), due to the valuation allowance established for the carryforward of the current year tax loss (29%) and the non-deductible amortization of cost in excess of net assets acquired (5%). The deferred tax asset of $53.9 million on the accompanying balance sheet primarily arises from the tax effect of the temporary differences between the carrying amount of the Senior Notes and the Senior Discount Notes payable for financial and income tax purposes. 32 LORAL ORION, INC. (A WHOLLY OWNED SUBSIDIARY OF LORAL SPACE & COMMUNICATIONS CORPORATION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED) STATEMENTS OF CASH FLOWS Non-cash investing and financing activities and supplemental cash flow information is (in thousands):
PREDECESSOR COMPANY --------------------------------------------------- NINE MONTHS THREE MONTHS YEARS ENDED DECEMBER 31, ENDED ENDED ------------------------------- DECEMBER 31, MARCH 31, 1998 1998 1997 1996 ------------ ----------- ------------- ----------- Property and equipment financed by capital leases $ -- $ -- $ -- $ 482 Preferred stock dividend, net of forfeitures -- (1,387) 6,034 1,370 Conversion of redeemable preferred stock to common stock -- 69,888 38,846 805 Conversion of subordinated debentures, accrued interest and deferred financing costs to common stock -- 50,000 10,292 -- Conversion of Company common stock to Loral common stock as the result of the Loral Merger -- 469,000 -- -- Issuance of Series C preferred stock -- -- 94,000 -- Issuance of common stock for preferred stock dividend -- 5,458 2,070 -- Issuance of common stock and warrants -- 4,757 13,407 300 Interest paid 25,551 25,237 35,573 20,619 Acquisition of Teleport Europe, net of cash acquired -- -- 8,375 --
Included in accounts receivable and other current liabilities at December 31, 1998 and March 31, 1998 are customer deposits and up front fees of $3.4 million and in $1.1 million, respectively. 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. EARNINGS PER SHARE Earnings per share is not presented since it is not considered meaningful due to the Loral Merger and the recapitalization of the Company. 33 LORAL ORION, INC. (A WHOLLY OWNED SUBSIDIARY OF LORAL SPACE & COMMUNICATIONS CORPORATION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED) COMPREHENSIVE INCOME On January 1, 1998, the Company adopted Statement of Financial Accounting Standards No. 130, Reporting Comprehensive Income ("SFAS 130"), which established rules for the reporting and disclosure of comprehensive income and its components. SFAS 130 requires unrealized gains or losses on the Company's foreign currency translation adjustments to be included in other comprehensive income (loss). Prior years amounts have been restated. The components of accumulated other comprehensive income (loss) are as follows (in thousands):
PREDECESSOR COMPANY ------------------------------- NINE MONTHS THREE MONTHS ENDED ENDED YEAR ENDED DECEMBER 31, MARCH 31, DECEMBER 31, 1998 1998 1997 -------------- ------------- ------------- Cumulative translation adjustment ....... $ 616 $ -- $ (956) -------------- -------------- -------------- Accumulated other comprehensive income (loss) ......................... $ 616 -- $ (956) ============== ============== ==============
ACCOUNTING PRONOUNCEMENTS For the year ended 1998 the Company adopted Statement of Financial Accounting Standards No. 131, Disclosures About Segments of an Enterprise and Related Information ("SFAS 131"), see Note 8. In June 1998, the Financial Accounting Standards Board issued Statement No. 133 Accounting for Derivative Instruments and Hedging Activities ("SFAS 133"), which requires that all derivative instruments be recorded on the balance sheet at their fair value. Changes in the fair value of derivatives are recorded each period in current earnings or other comprehensive income, depending on whether a derivative is designated as part of a hedge transaction and, if it is, the type of hedge transaction. The Company has not yet determined the impact that the adoption of SFAS 133 will have on its earnings or financial position. The Company is required to adopt SFAS 133 on January 1, 2000. RECLASSIFICATIONS Certain prior year amounts have been reclassified to conform to the current year presentation. 34 LORAL ORION, INC. (A WHOLLY OWNED SUBSIDIARY OF LORAL SPACE & COMMUNICATIONS CORPORATION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) 3. ORION ATLANTIC Orion Atlantic was 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. As of December 31, 1998, Orion Atlantic merged with Loral Orion Services, Inc. The business was organized by Orion Network Services, the general partner of Orion Atlantic. The principal purposes of Orion Atlantic was 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. Eight international corporations, including Orion, invested a total of $90 million in equity as limited partners in Orion Atlantic. Orion Atlantic through January 1997, was financed by 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 had agreed to lease capacity on the satellites up to an aggregate $155 million and had 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 were payable over a seven-year period after the Orion 1 satellite was 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 the contingent calls. As discussed in Note 1, in January 1997, the Company acquired all of the limited partnership interests it did not already own in Orion Atlantic. Orion 1 -- The fixed base price of Orion 1, excluding obligations relating to satellite performance, aggregated $227 million. In addition to the fixed base price, the contract required payments in lieu of a further contract price increase, aggregating approximately $44 million through 2007. 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 was not 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. The Company believes that since Orion 1 is properly deployed and operational, based upon industry data and experience, payment of the satellite performance obligation is highly probable and the Company capitalized the present value of this obligation of approximately $14.8 million as part of the cost of the satellite. The present value was estimated by discounting the obligation at 14 percent. As of March 31, 1998, in association with the Loral Merger, the obligation was revalued and recorded at approximately $16.2 million using a 12 percent discount rate over the remaining expected term. Redemption of STET Partnership Interest; Issuance of New Interest to Orion. - - -- In November 1995 Orion Atlantic redeemed the limited partnership interest held by STET (the "STET Redemption") for $11.5 million, including $3.5 million of cash and $8 million in 12 percent promissory notes due through 1997. STET's firm and contingent capacity leases remained in place until released by the Banks under the Orion 1 Credit Facility. STET's existing contractual arrangements with Orion Atlantic were 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 percent 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 accounted for this transaction as an acquisition of a minority interest and, as a result, approximately $3.1 million was allocated to the cost of the Orion 1 satellite and related equipment. 35 LORAL ORION, INC. (A WHOLLY OWNED SUBSIDIARY OF LORAL SPACE & COMMUNICATIONS CORPORATION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) 3. ORION ATLANTIC - (CONTINUED) During 1995, Orion Atlantic entered into agreements with certain Limited Partners (including the Company) under which the participating Limited Partners voluntarily gave up their rights to receive capacity under their firm capacity agreements through January 1996. The participating Limited Partners continued to make payments for such capacity but have the right to receive refunds from Orion Atlantic out of cash available after operating costs and payments under the Credit Facility. In addition, services revenue included $4.1 million and $6.0 million in 1997 and 1996 from Limited partners pursuant to the firm capacity commitments, not subject to refund. In connection with the Exchange described in Note 1, such rights were acquired by the Company. 4. COMMITMENTS AND CONTINGENCIES Orion 1 -- 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. Full service to all affected customers was restored using redundant equipment on the satellite. The Company believes, based on the data and the Telesat Report, 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 the Company'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 the Company would be entitled to insurance proceeds of approximately $47 million as of December 1998, and could lease replacement capacity and function as a reseller with respect to such capacity, the loss of capacity would have a material adverse effect on the Company. Orion 2 -- In July 1996, the Company signed a contract with Matra Marconi Space ("Matra") for the construction and launch of Orion 2 (which was amended and restated in January 1997) and in February 1997 Matra commenced construction of that satellite. During the second quarter of 1998, the Company entered into a satellite procurement contract with Space Systems/Loral ("SS/L"), a wholly owned subsidiary of Loral, for the construction and launch of the Orion 2 satellite for the operation in the Atlantic Ocean region at 12(0) W.L. (the "SS/L Conract"). The SS/L Contract provides for delivery in-orbit of the Orion 2 satellite aboard an Ariane 44L launch vehicle in the third quarter of 1999. The SS/L satellite design provides for 38 Ku-band transponder with a footprint covering the Eastern United States, Southeastern Canada, Europe, the Commonwealth of Independent States, the Middle East, North and South Africa and South America. During 1998, the Company notified Matra that it cancelled its satellite procurement contract with Matra for the construction and launch of a satellite for operation in the Atlantic Ocean region at 12(0) W.L. (the "Matra Contract"). As a result of the cancellation of the Matra Contract, the Company will have no obligation to make further payments to Matra, but Matra retained amounts previously paid by the Company of $49.1 million. As of March 31, 1998, in association with the Loral Merger, these costs and other internal direct costs, totaling approximately $62 million, capitalized in connection with the construction of the Orion 2 satellite, were written off to costs in excess of net assets acquired. The Company believes that the Orion 2 satellite being procured from SS/L offers significant benefits compared to the Matra satellite. Loral Orion's cash will be used to fund the SS/L Contract up to an amount that, when added to the amounts previously paid to Matra, will not exceed $202 million, the total amount that would otherwise have been due to Matra if the Matra Contract had not been canceled. Any requirements to SS/L in excess of $202 million for Orion 2 will be funded with additional equity contributed by Loral. Through December 31, 1998, $128.4 million has been paid to SS/L for Orion 2. Moreover, the SS/L-designed satellite is both larger and more powerful than the Matra-designed satellite. The SS/L satellite will have 8 additional transponders and will provide greater transmitted power to Loral Orion's customers. The expected in-orbit life of the SS/L satellite is approximately 16 years compared to 13 years for the Matra satellite. The SS/L satellite is designed to provide enhanced transponder switching capabilities as compared to the Matra satellite and also allows for both uplinking and downlinking of transmissions from South Africa, while the Matra satellite would not have allowed for uplinking. Orion 3 -- In January 1997, the Company entered into a satellite procurement contract with Hughes Space for the construction and launch of Orion 3, for which construction commenced in December 1996. The contract provides for delivery in orbit of Orion 3, for a firm fixed price of $203 million, excluding launch insurance and $8 million of incentive payments. Orion 3 will cover broad areas of the Asia Pacific region including China, Japan, Korea, Southeast Asia, Australia, New Zealand, Eastern Russia and Hawaii. 36 LORAL ORION, INC. (A WHOLLY OWNED SUBSIDIARY OF LORAL SPACE & COMMUNICATIONS CORPORATION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) 4. COMMITMENTS AND CONTINGENCIES - (CONTINUED) In November 1996, Orion entered into a contract with DACOM Corp. ("DACOM"), a Korean communications company, under which, subject to certain conditions, DACOM will purchase eight dedicated transponders on Orion 3 for 13 years, in return for approximately $89 million, payable over a period from December 1996 through seven months following the lease commencement date for the transponders. DACOM has deposited funds with Orion in accordance with the contract. As of December 31, 1998, Loral Orion had received $35.5 million from DACOM including interest of $1.5 million. As of December 31, 1997, Loral Orion had received $22.3 million from DACOM. Loral Orion maintained a $22.3 million letter of credit which was released on August 1, 1998. Orion had an obligation to maintain a letter of credit for seven months beginning on the lease commencement date in the amount of $44.8 million. Payments are subject to refund pending the successful launch and commencement of commercial operation of Orion 3. Agreements with Loral Skynet - During the fourth quarter of 1998, Loral completed its integration plan for Loral Orion and transferred management of Loral Orion's satellite capacity leasing and satellite operations to Loral Skynet, effective January 1, 1999. Orion and Loral Skynet, a division of Loral SpaceCom Corporation, which in turn is a wholly-owned subsidiary of Loral, have entered into agreements (the "Loral Skynet Agreements") effective January 1, 1999, whereby Loral Skynet provides to Orion (i) marketing and sales of satellite capacity services on the Orion satellite network and related billing and administration of customer contracts for those services (the "Sales Services") and (ii) telemetry, tracking and control services for the Orion satellite network (the "Technical Services", and together with the Sales Services, the "Services"). Orion will be charged Loral Skynet's costs for providing these services plus a 5 percent administrative fee. Litigation -- On November 9, 1996, Orion and Skydata Corporation ("Skydata") executed a letter with respect to the settlement in full of pending litigation and arbitration related to a patent dispute. As part of the settlement, Skydata granted Orion (and its affiliates) an unrestricted, world-wide paid-up license to make, have made, use or sell products or methods under the patent and all other corresponding continuation and reissue patents. Orion has paid Skydata $437,000 during 1997 and 1998 as part of this settlement. Loral Orion is party to various litigation arising in the normal course of its operations. In the opinion of management, the ultimate liability for these matters, if any, will not have a material adverse effect on Loral Orion's financial position or results of operations. Other -- Orion has entered into operating leases, principally for office space. Rent expense was $1.9 million, $0.4 million, $1.3 million and $0.9 million for the nine months ended December 31, 1998, three months ended March 31, 1998 and years ended December 31, 1997 and 1996, respectively. Future minimum lease payments are as follows (in thousands): 1999............................ $ 2,244 2000............................ 416 2001............................ 46 2002............................ 46 2003............................ 46 Thereafter...................... 506 ------------ $ 3,304 ------------
37 LORAL ORION, INC. (A WHOLLY OWNED SUBSIDIARY OF LORAL SPACE & COMMUNICATIONS CORPORATION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) 5. LONG-TERM DEBT Long-term debt consists of the following (in thousands):
DECEMBER 31, --------------------------- 1997 PREDECESSOR 1998 COMPANY ----------- ---------------- Senior notes (net of premium of $64.6 at December 31, 1998 and unamortized discount of $4.9 million at December 31, 1997) .................................. $ 507,573 $ 440,100 Senior discount notes (maturity value of $484 million). 408,812 292,337 Convertible junior subordinated debentures........... -- 50,000 Notes payable - TT&C Facility.......................... 4,953 6,022 Satellite incentive obligations........................ 11,376 6,479 Other.................................................. 781 2,139 -------------- --------------- Total long-term debt.............................. 933,495 797,077 Less: current portion.................................. (1,826) (6,406) -------------- --------------- Long-term debt less current portion............... $ 931,669 $ 790,671 ============== ===============
Total interest (including commitment fees, capitalized interest and amortization of deferred financing costs) incurred for the nine months ended December 31, 1998, three months ended March 31, 1998 and years ended December 31, 1997 and 1996 was $62.8 million, $24.5 million, $91.1 million and $27.8 million, respectively. Capitalized interest for the nine months ended December 31, 1998, three months ended March 31, 1998 and year ended December 31, 1997, was $16.4 million, $3.3 million and $7.3 million, respectively. No capitalized interest was recorded in 1996. Aggregate annual maturities of long-term debt consist of the following (in thousands): 1999....................... $ 1,826 2000....................... 1,985 2001....................... 2,382 2002....................... 2,891 2003....................... 1,728 Thereafter................. 922,683 --------------- $ 933,495 ===============
Senior Notes and Senior Discount Notes -- On January 31, 1997, the Company completed a $710 million bond offering (the "Bond Offering") comprised of approximately $445 million of Senior Note Units, each of which consists of one 11.25 percent Senior Note due 2007 (a "Senior Note") and one Warrant to purchase 0.8463 shares of common stock, par value $.01 per share ("Common Stock") of the Company (a "Senior Note Warrant"), and approximately $265.4 million of Senior Discount Note Units, each of which consists of one 12.5 percent Senior Discount Note due 2007 (a "Senior Discount Note," and together with the Senior Notes, the "Notes") and one Warrant to purchase 0.6628 shares of Common Stock of the Company (a "Senior Discount Note Warrant and together with the Senior Note Warrants, the "Warrants"). Interest on the Senior Notes is payable semi-annually in cash on January 15 and July 15 of each year, commencing July 15, 1997. The Senior Discount Notes do not pay cash interest prior to January 15, 2002. Thereafter, cash interest accrues until maturity at an annual rate of 12.5 percent payable semi-annually on January 15, and July 15 of each year, commencing July 15, 2002. The exercise price for the Warrants is $.01 per share of common stock of the Company. These warrants were assumed by Loral as a result of the Loral Merger. The Company made cash interest payments of $25.0 million and $24.9 million in January 1998 and July 1998 on the Senior Notes. The indentures supporting the Senior Notes and the Senior Discount Notes contain certain covenants which, among other things, restrict distributions to stockholders of the Company, the repurchase of equity interests in the Company and the making of certain other investments and restricted payments, the incurrence of additional indebtedness by the Company and its restricted subsidiaries, the creation of liens, certain asset sales, transaction with affiliates and related parties, and mergers and consolidations. The Company is in compliance with the requirements of such 38 LORAL ORION, INC. (A WHOLLY OWNED SUBSIDIARY OF LORAL SPACE & COMMUNICATIONS CORPORATION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) 5. LONG-TERM DEBT - (CONTINUED) indentures. The exercise price for the Warrants will be $.01 per share of common stock. There were 697,400 Warrants issued in connection with the Notes (see Note 6). On May 27, 1998, $2 million of Senior Notes were redeemed at 101 percent of the principal amount of the notes plus accrued interest to the payment date, and resulted in a gain on retirement of debt of approximately $.3 million. Convertible Junior Subordinated Debentures -- On January 31, 1997, in connection with the Financings discussed in Note 1, the Company completed the sale of $60 million of its convertible junior subordinated debentures (the "Convertible Debentures") to two investors, British Aerospace Holdings, Inc. ("British Aerospace") and Matra Marconi Space UK Limited ("Matra Marconi Space"). British Aerospace purchased $50 million of the Convertible Debentures and Matra Marconi Space purchased $10 million of the Convertible Debentures. The Convertible Debentures were to mature in 2012, and bore interest at a rate of 8.75 percent per annum that was to be paid semi-annually in arrears solely in Common Stock of the Company. The Convertible Debentures were subordinated to all other indebtedness of the Company, including the Notes. Matra Marconi Space converted their $10 million of Convertible Debentures and accrued interest into 735,292 shares of common stock in December 1997. In March 1998, British Aerospace converted their $50 million of Convertible Debentures and accrued interest into approximately 3.6 million shares of common stock. As of December 31, 1998, all of the debentures had been converted to common stock. The net proceeds of the Bond Offering and Debentures Offering were used by the Company to repay the Orion 1 credit facility, pre-fund the first three years of interest payments on certain of the Notes, and will be used to build and launch two additional satellites, Orion 2 and Orion 3. The extraordinary loss on extinguishment of debt of $15.8 million in 1997 was the result of expensing, unamortized deferred financing costs associated with the Orion 1 credit facility which was refinanced with the proceeds from the Bond Offering and termination of a interest rate cap agreement. Note Payable - TT&C Facility -- In June 1995 upon acceptance of the TT&C Facility, the Company refinanced $9.3 million from General Electric Credit Corporation as a seven-year term loan, payable monthly. The interest rate is fixed at 13.5 percent. 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 customary representations, warranties and covenants regarding certain activities of the Company. The Company is in compliance with the requirements of the financing agreement. Satellite Incentive Obligations --The obligations relating to satellite performance have been recorded at the present value (discounted at 14 percent for the Predecessor Company and 12 percent after the Loral Merger, the Company's estimated incremental borrowing rate for unsecured financing) of the required payments commencing at the originally scheduled maturity of the senior notes payable to banks and continuing through 2007. 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. During 1998, payments aggregating $7.2 million were made pursuant to this obligation. Notes Payable - STET -- In connection with the STET Redemption, the Company issued $8 million of promissory notes bearing interest at 12 percent per annum. Payments were due as follows: $2.5 million plus accrued interest paid 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-banks; and the remaining $2.0 million in monthly installments of $0.2 million plus accrued interest beginning January 1997. At December 31, 1997, the $8 million promissory notes issued in connection with the STET Redemption had been repaid. Notes Payable - Limited Partners -- In January 1997, the Company issued Series C Convertible Preferred Stock in exchange for the Preferred Participation Units (PPUs) aggregating $8.1 million due to certain former Limited Partners for development of Orion Atlantic's network services business. Holders of PPUs earned interest on aggregate amounts drawn at the rate of 30 percent per annum. As of March 31, 1998, the Series C Convertible Preferred Stock issued in exchange for the PPUs have been converted to common stock. 39 LORAL ORION, INC. (A WHOLLY OWNED SUBSIDIARY OF LORAL SPACE & COMMUNICATIONS CORPORATION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) 6. REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY As of March 31, 1998, all of the redeemable convertible preferred stock outstanding at December 31, 1997, including accrued dividends on Series C Preferred Stock were converted to approximately 6.1 million shares of common stock at prices ranging from $8.50 to $17.80 per share. Redeemable Preferred Stock In June 1994, Orion issued 11,500 shares of Series A 8 percent 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 accrued at 8 percent per year and were payable as and when declared. Orion could redeem the preferred stock at the amount invested plus accrued and unpaid dividends. Upon such a redemption, the preferred stockholders were to 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 were convertible into 1,352,941 shares of common stock ($8.50 per share). Upon conversion accrued and unpaid dividends were forfeited. 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. The 3,000 shares issued were convertible into 352,941 shares of common stock ($8.50 per share). Through December 31, 1997, 7,567 shares of preferred stock were converted into 890,235 shares of common stock. The remaining 6,933 shares outstanding were convertible into 815,647 shares of common stock at December 31, 1997. All Series A Preferred Stock outstanding was converted into common stock in connection with the Loral Merger. 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 had rights, designations and preferences substantially similar to those of the Series A Preferred Stock, and was subject to similar covenants, except that the Series B Preferred Stock was 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. Through December 31, 1997, 2,424 shares of preferred stock were converted into 237,647 shares of common stock. The remaining 2,059 shares outstanding were convertible into 201,862 shares of common stock at December 31, 1997. All Series B Preferred Stock outstanding was converted into common stock in connection with the Loral Merger. In January 1997, Orion issued 123,172 shares of Series C Cumulative Redeemable Preferred Stock to 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. in exchange for their Orion Atlantic partnership interests. Dividends on the preferred stock accrued at 6 percent per year and were distributable in the Company's common stock calculated based on the market price of such stock under a formula provided in the Certificate of Designations. The shares were convertible into approximately 7 million shares ($17.50 per share) of the Company's common stock. Through December 31, 1997, 40,531 shares of preferred stock, including dividends, were converted into approximately 2.4 million shares of common stock. Series C Cumulative Preferred Stock was recorded net of deferred offering costs of approximately $3.3 million. The Series C Cumulative Preferred Stock was subject to mandatory redemption at par value in 25 years. The difference between the carrying value and par value was being accreted over such period. The preferred stock had a liquidation preference equal to the amount invested plus accrued and unpaid dividends. Preferred stockholders were entitled to vote on an as-converted basis and had the right to put the stock to Loral Orion upon a merger, change of control or sale of substantially all assets at the greater of liquidation value or fair value. All Series C Preferred Stock was converted into common stock in connection with the Loral Merger. 40 LORAL ORION, INC. (A WHOLLY OWNED SUBSIDIARY OF LORAL SPACE & COMMUNICATIONS CORPORATION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) 6. REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY - (CONTINUED) Stockholders' Equity 1987 Employee Stock Option Plan - Under the 1987 Employee Stock Option Plan, 1,470,588 shares of common stock were reserved for issuance upon exercise of options granted. Shares of common stock were generally 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 was granted. Stock options outstanding at:
PREDECESSOR COMPANY ----------------------------------------------- MARCH 31, DECEMBER 31, DECEMBER 31, 1998 1997 1996 ------------- --------------- --------------- Range of exercise price.............. $8.16 - $12.29 $8.16 - $12.29 $8.16 - $12.24 Outstanding at beginning of year ... 1,174,310 911,663 971,469 Granted during year.................. -- 400,670 122,750 Exercised............................ (157,041) (81,383) (37,629) Canceled (1,250) (56,640) (144,927) Converted to options to acquire Loral common stock ................ (1,016,019) -- -- ------------- ------------- -------------- Outstanding at end of year........... -- 1,174,310 911,663 ============= ============= ==============
In November 1993, stock 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. At December 31, 1995, the executives had earned the right to exercise 40,441 of these options based on the achievement of such objectives. The remaining options were canceled during 1996. Stock options vested annually over a one to five-year period. All options were exercisable up to seven years from the date of grant. The Company's 1987 Employee Stock Option Plan expired in 1997. No further shares are available for grant under this plan. There were 506,803 and 429,265 options exercisable at December 31, 1997 and 1996, respectively. In July 1996, the Company granted, subject to shareholder approval, the Chairman of the Executive Committee 100,000 options at $9.83 per share. These options vested as follows, 50,000 on January 17, 1997 and 50,000 upon successful completion of either a refinancing of the Orion 1 satellite, financing for construction, launch and insurance for Orion 2 or Orion 3 or a substantial acquisition or relationship with a strategic partner. These requirements were met in January 1997. In March 1998, the 1997 Employee Stock Option Plan was assumed by Loral and all outstanding options were converted to options to acquire Loral common stock. Non-Employee Director Stock Option Plan - In 1996, Orion adopted a Non-Employee Director Stock Option plan. Under this plan, 380,000 shares of common stock were reserved for issuance. During 1997, there were 80,000 options granted pursuant to this plan at $9.60 per share. At December 31, 1997, aggregate options outstanding pursuant to this plan totaled 270,000, of which, 180,000 were exercisable at prices ranging from $8.49 to $12.53 per share. In March 1998, the Non-Employee Director Stock Option Plan was assumed by Loral and all outstanding options were converted to options to acquire Loral common stock. 1997 Employee Stock Option Plan - In 1997, Orion adopted a second stock option plan. Under this plan, as amended, 1,300,000 shares of common stock were reserved for issuance upon exercise of options granted. Shares of common stock could be purchased under this plan at prices not less than the fair value as determined by the Board of Directors, on the date the option were granted. 41 LORAL ORION, INC. (A WHOLLY OWNED SUBSIDIARY OF LORAL SPACE & COMMUNICATIONS CORPORATION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) 6. REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY - (CONTINUED) Compensation expense relating to these plans was not significant. Stock options outstanding at:
PREDECESSOR COMPANY ---------------------------- MARCH 31, DECEMBER 31, 1998 1997 ---------------- --------------- Range of exercise price............. $9.30 - $17.06 $9.30 - $17.06 ================ ================ Outstanding at beginning of year.... 552,000 -- Granted during year................. -- 556,000 Exercised ......................... (5,000) -- Canceled ......................... (80,000) (4,000) Converted to options to acquire Loral common stock ............... (467,000) -- ------------- ------------- Outstanding at end of year.......... $ -- $ 552,000 ============= ==============
There were 62,500 options exercisable at December 31, 1997. In March 1998, the 1997 Employee Stock Option Plan was assumed by Loral and all outstanding options were converted to options to acquire Loral common stock. 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 ("SFAS 123") 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. Pro forma information regarding net income and earnings per share required by SFAS 123, has been determined as if the Company had accounted for its stock options under the fair value method of that statement. The fair value of these options was estimated at the date of the grant using a Black-Scholes valuation model with the following assumptions:
PREDECESSOR COMPANY ---------------------------------------- MARCH 31, 1998 1997 1996 ------------- ------------- ---------- Risk-free interest rate ............. 6.5% 6.5% 6.5% Expected dividend yields ............ 0.0% 0.0% 0.0% Expected life of option ............. 6.5 years 6.5 years 5.8 years Volatility of the Company's stock ... 69% 69% 68%
For purposes of adjusted pro forma disclosures, the estimated fair value of the options is amortized to expense over the option's vesting period. The effect of applying SFAS 123 on pro forma net loss is not necessarily representative of the effects on reported net loss for future years due to, among other things, (1) the vesting period of the stock options and the (2) fair value of additional stock options in future years. The Company's adjusted pro forma information are as follows (in thousands, except per share information): 42 LORAL ORION, INC. (A WHOLLY OWNED SUBSIDIARY OF LORAL SPACE & COMMUNICATIONS CORPORATION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) 6. REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY - (CONTINUED)
PREDECESSOR COMPANY ------------------------------------------- THREE MONTHS ENDED MARCH 31, 1998 1997 1996 -------------- ------------ ---------- Adjusted pro forma net loss ................ $ (40,777) $ (110,703) $ (28,031) =============== ============ ============= Adjusted pro forma net loss per share ...... $ -- $ (10.03) $ (2.68) =============== ============ =============
401(k) Profit Sharing Plan -- In September 1996, Orion amended the 401(k) profit sharing plan. Under this plan, 100,000 shares of common stock are reserved for issuance as the Company's discretionary match of employee contributions. The Company's matching contributions may be made in either cash or in the equivalent amount of the Company's common stock. For the four months ended April 30, 1998 and the year ended December 31, 1997, the Company's matching contribution was 3,341 and 10,480 shares of the Company's common stock with a value of approximately $60,000 and $180,000, respectively. Effective May 1, 1998, the 401(k) Profit Sharing Plan was merged into the Loral Space and Communications, Ltd. Savings Plan and $0.8 million of matching contributions were incurred in this plan for the period May 1, 1998 through December 31, 1998. Stock Purchase Plan -- In September 1996, Orion adopted an employee stock purchase plan. Under this plan, 500,000 shares of common stock are reserved for issuance. Shares of common stock were purchased under this plan through payroll deduction. The purchase price of each share of common stock purchased under the plan was 85 percent of the fair market value of the common stock on the measurement date. During 1998 and 1997 the Company issued 20,180 and 27,731 shares, respectively, pursuant to the Plan. In March 1998 the Stock Purchase Plan was terminated. Stock Warrants - In November 1996, Orion granted 50,000 warrants to DACOM to purchase shares of common stock at $14 per share. The warrants are 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 the commencement date and will terminate at that time or at any time the Joint Investment Agreement is terminated. The fair value of the warrants at the date of issue was $300,000 and was estimated using a Black Scholes valuation model. Warrants outstanding at:
PREDECESSOR COMPANY --------------------------------------------------- MARCH 31, DECEMBER 31, DECEMBER 31, 1998 1997 1996 --------------- -------------- ----------------- Range of exercise price............. $0.01 - $14.00 $0.01 - $14.00 $9.79 - $14.00 =============== ============== ============== Outstanding at beginning of year.... 740,550 142,115 553,768 Granted during year................. -- 697,400 50,000 Exercised ......................... (2,518) (96,159) -- Canceled ......................... -- (2,806) (461,653) Converted to warrants to acquire Loral common stock ............... (738,032) -- -- -------------- ------------- -------------- Outstanding at end of year.......... -- 740,550 142,115 ============== ============= ==============
There were 690,550 and 92,115 warrants exercisable at December 31, 1997 and 1996, respectively. 43 LORAL ORION, INC. (A WHOLLY OWNED SUBSIDIARY OF LORAL SPACE & COMMUNICATIONS CORPORATION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) 6. REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY - (CONTINUED) The holders of preferred stock also hold warrants to purchase 1,017,509 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. As of March 31, 1998, these warrants were forfeited as a result of the conversion of all preferred stock to common stock. In January 1997, the Company issued Senior Note Warrants and Senior Discount Note Warrants to acquire 376,608 and 320,792 shares of common stock, respectively at $.01 per share in connection with the Bond Offering. The warrants were not exercisable prior to six months after the closing date of the Bond Offering and became separately transferable from the Notes six months from date of issuance. The estimated fair value of the warrants aggregating $9.6 million was allocated $5.2 million to Senior Notes and $4.4 million to Senior Discount Notes as debt discount. At December 31, 1997, 6,850 warrants were converted into 5,797 shares of common stock. In March 1998, the warrants were converted to warrants to purchase Loral common stock. Shares Reserved for Issuance - The Company had 0 shares and 14,036,809 shares of common stock at December 31, 1998 and 1997, respectively, reserved for issuance upon conversion of debentures and preferred stock, exercise of outstanding stock options and warrants, and common stock issued under the stock purchase and 401(k) profit sharing plans. Loral's 1996 Stock Option Plan - Certain employees of Loral Orion participate in Loral's 1996 Stock Option Plan. Under this plan, options are granted at the discretion of Loral's Board of Directors to employees of Loral and its affiliates. Such options become exercisable as determined by the Board, generally over five years, and generally expire no more than 10 years from the date of grant. For the nine months ended December 31, 1998, Loral granted certain key employees of Loral Orion options to purchase shares of Loral common stock at a weighted average price of $24.55 per share (weighted average fair value of $5.88 per share). No options were exercised, and at December 31, 1998, options to purchase 513,420 shares were outstanding, 1,200 of which were exercisable. As described above, Loral Orion accounts for its stock-based awards using the intrinsic value method in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" and its related interpretations. SFAS No. 123, "Accounting for Stock-Based Compensation" requires the disclosure of pro forma net income (loss). Loral Orion adopted the fair value method. SFAS No. 123 requires that equity instruments granted to an employee by a principal stockholder be included as part of the disclosure. The pro forma incremental effect on net loss required to be disclosed under SFAS No. 123 is approximately $1.9 million for the nine months ended December 31, 1998. 7. FAIR VALUES OF FINANCIAL INSTRUMENTS Other than amounts due under the Senior Notes and Senior Discount Notes, Orion believes that the carrying amount reported in the balance sheet of its other financial assets and liabilities approximates their fair value at December 31, 1998. The fair value of the Company's Senior Notes and Senior Discount Notes was estimated based on quoted market prices, at December 31, 1998 and 1997, to be approximately $438.6 million and $304.9 million, and $511.8 million and $377.5 million, respectively. 44 LORAL ORION, INC. (A WHOLLY OWNED SUBSIDIARY OF LORAL SPACE & COMMUNICATIONS CORPORATION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) 8. SEGMENTS The Company has two reportable business segments: Fixed Satellite Services and Data Services (see Note 1). In evaluating financial performance, management uses revenues and earnings before interest, taxes and depreciation and amortization ("EBITDA") as the measure of a segment's profit or loss. The accounting policies of the reportable segments are the same as those described in Note 2. Summarized financial information concerning the reportable segments is as follows: NINE MONTHS ENDED DECEMBER 31, 1998 SEGMENT INFORMATION (IN MILLIONS)
FIXED TOTAL SATELLITE DATA REPORTABLE SERVICES SERVICES SEGMENTS CONSOLIDATED --------------- --------------- -------------- ------------- Revenue from external customers ...... $ 25.2 $ 39.4 $ 64.6 $ 64.6 =============== =============== ============== ============= EBITDA (1)............................ $ 21.2 $ (13.2) $ 8.0 $ 8.0 Depreciation and amortization ........ 41.6 9.8 51.4 51.4 Merger costs ......................... -- -- -- .6 --------------- --------------- -------------- ------------- Income (loss) from operations ........ $ (20.4) $ (23.0) $ (43.4) $ (44.0) =============== =============== ============== ============= Capital expenditures ................. $ 272.1 $ 12.0 $ 284.1 $ 284.1 =============== =============== ============== ============= Total assets ......................... $ 1,355.4 $ 56.3 $ 1,411.7 $ 1,417.5 =============== =============== ============== =============
THREE MONTHS ENDED MARCH 31, 1998 SEGMENT INFORMATION PREDECESSOR COMPANY (IN MILLIONS)
FIXED TOTAL SATELLITE DATA REPORTABLE SERVICES SERVICES SEGMENTS CONSOLIDATED --------------- --------------- -------------- ------------- Revenue from external customers ...... $ 7.9 $ 10.9 $ 18.8 $ 18.8 =============== =============== ============== ============= EBITDA (1)............................ $ 6.7 $ (5.7) $ 1.0 $ 1.0 Depreciation and amortization ........ 9.6 2.9 12.5 12.5 Merger costs ......................... -- -- -- 12.2 --------------- --------------- -------------- ------------- Income (loss) from operations......... $ (2.9) $ (8.6) $ (11.5) $ (23.7) =============== =============== ============== ============= Capital expenditures ................. $ 14.8 $ 3.6 $ 18.4 $ 18.4 =============== =============== ============== ============= Total assets ......................... $ 1,381.8 $ 49.4 $ 1,431.2 $ 1,431.2 =============== =============== ============== =============
With the exception of the Company's satellite in orbit, the Company's long-lived assets are primarily located in the United States, Germany and other foreign countries, and at December 31, 1998, amounted to approximately, $979 million, $6 million and $13 million, respectively. 45 LORAL ORION, INC. (A WHOLLY OWNED SUBSIDIARY OF LORAL SPACE & COMMUNICATIONS CORPORATION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) 8. SEGMENTS - (CONTINUED) 1997 SEGMENT INFORMATION PREDECESSOR COMPANY (in millions)
FIXED TOTAL SATELLITE DATA REPORTABLE SERVICES SERVICES SEGMENTS CONSOLIDATED --------------- --------------- -------------- ------------- Revenue from external customers ...... $ 31.3 $ 41.4 $ 72.7 $ 72.7 =============== =============== ============== ============= EBITDA (1)............................ 21.3 (16.2) 5.1 5.1 Depreciation and amortization ........ 34.1 14.1 48.2 48.2 --------------- --------------- -------------- ------------- Income (loss) from operations......... $ (12.8) $ (30.3) $ (43.1) $ (43.1) =============== =============== ============== ============= Capital expenditures ................. $ 102.3 $ 11.0 $ 113.3 $ 113.3 =============== =============== ============== ============= Total assets ......................... $ 849.0 $ 47.5 $ 896.5 $ 896.5 =============== =============== ============== =============
1996 SEGMENT INFORMATION PREDECESSOR COMPANY (IN MILLIONS) FIXED TOTAL SATELLITE DATA REPORTABLE SERVICES SERVICES SEGMENTS CONSOLIDATED --------------- --------------- -------------- ------------- Revenue from external customers ...... $ 24.9 $ 17.0 $ 41.9 $ 41.9 =============== =============== ============== ============= EBITDA 1.............................. 13.4 (12.8) 0.6 0.6 Depreciation and amortization ........ 30.3 6.6 36.9 36.9 --------------- --------------- -------------- ------------- Income (loss) from operations ........ $ (16.9) $ (19.4) $ (36.3) $ (36.3) =============== =============== ============== ============= Capital expenditures ................. $ 3.8 $ 12.6 $ 16.4 $ 16.4 =============== =============== ============== ============= Total assets ......................... $ 327.8 $ 30.5 $ 358.3 $ 358.3 =============== =============== ============== =============
- - ---------------------------- (1) EBITDA (which is equivalent to operating income (loss) before depreciation and amortization and merger costs) is provided because it is a measure commonly used in the communication industry to analyze companies on the basis of operating performance, leverage and liquidity and is presented to enhance the understanding of Loral Orion's operating results. However, EBITDA should not be construed as an alternative to net income as an indicator of a company's operating performance, or cash flow from operations as a measure of a company's liquidity. EBITDA may be calculated differently and, therefore, may not be comparable to similarly titled measures reported by other companies. 46 LORAL ORION, INC. (A WHOLLY OWNED SUBSIDIARY OF LORAL SPACE & COMMUNICATIONS CORPORATION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) 9. CONDENSED FINANCIAL INFORMATION OF LORAL ORION, INC. Presented below are condensed balance sheets of Loral Orion, Inc. (parent company only basis) at December 31, 1998 and 1997. All material contingencies, obligations and guarantees of Loral Orion, Inc. have been separately disclosed in the preceding notes to the financial statements. CONDENSED BALANCE SHEETS OF LORAL ORION, INC. (PARENT COMPANY ONLY BASIS)
DECEMBER 31, ---------------------------------- 1997 PREDECESSOR 1998 COMPANY -------------- --------------- ASSETS Current assets: Restricted assets ..................................... $ 50,180 $ 50,064 Receivable from subsidiaries .......................... 489,384 -- ------------- -------------- Total current assets.............................. 539,564 50,064 Restricted and segregated assets ........................ 22,675 284,433 Investment in and advances to subsidiaries .............. 591,421 460,572 Deferred income taxes ................................... 53,915 -- Due from Loral .......................................... 3,619 -- Costs in excess of net asset acquired associated with the Loral merger, net ............................ Other assets, net ....................................... 15,261 42,021 ------------- -------------- Total assets...................................... $ 1,834,470 $ 837,090 ============= ============== LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities: Payables to subsidiaries .............................. $ 490,984 $ -- Accrued liabilities ................................... 5,166 -- Other current liabilities ............................. -- -- Interest payable senior notes and debentures .......... 22,842 24,768 ------------- -------------- Total current liabilities......................... 518,992 24,768 Long term debt .......................................... 916,387 782,437 Redeemable preferred stock............................... -- 76,734 Stockholders' equity (deficit)........................... 399,091 (46,849) ------------- -------------- Total liabilities and stockholders' equity (deficit) $ 1,834,470 $ 837,090 ============= ==============
47 LORAL ORION, INC. (A WHOLLY OWNED SUBSIDIARY OF LORAL SPACE & COMMUNICATIONS CORPORATION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) 9. CONDENSED FINANCIAL INFORMATION OF LORAL ORION, INC. - (CONTINUED)
CONDENSED STATEMENTS OF OPERATIONS OF LORAL ORION, INC. (PARENT COMPANY ONLY BASIS) PREDECESSOR COMPANY ---------------------------------------------------- NINE MONTHS THREE MONTHS YEARS ENDED DECEMBER 31, ENDED ENDED DECEMBER 31, MARCH 31, 1998 1998 1997 1996 ---------------- ---------------- ---------------- -------------------- Services revenue ................................... $ -- $ -- $ -- $ 34 Operating expenses and other income: General and administrative ....................... 40 -- 2,170 3,832 Interest expense (income), net.................... 54,644 18,285 57,069 (1,884) Depreciation and amortization .................... 14,375 -- -- -- Other (income), net .............................. (274) -- -- -- Merger costs ................................... -- 12,145 -- -- ---------------- ---------------- ---------------- --------------- Total operating expenses and other income......... 68,785 30,430 59,239 1,948 Equity in net losses of subsidiaries ................ 12,289 9,261 46,501 25,281 Income tax benefit .................................. (1,105) -- -- -- ---------------- ---------------- ---------------- --------------- Net loss ............................................ (79,969) (39,691) (105,740) (27,195) Preferred dividends ................................. -- (1,387) -- -- ---------------- ---------------- ---------------- --------------- Net loss attributable to common stockholders ....... $ (79,969) $ (38,304) $ (105,740) $ (27,195) =============== =============== ================ ===============
48 LORAL ORION, INC. (A WHOLLY OWNED SUBSIDIARY OF LORAL SPACE & COMMUNICATIONS CORPORATION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) 9. CONDENSED FINANCIAL INFORMATION OF LORAL ORION, INC. - (CONTINUED)
CONDENSED STATEMENTS OF CASH FLOWS OF LORAL ORION, INC. (PARENT COMPANY ONLY BASIS) PREDECESSOR COMPANY ------------------------------------------------------ NINE MONTHS THREE MONTHS YEARS ENDED DECEMBER 31, ENDED ENDED DECEMBER 31, MARCH 31, 1998 1998 1997 1996 ---------------- ---------------- ---------------- ---------------- NET CASH PROVIDED BY (USED IN) OPERATIONS............ $ (24,320) $ (37,300) $ (22,806) $ (4,047) INVESTING ACTIVITIES: Advances to subsidiaries........................... (247,640) (755) (407,093) (15,529) Increase in restricted and segregated assets ...... -- -- (406,938) -- Release of restricted and segregated assets ....... 273,960 35,938 90,501 -- Capital expenditures............................... -- -- -- (504) ---------------- ---------------- ---------------- ---------------- Net cash provided by (used in) investing activities...................................... 26,320 35,183 (723,530) (16,033) FINANCING ACTIVITIES: Proceeds from issuance of debt, net ............... -- -- 744,275 -- Proceeds from issuance of redeemable preferred stock.................................. -- -- 2,152 -- Proceeds from issuance of common stock............. -- 2,117 -- 343 Purchase of treasury stock ........................ -- -- (91) -- Repayment of senior notes payable.................. (2,000) -- -- (2,496) ---------------- ---------------- ---------------- ---------------- Net cash provided by (used in) financing activities ...................................... (2,000) 2,117 746,336 (2,153) ---------------- ---------------- ---------------- ---------------- Net (decrease) increase in cash and cash equivalents...................................... -- -- -- (22,233) Cash and cash equivalents at beginning of year....... -- -- -- 48,798 ---------------- ---------------- ---------------- ---------------- Cash and cash equivalents at end of year............. $ -- $ -- $ -- $ 26,565 ================ ================ ================ ================
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. Loral Orion , Inc. ("Loral Orion"), a Delaware company, is a holding company which is the ultimate parent of all Loral Orion subsidiaries. The accompanying financial statements reflect the financial position, results of operations and cash flows of Loral Orion on a separate company basis. All subsidiaries of Loral Orion are reflected as investments accounted for under the equity method of accounting. Accordingly intercompany payables and receivables have not been eliminated. Loral Orion's significant transactions with its subsidiaries other than the investment account and related equity in net loss of unconsolidated subsidiaries are intercompany payables and receivables resulting primarily from the funding of operations and the construction of Loral Orion satellites. No cash dividends were paid to Loral Orion by its affiliates during nine months ended December 31, 1998, the three months ended March 31, 1998 and the years ended December 31, 1997 and 1996. 49 LORAL ORION, INC. (A WHOLLY OWNED SUBSIDIARY OF LORAL SPACE & COMMUNICATIONS CORPORATION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) 10. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) The following is a summary of the quarterly results of operations for the years ended December 31, 1998 and 1997 (in thousands):
PREDECESSOR COMPANY MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, --------- -------- ------------- ------------ 1998 Revenues................................... $ 18,790 $ 20,243 $ 21,153 $ 23,212 Loss from operations....................... (23,639) (15,296) (13,951) (14,782) Loss before income taxes, extraordinary loss on extinguishment of debt, minority interest and preacquisition loss of (39,691) (28,000) (26,301) (26,701) acquired subsidiary..................... Net loss .................................. (39,691) (19,755) (29,614) (30,600) PREDECESSOR COMPANY ----------------------------------------------------------------------------- MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, --------- -------- ------------- ------------ 1997 Revenues................................... $ 20,233 $ 16,687 $ 17,619 $ 18,202 Loss from operations....................... (8,317) (10,915) (11,270) (12,579) Loss before income taxes, extraordinary loss on extinguishment of debt, minority interest and preacquisition loss of (22,889) (24,745) (27,510) (27,501) acquired subsidiary..................... Net loss................................... (25,984) (24,745) (27,510) (27,501)
50 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS AND ACCOUNTING AND FINANCIAL DISCLOSURES. As a result of the Merger, the Board of Directors of the Company appointed Deloitte & Touche LLP ("Deloitte & Touche") as independent auditors, effective May 13, 1998. Deloitte & Touche replaced Ernst & Young LLP ("Ernst & Young"), which served as the Company's independent auditors for the fiscal years ended December 31, 1997 and December 31, 1996 and was dismissed, effective May 13, 1998. The reports issued by Ernst & Young on the Company's financial statements for the fiscal years ended December 31, 1997 and December 31, 1996 did not contain any adverse opinion or disclaimer of opinion, and were not qualified or modified as to uncertainty, audit scope or accounting principles. During the fiscal years ended December 31, 1997 and December 31, 1996, and during the interim period preceding May 13, 1998, (i) there were no disagreements with Ernst & Young on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure and which, if not resolved to the satisfaction of Ernst & Young, would have caused Ernst & Young to make reference to these matters in their report and (ii) there were no "reportable events" (as that term is described in Item 304(a)(i)(v) of Regulation S-K). PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. Omitted pursuant to General Instruction I of Form 10-K. ITEM 11. EXECUTIVE COMPENSATION. Omitted pursuant to General Instruction I of Form 10-K. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. Omitted pursuant to General Instruction I of Form 10-K. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. Omitted pursuant to General Instruction I of Form 10-K. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. (a) (1) and (2) List of Financial Statements and Financial Statement Schedules The following consolidated financial statements of Loral Orion, Inc. are included in Item 8: Consolidated Balance Sheets - December 31, 1998 and 1997 (Predecessor Company) Consolidated Statements of Operations - Nine months ended December 31, 1998, and for the Predecessor Company the three months ended March 31, 1998, and the years ended December 31, 1997 and 1996 Consolidated Statements of Changes in Stockholders' Equity (Deficit) - Nine months ended December 31, 1998, and for the Predecessor Company the three months ended March 31, 1998, and the years ended December 31, 1997 and 1996 Consolidated Statements of Cash Flows - Nine months ended December 31, 1998, and for the Predecessor Company the three months ended March 31, 1998, and the years ended December 31, 1997 and 1996 Notes to Consolidated Financial Statements 51 All schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and therefore have been omitted, except for Schedule I, condensed financial information which is presented in Note 9 in the Company's consolidated financial statements. (b) Reports on Form 8-K filed in the fourth quarter of 1998: None. (c) Exhibits EXHIBIT NUMBER EXHIBIT DESCRIPTION - - ------ ------------------- 2.1 Agreement and Plan of Merger, dated as of October 7, 1997, by and among Orion, Loral and Loral Satellite Corporation. (Incorporated by reference to exhibit number 2.1 in Current Report on Form 8-K dated October 9, 1997). 2.2 Principal Stockholder Agreement among Orion, Loral, Loral Satellite Corporation and the stockholders that are signatories thereto, dated as of October 7, 1997. (Incorporated by reference to exhibit number 2.2 in Current Report on Form 8-K dated October 9, 1997). 2.3 Amendment No. 1 Agreement and Plan of Merger, dated as of February 11, 1998, by and among Orion, Loral and Loral Satellite Corporation. (Incorporated by reference to exhibit number 2.2 in Registration Statement No. 333-46407 on Form S-4). 2.4 Amendment No. 1 to Principal Stockholder Agreement among Orion, Loral, Loral Satellite Corporation and the stockholders that are signatories thereto, dated as of December 1, 1997. (Incorporated by reference to Exhibit number 2.4 in Annual Report on Form 10-K for fiscal year ended December 31, 1997). 3.1 Certificate of Merger of Loral Satellite Corporation into Orion dated March 20, 1998 and Exhibit A thereto, Restated Certificate of Incorporation of the Company.* 3.2 Certificate of Amendment to Certificate of Incorporation of the Company.* 3.3 Amended and Restated Bylaws of the Company.* 4.1 Form of Senior Note Indenture and Form of Note included therein. (Incorporated by reference to Exhibit number 4.1 to Registration Statement No. 333-19167 on Form S-1). 4.2 Form of Senior Discount Note Indenture and Form of Note included therein. (Incorporated by reference to Exhibit number 4.2 to Registration Statement No. 333-19167 on Form S-1). 4.3 Form of Collateral Pledge and Security Agreement. (Incorporated by reference to Exhibit number 4.3 to Registration Statement No. 333-19167 on Form S-1). 10.1 Second Amended and Restated Purchase Agreement, dated September 26, 1991 ("Satellite Contract") by and between Loral Orion Services, Inc. (formerly known as Orion Satellite Corporation) 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). 52 EXHIBIT NUMBER EXHIBIT DESCRIPTION - - ------ ------------------- 10.2 Restated Amendment No. 10 dated December 10, 1996, between LOSI and Matra Marconi Space to the Second Amended and Restated Purchase Agreement, dated September 16, 1991 by and between OrionServ and British Aerospace PLC (which contract and prior exhibits thereto were incorporated by reference as exhibit number 10.1). (Incorporated by reference to exhibit number 10.2 in Registration Statement No. 333-19795 on Form S-4). 10.3 Contract for a Satellite Control System, dated December 7, 1992, by and between Loral Orion Services, Inc., 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). 10.4 Credit Agreement, dated as of November 23, 1993, by and between Loral Orion Services, Inc. (as successor in interest to Orion Atlantic, L.P.) 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). 10.5 Security Agreement, dated as of November 23, 1993, by and between Loral Orion Services, Inc. and GECC. (Incorporated by reference to exhibit number 10.33 in Registration Statement No. 33-80518 on Form S-1). 10.6 Assignment and Security Agreement, dated as of November 23, 1993, by and between Loral Orion Services, Inc. and GECC. (Incorporated by reference to exhibit number 10.34 in Registration Statement No. 33-80518 on Form S-1). 10.7 Consent and Agreement, dated as of November 23, 1993, by and between Loral Orion Services, Inc., Martin Marietta Corporation and GECC. (Incorporated by reference to exhibit number 10.35 in Registration Statement No. 33-80518 on Form S-1). 10.8 Deed of Trust, dated as of November 23, 1993, by and between Loral Orion Services, Inc., 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). 10.9 Lease Agreement, dated as of November 23, 1993, by and between OrionNet, Inc. and Loral Orion Services, Inc. (as successor in interest to Orion Atlantic, L.P.), 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). 10.10 Note for Interim Loans, dated as of November 23, 1993, by and between Loral Orion Services, Inc. (as successor in interest to Orion Atlantic, L.P.) and GECC. (Incorporated by reference to exhibit number 10.42 in Registration Statement No. 33-80518 on Form S-1). 10.11 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 10.39 in Registration Statement No. 33-80518 on Form S-1). 10.12 Restated Definitive Agreement, dated October 29, 1998, by and between Orion and Republic of the Marshall Islands. [CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS DOCUMENT.]* 10.13 TT&C Earth Station Agreement, dated as of November 11, 1996, by and between Loral Orion Services, Inc. (by assignment from Loral Orion-Asia Pacific, Inc., formerly known as Orion Asia Pacific Corporation and DACOM Corp. [CONFIDENTIAL TREATMENT HAS BEEN GRANTED FOR PORTIONS OF THIS DOCUMENT.] (Incorporated by reference to exhibit number 10.39 in Registration Statement No. 333-19795 on Form S-4). 53 EXHIBIT NUMBER EXHIBIT DESCRIPTION - - ------ ------------------- 10.14 Joint Investment Agreement, dated as of November 11, 1996, by and between Loral Orion Services, Inc. (by assignment from Loral Orion-Asia Pacific, Inc., formerly known as Orion Asia Pacific Corporation) and DACOM Corp. [CONFIDENTIAL TREATMENT HAS BEEN GRANTED FOR PORTIONS OF THIS DOCUMENT.] (Incorporated by reference to exhibit number 10.40 in Registration Statement No. 333-19795 on Form S-4). 10.15 Orion 3 Spacecraft Purchase Contract, dated January 15, 1997, by and among Hughes Space and Communications International, Inc., Loral Orion Services, Inc. (by assignment from Loral Orion-Asia Pacific, Inc., formerly known as Orion Asia Pacific, Inc.) and Orion. [CONFIDENTIAL TREATMENT HAS BEEN GRANTED FOR PORTIONS OF THIS DOCUMENT.]. (Incorporated by reference to Exhibit number 10.52 to Registration Statement No. 333-19167 on Form S-1). 10.16 Letter Agreement, effective as of May 20/21, 1997, by and between Orion and Morgan Stanley & Co. (Incorporated by reference to Exhibit number 10.53 to Annual Report on Form 10-K for the fiscal year ended December 31, 1997). 10.17 Orion-Z Spacecraft Purchase Contract, dated May 15, 1998, by and between Loral Orion Services, Inc. and Space Systems/Loral, Inc. and Amendment No. 1 dated December 29, 1998. [CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS DOCUMENT.]* 10.18 Agreement, dated January 1, 1999, by and between Loral Orion Services, Inc. and Loral Skynet.* 10.19 Agreement, dated January 1, 1999, by and between Loral Orion Services, Inc. and Loral Skynet.* 23 None 27 Financial Data Schedule.* * Filed herewith. (d) Financial statement schedule Schedule I, see Note 9 in the Company's Consolidated Financial Statements 54 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. LORAL ORION, INC. /s/ Benard L. Schwartz By: Bernard L. Schwartz (Chairman of the Board and Chief Executive Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature Title Date - - --------- ----- ---- /s/ Bernard L. Schwartz Chairman of the Board March 30, 1999 - - --------------------------- and Chief Executive Officer Bernard L. Schwartz /s/ George Baker Director March 30, 1999 - - --------------------------- George Baker /s/ Gregory J. Clark Chief Operating Officer and March 30, 1999 - - --------------------------- Director Gregory J. Clark /s/ Michael P. DeBlasio First Senior Vice President March 30, 1999 - - --------------------------- and Director Michael P. DeBlasio /s/ Daniel Hirsch Director March 30, 1999 - - --------------------------- Daniel Hirsch /s/ Eric J. Zahler Senior Vice President March 30, 1999 - - ---------------------------- Secretary and Director Eric J. Zahler /s/ Richard J. Townsend Senior Vice President March 30, 1999 - - ---------------------------- and Chief Financial Officer Richard J. Townsend (Principal Financial Officer) /s/ Harvey B. Rein Vice President and March 30, 1999 - - ---------------------------- Controller Harvey B. Rein (Principal Accounting Officer)
55 EX-3.1 2 EXHIBIT 3.1 EXHIBIT 3.1 CERTIFICATE OF MERGER OF LORAL SATELLITE CORPORATION INTO ORION NETWORK SYSTEMS, INC. The undersigned corporation, organized and existing under and by virtue of the Delaware General Corporation Law, does hereby certify: First: That the name and state of incorporation of each constituent corporations to the Merger are as follows: Name State of Incorporation ---- ---------------------- Loral Satellite Corporation Delaware Orion Network Systems, Inc. Delaware SECOND: That an Agreement and Plan of Merger dated as of October 7, 1997, as amended (the "Merger Agreement"), by and among Loral Satellite Corporation, Orion Network Systems, Inc., and Loral Space & Communications Ltd., a Bermuda company, has been approved, adopted, certified, executed and acknowledged by each of the constituent corporations in accordance with the requirements of Section 251 of the Delaware General Corporation Law. THIRD: That the name of the surviving corporation of the merger is Orion Network Systems, Inc. (the "Surviving Corporation"), which name shall be changed to Loral Orion Network Systems, Inc. FOURTH: That the Certificate of Incorporation of the Surviving Corporation shall be amended and restated in its entirety as set forth on Exhibit A hereto. FIFTH: That the executed Merger Agreement is on file at an office of the Surviving Corporation located at 2440 Research Boulevard, Suite 400, Rockville, Maryland 20850. -1- SIXTH: That a copy of the Merger Agreement will be furnished by the Surviving Corporation, on request and without cost, to any stockholder of the constituent corporations IN WITNESS WHEREOF, Orion Network Systems, Inc. has caused this Certificate of Merger to be signed by David J. Frear, its authorized officer, this 20th day of March 1998. ORION NETWORK SYSTEMS, INC. By: -------------------------------------- David J. Frear Senior Vice President, Chief Financial Officer and Treasurer -2- Exhibit A RESTATED CERTIFICATE OF INCORPORATION OF LORAL ORION NETWORK SYSTEMS, INC. 1. The name of the corporation (the "Corporation") is Loral Orion Network Systems, Inc. 2. The address of the registered office of the Corporation in the State of Delaware is 1209 Orange Street in the City of Wilmington, County of New Castle. The name of the registered agent of the Corporation at such address is The Corporation Trust Company. 3. The nature of the business of, and the purpose to be conducted or promoted by, the Corporation is to engage in any lawful act or activity for which corporations may be organized under the Delaware General Corporation Law. 4. The total number of shares of stock which the Corporation shall have authority to issue is one thousand (1,000) shares of Common Stock, par value $.01 per share. 5. In furtherance and not in limitation of the power conferred by statute, the by-laws of the Corporation may be made, altered, amended or repealed by the stockholders or by a majority of the entire board of directors. 6. Whenever a compromise or arrangement is proposed between this Corporation and its creditors or any class of them and/or between this Corporation and its stockholders or any class of them, any court of equitable jurisdiction within the State of Delaware may, on the application in a summary way of this Corporation or of any creditor or stockholder thereof or on the application of any receiver or receivers appointed for this Corporation under the provisions of Section 291 of Title 8 of the Delaware Code or on the application of trustees in dissolution or of any receiver or receivers appointed for this Corporation under the provisions of Section 279 of Title 8 of the Delaware Code, order a meeting of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this Corporation, as the case may be, to be summoned in such manner as the said court directs. If a majority in number representing three-fourths in value of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this Corporation, as the case may be, agree to any compromise or arrangement and to any reorganization of this Corporation as consequence of such compromise or arrangement, the said compromise or arrangement and the said reorganization -3- shall, if sanctioned by the court to which the said application has been made, be binding on all the creditors or class of creditors, and/or on all stockholders or class of stockholders of this Corporation, as the case may be, and also on this Corporation. 7. Elections of directors need not be by written ballot. 8. 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. 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 -4- 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 whether 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 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. -5- 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. -6- EX-3.2 3 EXHIBIT 3.2 EXHIBIT 3.2 CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION OF LORAL ORION NETWORK SYSTEMS, INC. Loral Orion Network Systems, Inc. a corporation organized and existing under the General Corporation Law of the State of Delaware (the "Corporation"), does hereby certify that: The amendment to the Certificate of Incorporation of the Corporation set forth below has been duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware (the "DGCL"): 1. The Certificate of Incorporation of the Corporation is hereby amended by striking Paragraph 1 thereof in its entirety and inserting in lieu thereof the following: "The name of the Corporation is Loral Orion, Inc. (hereinafter called the "Corporation")." IN WITNESS WHEREOF, the Corporation has caused this Certificate of Amendment to be duly executed and acknowledged in accordance with Section 103 of the DGCL. LORAL ORION NETWORK SYSTEMS, INC. By: ------------------------------- Name: Avi Katz Title: Vice President EX-3.3 4 EXHIBIT 3.3 EXHIBIT 3.3 LORAL ORION, INC. Incorporated Under the Laws of the State of Delaware BY-LAWS ARTICLE I OFFICES The registered office of the Corporation in Delaware shall be at 1209 Orange Street in the City of Wilmington, County of New Castle, in the State of Delaware, and The Corporation Trust Company shall be the resident agent of this Corporation in charge thereof. The Corporation may also have such other offices at such other places, within or without the State of Delaware, as the Board of Directors may from time to time designate or the business of the Corporation may require. ARTICLE II STOCKHOLDERS Section 1. Annual Meeting. The annual meeting of stockholders for the election of directors and the transaction of any other business shall be held on the day of each year, or as soon after such date as may be practicable, in such city and state and at such time and place as may be designated by the Board of Directors, and set forth in the notice of such meeting. If said day be a legal holiday, said meeting shall be held on the next succeeding business day. At the annual meeting any business may be transacted and any corporate action may be taken, whether stated in the notice of meeting or not, except as otherwise expressly provided by statute or the Certificate of Incorporation. Section 2. Special Meetings. Special meetings of the stockholders for any purpose may be called at any time by the Board of Directors, or by the President, and shall be called by the President at the request of the holders of a majority of the outstanding shares of capital stock entitled to vote. Special meetings shall be held at such place or places within or without the State of Delaware as shall from time to time be designated by the Board of Directors and stated in the notice of such meeting. At a special meeting no business shall be transacted and no corporate action shall be taken other than that stated in the notice of the meeting. Section 3. Notice of Meetings. Written notice of the time and place of any stockholder's meeting, whether annual or special, shall be given to each stockholder entitled to vote thereat, by personal delivery or by mailing the same to him at his address as the same appears upon the records of the Corporation at least ten (10) days but not more than sixty (60) days before the day of the meeting. Notice of any adjourned meeting need not be given except by announcement at the meeting so adjourned, unless otherwise ordered in connection with such adjournment. Such further notice, if any, shall be given as may be required by law. Section 4. Quorum. Any number of stockholders, together holding at least a majority of the capital stock of the Corporation issued and outstanding and entitled to vote, who shall be present in person or represented by proxy at any meeting duly called, shall constitute a quorum for the transaction of al business, except as otherwise provided by law, by the Certificate of Incorporation or by these By-laws. Section 5. Adjournment of Meetings. If less than a quorum shall attend at the time for which a meeting shall have been called, the meeting may adjourn from time to time by a majority vote of the stockholders present or represented by proxy and entitled to vote without notice other than by announcement a the meeting until a quorum shall attend. Any meeting at which a quorum is present may also be adjourned in like manner and for such time or upon such call as may be determined by a majority vote of the stockholders present or represented by proxy and entitled to vote. At any adjourned meeting at which a quorum shall be present, any business may be transacted and any corporate action may be taken which might have been transacted at the meeting as originally called. Section 6. Voting List. The Secretary shall prepare and make, at least ten days before every election of directors, a complete list of the stockholders entitled to vote, arranged in alphabetical order and showing the address of each stockholder and the number of shares of each stockholder. Such list shall be open at the place where the election is to be held for said ten days, to the examination of any stockholder, and shall be produced and kept at the time and place of election during the whole time thereof, and subject to the inspection of any stockholder who may be present. Section 7. Voting. Each stockholder entitled to vote at any meeting may vote either in person or by proxy, but no proxy shall be voted on or after three years from its date, unless said proxy provides for a longer period. Each stockholder entitled to vote shall at every meeting of the stockholders be entitled to one vote for each share of stock registered in his name on the record of stockholders. At all meetings of stockholders all matters, except as otherwise provided by statute, shall be determined by the affirmative vote of the majority of shares present in person or by proxy and entitled to vote on the subject matter. Voting at meetings of stockholders need not be by written ballot. Section 8. Record Date of Stockholders. The Board of Directors is authorized to fix in advance a date not exceeding -2- sixty days nor less than ten days preceding the date of any meeting of stockholders, or the date for the payment of any dividend, or the date for the allotment of rights, or the date when any change or conversion or exchange of capital stock shall go into effect, or a date in connection with obtaining the consent of stockholders for any purposes, as a record date for the determination of the stockholders entitled to notice of, and to vote at, any such meeting, and any adjournment thereof, or entitled to receive payment of any such dividend, or to any such allotment of rights, or to exercise the rights in respect of any such change, conversion or exchange of capital stock, or to give such consent, and, in such case, such stockholders and only such stockholders as shall be stockholders of record on the date so fixed shall be entitled to such notice of, and to vote at, such meeting, and any adjournment thereof, or to receive payment of such dividend, or to receive such allotment of rights, or to exercise such rights, or to give such consent, as the case may be, notwithstanding any transfer of any stock on the books of the Corporation, after such record date fixed as aforesaid. Section 9. Action Without Meeting. Any action required or permitted to be taken at any annual or special meeting of stockholders may be taken without a meeting, without prior notice and without a vote, if a consent or consents in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted and shall be delivered to the Corporation by delivery to its registered office in the State of Delaware, its principal place of business, or an officer or agent of the Corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to the Corporation's registered office shall be by hand or by certified or registered mail, return receipt requested. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders. Section 10. Conduct. The Chairman of the Board of Directors or, in his absence the President or any Vice President designated by the Chairman of the Board, shall preside at all regular or special meetings of stockholders. To the maximum extent permitted by law, such presiding person shall have the power to set procedural rules, including but not limited to rules respecting the time allotted to stockholders to speak, governing all aspects of the conduct of such meetings. ARTICLE III DIRECTORS Section 1. Number and Qualifications. The Board of Directors shall consist initially of three directors, and thereafter shall consist of such number as may be fixed from time -3- to time by resolution of the Board. The directors need not be stockholders. Section 2. Election of Directors. The directors shall be elected by the stockholders at the annual meeting of stockholders. Section 3. Duration of Office. The directors chosen at any annual meeting shall, except as hereinafter provided, hold office until the next annual election and until their successors are elected and qualify. Section 4. Removal and Resignation of Directors. Any director may be removed from the Board of Directors, with or without cause, by the holders of a majority of the shares of capital stock entitled to vote, either by written consent or consents or at any special meeting of the stockholders called for that purpose, and the office of such director shall forthwith become vacant. Any director may resign at any time. Such resignation shall take effect at the time specified therein, and if no time be specified, at the time of its receipt by the President or Secretary. The acceptance of a resignation shall not be necessary to make it effective, unless so specified therein. Section 5. Filling of Vacancies. Any vacancy among the directors, occurring from any cause whatsoever, may be filled by a majority of the remaining directors, though less than a quorum, provided, however, that the stockholders removing any director may at the same meeting fill the vacancy caused by such removal, and provided, further, that if the directors fail to fill any such vacancy, the stockholders may at any special meeting called for that purpose fill such vacancy. In case of any increase in the number of directors, the additional directors may be elected by the directors in office before such increase. Any person elected to fill a vacancy shall hold office, subject to the right of removal as hereinbefore provided, until the next annual election and until his successor is elected and qualifies. Section 6. Regular Meetings. The Board of Directors shall hold an annual meeting for the purpose of organization and the transaction of any business immediately after the annual meeting of the stockholders, provided a quorum of directors is present. Other regular meetings may be held at such times as may be determined from time to time by resolution of the Board of Directors. Section 7. Special Meetings. Special meetings of the Board of Directors may be called by the Chairman of the Board of Directors or by the President. -4- Section 8. Notice and Place of Meetings. Meetings of the Board of Directors may be held at the principal office of the Corporation, or at such other place as shall be stated in the notice of such meeting. Notice of any special meeting, and, except as the Board of Directors may otherwise determine by resolution, notice of any regular meeting also, shall be mailed to each director addressed to him at his residence or usual place of business at least two days before the day on which the meeting is to be held, or if sent to him at such place by telegraph or cable, or delivered personally or by telephone, not later than the day before the day on which the meeting is to be held. No notice of the annual meeting of the Board of Directors shall be required if it is held immediately after the annual meeting of the stockholders and if a quorum is present. Section 9. Business Transacted at Meetings, etc. Any business may be transacted and any corporate action may be taken at any regular or special meeting of the Board of Directors at which a quorum shall be present, whether such business or proposed action be stated in the notice of such meeting or not, unless special notice of such business or proposed action shall be required by statute. Section 10. Quorum. A majority of the Board of Directors at any time in office shall constitute a quorum. At any meeting at which a quorum is present, the vote of a majority of the members present shall be the act of the Board of Directors unless the act of a greater number is specifically required by law or by the Certificate of Incorporation or these By-laws. The members of the Board shall act only as the Board and the individual members thereof shall not have any powers as such. Section 11. Compensation. The directors shall not receive any stated salary for their services as directors, but by resolution of the Board of Directors a fixed fee and expenses of attendance may be allowed for attendance at each meeting. Nothing herein contained shall preclude any director from serving the Corporation in any other capacity, as an officer, agent or otherwise, and receiving compensation therefor. Section 12. Action Without a Meeting. 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 the proceedings of the Board or committee. Section 13. Meetings Through Use of Communications Equipment. Members of the Board of Directors, or any committee designated by the Board of Directors, shall, except as otherwise provided by law, the Certificate of Incorporation or these By-laws, have the power to participate in a meeting of the Board of Directors, or any committee, by means of a conference telephone -5- or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation shall constitute presence in person at the meeting. ARTICLE IV COMMITTEES Section 1. Executive Committee. The Board of Directors may, by resolution passed by a majority of the whole Board, designate two or more of their number to constitute an Executive Committee to hold office at the pleasure of the Board, which Committee shall, during the intervals between meetings of the Board of Directors, have and exercise all of the powers of the Board of Directors in the management of the business and affairs of the Corporation, subject only to such restrictions or limitations as the Board of Directors may from time to time specify, or as limited by the Delaware General Corporation Law, and shall have power to authorize the seal of the Corporation to be affixed to all papers which may require it. Any member of the Executive Committee may be removed at any time, with or without cause, by a resolution of a majority of the whole Board of Directors. Any person ceasing to be a director shall ipso facto cease to be a member of the Executive Committee. Any vacancy in the Executive Committee occurring from any cause whatsoever may be filled from among the directors by a resolution of a majority of the whole Board of Directors. Section 2. Other Committees. Other committees, whose members need not be directors, may be appointed by the Board of Directors or the Executive Committee, which committees shall hold office for such time and have such powers and perform such duties as may from time to time be assigned to them by the Board of Directors or the Executive Committee. Any member of such a committee may be removed at any time, with or without cause, by the Board of Directors or the Executive Committee. Any vacancy in a committee occurring from any cause whatsoever may be filled by the Board of Directors or the Executive Committee. Section 3. Resignation. Any member of a committee may resign at any time. Such resignation shall be made in writing and shall take effect at the time specified therein, or, if no time be specified, at the time of its receipt by the President or Secretary. The acceptance of a resignation shall not be necessary to make it effective unless so specified therein. Section 4. Quorum. A majority of the members of a committee shall constitute a quorum. The act of a majority of the members of a committee present at any meeting at which a -6- quorum is present shall be the act of such committee. The members of a committee shall act only as a committee, and the individual members thereof shall not have any powers as such. Section 5. Record of Proceedings, etc. Each committee shall keep a record of its acts and proceedings, and shall report the same to the Board of Directors when and as required by the Board of Directors. Section 6. Organization, Meetings, Notices, etc. A committee may hold its meetings at the principal office of the Corporation, or at any other place which a majority of the committee may at any time agree upon. Each committee may make such rules as it may deem expedient for the regulation and carrying on of its meetings and proceedings. Unless otherwise ordered by the Executive Committee, any notice of a meeting of such committee may be given by the Secretary of the Corporation or by the chairman of the committee and shall be sufficiently given if mailed to each member at his residence or usual place of business at least two days before the day on which the meeting is to be held, or if sent to him at such place by telegraph or cable, or delivered personally or by telephone not later than 24 hours before the time at which the meeting is to be held. Section 7. Compensation. The members of any committee shall be entitled to such compensation as may be allowed them by resolution of the Board of Directors. ARTICLE V OFFICERS Section 1. Number. The officers of the Corporation shall be a President, one or more Vice Presidents, a Secretary, one or more Assistant Secretaries, a Treasurer, and one or more Assistant Treasurers, and such other officers as may be appointed in accordance with the provisions of Section 3 of this Article V. The Board of Directors in its discretion may also elect a Chairman of the Board of Directors. Section 2. Election Term of Office and Qualifications. The officers, except as provided in Section 3 of this Article V, shall be chosen annually by the Board of Directors. Each such officer shall, except as herein otherwise provided, hold office until his successor shall have been chosen and shall qualify. The Chairman of the Board of Directors, if any, and the President shall be directors of the Corporation, and should any one of them cease to be a director, he shall ipso facto cease to be such officer. Except as otherwise provided by law, any number of offices may be held by the same person. Section 3. Other Officers. Other officers, including one or more additional vice-presidents, assistant secretaries or assistant treasurers, may from time to time be appointed by the Board of Directors, which other officers shall have such powers -7- and perform such duties as may be assigned to them by the Board of Directors or the officer or committee appointing them. Section 4. Removal of Officers. Any officer of the Corporation may be removed from office, with or without cause, by a vote of a majority of the Board of Directors. Section 5. Resignation. Any officer of the Corporation may resign at any time. Such resignation shall be in writing and shall take effect at the time specified therein, and if no time be specified, at the time of its receipt by the President or Secretary. The acceptance of a resignation shall not be necessary in order to make it effective, unless so specified therein. Section 6. Fillings of Vacancies. A vacancy in any office shall be filled by the Board of Directors or by the authority appointing the predecessor in such office. Section 7. Compensation. The compensation of the officers shall be fixed by the Board of Directors, or by any committee upon whom power in that regard may be conferred by the Board of Directors. Section 8. Chairman of the Board of Directors. The Chairman of the Board of Directors shall be a director and shall preside at all meetings of the Board of Directors at which he shall be present, and shall have such power and perform such duties as may from time to time be assigned to him by the Board of Directors. Section 9. President. The President shall, when present, preside at all meetings of the stockholders, and, in the absence of the Chairman of the Board of Directors, at meetings of the Board of Directors. He shall have power to call special meetings of the stockholders or of the Board of Directors or of the Executive Committee at any time. He shall be the chief executive officer of the Corporation, and shall have the general direction of the business, affairs and property of the Corporation, and of its several officers, and shall have and exercise all such powers and discharge such duties as usually pertain to the office of President. Section 10. Vice Presidents. The Vice Presidents, or any of them, shall, subject to the direction of the Board of Directors, at the request of the President or in his absence, or in case of his inability to perform his duties from any cause, perform the duties of the President, and, when so acting, shall have all the powers of, and be subject to all restrictions upon, the President. The Vice Presidents shall also perform such other duties as may be assigned to them by the Board of Directors, and the Board of Directors may determine the order of priority among them. -8- Section 11. Secretary. The Secretary shall perform such duties as are incident to the office of Secretary, or as may from time to time be assigned to him by the Board of Directors, or as are prescribed by these By-laws. Section 12. Treasurer. The Treasurer shall perform such duties and have powers as are usually incident to the office of Treasurer or which may be assigned to him by the Board of Directors. ARTICLE VI CAPITAL STOCK Section 1. Issue of Certificates of Stock. Certificates of capital stock shall be in such form as shall be approved by the Board of Directors. They shall be numbered in the order of their issue and shall be signed by the Chairman of the Board of Directors, the President or one of the Vice Presidents, and the Secretary or an Assistant Secretary or the Treasurer or an Assistant Treasurer, and the seal of the Corporation or a facsimile thereof shall be impressed or affixed or reproduced thereon, provided, however, that where such certificates are signed by a transfer agent or an assistant transfer agent or by a transfer clerk acting on behalf of the Corporation and a registrar, the signature of any such Chairman of the Board of Directors, President, Vice President, Secretary, Assistant Secretary, Treasurer or Assistant Treasurer may be facsimile. In case any officer or officers who shall have signed, or whose facsimile signature or signatures shall have been used on any such certificate or certificates shall cease to be such officer or officers of the Corporation, whether because of death, resignation or otherwise, before such certificate or certificates shall have been delivered by the Corporation, such certificate or certificates may nevertheless be adopted by the Corporation and be issued and delivered as though the person or persons who signed such certificate or certificates, or whose facsimile signature or signatures shall have been used thereon have not ceased to be such officer or officers of the Corporation. Section 2. Registration and Transfer of Shares. The name of each person owning a share of the capital stock of the Corporation shall be entered on the books of the Corporation together with the number of shares held by him, the numbers of the certificates covering such shares and the dates of issue of such certificates. The shares of stock of the Corporation shall be transferable on the books of the Corporation by the holders thereof in person, or by their duly authorized attorneys or legal representatives, on surrender and cancellation of certificates for a like number of shares, accompanied by an assignment or power of transfer endorsed thereon or attached thereto, duly executed, and with such proof of the authenticity of the signature as the Corporation or its agents may reasonably require. A record shall be made of each transfer. -9- The Board of Directors may make other and further rules and regulations concerning the transfer and registration of certificates for stock and may appoint a transfer agent or registrar or both and may require all certificates of stock to bear the signature of either or both. Section 3. Lost, Moved, Mutilated Certificates. The holder of any stock of the Corporation shall immediately notify the Corporation of any loss, theft, destruction or mutilation of the certificates therefor. The Corporation may issue a new certificate of stock in the place of any certificate theretofore issued by it alleged to have been lost, stolen or destroyed, and the Board of Directors may, in its discretion, require the owner of the lost, stolen or destroyed certificate, or his legal representatives, to give the Corporation a bond, in such sum not exceeding double the value of the stock and with such surety or sureties as they may require, to indemnify it against any claim that may be made against it by reason of the issue of such new certificate and against all other liability in the premises, or may remit such owner to such remedy or remedies as he may have under the laws of the State of Delaware. ARTICLE VII DIVIDENDS, SURPLUS, ETC. Section 1. General Discretion of Directors. The Board of Directors shall have power to fix and vary the amount to be set aside or reserved as working capital of the Corporation, or as reserves, or for other proper purposes of the Corporation, and, subject to the requirements of the Certificate of Incorporation, to determine whether any, if any, part of the surplus or net profits of the Corporation shall be declared as dividends and paid to the stockholders, and to fix the date or dates for the payment of dividends. ARTICLE VIII MISCELLANEOUS PROVISIONS Section 1. Fiscal Year. The fiscal year of the Corporation shall commence on the first day of January and end on the last day of December. Section 2. Corporate Seal. The corporate seal shall be in such form as approved by the Board of Directors and may be altered at their pleasure. The corporate seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. Section 3. Notices. Except as otherwise-expressly provided, any notice required by these By-laws to be given shall be sufficient if given by depositing the same in a post office or letter box in a sealed postpaid wrapper addressed to the person entitled thereto at his address, as the same appears upon the books of the Corporation, or by telegraphing or cabling the same -10- to such person at such addresses; and such notice shall be deemed to be given at the time it is mailed, telegraphed or cabled. Section 4. Waiver of Notice. Any stockholder or director may at any time, by writing or by telegraph or by cable, waive any notice required to be given under these By-laws, and if any stockholder or director shall be present at any meeting his presence shall constitute a waiver of such notice. Section 5. Checks, Drafts. etc. All checks, drafts or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the Corporation, shall be signed by such officer or officers, agent or agents of the Corporation, and in such manner, as shall from time to time be designated by resolution of the Board of Directors. Section 6. Deposits. All funds of the Corporation shall be deposited from time to time to the credit of the Corporation in such bank or banks, trust companies or other depositories as the Board of Directors may select, and, for the purpose of such deposit, checks, drafts, warrants and other orders for the payment of money which are payable to the order of the Corporation, may be endorsed for deposit, assigned and delivered by any officer of the Corporation, or by such agents of the Corporation as the Board of Directors or the President may authorize for that purpose. Section 7. Voting Stock of Other Corporations. Except as otherwise ordered by the Board of Directors or the Executive Committee, the President or the Treasurer shall have full power and authority on behalf of the Corporation to attend and to act and to vote at any meeting of the stockholders of any corporation of which the Corporation is a stockholder and to execute a proxy to any other person to represent the Corporation at any such meeting, and at any such meeting the President or the Treasurer or the holder of any such proxy, as the case may be, shall possess and may exercise any and all rights and powers incident to ownership of such stock and which, as owner thereof, the Corporation might have possessed and exercised if present. The Board of Directors or the Executive Committee may from time to time confer like powers upon any other person or persons. Section 8. Indemnification of Officers and Directors. Indemnification of certain persons by the Corporation shall be as specified or determined pursuant to the Certificate of Incorporation of the Corporation as in effect from time to time. ARTICLE IX AMENDMENTS The Board of Directors shall have the power to make, rescind, alter, amend and repeal these By-laws, provided, however, that the stockholders shall have power to rescind, -11- alter, amend or repeal any by-laws made by the Board of Directors, and to enact by-laws which if so expressed shall not be rescinded, altered, amended or repealed by the Board of Directors. No change of the time or place for the annual meeting of the stockholders for the election of directors shall be made except in accordance with the laws of the State of Delaware. -12- EX-10.12 5 EXHIBIT 10.12 EXHIBIT 10.12 Execution Copy RESTATED DEFINITIVE AGREEMENT BETWEEN LORAL ORION, INC. (FORMERLY ORION NETWORK SYSTEMS, INC.) AND THE REPUBLIC OF THE MARSHALL ISLANDS This restated agreement is made this ____ day of October, 1998 (the "Effective Date"), by and between Loral Orion, Inc., a Delaware Corporation, hereinafter referred to as "LORAL ORION" and formerly known as Orion Network Systems, Inc. ("ONS"), and the Republic of the Marshall Islands, through the Ministry of Transportation and Communications, hereinafter referred to as the "RMI." WITNESSETH WHEREAS, the RMI and Asia Pacific Space and Communications, Ltd. ("APSC") entered into a Definitive Agreement dated April 26, 1990 (the "Definitive Agreement"); WHERAS, the RMI and APSC agreed to the assignment of all APSC rights to and obligations under the Definitive Agreement to ONS along with certain other modifications to be restated herein in a Restated Amendment to the Definitive Agreement dated May 25, 1997; WHEREAS, ONS was acquired in a merger by Loral Space & Communications, Ltd. ("Loral SC") on March 30, 1998 (the "Merger") and as a result thereof the name of ONS was changed to Loral Orion, Inc.; WHEREAS, LORAL ORION is an international communications company developing a satellite communications system to serve significant areas of the Pacific Ocean Region, including coverage of the RMI; WHEREAS, the RMI is a sovereign nation located in the Central Pacific Ocean Region; WHEREAS, the RMI desires to enhance and expand its telecommunications capability and infrastructure; WHEREAS, the parties desire to do those things necessary to enable LORAL ORION to launch a satellite over the Pacific Ocean Region; and WHEREAS, the RMI and LORAL ORION have reached certain understandings in principle and believe there are mutual benefits to be derived by restating the Definitive Agreement with certain modifications as this Restated Definitive Agreement (along with the Appendices hereto, the "Agreement"); 1 NOW THEREFORE, it is mutually agreed as follows: 1. [ * ] 2. [ * ] 3. The parties acknowledge that the RMI is a member of the ITU and understand that matters critical to the success of the Satellite System may be significantly affected by various actions of the ITU. [ * ] 2 4. The parties acknowledge that the RMI desires to enhance and expand its communications capabilities and infrastructure. [ * ] 3 5. [ * ] 6. [ * 4 5 ] 7. The parties acknowledge that the provisions substantially in the form contained in paragraphs 4,5,6 &7 shall be set forth in a separate agreement between Loral Orion and NTA. Performance of the terms of such agreement by Loral Orion shall satisfy its obligations to the RMI with respect to the Deliverables. However, in the event that NTA declines to enter into such agreement for any reason, such event shall not be deemed a breach or cause for termination of this agreement. In such case, the Minister of Transport & Communications of the RMI will become the recipient of the Deliverables. 8. [ * ] 9. Within forty-five (45) days after the Effective Date (the "Purchase Period"), LORAL ORION shall purchase or otherwise procure such number of shares of common stock of Loral SC equal to [ 6 ] Within forty-five (45) days [ * ], LORAL ORION shall deliver the RMI Stock to the RMI. [ * ] In consideration of the foregoing, the Non-Qualified Stock Option Agreement between LORAL ORION (formerly ONS) and the RMI, dated effective as of December 10, 1996 [ * ] is hereby terminated without liability and shall be deemed null and void. 10. [ * ] 11. It is understood that matters affecting the Satellite System are highly confidential and proprietary. The RMI agrees to take all necessary and reasonable steps to limit the information concerning the Satellite System to the fewest number of persons possible within the RMI and to assure that such persons do not communicate matters regarding LORAL ORION to others. Furthermore, the existence of this Agreement or the relationship between the parties hereto shall not be disclosed to any party except as necessary to carry out the purposes of this Agreement or as required by applicable law. Loral Orion acknowledges that such confidential and proprietary information may be disclosed by the RMI to the extent reasonable and necessary to fulfill or satisfy any obligation imposed by its constitution or laws or in the pursuit of a free and open Government. 12. This Agreement shall become effective upon the Effective Date continue until terminated under the terms and conditions of this Agreement. 13. In the event either party is in default in the performance of any material provision of this Agreement, the nondefaulting party, upon written notice, may terminate this 7 Agreement; provided, however, that prior to such termination, the non-defaulting party must notify the defaulting party, in writing, of the specific provision which has not been performed, the conduct required to complete performance and cure the alleged default, and a request to cure the alleged default. Upon receipt of the notice specifying the default, the other party shall have 45 days to submit a written Response. Said Response shall state either that there has been no failure to perform and no default has occurred and an explanation thereof, or that the default will be cured and describing the actions it intends to take and a reasonable schedule to complete these actions. If the default continues after the expiration of a reasonable time to cure, as set forth in the Response, the non-defaulting party, in addition to any other remedy at law or equity, may then forward to the defaulting party a Notice of Termination 14. Neither party to this Agreement shall be in default because of its failure to perform or delay in performance caused by actions or failures of third parties, acts of God, acts of War, natural disasters, acts of subcontractors beyond the control of their prime contractor, delays in shipment of goods, or other acts or events beyond its control that materially affect the ability of a party to perform under the terms and conditions of this Agreement. 15. Except as otherwise provided herein, this Agreement may not be terminated except by mutual agreement of the parties. 16. [ * ] 17. This Agreement constitutes the entire agreement between the parties in connection with the subject matter of this Agreement and may be altered, amended or replaced only by a duly executed written instrument. No prior oral or written understanding or agreement with respect to the terms and conditions agreed to in this Agreement, except the Confidentiality Agreement or as otherwise expressly incorporated herein, shall be valid or enforceable. 18. This Agreement may be altered or amended only by mutual agreement set forth in writing and properly executed by the respective parties hereto. 19. This Agreement may be executed in two or more counterparts, which taken together constitute one single contract between the parties. {signature page follows} 8 IN WITNESS WHEREOF, the parties have executed this Agreement as of the Effective Date: Republic of the Marshall Islands Loral Orion, Inc. ------------------------- ------------------------ Kunio D. Lemari Richard H. Shay Minister of Transportation Sr. Vice President, Law and Admin. P.O. Box 2 2440 Research Boulevard Majuro, Marshall Islands Rockville, Maryland MH 96960 USA 20850 Approved as to form: Certified no current appropriation is required: -------------------- -------------------- Attorney General Secretary of Finance 9 APPENDIX I [CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR APPENDIX I] 10 APPENDIX II [CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR APPENDIX II] 11 APPENDIX III [CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR APPENDIX III] 12 EX-10.17 6 EXHIBIT 10.17 EXHIBIT 10.17 CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS DOCUMENT. THE CONFIDENTIAL PORTIONS HAVE BEEN REDACTED AND FILED SEPARATELY WITH THE COMMISSION. The portions of this Exhibit for which confidential treatment has been requested are marked by bracket ([ ]). In addition, an asterisk ( * ) appears in the right hand margin of each paragraph in which confidential treatment is included. ORION-Z SPACECRAFT PURCHASE CONTRACT BY AND BETWEEN LORAL ORION NETWORK SERVICES, INC. AND SPACE SYSTEMS/LORAL, INC. CONTRACT NO. SS/L-TP98024 PROPRIETARY NOTICE THIS CONTRACT AND THE INFORMATION CONTAINED HEREIN IS PROPRIETARY TO LORAL ORION NETWORK SYSTEMS, INC. AND SPACE SYSTEMS/LORAL, INC. AND SHALL NOT BE PUBLISHED, REPRODUCED, COPIED, DISCLOSED, OR USED FOR OTHER THAN ITS INTENDED PURPOSE WITHOUT THE EXPRESS WRITTEN CONSENT OF A DULY AUTHORIZED REPRESENTATIVE OF LORAL ORION NETWORK SERVICES, INC. AND SPACE SYSTEMS/LORAL, INC. Part 1(A) Terms and Conditions PARTS PART 1 (A) TERMS AND CONDITIONS, dated May 15, 1998 PART 1 (B) PAYMENT MILESTONE SCHEDULE AND TERMINATION LIABILITY AMOUNTS PART 1(C) KEY CONTRACTOR POSITIONS, dated May 11, 1998 PART 2(A) ORION-Z STATEMENT OF WORK (SOW), dated May 11, 1998 PART 2(B) ORION-Z CONTRACT DOCUMENTATION REQUIREMENTS LIST (CDRL), dated May 11, 1998 PART 3(A) TECHNICAL SPECIFICATIONS FOR ORION-Z SPACECRAFT, dated May 11, 1998 PART 3(A) ANNEX A, RADIATION ENVIRONMENT SPECIFICATION, dated May 11, 1998 PART 3(B) ORION-Z SPACECRAFT PRODUCT ASSURANCE REQUIREMENTS, dated April 14, 1998 PART 3(C) ORION-Z SPACECRAFT ON-GROUND TEST REQUIREMENTS, dated May 11, 1998 PART 3(D) ORION-Z IN-ORBIT COMMISSIONING AND ACCEPTANCE TEST REQUIREMENTS, dated May 11, 1998 PART 3(E) DYNAMIC SPACECRAFT SIMULATOR SPECIFICATION, dated May 11, 1998 PART 3(F) ORION-Z SPACECRAFT SCF AND SOFTWARE REQUIREMENTS SPECIFICATION (E191269), dated May 11, 1998 PART 4 RESERVED PART 5 SATELLITE STORAGE PLAN, dated May 11, 1998 Part 1(A) Terms and Conditions ORION NETWORK SERVICES, INC. PART 1(A) TERMS AND CONDITIONS Part 1(A) Terms and Conditions TABLE OF CONTENTS 1. DEFINITIONS AND CONSTRUCTION ........................................... 1 1.1 CERTAIN DEFINITIONS .................................................... 1 1.2 OTHER TERMS ............................................................ 7 1.3 PARTS .................................................................. 8 1.4 INTEGRATION AND CONSTRUCTION ........................................... 8 1.5 HEADINGS ............................................................... 9 2. CONTRACTOR SCOPE OF WORK ............................................... 9 2.1 SCOPE OF WORK .......................................................... 9 3. ORION SCOPE OF WORK .................................................... 9 3.1 SCOPE OF WORK .......................................................... 9 4. CONTRACT PRICE AND OTHER CHARGES ....................................... 9 4.1 GENERAL ................................................................ 9 4.2 CONTRACT PRICE ......................................................... 10 5. INVOICING AND PAYMENT .................................................. 10 5.1 INVOICING .............................................................. 10 5.2 PAYMENT ................................................................ 11 5.3 METHOD OF PAYMENT ...................................................... 13 5.4 LATE PAYMENT FEE ....................................................... 13 5.5 OTHER PAYMENTS ......................................................... 13 5.6 RIGHT OF SET-OFF ....................................................... 13 5.7 DISPUTED CHARGES ....................................................... 14 6. DELIVERY ............................................................... 14 6.1 DELIVERY SCHEDULE ...................................................... 14 6.2 DELAY .................................................................. 15 6.3 EXCUSABLE DELAY ........................................................ 15 7. ACCEPTANCE TESTING AND FINAL ACCEPTANCE ................................ 16 7.1 GENERAL ................................................................ 16 7.2 ACCEPTANCE TESTING ..................................................... 16 Part 1(A) Terms and Conditions Issue 1 7.3 PRE-LAUNCH CERTIFICATION ............................................... 16 7.4 FINAL ACCEPTANCE OF DATA AND DOCUMENTATION ............................. 16 7.5 FINAL ACCEPTANCE OF ORION-Z SPACECRAFT ................................. 17 8. TITLE TO DELIVERABLE ITEMS AND RISK OF LOSS ............................ 18 8.1 ORION-Z SPACECRAFT ..................................................... 18 8.2 DATA AND DOCUMENTATION ................................................. 19 8.3 OTHER DELIVERABLE ITEMS ................................................ 19 9. CHANGES IN SCOPE OF WORK ............................................... 19 9.1 CHANGES REQUESTED BY ORION ............................................. 19 9.2 CHANGES REQUESTED BY CONTRACTOR ........................................ 20 10. CORRECTIVE MEASURES IN UNLAUNCHED SATELLITES ........................... 20 10.1 CORRECTIVE MEASURES .................................................... 20 10.2 MANUFACTURERS' WARRANTIES .............................................. 22 10.3 REPLACED EQUIPMENT ..................................................... 23 10.4 IN-ORBIT DATA .......................................................... 23 11. REPRESENTATIONS AND WARRANTIES ......................................... 23 11.1 CONTRACTOR PERSONNEL ................................................... 23 11.2 SOFTWARE AND INVENTION OWNERSHIP ....................................... 23 11.3 AUTHORIZATION .......................................................... 23 11.4 INDUCEMENTS ............................................................ 23 12. IN-ORBIT PERFORMANCE WARRANTY AND INCENTIVE PAYMENTS ................... 24 12.1 IN-ORBIT PERFORMANCE WARRANTY .......................................... 24 12.2 ADVANCE INCENTIVE PAYMENT AT FINAL ACCEPTANCE .......................... 24 12.3 MONTHLY TRANSPONDER INCENTIVE AMOUNT ................................... 28 12.4 MONTHLY POWER INCENTIVE AMOUNT ......................................... 33 12.5 MEASURING IN-ORBIT PERFORMANCE ......................................... 37 12.6 ECLIPSE ................................................................ 37 12.7 DISPUTED PERFORMANCE ................................................... 37 13. INSURANCE .............................................................. 38 13.1 GENERAL ................................................................ 38 13.2 REQUIRED INSURANCE ..................................................... 38 Part 1(A) Terms and Conditions Issue 1 13.3 SUBCONTRACTS............................................................ 40 13.4 DOCUMENTARY EVIDENCE.................................................... 40 13.5 CLAIMS.................................................................. 40 14. ADDITIONAL SATELLITE OPTION............................................. 40 14.1 DELIVERY SCHEDULE....................................................... 40 14.2 PRICE................................................................... 41 14.3 ADDITIONAL SATELLITE CONTRACT PROVISIONS................................ 41 15. INDEMNIFICATION, INTER-PARTY WAIVER OF LIABILITY, AND LIMITATION OF LIABILITY AND DISCLAIMER OF WARRANTY ................................ 41 15.1 INDEMNITY BY CONTRACTOR................................................. 41 15.2 INDEMNITY BY ORION...................................................... 42 15.3 INFRINGEMENT............................................................ 43 15.4 INDEMNIFICATION PROCEDURES.............................................. 43 15.5 INTER-PARTY WAIVER OF LIABILITY FOR LAUNCH OPERATIONS................... 44 15.6 WAIVER OF SUBROGATION................................................... 45 15.7 LIMITATION OF LIABILITY................................................. 45 15.8 DISCLAIMER OF WARRANTY.................................................. 45 16. DISPUTE RESOLUTION...................................................... 46 16.1 INFORMAL DISPUTE RESOLUTION............................................. 46 16.2 ARBITRATION............................................................. 46 16.3 LITIGATION.............................................................. 48 17. TERMINATION............................................................. 49 17.1 TERMINATION FOR CONVENIENCE............................................. 49 17.2 TERMINATION FOR CONTRACTOR'S DEFAULT.................................... 50 17.3 TERMINATION FOR EXCUSABLE DELAY......................................... 52 17.4 TERMINATION FOR ORION'S DEFAULT......................................... 53 17.5 MITIGATION OF DAMAGES................................................... 54 17.6 RESOLUTION EFFORTS...................................................... 55 17.7 CONTINUED PERFORMANCE................................................... 55 18. KEY CONTRACTOR PERSONNEL................................................ 55 18.1 KEY POSITIONS........................................................... 55 18.2 ASSIGNMENT OF KEY CONTRACTOR PERSONNEL.................................. 55 Part 1(A) Terms and Conditions Issue 1 18.3 APPROVED KEY CONTRACTOR PERSONNEL....................................... 56 19. PERMITS, LICENSES AND GOVERNMENT APPROVALS.............................. 56 19.1 CONTRACTOR RESPONSIBILITY AND EXPENSES.................................. 56 19.2 ORION REVIEW OF GOVERNMENT APPLICATIONS................................. 56 19.3 COMPLIANCE WITH GOVERNMENT REQUIREMENTS................................. 56 20. ACCESS TO WORK IN PROGRESS.............................................. 57 20.1 GENERAL................................................................. 57 20.2 OFFICE SPACE AND FACILITIES............................................. 57 20.3 DOCUMENTATION........................................................... 58 20.4 MEETINGS AND REVIEWS.................................................... 58 20.5 SUBCONTRACTS............................................................ 59 21. LICENSE RIGHTS.......................................................... 59 21.1 SOFTWARE, INVENTIONS AND DATA AND DOCUMENTATION......................... 59 21.2 TECHNICAL DATA AND INFORMATION.......................................... 60 22. CONFIDENTIALITY AND NONDISCLOSURE OF PROPRIETARY INFORMATION............ 63 22.1 DEFINITION AND EXEMPTIONS............................................... 63 22.2 PRIOR APPROVAL OF CERTAIN DISCLOSURES................................... 64 22.3 CONFIDENTIALITY OBLIGATIONS............................................. 64 22.4 COPYING................................................................. 65 23. YEAR 2000 COMPLIANCE.................................................... 65 24. CONTRACT MANAGEMENT..................................................... 65 24.1 GENERAL................................................................. 65 24.2 APPROVALS AND ACCEPTANCES............................................... 65 24.3 CONTRACT MONITORING..................................................... 66 24.4 ORION CONSULTANTS....................................................... 66 24.5 SUBCONTRACTING.......................................................... 66 25. GROUND STORAGE OPTION................................................... 69 25.1 NOTIFICATION............................................................ 69 25.2 STORAGE LOCATION........................................................ 69 25.3 STORAGE PRICES.......................................................... 69 25.4 INVOICING AND PAYMENT................................................... 69 Part 1(A) Terms and Conditions Issue 1 25.5 TITLE AND RISK OF LOSS................................................. 69 25.6 NOTIFICATION OF INTENTION TO LAUNCH A STORED SPACECRAFT................ 69 25.7 IN-ORBIT PERFORMANCE WARRANTY AND PAYMENTS............................. 70 26. LAUNCH VEHICLE AGENCY.................................................. 70 26.1 INSURANCE.............................................................. 70 26.2 COMPLIANCE WITH LAWS AND REGULATIONS................................... 70 27. RESPONSIBILITY FOR THE CONTRACT........................................ 71 27.1 ABILITY TO PERFORM..................................................... 71 27.2 FIXED CONTRACT PRICE................................................... 71 27.3 INCONSISTENCIES IN CONTRACT............................................ 71 27.4 SUBCONTRACTOR COOPERATION.............................................. 72 28. GENERAL................................................................ 72 28.1 EFFECTIVE DATE OF CONTRACT............................................. 72 28.2 ASSIGNMENT............................................................. 72 28.3 ENTIRE AGREEMENT....................................................... 72 28.4 AMENDMENTS............................................................. 73 28.5 WAIVER OF BREACH OF CONTRACT........................................... 73 28.6 CUMULATIVE REMEDIES.................................................... 73 28.7 SEVERABILITY........................................................... 73 28.8 APPLICABLE LAW......................................................... 73 28.9 NOTICES................................................................ 73 28.10 CONTRACTOR NOT AGENT................................................... 74 28.11 SURVIVAL............................................................... 74 28.12 RELEASE OF INFORMATION................................................. 75 28.13 GOVERNMENT FILINGS..................................................... 75 28.14 IMPROPER PAYMENTS, KICKBACKS, GIFTS, AND GRATUITIES.................... 75 28.15 COMPLIANCE WITH APPLICABLE LAWS........................................ 76 28.16 FINANCING.............................................................. 76 Part 1(A) Terms and Conditions Issue 1 TERMS AND CONDITIONS THIS ORION-Z SPACECRAFT PURCHASE CONTRACT (the "Contract") is made and entered into this 15th day of May, 1998 by and between Loral Orion Network Services, Inc., a Delaware corporation with its principal offices located at 2440 Research Boulevard, Rockville, Maryland 20850, U.S.A. ("ORION"), and Space Systems/Loral, Inc., a company organized and existing under the laws of Delaware with its principal offices located at 3825 Fabian Way, Palo Alto, California 94303 ("Contractor"). As used in the Contract, "Party" means either ORION or Contractor, as appropriate, and "Parties" means ORION and Contractor. WHEREAS, the primary object of ORION is the carrying on of the business of providing a telecommunications system by the use of space satellites; WHEREAS, ORION anticipates providing the business referred to above through the ORION satellite system ("ORIONSAT System"); WHEREAS, the ORION-Z Spacecraft to be constructed pursuant to the Contract is intended to form part of the space segment of the ORIONSAT System; WHEREAS, ORION and Contractor have agreed that Contractor will perform the Work as defined below and that ORION will pay for the Work on the terms and conditions set out in the Contract; NOW, THEREFORE, in consideration of the above premises and the mutual covenants and agreements contained herein, the Parties agree as follows: 1. DEFINITIONS AND CONSTRUCTION 1.1 CERTAIN DEFINITIONS. In the Contract, the following terms shall have the meaning stated hereunder: (a) "ADDITIONAL SATELLITE" shall have the meaning ascribed to it in Article 14 (Additional Satellite). (b) "ADVANCE INCENTIVE PAYMENT" means that portion of the Transponder Orbital Incentive Amount and Power Orbital Incentive Amount paid by ORION to Contractor as an advance incentive payment under Article 12.2 (Advance Incentive Payment at Final Acceptance). (c) "AGGREGATE PREDICTED TRANSPONDER LIFE" means the sum of the Predicted Transponder Life of each and every Serviceable Transponder embodied in the Launched ORION-Z Spacecraft. 1 (d) "ASSOCIATES" means with respect to an entity, its directors, officers, employees, agents, consultants, and assigns. (e) "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. (f) "CONSTRUCTIVE TOTAL LOSS" shall have the meaning set forth in ORION's applicable launch insurance policy. (g) "CONSULTANT" means any third party authorized by ORION to provide technical and program support and assistance in connection with the performance of the Contract. (h) "CONTRACT" means the written instrument herein dated the day and year first written above, including any amendments made pursuant to Article 28.4 (Amendments), embodying the agreement between Contractor and ORION and including the Parts attached hereto and made a part of the Contract. (i) "CONTRACT DOCUMENTATION REQUIREMENTS LIST" or "CDRL" means the documentation requirements listed in Part 2(B) to the Contract and provided to Contractor. (j) "CONTRACT PRICE" means the total amount set forth in Article 4.2 (Contract Price). (k) "CORRECTION PLAN" means a plan submitted by Contractor which details how Contractor shall correct (i) a failure to make adequate progress towards completion of the Work or (ii) a default or breach under the Contract in accordance with Article 17.2. (l) "DATA AND DOCUMENTATION" means that data and documentation to be supplied by Contractor pursuant to the requirements of Part 2(A) (Statement of Work) and Part 2(B) (Contract Documentation Requirements List). (m) "DEFECT" means (i) with regard to the ORION-Z Spacecraft and all components thereof, any defect in design, material or workmanship, or failure to perform in accordance with the specifications and requirements of the Contract that results in , or is likely to result in , non-compliant ORION-Z 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 failure to meet any specifications or requirements set forth in the Contract. (n) "DELIVERABLE ITEM" means the items listed in Table 6.1 of Article 6 (Delivery), including the ORION-Z Spacecraft delivered in-orbit, and Data and Documentation, and other items so identified in amendments to the Contract. (o) "DELIVER" and its derivatives (such as "Delivered" and "Delivery") shall have the meaning set forth in Article 5.2 (Payment) and Article 6.1 (Delivery Schedule). 2 (p) "DELIVERY DATES" means those dates set forth in Article 6.1. (q) "DELIVERY SCHEDULE" means the schedule for Delivery of the Work as set forth in Table 6.1 of Article 6 (Delivery). (r) "DEMAND" means, in the context of Article 17.2 (Termination for Contractor's Default), a demand by ORION made of Contractor for Contractor to provide a Correction Plan in the event that Contractor is failing to make adequate progress in the performance of the Contract or is in default or breach. (s) "EFFECTIVE DATE" or "EDC" means the effective date of the Contract as set forth in Article 28.1 (Effective Date of Contract). (t) "EQUIPMENT" means individual assemblies, parts thereof and complete systems. (u) "EXCUSABLE DELAY" has the meaning set forth in Article 6.3 (Excusable Delay). (v) "FINAL ACCEPTANCE" has the meaning set forth in Article 7.5 (Final Acceptance of ORION-Z Spacecraft). (w) "IN-ORBIT ACCEPTANCE REQUIREMENTS" means Part 3(D) (In-Orbit Commissioning and Acceptance Test Requirements). (x) "IN-ORBIT ACCEPTANCE TEST PLAN" means that document that is a Deliverable Item under Part 2(B) (Contract Documentation Requirements List) and as described in Part 3(D) (In-Orbit Commissioning and Acceptance Test Requirements) of the Contract. (y) "IN-ORBIT ACCEPTANCE TEST REPORT" or "IN-ORBIT ACCEPTANCE REPORT" means that document that is a Deliverable Item under Part 2(B) (Contract Documentation Requirements List) and as described in Part 2(A) (Statement of Work) and Part 3(D) (In-Orbit Commissioning and Acceptance Test Requirements) of the Contract. (z) "IN-ORBIT PERFORMANCE WARRANTY PERIOD" shall have the meaning ascribed to it in Article 12.1 (In-Orbit Performance Warranty). (aa) "INCLUDING" and its derivatives (such as "include" and "includes") shall mean including without limitation. This term is as defined, whether or not capitalized in this Agreement. (bb) "INITIAL PAYMENT" means the aggregate amount representing cumulative Milestone Payments due to Contractor as of the Effective Date of the Contract as determined in accordance with Part 1(B) (Payment Milestone Schedule and Termination Liability Amounts). 3 (cc) "INTENTIONAL IGNITION" means the point in time in the ignition process of an Ariane 44LP Launch Vehicle, for the purpose of Launch, when the command signal sent from the launch control console is received by the Launch Vehicle, which command signal is intended to and does ignite the propellant system for the purpose of Launch. (dd) "INVOICE" means an invoice in the form of Annex A to this Part 1(A) of the Contract. (ee) "L-X" means x months prior to the Scheduled Launch Date. For example, if the Scheduled Launch Date is January 1, 1999, then L-6 means July 1, 1998. (ff) "L+X" means x months after the Scheduled Launch Date. For example, if the Scheduled Launch Date is January 1, 1999, then L+1 means February 1, 1999. (gg) "LAUNCH" means Intentional Ignition followed by the opening of the table clamps. (hh) "LAUNCH AGENCY" means Arianespace or such other Subcontractor as is selected to supply, integrate and launch the Launch Vehicle, and provide other launch services until separation of the ORION-Z Spacecraft from the Launch Vehicle. (ii) "LAUNCH AGREEMENT" means the agreement between Contractor and the Launch Agency to perform the launch of the ORION-Z Spacecraft. (jj) "LAUNCH SERVICES" means the launch campaign/transportation, launch services, mission planning and launch/early operations phase services as more particularly set forth in Section 7 of Part 2(A) (Statement of Work). (kk) "LAUNCH TERMINATION" means the point in time when, following Terminated Ignition, the launch pad is officially declared safe by the Launch Agency (ll) "LAUNCH VEHICLE" means the Ariane 44LP. (mm) "LAUNCHED ORION-Z SPACECRAFT" means the ORION-Z Spacecraft after its Launch. (nn) "LOSSES" mean all losses, liabilities, damages, royalty payments and claims, and all related costs and expenses (including reasonable legal fees and disbursements and costs of investigation, litigation, settlement, judgment, interest and penalties). (oo) "MAJOR SUBCONTRACT" means a Subcontract that is of a value exceeding Two Million, Five Hundred Thousand Dollars ($2,500,000) or of importance or critical in nature to 4 the overall program (e.g., a Subcontract for major or critical units, subsystems or other items or services). (pp) "MILESTONE PAYMENT" means those payments listed as Milestone Payments in Part l(B) (Payment Milestone Schedule and Termination Liability Amounts) of the Contract. (qq) "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 Contract. (rr) "MONTHLY POWER INCENTIVE AMOUNT" means the Power Incentive Amount paid at Final Acceptance divided into one hundred fifty-six (156) equal monthly amounts. (ss) "MONTHLY TRANSPONDER INCENTIVE AMOUNT" means the Transponder Incentive Amount paid at Final Acceptance divided into one hundred fifty-six (156) equal monthly amounts. (tt) "ON-GROUND TEST REQUIREMENTS" means the test plans and test procedures set forth in Part 3(C) (On-Ground Test Requirements) of the Contract. (uu) "ORBITAL INCENTIVE AMOUNT" means a firm fixed sum of [ ] * [ ] equivalent to the sum of the Power Orbital Incentive Amount and the Transponder * Orbital Incentive Amount. (vv) "ORION PERSONNEL" mean ORION's employees or representatives, or its Consultant's employees or representatives. (ww) "ORION-Z 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 Contract. (xx) "PAYMENT MILESTONE" means the task to be performed or event to occur before payment is due under Article 5 (Invoicing and Payment) and Part 1 (B) (Payment Milestone Schedule and Termination Liability Amounts). (yy) "POWER ORBITAL INCENTIVE AMOUNT" means a firm fixed sum of [ ] * [ ]. * (zz) "PREDICTED TRANSPONDER LIFE" means the period of time, measured in years and portions thereof, over which a Serviceable Transponder can be operated, commencing from the date of Delivery of the Preliminary In-Orbit Acceptance Report, this period of time being equal to whichever is the shortest of: (1) thirteen (13) years, or 5 (2) the ORION-Z Spacecraft predicted propellant life calculated in accordance with Section 5 of Part 3(D) (In-Orbit Commissioning and Acceptance Test Requirements) of the Contract, or (3) 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 Contract. (aaa) "PRIMARY TRANSPONDER" means a transponder where the communication signals are received from and transmitted to the ground. (bbb) "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. (ccc) "SATISFACTORILY OPERATING PRIMARY TRANSPONDER" means a Primary Transponder which is capable of meeting (i) the requirements of Part 3(A) (Technical Specifications for ORION-Z Spacecraft) regarding Primary Transponder performance and (ii) the Primary Transponder Test Requirements set forth in Part 3(D) (In-Orbit Commissioning and Acceptance Test Requirements). (ddd) "SATURATED TRANSPONDER" means a Primary Transponder whose output power amplifier is driven at its maximum designed end-of-life RF power output point. (eee) "SCHEDULED LAUNCH DATE" means the calendar date on which Launch is scheduled to occur. (fff) "SENIOR EXECUTIVE" means each of the senior executives designated from time to time in writing, by ORION and by Contractor, respectively, to be their representatives for the purposes of dispute resolution under the Contract. (ggg) "SERVICEABLE TRANSPONDER" means a Primary Transponder that meets the requirements set forth in Section 5 of Part 3(D) (In-Orbit Commissioning and Acceptance Test Requirements) of the Contract and is determined, pursuant to Section 5.2 thereof, to be capable of operation in accordance with such requirements during a period of eclipse. In the event that the Launched ORION-Z Spacecraft has insufficient energy to operate [ ] Serviceable * Transponders at 2.2 dB output backoff and single amplifier mode in beginning of life eclipse, those specific Transponders, if any, which failed the testing requirements of Section 5.2 of Part 6 3(D) will only be counted once in determining the total number of Transponders that are Serviceable Transponders. (hhh) "STATEMENT OF WORK" or "SOW" means the Work described in Part 2(A) (Statement of Work) to the Contract and to be provided by Contractor. (iii) "SUBCONTRACT" means a contract awarded by Contractor to a Subcontractor or a contract awarded by a Subcontractor at any tier of performance of any work specified in the Contract. (jjj) "SUBCONTRACTOR" means a person, firm, corporation or business entity that has been awarded a Subcontract by Contractor or another Subcontractor to provide a portion of the Work covered by the Contract. (kkk) "TECHNICAL SPECIFICATIONS" means the technical specifications set forth in Part 3(A) (Technical Specifications for ORION-Z Spacecraft) of the Contract. (lll) "TERMINATED IGNITION" means, following Intentional Ignition, the Launch sequence is shut down before Launch. (mmm) "TERMINATION LIABILITY AMOUNTS" means the amounts listed as Termination Liability Amounts in Part 1(B). (nnn) "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. (ooo) "TRANSPONDER ORBITAL INCENTIVE AMOUNT" means a firm fixed sum of [ ] * [ ]. * (ppp) "WORK" means the whole of the work described in Part 2(A) (Statement of Work) and elsewhere in the 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-Z Spacecraft in-orbit from design and manufacture, through Launch, Launch Services and in-orbit testing, including provision of all Equipment and Data and Documentation related thereto, including Deliverable Items, as specified in the Contract. 1.2 OTHER TERMS. Other terms in the Contract are defined in the context in which they are used and shall have the meanings there indicated. 7 1.3 PARTS. The following documents hereby constitute the Contract: (a) Part 1(A) - Terms and Conditions (b) Part 1(B) - Payment Milestone Schedule and Termination Liability Amount (c) Part 1(C) - Key Contractor Positions (d) Part 2(A) - ORION-Z Statement of Work (SOW) (e) Part 2(B) - ORION-Z Contract Documentation Requirements List (CDRL) (f) Part 3(A) - Technical Specifications for ORION-Z Spacecraft (g) Part 3(A), Annex A - Radiation Environment Specification (h) Part 3(B) - ORION-Z Spacecraft Product Assurance Requirements (i) Part 3(C) - ORION-Z Spacecraft On-Ground Test Requirements (j) Part 3(D) - ORION-Z In-Orbit Commissioning and Acceptance Test Requirements (k) Part 3(E) - Dynamic Spacecraft Simulator Specification (l) Part 3(F) - ORION Z Spacecraft SCF and Software Requirements Specification (m) Part 4 - RESERVED (n) Part 5 - Satellite Storage Plan 1.4 INTEGRATION AND CONSTRUCTION. (a) Notwithstanding anything herein to the contrary, the documents listed in Article 1.3 shall be deemed to constitute one fully integrated agreement between the Parties. In the event of any ambiguity, conflict or inconsistency among the provisions of the various parts of the Contract, such conflict or inconsistency shall be resolved by giving a descending level of precedence to the documents listed in Article 1.3. 8 (b) In the event the Parties are unable to resolve any ambiguity, conflict or inconsistency that affects the Work, ORION shall direct Contractor and Contractor shall follow such direction as to the interpretation to be followed in carrying out the Work. If Contractor disputes ORION's interpretation and such interpretation results in delay and/or increased costs and/or risks, either Party may proceed under Article 16 (Dispute Resolution) to resolve such dispute. 1.5 HEADINGS. The Article headings are for convenience of reference only and shall not be considered in interpreting the text of the Contract. Words in the singular include the plural and vice versa and words imputing the masculine gender include the feminine and neuter genders where the context so requires. 2. CONTRACTOR SCOPE OF WORK 2.1 SCOPE OF WORK. Contractor shall furnish the Work in accordance with the provisions of the Contract. In the performance of the Work, Contractor shall supply all personnel, materials and facilities necessary therefore. 3. ORION SCOPE OF WORK 3.1 SCOPE OF WORK. The primary ORION responsibilities necessary to enable Contractor to perform Work in certain defined areas are identified in Part 2(A) (Statement of Work). Orion's failure to timely perform one or more of its responsibilities under the Contract shall entitle Contractor to an equitable adjustment to the Contract Price and Delivery Schedule, provided Contractor provides ORION reasonable notice of non-performance and reasonable opportunity to cure. 4. CONTRACT PRICE AND OTHER CHARGES 4.1 GENERAL. All charges for the Work are set forth in this Article 4 and Article 12 (In-Orbit Performance Warranty and Incentives) and, if an Additional Satellite is ordered, Article 14 (Additional Satellite), and if ground storage is ordered, Article 25 (Ground Storage Option), as such articles may be amended pursuant to Articles 8 (Changes in Scope of Work) and 28.4 9 (Amendments). ORION shall not be required to pay Contractor any amounts for the Work in addition to those payable to Contractor under this Article 4, Article 12, Article 14 and Article 25. 4.2 CONTRACT PRICE. (a) ORION shall pay to Contractor the sum of One Hundred Fifty-Five Million Five Hundred Thirty Thousand Dollars ($155,530,000) as the Contract Price for the performance of the Work under the Contract. Upon the full and timely completion and delivery, as required, of the items of Work specified in the Contract, and acceptance of such items by ORION in accordance with the requirements of the Contract, Contractor shall be entitled to payment by ORION in accordance with the provisions of Article 5 (Invoicing and Payment). (b) The Contract Price shall comprise the following elements: ================================================================================ TABLE 4.2 CONTRACT PRICE - - --------------------------------------------------------------------------------
ITEM $U.S. 1. ORION-Z Spacecraft delivered in orbit (including cost of Ariane 44LP $[ ] * Launch Vehicle, any Launch Services, Data and Documentation, Operations Training, Mission Specific Hardware and Software, and the Dynamic Software Simulator) 2. Orbital Incentive Amount $[ ] * CONTRACT PRICE TOTAL $ 155,530,000
(c) The Contract Price includes all charges for Data and Documentation, operations training, interest, the insurance specified in Article 13 and 26.1, shipping costs and all other assessments, including all applicable duties and/or taxes. Contractor shall pay any duty and/or tax levied by any governmental agency as may be required by law to be paid in the performance of Contractor's obligations under the Contract. Except as expressly provided in the Contract, the Contract Price is not subject to any escalation, or to any adjustment or revision by reason of the actual cost incurred by Contractor in performance of Contractor's obligations under the Contract. 10 5. INVOICING AND PAYMENT 5.1 INVOICING. (a) Upon successful performance of the Work associated with each Payment Milestone, Contractor shall submit an Invoice in the amount specified in Part 1(B) (Payment Milestone Schedule and Termination Liability Amounts) for that Payment Milestone. Each such Invoice shall be accompanied by a certificate in the form of Annex A hereto together with such supporting data as Contractor deems necessary or appropriate. This Article 5.1 shall also apply to the Initial Payment. (b) Except as otherwise expressly stated herein, all other amounts due to Contractor under the Contract shall be invoiced in accordance with the procedures set forth in this Article 5.1. (c) Contractor shall first submit its Invoice via electronic communications media (e.g., facsimile) to be followed by the original Invoice. Provided ORION receives the original Invoice within five (5) days after receipt of the electronic communication, the date of receipt of the electronic communication shall be deemed the date of receipt of the Invoice and the start of the payment period; otherwise, the date of receipt of the original Invoice shall be deemed the date of receipt of the Invoice and the start of the payment period. Contractor shall submit copies of the Invoice to: ORION 2440 Research Boulevard Suite 400 Rockville, Maryland 20850 United States of America Fax: (301) 258-3360 Attention: Denise Olmsted 5.2 PAYMENT. (a) With the exception of the Initial Payment, which shall be paid simultaneously with the Effective Date of the Contract, ORION shall make Milestone Payments to the Contractor in accordance with the Milestone Payment Plan specified in Part 1(B) as adjusted by Article 28.4. Each Milestone Payment shall be payable by the Contractor submitting to ORION a Request for Payment accompanied by a certificate in the form of Annex A hereto together with such supporting documentation the Contractor deems necessary or appropriate. ORION shall pay Contractor, within thirty (30) days from the date of receipt (as determined in accordance with Article 5.1(c)) of such Invoice, the total amount claimed by Contractor on such Invoice; provided, however, that (i) the Work associated with the applicable Payment Milestone has been Successfully Completed, Conducted, or Delivered (as each term is defined in Article 5.2(e) below), as applicable, (ii) the certificate in the form of Annex A hereto has been executed by 11 both ORION and Contractor; and (iii) for the month when such Invoice would be due for payment, the aggregate amount (including such Invoice) paid by ORION to that point in time would not exceed the aggregate amount scheduled to be paid to that point in time in accordance with Part 1(B). There shall be only one (1) payment made to Contractor per calendar month. (b) Where the thirty-day period specified in (a) above causes a payment to become due on a non-Business Day, such payment shall be due on the next Business Day. (c) In the event Contractor completes any Payment Milestone in advance of the time scheduled for payment of such Payment Milestone as set forth in Part 1(B), Contractor shall have the right to submit an Invoice for such Payment Milestone and ORION shall be required to pay such Invoice; provided, however, that (i) the Work associated with the Payment Milestone has been Successfully Completed, Conducted or Delivered, as applicable, and (ii) for the month when such Invoice would be due for payment, the aggregate amount (including such Invoice) paid by ORION to that point in time would not exceed the aggregate amount scheduled to be paid to that point in time in accordance with Part 1(B). (d) The following terms shall have the meanings stated herein, applicable to the Payment Milestones set forth in Part l(B): (1) "SUCCESSFULLY COMPLETED" as it pertains to test milestones means that: (i) test(s) shall have been conducted in accordance with the applicable On-Ground Test Requirements; (ii) test results shall be within the limits prescribed in the On-Ground Test Requirements, or noncompliance with such requirements shall have been identified, reviewed and corrected in accordance with the Contract; and (iii) test results shall have been provided in writing to ORION in accordance with the Contract. (2) "CONDUCTED" as it pertains to the conduct of design reviews means, as applicable, that: (i) design review data packages shall have been submitted to ORION in accordance with the Contract; (ii) design review meetings shall have been held, and action items and minutes issued, in accordance with the Contract; and (iii) design review action items have been completed. 12 (3) "DELIVERED" means that the applicable item (for example, ORION-Z Spacecraft, Launch Vehicle, Equipment, services, and Data and Documentation) described in Part 1 (B) (Payment Milestone Schedule and Termination Liability Amounts) conforms to the requirements of the Contract and has been delivered to ORION in accordance with the provisions of Article 6 (Delivery). 5.3 METHOD OF PAYMENT. (a) Amounts payable to either Party shall be remitted by wire transfer to the following bank accounts, as applicable: ORION The Chase Manhattan Bank, N.A. New York, New York [ ] * For the account of Orion Network Systems, Inc. [ ] * Contractor Bank of America, NT & SA Chicago, Illinois [ ] * For the account of Space Systems/Loral, Inc. [ ] * (b) Any payment shall be deemed to have been made when credit for the amount is established in the above bank account. Each Party shall notify the other in writing within ten (10) days of a change to its respective bank accounts. 5.4 LATE PAYMENT FEE. Each Party shall be entitled to the interest due on any amounts properly due but not paid to such Party for each day after the date such amount is due. Such interest shall be paid within ten (10) days of the date of the determination such interest is due. Interest shall be at an annual compounded rate of LIBOR plus three percent (3%). 5.5 OTHER PAYMENTS. Except as otherwise expressly stated herein, all other payments due and payable to Contractor shall be made in accordance with the procedures set forth in Article 5.3 (Method of Payment) within thirty (30) days after the date of receipt (as determined in accordance with Article 5.1(c)) of the corresponding Invoice. 13 5.6 RIGHT OF SET-OFF. Any amount payable or refundable by Contractor to ORION under the Contract, including any payment due as a result of any price adjustment for late delivery or failure to earn incentive amounts, and any finally adjudicated claim for payment made by ORION against Contractor within the purview of the Contract, may be deducted by ORION from any payment due, or to become due, to Contractor on any account whatsoever under the Contract as ORION in its sole discretion may decide. 5.7 DISPUTED CHARGES. Subject to Article 5.6, ORION shall pay undisputed charges when such payments are due under this Article 5, Article 12 (In-Orbit Performance Warranty and Incentives), Article 14 (Additional Satellite) or Article 25 (Ground Storage Option). 6. DELIVERY 6.1 DELIVERY SCHEDULE. (a) "Delivery" shall be deemed to have occurred for each Deliverable Item upon its Final Acceptance by ORION. The Delivery of the ORION-Z Spacecraft is to be in orbit. Subject to Articles 6.3 and 28.4, Deliverable Items, as listed in Table 6.1 below, shall be Delivered by Contractor to the destinations indicated, on or before the dates ("Delivery Dates") specified in such table. 14 ================================================================================ TABLE 6.1 DELIVERY SCHEDULE - - -------------------------------------------------------------------------------- DELIVERABLE ITEM DELIVERY DATE DESTINATION 1. ORION-Z Spacecraft June 30, 1999 In Orbit at 12o W.L. 2. Data & Documentation Per CDRL Per CDRL 3. Operations Training Per SOW ORION MCC 4. Mission Specific Hardware and Per SOW, Annex A MCC and TT&C Software 5. Dynamic Spacecraft Software Per SOW Rockville, MD Simulator (b) Notwithstanding any other provision of the Contract, Contractor shall advise ORION immediately by telephone and confirm in writing any event, circumstance or development that materially threatens (i) the quality of any ORION-Z Spacecraft or component part thereof, as well as any services, Data and Documentation or Equipment to be provided hereunder, or (ii) the Delivery Dates established in Table 6.1 above. 6.2 DELAY. (a) Contractor acknowledges and agrees that failure to duly Deliver the ORION-Z Spacecraft in orbit on or before the Delivery Date specified in Table 6.1 above may be the sole or partial cause of substantial financial loss or damage being sustained by ORION due to the cost of alternative means of providing service to customers and loss of continuity of service. Subject to the provisions of Article 6.3 (Excusable Delay), if the Delivery in orbit of the ORION-Z Spacecraft occurs later than the applicable Delivery Date due to any reason other than Constructive Total Loss, Contractor agrees to pay to ORION on demand liquidated damages from and including the [ ] Calendar Day of lateness up to and including the [ ] * [ ] Calendar Day of lateness (the "Liquidated Damages Period) in the * amount of [ ] per day for each Calendar Day in the * Liquidated Damages Period. The remedy provided in Article 6.2(a) is not exclusive of any other remedy provided in the Contract. 6.3 EXCUSABLE DELAY. (a) Any delay in the performance of the Work caused by an event that is beyond the control of Contractor or its Subcontractors, such as, but not limited to, any acts of government in 15 its contractual or sovereign capacity, fire, flood, epidemic, quarantine restriction, freight embargo, or acts of God, or any postponement by the Launch Agency of launch of the ORION-Z Spacecraft, or acts or omissions of ORION that unreasonably delay or hinder Contractor's performance or failure by ORION to meet its responsibilities under the Contract, and which delay could not have been avoided by Contractor or Subcontractor through the exercise of reasonable foresight or reasonable precautions and cannot be circumvented by Contractor through the use of alternate sources, work-around plans, or other means, shall constitute a basis for excusable delay ("Excusable Delay") if notice thereof is given to ORION, in writing, within three (3) Business Days after Contractor shall have first learned of an occurrence of such an event or with regard to the Launch Vehicle, the probability of the occurrence of such event. Such notice shall include a detailed description of the portion of the Work affected by such a delay, as well as details of any work-around plans, alternate sources or other means Contractor will utilize to forestall a delay to the Delivery Schedule stated in Article 6 (Delivery). Written notice must also be given to ORION when the event constituting an Excusable Delay appears to have ended. In all events, Contractor shall use reasonable efforts to avoid or minimize such delay. In addition, ORION's exercise of its rights under Article 25 (Ground Storage Option) due to circumstances caused by ORION shall constitute an Excusable Delay. (b) 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 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 Contractor's receipt of written notice from ORION, the dispute shall be resolved pursuant to Article 16 (Dispute Resolution). (c) In the event of an Excusable Delay, there shall be an equitable adjustment to the Delivery Schedule set forth in Table 6.1, Article 6 (Delivery) and the Delivery Schedule set forth in Article 14 (Additional Satellite) to the extent such Excusable Delay affects such delivery schedules and to such other terms in the Contract as applicable; provided, however, that the occurrence of an Excusable Delay shall not entitle Contractor to an increase in the Contract Price (unless such Excusable Delay is caused solely or substantially by ORION's acts or omissions that unreasonably delay or hinder Contractor's performance or ORION's failure to meet its responsibilities). Any extension of time or other relief granted under this Article 6.3 shall be formalized by the execution of an amendment to the Contract in accordance with Article 28.4. 7. ACCEPTANCE TESTING AND FINAL ACCEPTANCE 7.1 GENERAL. Each Deliverable Item under the Contract shall be accepted by ORION upon Contractor's successful demonstration of its timely compliance with the requirements of the Contract. 16 7.2 ACCEPTANCE TESTING. Contractor agrees to notify ORION in writing ten (10) days in advance of conducting acceptance tests for Deliverable Items and pre-launch tests of the integrated ORION-Z Spacecraft. Upon compliance with the notification requirement, ORION's absence at such tests shall neither be a cause of delaying the acceptance tests nor invalidating the test results obtained therefrom. 7.3 PRE-LAUNCH CERTIFICATION. Upon completion of the pre-launch tests at the launch site in accordance with the requirements of the Contract, Contractor shall furnish ORION with pre-launch certification as soon as feasible prior to Launch. 7.4 FINAL ACCEPTANCE OF DATA AND DOCUMENTATION. (a) "Final Acceptance" (and therefore, Delivery) of Data and Documentation shall occur only when: (1) Contractor has fulfilled the Contract's requirements for the Data and Documentation; and (2) the Data and Documentation has been delivered at the place referenced in Table 6.1 of Article 6 (Delivery) in a condition fully conforming to the provisions of the Contract. (b) Data and Documentation not requiring approval by ORION in accordance with Part 2(B) 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 such Data and Documentation is unacceptable, ORION shall, within the said ten (10) Business Days, notify Contractor in writing in which respects the Data and Documentation fails to conform to applicable requirements of the Contract. Any Data and Documentation that fails to conform to applicable requirements of the Contract with respect to which ORION has so notified Contractor as being non-conforming, shall be deemed under the 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 Contract, and the Data and Documentation is at the destination referenced in Table 6.1 of Article 6 (Delivery) whereupon ORION shall accept the Data and Documentation in writing and Final Acceptance shall occur. (c) 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 7.4 within ten (10) Business Days after receipt 17 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 16 (Dispute Resolution) hereof. (d) The provisions of this Article 7.4 shall not apply to the Final Acceptance of a Launched ORION-Z Spacecraft or to the Preliminary In-Orbit Acceptance Report. The Final Acceptance of the Launched ORION-Z Spacecraft and of the In-Orbit Acceptance Report essential thereto shall be governed by Article 7.5. 7.5 FINAL ACCEPTANCE OF ORION-Z SPACECRAFT. (a) In-Orbit Acceptance Report. (1) Upon arrival at its designated orbital location, Contractor will perform the tests and analyses set forth in Part 3(D) (In-Orbit Commissioning and Acceptance Test Requirements) for the Launched ORION-Z Spacecraft to determine the Aggregate Predicted Transponder Life of the Launched ORION-Z Spacecraft. The results of such tests and analyses will be furnished to ORION in Preliminary and Final In-Orbit Acceptance Reports prepared by Contractor for the Launched ORION-Z Spacecraft in accordance with Part 2(A)(SOW), Part 2(B)(CDRL) and Part 3(D). (2) Within forty-five (45) days after Launch of the ORION-Z Spacecraft, Contractor shall furnish to ORION the Preliminary In-Orbit Acceptance Report in full compliance with Part 2(A), Part 2(B) and Part 3(D) in respect of the Launched ORION-Z Spacecraft, and, within sixty (60) days after Launch, Contractor shall furnish to ORION the Final In-Orbit Acceptance Report in full compliance with Part 2(A), Part 2(B) and Part 3(D). (3) Unless the ORION-Z Spacecraft is a Constructive Total Loss, Final Acceptance (and therefore, Delivery) of the ORION-Z Spacecraft will take place upon receipt by ORION of the Preliminary In-Orbit Acceptance Report demonstrating that the ORION-Z Spacecraft is in full compliance with Part 3(A) and Part 3(D). (4) Unless ORION responds to the Preliminary In-Orbit Acceptance Report within thirty (30) days after receipt thereof, or such other period of time acceptable to both Parties, the report shall be deemed acceptable. (5) If ORION's response under Article 7.5(a)(4) contests the findings of the Preliminary In-Orbit Acceptance Report, the Parties shall be deemed forthwith to be in dispute and either Party may proceed under Article 16 to have such dispute resolved. 18 (6) The existence of a dispute shall not affect Final Acceptance set forth above. 8. TITLE TO DELIVERABLE ITEMS AND RISK OF LOSS 8.1 ORION-Z SPACECRAFT. (a) Risk of loss or damage to the ORION-Z Spacecraft shall pass from Contractor to ORION at the time of Intentional Ignition of the ORION-Z Spacecraft. Title to the ORION-Z Spacecraft, free and clear of all liens and encumbrances of any kind shall pass from Contractor to ORION upon Final Acceptance of the ORION-Z Spacecraft in accordance with Article 7, (Acceptance Testing and Final Acceptance - Deliverable Items). (b) In the event of the occurrence of a Terminated Ignition of the Launch Vehicle used for Launch of the ORION-Z Spacecraft to be delivered hereunder, the Parties agree that Contractor shall re-assume risk of loss of the ORION-Z Spacecraft upon Launch Termination and will thereafter immediately commence work required to ready the ORION-Z Spacecraft for a Launch Vehicle re-launch (including, as applicable, demating and defueling of the ORION-Z Spacecraft, procurement of pre-launch/transit insurance(s), storage, shipping of the ORION-Z Spacecraft back to Palo Alto, CA, refurbishing, retesting, re-shipping, and re-initiation and performance of a subsequent Launch, and any other related effort). It is agreed by the Parties that such support shall be provided at ORION's expense and shall be subject to an equitable adjustment to the Contract Price and schedule as mutually agreed to by the Parties. Equitable adjustment for such work and all affected terms of this Contract, and its Parts, as applicable, shall be negotiated within thirty (30) days of the Terminated Ignition or as otherwise agreed to by the Parties, and the Parties agree, pending final negotiation of an equitable adjustment, to perform their respective obligations described elsewhere in this Contract. (c) 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-Z Spacecraft to the insurers obligated to cover such loss. 8.2 DATA AND DOCUMENTATION The license rights set forth in Article 21.1 and risk of loss or damage to Data and Documentation delivered under the Contract shall pass from Contractor to ORION at the time of Final Acceptance in accordance with Article 7 (Acceptance Testing and Final Acceptance - Deliverable Items). 8.3 OTHER DELIVERABLE ITEMS. Title, free and clear of all liens and encumbrances of any kind, and risk of loss or damage to each Deliverable Item (other than the ORION-Z Spacecraft and Data and Documentation) delivered under the Contract shall pass from Contractor to ORION at the time of Final 19 Acceptance by ORION in accordance with Article 7 (Acceptance Testing and Final Acceptance - Deliverable Items). 9. CHANGES IN SCOPE OF WORK 9.1 CHANGES REQUESTED BY ORION. (a) ORION may, at any time after the Effective Date of the Contract, by written change order issued by ORION make changes within the general scope of the Contract that will add or delete Work, affect the design of the ORION-Z Satellite, change the time or place of delivery or affect any other requirement of the Contract. (b) Contractor shall perform the Work in accordance with such orders and changes as if the same had appeared in and formed part of the Contract. (c) If any such change causes an increase or decrease in the cost of the Work, or the time required for the completion of the Work to be provided herein, or otherwise affects any other provision of the Contract, an equitable adjustment shall be made to the Contract Price, the Delivery Schedule or both, and to such other provisions as may be affected. The Parties shall consider, negotiate and agree to such equitable adjustments in a timely manner, and the Contract shall be amended in accordance with Article 28.4 (Amendments). (d) ORION shall have the right to prescribe the manner in which Contractor shall dispose of any Work made obsolete as a result of such orders, dispensations or changes. (e) Nothing in this Article shall excuse Contractor from promptly proceeding with the additions, dispensations or changes specified in the change order. 9.2 CHANGES REQUESTED BY CONTRACTOR. (a) Contractor may, at any time after the Effective Date of the Contract, provide ORION with a request for a change or waiver in the whole or any part of the Work or schedules herein, provided that Contractor shall use reasonable efforts to submit such request in writing to ORION at least sixty (60) days prior to the proposed date of any change or waiver that would add or delete work, affect the design of the ORION-Z Spacecraft, change the method of shipment or packing, or place or time of delivery, or would affect any other requirement of the Contract. (b) If such Contractor-requested change or waiver would cause an increase or decrease in the Contract Price or Delivery Schedule, Contractor shall submit to ORION, concurrent with the requested change, the details of such increase or decrease. (c) Contractor shall not proceed with the requested change or waiver unless and until ORION agrees with and accepts such change or waiver. 20 (d) ORION shall notify Contractor in writing, within thirty (30) days after receipt of a request from Contractor for a change or waiver, whether or not it agrees with and accepts such change or grants such waiver. If ORION agrees with and accepts such change or grants such waiver, Contractor shall proceed with the performance of the Contract as changed or waived and an amendment to the Contract reflecting such change and price adjustment, if any, in accordance with Article 28.4 (Amendments), shall be issued. If ORION does not agree with the change or waiver as requested, the Parties shall attempt to reach agreement on such change or waiver. In the event the Parties are unable to reach agreement on the change or waiver, or on the applicable price adjustment, if any, or both, Contractor shall proceed with the performance of the Contract as unchanged. 10. CORRECTIVE MEASURES IN UNLAUNCHED SATELLITES 10.1 CORRECTIVE MEASURES. (a) Notice. (1) ORION shall notify Contractor in writing when it believes any Defect exists in the ORION-Z Spacecraft, the services and/or the Data and Documentation. Contractor may from time to time advise ORION in writing that it disagrees with ORION 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. (2) Notwithstanding any other provision of the Contract, Contractor shall advise ORION immediately by telephone and confirm in writing any event, circumstance or development that materially threatens the quality of the ORION-Z Spacecraft, or component part thereof as well as any services and/or Data and Documentation to be provided hereunder or the Delivery Dates established. (b) Defect in ORION-Z Spacecraft. (1) Without limiting the obligations of Contractor or the rights of ORION under the provisions of the Contract, prior to Launch, Contractor shall, at its expense, use its best efforts to promptly correct any Defect related to the ORION-Z Spacecraft that 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 Contractor to have any items containing a Defect returned at Contractor's expense to Contractor's facility for Contractor to verify the non-conformance and to correct the Defect. All transportation costs such as packaging, shipping and insurance, shall be paid 21 by Contractor, except that if it is reasonably determined after investigation that ORION directly caused the Defects in question, or that the item is in conformance with applicable specifications and requirements, ORION will reimburse Contractor for the above-described costs and will pay all costs associated with the shipment to and from Contractor's facility. (2) If 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 10.1 (a)(1) above (including agreement on the existence of such Defect), ORION may, by separate contract or otherwise, correct or replace such items or 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, Contractor shall pay to ORION the direct actual cost of such correction or replacement. The amount payable by Contractor shall be verified at Contractor's request by an internationally recognized firm of accountants appointed by 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 Contractor and shall be without prejudice to the right of either Party to seek arbitration under Article 16.2. The report of such accountants may be used by either Party in any arbitration proceeding but shall not be binding upon the arbitrators. (c) Defect in Similar Satellite. (1) Without limiting the obligations of Contractor or the rights of ORION under other provisions of the Contract, if the data available from the Launched ORION-Z Spacecraft or another spacecraft of a similar class that is being built by Contractor indicates that the ORION-Z Spacecraft contains a Defect, 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 ORION-Z Spacecraft and Additional Satellite, if ordered, so as to satisfactorily eliminate such Defect from the ORION-Z Spacecraft and Additional Satellite. 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. (2) If Contractor fails to take such corrective measures with respect to the ORION-Z Spacecraft within a reasonable time after request from ORION, ORION may by separate contract or otherwise, have all such Defects corrected in accordance with Article 10.1(b)(2). 22 (d) Minor Defects. For any Defect that does not adversely affect the form, fit, useful life, reliability or function (i.e., operational performance) of a Transponder, Contractor and ORION agree to negotiate a reasonable resolution. If the Parties are unable to reach an agreed resolution within ten (10) days of ORION receiving notice of the Defect from Contractor ("Notice Date"), Contractor or ORION shall have the right to elevate the negotiations to Contractor's Senior Executive and to ORION's Senior Executive. In the event the Parties are unable to reach an agreed resolution within fifteen (15) days of the Notice Date, ORION shall thereafter be able to exercise all of its rights under this Article 10. (e) No Additional Payment. Subject to Article 6.3 (Excusable Delay), Contractor acknowledges and agrees that it shall not be entitled to payment for any additional costs incurred as a consequence of any Defect. (f) Delay. Contractor shall have a reasonable time to effect corrections required ; however, Contractor's time to correct shall not impact Customer's rights under Article 7 (Acceptance Testing and Final Acceptance) and Article 6.2 (Delay). (g) Waiver of Defect. After notification of a Defect to Contractor, the Parties may jointly elect in writing, pursuant to Article 28.4 (Amendments), not to require correction or replacement of such items or services or to waive the Defects noted. In such event, Contractor, if required by ORION but pursuant to the procedures set forth in Article 10.1 (b)(2), shall repay such portion of the Contract Price as is equitable in the circumstances. 10.2 MANUFACTURERS' WARRANTIES. Subject to the provisions of any applicable law, Contractor agrees to enforce any manufacturer's warranty given to it in connection with any Work to be provided under the Contract and Contractor shall provide to ORION the benefit of any warranty protection or pledge to ORION any proceeds therefrom in respect of that Work and other items as are given to Contractor by the manufacturers or service providers. 10.3 REPLACED EQUIPMENT. If Contractor, in accordance with this Article, replaces any Equipment that was determined to be deficient, such deficient Equipment shall remain or become the property of Contractor. 10.4 IN-ORBIT DATA. Except to the extent required to perform its obligations under Article 10.1, nothing in this Article requires Contractor to disclose to ORION in-orbit data from satellites owned by others, without prior written consent. 23 11. REPRESENTATIONS AND WARRANTIES 11.1 CONTRACTOR PERSONNEL. Contractor represents and warrants that it shall assign properly qualified and experienced personnel to the program contemplated by the Contract. 11.2 SOFTWARE AND INVENTION OWNERSHIP. Contractor represents and warrants that it is either the owner of, or authorized to use and incorporate, any software or invention utilized or incorporated in the Work. 11.3 AUTHORIZATION. Each Party represents and warrants to the other that: (a) it has the requisite corporate power and authority to enter into the Contract and to carry out the transactions contemplated by the Contract; (b) the execution, delivery and performance of the Contract and the consummation of the transactions contemplated by the Contract have been duly authorized by the requisite corporate action on the part of such Party; and (c) the Contract is a valid and binding obligation of such Party, enforceable in accordance with its terms. 11.4 INDUCEMENTS. Contractor represents and warrants to ORION that it has not violated any applicable laws or regulations or any ORION policies of which Contractor has been given notice regarding the offering of unlawful inducements in connection with the Contract. 12. IN-ORBIT PERFORMANCE WARRANTY AND INCENTIVE PAYMENTS 12.1 IN-ORBIT PERFORMANCE WARRANTY. Contractor warrants that the ORION-Z Spacecraft will provide the following: (a) The ORION-Z Spacecraft will support simultaneous operation of [ ] * Satisfactorily Operating Primary Transponders at 2.2 dB output power back-off commencing on the date of Final Acceptance and for a period through the last day of the [ ] year thereafter * and will support [ ] Satisfactorily Operating Primary Transponders at 2.2 dB output * power back-off commencing with the first day of year [ ] for a period of [ ] years * 24 thereafter; and (b) The ORION-Z Spacecraft power will support simultaneous operation of [ ] * [ ] Satisfactorily Operating Primary Transponders with [ ] Saturated Transponders * and [ ] Transponders at 3.0 dB output power back-off commencing on the date of * Final Acceptance and for a period through the last day of the [ ] year thereafter and will * support simultaneous operation of [ ] Satisfactorily Operating Primary Transponders * with [ ] Saturated Transponders and [ ] Transponders at 3.0 dB output * power back-off commencing with the first day of year [ ] and for a period of [ ] years * thereafter. (collectively the "In-Orbit Performance Warranty Period"). The Transponders will be configured symmetrically on the north and south panels. 12.2 ADVANCE INCENTIVE PAYMENT AT FINAL ACCEPTANCE. (a) If, at Final Acceptance, the ORION-Z Spacecraft has [ ] Serviceable * Transponders operating at 2.2 dB output power back-off and a propellant lifetime as calculated in Part 3(D) (In-Orbit Commissioning and Acceptance Test Requirements) of at least [ ] * years, ORION shall pay Contractor the Transponder Orbital Incentive Amount as an Advance Incentive Payment. (b) If at Final Acceptance, the ORION-Z Spacecraft does not meet the requirements set forth in Paragraph 12.2(a) above, then ORION shall pay Contractor, as an Advance Incentive Payment, a percentage of the Transponder Orbital Incentive Amount in accordance with the Aggregate Predicted Transponder Life as provided in Table 12.2(b) below: 25 ---------------------------------------------------------------------- Table 12.2(b) Schedule of Transponder Orbital Incentive Payment at Final Acceptance ---------------------------------------------------------------------- Aggregate Predicted Percentage of Total Transponder Life Incentive Amount ------------------- ------------------- [ ] [ ] * [ ] [ ] * [ ] [ ] * [ ] [ ] * [ ] [ ] * [ ] [ ] * [ ] [ ] * [ ] [ ] * [ ] [ ] * [ ] [ ] * [ ] [ ] * [ ] [ ] * (c) If, at Final Acceptance, the ORION-Z Spacecraft has sufficient end-of-life power as calculated in Part 3(D) (In-Orbit Commissioning and Acceptance Test Requirements) to support [ ] Serviceable Transponders with eighteen (18) Saturated Transponders * and [ ] Transponders operating at 3.0 dB power back-off, ORION shall pay Contractor * the Power Orbital Incentive Amount, as an Advance Incentive Payment. (d) If, at Final Acceptance, the ORION-Z Spacecraft does not meet the requirements set forth in Paragraph 12.2(c), then ORION shall pay to the Contractor, as an Advance Incentive Payment, a percentage of the Power Orbital Incentive Amount in accordance with the number of Saturated Transponders as provided in Table 12.2(d) below: 26 ---------------------------------------------------------------------- Table 12.2(d) Schedule of Power Orbital Incentive Payment at Final Acceptance ---------------------------------------------------------------------- No. of Saturated Percentage of Total Transponders Incentive Amount ---------------- ------------------- [ ] [ ] * [ ] [ ] * [ ] [ ] * [ ] [ ] * [ ] [ ] * [ ] [ ] * [ ] [ ] * [ ] [ ] * [ ] [ ] * [ ] [ ] * [ ] [ ] * [ ] [ ] * (e) If the ORION Z Spacecraft is rendered inoperative because of a Launch Vehicle failure or failure of the Launch Vehicle to place the Satellite in its geostationary transfer orbit location or if the ORION-Z Spacecraft is deemed a Constructive Total Loss through no fault of Contractor, Contractor shall receive and be entitled to retain the full Orbital Incentive Amount payable under this Article 12. Payment of any amount due Contractor shall be paid thirty (30) days after ORION's receipt of invoice and in accordance with Article 5. 27 12.3 MONTHLY TRANSPONDER INCENTIVE AMOUNT. (a) Contractor shall earn and be entitled to retain a percentage of the Monthly Transponder Incentive Amount during each calendar month of the In-Orbit Performance Warranty Period according to the number of Satisfactorily Operating Primary Transponders that the ORION-Z Spacecraft has, as provided in Table 12.3 below. Subject to Article 12.3(b), in the event any of the Monthly Transponder Incentive Amount is not so earned by Contractor during any calendar month of the In-Orbit Performance Warranty Period, Contractor shall refund to ORION all such unearned amounts. (b) 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, when the Revenue (or equivalent consideration) received by ORION for such Primary Transponder in any one calendar monthly period is less than the proportion of the Monthly Incentive Amount attributable to such Primary Transponder, Contractor shall, in the succeeding month, refund to ORION the difference between the said proportion of the Monthly Incentive Amount 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 Contractor under this Article 12.3(b) exceed said proportion of the Monthly Incentive Amount 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 shall so advise Contractor within seven (7) Business Days after commencing such use. (c) Payment of any refund provided for under this Article 12.3 shall be due thirty (30) days after the date of receipt by Contractor of an invoice from ORION; interest shall be paid (at the rate specified in Article 5.4) on any amounts not paid when due. Invoices shall be accompanied by sufficient data to support ORION's refund claim. ORION may offset any such payments not made by Contractor against any outstanding balance due under the Contract. 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. Contractor shall pay any undisputed part of an Invoice. 28 ---------------------------------------------------------------------- Table 12.3 Schedule of Monthly Transponder Orbital Incentive Amount Earned for [ ] Transponders during years [ ] * ---------------------------------------------------------------------- Number of Satisfactorily Percentage of Monthly Transponder Operating Primary Transponders Incentive Amount ------------------------------ --------------------------------- [ ] [ ] * [ ] [ ] * [ ] [ ] * [ ] [ ] * [ ] [ ] * [ ] [ ] * [ ] [ ] * [ ] [ ] * [ ] [ ] * [ ] [ ] * [ ] [ ] * [ ] [ ] * [ ] [ ] * [ ] [ ] * [ ] [ ] * [ ] [ ] * 29 [ ] [ ] * [ ] [ ] * [ ] [ ] * [ ] [ ] * [ ] [ ] * ---------------------------------------------------------------------- Table 12.3 Schedule of Monthly Transponder Orbital Incentive Amount Earned for [ ] Transponders during years [ ] * ---------------------------------------------------------------------- Number of Satisfactorily Percentage of Monthly Transponder Operating Primary Transponders Incentive Amount ------------------------------ --------------------------------- [ ] [ ] * [ ] [ ] * [ ] [ ] * [ ] [ ] * [ ] [ ] * [ ] [ ] * [ ] [ ] * [ ] [ ] * [ ] [ ] * [ ] [ ] * [ ] [ ] * 30 [ ] [ ] * [ ] [ ] * [ ] [ ] * [ ] [ ] * [ ] [ ] * [ ] [ ] * [ ] [ ] * [ ] [ ] * [ ] [ ] * 12.4 MONTHLY POWER INCENTIVE AMOUNT. (a) Contractor shall earn and be entitled to retain a percentage of the Monthly Power Incentive Amount during each calendar month of the In-Orbit Performance Warranty Period according to the number of Saturated Transponders that the ORION-Z Spacecraft has, as provided in the applicable Table 12.4 below. In the event any of the Monthly Power Incentive Amount is not so earned by Contractor during any calendar month of the In-Orbit Performance Warranty Period, Contractor shall refund to ORION all such unearned amounts. (b) Payment of any refund provided for under this Article 12.3 shall be due thirty (30) days after the date of receipt by Contractor of such invoice from ORION; interest shall be paid (at the rate specified in Article 5.4) on any amounts not paid when due. Invoices shall be accompanied by sufficient data to support ORION's refund claim. ORION may offset any such payments not made by Contractor against any outstanding balance due under the Contract. 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. Contractor shall pay any undisputed part of an Invoice. 31 ---------------------------------------------------------------------- Table 12.4 Schedule of Monthly Power Orbital Incentive Amount Earned for [ ] * [ ] Transponders during years [ ] * ---------------------------------------------------------------------- Number of Saturated Transponders Percentage of Monthly Power Incentive Amount [ ] [ ] * [ ] [ ] * [ ] [ ] * [ ] [ ] * [ ] [ ] * [ ] [ ] * [ ] [ ] * [ ] [ ] * [ ] [ ] * [ ] [ ] * [ ] [ ] * [ ] [ ] * 32 ---------------------------------------------------------------------- Table 12.4 Schedule of Monthly Power Orbital Incentive Amount Earned for [ ] * [ ] Transponders during years [ ] * ---------------------------------------------------------------------- Number of Saturated Transponders Percentage of Monthly Power Incentive Amount [ ] [ ] * [ ] [ ] * [ ] [ ] * [ ] [ ] * [ ] [ ] * [ ] [ ] * [ ] [ ] * [ ] [ ] * [ ] [ ] * [ ] [ ] * [ ] [ ] * [ ] [ ] * 12.5 MEASURING IN-ORBIT PERFORMANCE. (a) For the purposes of this Article 12, in determining whether a Primary Transponder is a Satisfactorily Operating Primary Transponder, no account shall be taken of any period of unavailability: (1) less than thirty (30) cumulative seconds per day; 33 (2) attributable to ORION-Z Spacecraft maintenance activities, station keeping maneuvers, payload reconfiguration for business purposes or station change maneuvers; (3) attributable to communications link fading due to external causes, including but not limited to weather; (4) 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 (5) attributable to earth station sun blinding. (b) 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 Contractor may, at its expense, assist in determining the nature of anomalies and corrective measures. Contractor shall for this purpose be given access to any data collected by ORION. 12.6 ECLIPSE. In the event the ORION-Z Spacecraft fails to meet the eclipse operations requirements as specified in Part 2(A) (Technical Specifications), a reduction shall be made to that portion of the Monthly Transponder Incentive Amount and Monthly Power Incentive Amount calculated under Articles 12.3 and 12.4, as having been earned by Contractor, with such reduction being equivalent to the percentage of lost communications capacity determined during eclipse. 12.7 DISPUTED PERFORMANCE. In the event ORION claims for any month of operation of the ORION-Z Spacecraft that any of the criteria established or referred to under Articles 12.3, 12.4 and 12.5 above have not been met, ORION's claim shall be accompanied by technical data, reports, analyses and such records as are available to support such claim, and Contractor shall be given an opportunity to verify the data. Should Contractor disagree with such claim and present evidence to the contrary, then ORION shall consider such evidence and consult with Contractor. In the event the Parties cannot resolve such disagreement, then either Party may proceed under Article 16 (Dispute Resolution) to have such dispute resolved. 34 13. INSURANCE 13.1 GENERAL. (a) Contractor shall provide and maintain, at its expense, the insurance required by Article 13.2. The insurers selected by Contractor shall have an A.M. Best rating of A-XIII or foreign equivalent or better or, if such ratings are no longer available, a comparable rating from a recognized insurance rating agency. Such insurance coverages shall be in amounts no less than the insurance coverages Contractor provides and maintains for Contractor's other customers. (b) Except as otherwise specifically provided in the Contract, the insurance required by this Article shall not limit, bar or otherwise affect the liability and obligation of Contractor to complete the Work and deliver the Deliverable Items in accordance with the Contract. 13.2 REQUIRED INSURANCE. (a) Insurance of the Work. (1) All Risks Policy. (i) Before Contractor commences the Work, Contractor shall have an insurance policy against all risks, loss or damage to the ORION-Z Spacecraft occurring prior to Intentional Ignition (including coverage against damage or loss caused by earth movement, flood, boiler, turbine and machinery accidents) subject to normal "All Risks Policy" exclusions. The details of the insurer and the relevant extracts of the policy shall be submitted to ORION. (ii) Such insurance coverage shall be maintained by Contractor up to the point of Intentional Ignition of the ORION-Z Spacecraft ordered by ORION pursuant to the Contract and shall provide (i) coverage for removal of debris, and insuring the structures, machines, equipment, facilities, fixtures and other properties constituting a part of the project, (ii) transit coverage, including ocean marine coverage (unless insured by the supplier), (iii) off-site coverage covering any key equipment, and (iv) off-site coverage covering any property or equipment not stored on the construction sites. (2) The insurance of the Work as required by this Article 13.2(a), whether effected by Contractor or ORION, shall not limit, bar or otherwise affect the liability and obligation of Contractor to complete the Work and deliver the Deliverable Items in accordance with the Contract. 35 (3) Contractor shall use best efforts to require its insurers to waive all rights of subrogation against ORION, save those for which ORION indemnifies Contractor pursuant to Article 15.2 (Indemnity by ORION) provided that such coverage shall be at no additional cost to the insuring Party. (b) Commercial General Liability Insurance. (1) Before Contractor commences the Work, Contractor shall have a Commercial General Liability Policy of insurance. The policy shall cover Contractor and all Subcontractors employed from time to time in relation to the Work and performance of the ORION-Z Contract for their respective rights and interests and cover their liabilities to third parties. (2) The Commercial General Liability Policy shall be maintained until all Work pursuant to the Contract, including remedial work, is Delivered and Final Acceptance of the ORION-Z Spacecraft has occurred. (3) Contractor shall require insurers to waive all rights of subrogation against ORION, save those for which ORION indemnifies Contractor pursuant to Article 15.2 (Indemnity by ORION) provided that such coverage shall be at no additional cost to the insuring Party. (c) Insurance of Employees. (1) Before commencing the Work, Contractor shall have Worker's Compensation Insurance, including occupational illness or disease coverage, or other similar social insurance in accordance with the laws of the country, state or territory exercising jurisdiction over the employee and Employer's Liability Insurance. Such insurance shall be maintained until all Work pursuant to the Contract, including remedial work, is Delivered and Final Acceptance of the ORION-Z Spacecraft has occurred. Contractor shall ensure that all Subcontracts contain a similar provision. (2) Contractor shall require its insurers to waive all rights of subrogation against ORION, save those for which ORION indemnifies Contractor pursuant to Article 15.2 (Indemnity by ORION) provided that such coverage shall be at no additional cost to the insuring Party. (d) Comprehensive Automobile Liability Insurance. (1) Before commencing the Work, 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 36 hired vehicles used at any of Contractor's facilities in the performance of Contractor's obligations under the Contract. 13.3 SUBCONTRACTS. Contractor shall require its Subcontractors to provide and maintain insurance, and such insurance shall be no less in kind or amount as Contractor requires its Subcontractors to provide and maintain for work to be provided by such Subcontractors to other customers of Contractor. 13.4 DOCUMENTARY EVIDENCE. (a) In respect of every insurance policy required under this Article 13, before commencement of the Work and whenever requested by ORION in writing, Contractor shall periodically provide documentary evidence that the coverages and policy endorsements required under the Contract have been effected and are being maintained in force and Contractor shall provide ORION not less than thirty (30) days written notice prior to any modification, cancellation or non-renewal of the policies. (b) Contractor shall produce evidence of compliance with the insurance obligations applicable to Contractor pursuant to this Article 13 within fourteen (14) days of written request by ORION. In the event Contractor does not provide such evidence within such time period, ORION shall provide Contractor written notice thereof. 13.5 CLAIMS. As soon as practicable after any occurrence that may give rise to a claim under a policy of insurance required by this Article 13, Contractor shall inform ORION in writing of such occurrence and shall thereafter keep ORION informed of subsequent developments concerning the claim. Contractor shall ensure that Subcontractors similarly inform ORION of any such occurrences through Contractor. Each Party shall provide to the other Party any information that may reasonably be required to prepare and present an insurance claim. 14. ADDITIONAL SATELLITE OPTION 14.1 DELIVERY SCHEDULE. Contractor agrees to provide an additional satellite identical to the ORION-Z Spacecraft design, ("Additional Satellite") for on-ground delivery to a launch site designated by ORION and without further obligation for Contractor to provide any launch readiness service no later than nineteen (19) months after receipt of an order from ORION or four (4) months after delivery of ORION-Z, whichever is later. ORION may place such order at any time after the EDC but in no event later than two (2) months after Launch of the Satellite. 37 14.2 PRICE. (a) The firm fixed price for the Additional Satellite ("Additional Satellite Price"), is [ ] provided ORION orders such Additional Satellite no * later than March 30, 1999. Thereafter, the Additional Satellite Price shall increase to [ ] * [ ] subject to ORION placing an order for the Additional Satellite * no later than September 30, 1999. Thereafter, the price of an Additional Satellite shall be negotiated between the Parties prior to ORION ordering the Additional Satellite. (b) The Additional Satellite payment plan shall be negotiated between the Parties prior to ORION ordering the Additional Satellite; the payment plan shall match Contractor's actual expenditure profile so as to avoid prepayments and financing costs. (c) Selection of the launch vehicle and launch services contractor will be made by ORION (with the concurrence of Contractor) in sufficient time to permit delivery of the Additional Satellite on the schedule set forth in Article 14.1. The prices for both such items will be identified and agreed to as a part of such process. (d) ORION shall provide for launch insurance for the Additional Satellite. 14.3 ADDITIONAL SATELLITE CONTRACT PROVISIONS. (a) Contractor shall furnish the Additional Satellite in accordance with the provisions of the documents that constitute the Contract, with the dates therein adjusted (if necessary) for the later timeframe of the Additional Satellite. (b) Except as otherwise required by the terms of this Article 14, contract terms for the Additional Satellite will be identical to the Contract, with risk elements (e.g., liquidated damages for late delivery and warranty payback incentives) adjusted to the change in price from the ORION-Z Spacecraft so as to represent the same percentage risk. 15. INDEMNIFICATION, INTER-PARTY WAIVER OF LIABILITY, AND LIMITATION OF LIABILITY AND DISCLAIMER OF WARRANTY 15.1 INDEMNITY BY CONTRACTOR. Contractor shall indemnify, defend and hold harmless ORION and its Associates from any and all Losses arising from, in connection with, or based on any allegations made by third parties (including employees, Consultants or customers of ORION, Contractor, Subcontractors and all other persons performing any of the Work hereunder) regarding any of the following: (a) injury to persons (including sickness or death) or damage to real or tangible personal property (excluding the ORION-Z Spacecraft after Intentional Ignition), resulting from any act or omission, negligent or otherwise, of Contractor or its Subcontractors in the 38 performance of the Work, or any act or omission of ORION or ORION Personnel occurring at any installation of Contractor (except acts or omissions that constitute willful misconduct or lack of good faith); (b) any claims of infringement of any intellectual property rights, including patent, copyright or industrial design, or of unauthorized use or disclosure of any proprietary technical information, alleged to have occurred because of the Work performed under the Contract; (c) Contractor's breach of its obligations with respect to improper payments as set forth in Article 28.14 (Improper Payments, Kickbacks, Gifts and Gratuities); and (d) Contractor's breach of its obligations with respect to compliance with applicable laws as set forth in Article 28.15 (Compliance With Applicable Laws). 15.2 INDEMNITY BY ORION. ORION shall indemnify, defend and hold harmless Contractor and its Associates from any and all Losses arising from, in connection with, or based on any allegations made by third parties (including employees of Contractor and Subcontractors, employees, Consultants and customers of ORION and all other persons performing any of the Work hereunder) regarding any of the following: (a) injury to persons (including sickness or death) or damage to real or tangible personal property, resulting from any act or omission, negligent or otherwise, of ORION or ORION Personnel relating to the Work; provided, however, ORION shall have no obligation with respect to claims for acts or omissions of ORION or ORION Personnel occurring at any installation of Contractor (except acts or omissions that constitute willful misconduct or lack of good faith); (b) any claims of infringement of any intellectual property rights, including patent, copyright or industrial design, or of unauthorized use or disclosure of any proprietary technical information, alleged to have occurred because of any resource provided to Contractor for performance of the Work; (c) ORION's breach of its obligations with respect to improper payments as set forth in Article 28.14 (Improper Payments, Kickbacks, Gifts and Gratuities); and (d) ORION's breach of its obligations with respect to compliance with applicable laws as set forth in Article 28.15 (Compliance With Applicable Laws). 39 15.3 INFRINGEMENT. (a) In the event that, as a result of any claim or action alleging infringement as described in Article 15.1(b), the manufacture, use, lease or sale of any item thereof is enjoined, Contractor agrees to utilize its best efforts either: (1) to negotiate a license or other agreement with the plaintiff so that such item is no longer subject to such injunction; or (2) to modify suitably such item or substitute a suitable item therefor, which modified or substituted item is not subject to such injunction and to extend the provisions of this Article thereto. (b) In the event neither of the alternatives set forth under Article 15.3(a) above is accomplished by Contractor, Contractor shall refund to ORION all payments made by ORION to it on account of the Contract Price, plus any orbital incentive payments. Should Contractor be required under this Article 15.3(b) to refund to ORION all payments, ORION shall retransfer title in the enjoined item to Contractor if title has previously passed to ORION. (c) Contractor agrees to promptly provide ORION with written notice of any demand, claim, request, proceeding or action against Contractor or any of Contractor's other customers alleging that technology incorporated into the Work provided under the Contract infringes the claimant's intellectual property rights. 15.4 INDEMNIFICATION PROCEDURES. (a) Promptly after receipt by any entity entitled to indemnification under Articles 15.1 and 15.2 of notice of the commencement or threatened commencement of any civil, criminal, administrative, or investigative action or proceeding involving a claim in respect of which the indemnitee will seek indemnification pursuant to such Article, the indemnitee shall notify the indemnifying Party of such claim in writing. Failure to so notify the indemnifying Party shall not relieve the indemnifying Party of its obligations under the Contract except to the extent that it can demonstrate damages attributable to such failure. Within fifteen (15) days following receipt of written notice from the indemnitee relating to any claim, but no later than ten (10) days before the date on which any response to a complaint or summons is due, the indemnifying Party shall notify the indemnitee in writing if the indemnifying Party elects to assume control of the defense and settlement of that claim (a "Notice of Election") unless the indemnifying Party received notice of the claim less than ten (10) days before said due date, in which case the indemnifying Party shall provide the indemnitee a Notice of Election as soon as is reasonably practicable after receipt of notice of the claim. (b) If the indemnifying Party delivers a Notice of Election relating to any claim within the required notice period, the indemnifying Party shall be entitled to have sole control 40 over the defense and settlement of such claim; provided that (i) the indemnitee shall be entitled to participate in the defense of such claim and to employ counsel at its own expense to assist in the handling of such claim; (ii) where the indemnitee is so represented, the indemnifying Party shall keep the indemnitee's counsel informed of each step in the handling of any such claim; (iii) the indemnitee shall provide, at the indemnifying Party's request and expense, such assistance and information as is available to the indemnitee for the defense and settlement of such claim; and (iv) the indemnifying Party shall obtain the prior written approval of the indemnitee before entering into any settlement of such claim or ceasing to defend against such claim. After the indemnifying Party has delivered a Notice of Election relating to any claim in accordance with the preceding paragraph, the indemnifying Party shall not be liable to the indemnitee for any legal expenses incurred by the indemnitee in connection with the defense of that claim. In addition, the indemnifying Party shall not be required to indemnify the indemnitee for any amount paid or payable by the indemnitee in the settlement of any claim for which the indemnifying Party has delivered a timely Notice of Election if such amount was agreed to without the written consent of the indemnifying Party. (c) If the indemnifying Party does not deliver a Notice of Election relating to any claim within the required notice period, the indemnitee shall have the right to defend the claim in such manner as it may deem appropriate, at the cost and expense of the indemnifying Party. The indemnifying Party shall promptly reimburse the indemnitee for all such costs and expenses. 15.5 INTER-PARTY WAIVER OF LIABILITY FOR LAUNCH OPERATIONS. (a) ORION and Contractor agree to a no-fault, no-subrogation, inter-party waiver of liability under which each Party agrees to be responsible for any damage that it sustains as a result of damage to its own property and employees, including death, while involved in launch operations in or around the launch site, which damage is caused by either Contractor, ORION, the Launch Agency or any other party involved in launch operations, and whether such damage arises through negligence or otherwise. It is the intent of the Parties that this inter-party waiver of liability be construed broadly to achieve the intended objectives. (b) For purposes of this Article 15.5 only, each Party further agrees that if it subcontracts with a third party to provide services that necessitate such third party's presence on the launch site, then it acknowledges and agrees that such third party shall be required to agree 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. (c) In the event that a Party fails to obtain the aforesaid inter-party waiver of liability from its subcontractor(s), then such Party shall indemnify and hold harmless the other Party, the Launch Agency, other users of launch services and their respective contractors and subcontractors from claims brought by such subcontractor(s) of the first Party for damage to such subcontractor(s)'s property or injury to, or death of, such subcontractor(s)'s employees with respect to matters that otherwise would have been covered by the inter-party waiver of liability. 41 (d) The Parties will take such further actions as may be required to implement the provisions of this Article 15.5, 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 15.5. 15.6 WAIVER OF SUBROGATION. Except as provided in Article 7.5(g)(4), if a Party insures against any loss or damage it may suffer in respect of which such Party is required to indemnify the other Party or an Associate of the other Party pursuant to this Article 15, it shall be a condition that such Party shall arrange for the insurer to waive its right of subrogation against the other Party and every Associate of the other Party provided that such coverage shall be at no additional cost to the insuring Party. Each Party shall be entitled to require proof from time to time that the other Party has complied with its obligations under this Article. In the event that a Party does not comply with such obligations, the respective indemnities referred to in Articles 15.1 and 15.2 shall extend, as applicable, to any claim that may be made by an insurer pursuant to an alleged right of subrogation. 15.7 LIMITATION OF LIABILITY. (a) EXCEPT AS OTHERWISE EXPRESSLY AUTHORIZED IN THE CONTRACT IN NO EVENT SHALL EITHER PARTY BE LIABLE DIRECTLY OR INDIRECTLY TO THE OTHER PARTY AND ITS ASSOCIATES AND SUBCONTRACTORS OR TO ANY ASSIGNEE OR SUCCESSOR OWNERS OF THE ORION-Z SPACECRAFT FOR ANY AMOUNT REPRESENTING LOSS OF PROFITS, LOSS OF BUSINESS, OR INDIRECT, SPECIAL, EXEMPLARY, CONSEQUENTIAL OR PUNITIVE DAMAGES ARISING FROM THE PERFORMANCE OR NONPERFORMANCE OF THE CONTRACT OR ANY ACTS OR OMISSIONS ASSOCIATED THEREWITH OR RELATED TO THE USE OF ANY ITEMS OR SERVICES FURNISHED HEREUNDER, WHETHER THE BASIS OF THE LIABILITY IS BREACH OF CONTRACT, TORT (INCLUDING NEGLIGENCE AND STRICT LIABILITY), STATUTES OR ANY OTHER LEGAL THEORY. EXCEPT AS OTHERWISE EXPRESSLY AUTHORIZED IN THE CONTRACT, IN NO EVENT SHALL EITHER PARTY'S TOTAL LIABILITY TO THE OTHER PARTY FOR ANY DAMAGES CLAIMED HEREUNDER EXCEED THE CONTRACT PRICE. (b) The foregoing limitation of liability shall not be deemed to affect the Contractor's duties or ORION's remedies under Article 7.5 and Article 13. 15.8 DISCLAIMER OF WARRANTY. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN THE CONTRACT, CONTRACTOR MAKES NO WARRANTY, EXPRESS OR IMPLIED, INCLUDING ANY 42 WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE WITH REGARD TO THE ORION-Z SPACECRAFT OR ANY OTHER DELIVERABLE ITEM PROVIDED UNDER THE CONTRACT. 16. DISPUTE RESOLUTION Any dispute between the Parties arising out of or relating to the Contract, including with respect to the interpretation of any provision of the Contract and/or with respect to performance under the Contract, shall be resolved as provided in this Article. 16.1 INFORMAL DISPUTE RESOLUTION. Prior to the initiation of formal dispute resolution procedures, the Parties shall first attempt to resolve their dispute informally, as follows: (a) If, during the course of Work in progress, either Party has cause to believe that the other Party's performance, or plan for performance, is such that the obligations of the other Party, as stated in the Contract will not be met, the Party shall give written notice of its objections and the reasons therefor and may recommend corrective action by the other Party. Contractor's Program Manager shall promptly consult with ORION's Program Manager in an effort to reach an agreement to overcome the objections (first instance). (b) In the event agreement cannot be reached within ten (10) days of receipt of written notice, then either Party may request that it be escalated and the respective positions of the Parties shall be forwarded to Contractor's Senior Executive and ORION's Senior Executive for discussion, and an attempt shall be made to reach agreement (second instance). (c) In the event agreement cannot be reached in the first instance or in the second instance within thirty (30) days of the written notice described in Article 16.1(a), then either Party may request that it be escalated and the positions of the Parties shall be forwarded to Contractor's President and ORION's President for resolution of the objections (third instance). If agreement still cannot be reached within ten (10) additional days, either Party may commence arbitration in accordance with Article 16.2. (d) In the event of a dispute as to the performance of the Launched ORION-Z Spacecraft, the Parties agree to have an independent determination of the ORION-Z 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 Contractor and ORION. Such independent determination may be used by either Party in any arbitration under Article 16.2, but such determination shall not be binding upon the arbitrators. 43 16.2 ARBITRATION. If the Parties are unable to resolve any dispute as contemplated by Article 16.1 and if such dispute is not subject to Article 16.3, then such dispute shall be submitted to mandatory and binding arbitration at the election of either Party (the "Disputing Party") pursuant to the following conditions: (a) The Disputing Party shall notify the American Arbitration Association ("AAA") and the other Party in writing describing in reasonable detail the nature of the dispute. (b) The arbitration shall be conducted by a tribunal of three (3) arbitrators. Each Party shall appoint one (1) arbitrator and the third shall be appointed by the two (2) arbitrators so previously appointed. (c) The arbitration shall be conducted in accordance with the AAA's Commercial Arbitration Rules then in effect. The arbitral tribunal shall allow reasonable discovery in the forms permitted by the Federal Rules of Civil Procedure, to the extent consistent with the purpose of arbitration. The arbitral tribunal shall have no power or authority to amend or disregard any provision of this Article 16.2 or any other provision of the Contract (in particular, the arbitral tribunal shall not have authority to exclude the right of a Party to terminate this Agreement when a Party would otherwise have such right). The arbitral hearing shall be commenced promptly and conducted expeditiously, with each Party being allocated one-half of the time for the presentation of its case. Unless otherwise agreed by the Parties, an arbitral hearing shall be conducted on consecutive days. In respect of a default by either Party in respect of any procedural order made by the arbitral tribunal, the tribunal shall have power to proceed with the arbitration and make its award. (d) The arbitration shall be held in Washington, D.C., U.S.A. and shall be conducted in the English language. (e) Any arbitration proceeding held pursuant to this article shall be governed exclusively by the United States Arbitration Act, 9 U.S.C., Section 1 et seq. (f) The following time limits shall be observed in respect of any arbitration held pursuant to this Article: (1) each Party shall appoint its arbitrator within ten (10) days of receipt of the AAA acknowledgment of a demand for arbitration; (2) the two (2) appointed arbitrators shall appoint a third arbitrator within a further twenty (20) days from the time stipulated in Article 16.2(f)(1) (unless the two (2) arbitrators agree to an extension not to exceed an additional twenty (20) days); and 44 (3) any decision by the arbitrators referred to shall be made within six (6) months from the date on which a Party demands arbitration or within such extended period as the arbitrators may allow. (g) Pending a decision by the arbitral tribunal, each Party shall, unless directed otherwise by the other Party in writing, fulfill all its obligations under the 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 Contract. Dispute over payment shall not relieve Contractor of its obligations under this Article 16.2(g). (h) The arbital tribunal shall, after reaching judgment and award, prepare and distribute to the Parties a writing describing the findings of fact and conclusions of law relevant to such judgment and award, and containing an opinion setting forth the reasons for the giving or denial of any award. The award of the arbitral tribunal shall be final and binding on the Parties, and any judgment thereon may be entered in a court of competent jurisdiction. In no event shall the arbitral tribunal be entitled to include indirect or consequential damages in any damage award payable by either Party. (i) The arbitral tribunal shall award prejudgment interest on any amount that the tribunal determines is owing from one Party to the other, such interest to be calculated at an annual rate equal to the Chase Manhattan Prime Rate then in effect for each day from forty-five (45) 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. (j) The cost of arbitration, including fees and expenses of the arbitrators, will be shared equally by the Parties, unless the arbitral award otherwise provides. Each Party shall bear the cost of preparing and presenting its own case, unless the arbitral award otherwise provides. (k) Notwithstanding anything else contained herein, the Parties agree that time is of the essence in resolving any dispute. 16.3 LITIGATION. (a) The Parties agree that the only circumstances in which disputes between them shall not be subject to the provisions of Articles 16.1 and 16.2 is where a Party makes a good faith determination that a breach of the terms of the Contract by the other Party is such that the damages to such Party resulting from the breach will be so immediate, so large or severe, and so incapable of adequate redress after the fact that a temporary restraining order or other immediate injunctive relief is the only adequate remedy. If a Party files a pleading with a court seeking immediate injunctive relief and this pleading is challenged by the other Party and the injunctive relief sought is not awarded in substantial part, the Party filing the pleading seeking immediate 45 injunctive relief shall pay all the costs and attorneys' fees of the Party successfully challenging the pleading. (b) The Parties consent to the non-exclusive jurisdiction of competent Maryland state courts or federal courts in the District of Maryland, for all litigation that may be brought under Article 16.3(a) above, subject to the requirement for arbitration hereunder, with respect to the terms of, and the transactions and relationships contemplated by, the Contract. The Parties further consent to the jurisdiction of any court located within a district that encompasses assets of a Party against which a judgment has been rendered, either through arbitration or through litigation, for the enforcement of such judgment or award against the assets of such Party. 17. TERMINATION 17.1 TERMINATION FOR CONVENIENCE. (a) ORION may, upon written notice to Contractor, terminate all or any part of the Contract without cause and at any time, and Contractor shall immediately cease work in the manner and to the extent specified and shall similarly direct its Subcontractors and take such action as may be reasonably necessary or as ORION may direct for the protection and preservation of the Work that is in the possession of Contractor or any Subcontractor and in which ORION has or may acquire an interest. (b) In the event of such termination under this Article 17.1 and provided the termination was not due to the default of Contractor under Article 17.2, Contractor shall be entitled to payment of an amount equal to, (i) in the case of termination of all of the Contract, the Termination Liability Amount as specified in Part l(B) (Payment Milestone Schedule and Termination Liability Amounts) corresponding to the month in which termination occurs less the sum of the Payment Milestones received by Contractor and, (ii) in the case of termination of a part of the Contract, such amount as applicable to such terminated part, less the total applicable amount of the sum of the Payment Milestones received by Contractor; provided that in either case, where such amount is a negative number, Contractor shall pay such amount promptly to ORION within twenty (20) days. (c) Contractor shall submit an Invoice to ORION within sixty (60) days after the termination date which shall specify the amount due to Contractor from ORION pursuant to this Article 17.1, and Contractor shall be entitled to payment by ORION of such amount within thirty (30) days thereafter. Payment of such amount by any Financing Entity on behalf of ORION to Contractor shall relieve ORION from its obligation to make such payment. (d) The amount payable by ORION to Contractor pursuant to Article 17.1(b) shall constitute a total discharge of ORION's liabilities to Contractor for termination pursuant to this Article 17.1. 46 (e) If the Contract is terminated as provided in this Article 17.1 and full payment is made in accordance with Articles 17.1 (b) and (c), ORION may require Contractor to transfer to ORION, in the manner and to the extent directed by ORION and at the expense of 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 allocated to the Contract), and Contractor shall, upon the direction and at the expense of ORION, protect and preserve property in the possession of 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) days after termination, or such longer period as is agreed between the Parties, Contractor shall make a reasonable, good faith effort to sell such property and to remit any sales proceeds to ORION, less a deduction for costs of disposition reasonably incurred by Contractor. 17.2 TERMINATION FOR CONTRACTOR'S DEFAULT. (a) If at any time Contractor has failed to make adequate progress toward the completion of the ORION-Z Spacecraft, including where such failure is due to the unlaunched ORION-Z Spacecraft or any component being damaged or destroyed where such damage or destruction does not constitute an Excusable Delay, such that Contractor will not be able to Deliver the ORION-Z Spacecraft within ninety (90) days after the ORION-Z Spacecraft Delivery Date set forth in Article 6 (Delivery) (as such date may have been modified in accordance with the Contract), then ORION shall be entitled to deliver to Contractor a demand ("Demand") for correction of the failure within thirty (30) days after ORION learns of such failure. Such Demand shall state full details of the failure. Within ten (10) days after receipt of the Demand, or such longer time as the Parties agree, Contractor shall submit to ORION a Correction Plan for achieving Final Acceptance of the ORION-Z Spacecraft not later than one hundred and eighty (180) days after the ORION-Z Spacecraft Delivery Date as specified in Article 6 (Delivery), provided that no Correction Plan shall ever result in a change to a Delivery Date, unless the Parties agree in accordance with Article 28.4 (Amendments). 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 one hundred and eighty (180) days after the ORION-Z Spacecraft Delivery Date (as such date may have been modified in accordance with the Contract), ORION may reject the Correction Plan within thirty (30) days after receipt, in which case the Parties shall negotiate in good faith to develop a Correction Plan that will be satisfactory to both Parties. If ORION does not reject the Correction Plan within thirty (30) days after receipt, the 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 Contractor refuses or fails to observe or perform any material duty or obligation in the Contract, except those obligations of Contractor for which particular remedies are specified elsewhere in the Contract as being exclusive, then ORION shall be entitled to deliver to Contractor a Demand that it correct the breach within thirty (30) days. Such Demand shall state 47 full details of the breach. Within ten (10) days after receipt of the Demand, or such longer time as the Parties agree, Contractor shall submit to ORION a Correction Plan. If the Correction Plan does not reasonably correct or offset the effect of the breach in a timely manner, ORION may reject the Correction Plan within thirty (30) days after receipt, in which case the Parties shall negotiate in good faith to develop a Correction Plan that will be satisfactory to both Parties. If ORION does not reject the Correction Plan within thirty (30) days after receipt, the 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. (c) ORION may, upon written notice to Contractor, terminate immediately for cause all or any portion of the Contract if: (1) Contractor does not submit a Correction Plan to ORION within ten (10) days after receipt of a Demand, or the Parties cannot develop a Correction Plan that reasonably corrects or offsets the effects of the failure or breach or that is otherwise satisfactory to both ORION and Contractor within twenty (20) days after ORION's rejection of the Correction Plan; or (2) Contractor fails to Deliver in orbit the ORION-Z Spacecraft within one hundred and eighty (180) days after the ORION-Z Spacecraft Delivery Date set forth in Article 6 (Delivery) (as such date may have been modified in accordance with the Contract); or (3) Contractor (i) files for bankruptcy, (ii) becomes or is declared insolvent, or is the subject of any proceedings related to its liquidation, insolvency or the appointment of receiver or similar officer for it, (iii) makes an assignment for the benefit of all or substantially all of its creditors; or (iv) enters into an agreement for the composition, extension, or readjustment of substantially all of its obligations; or (4) Contractor resorted to fraudulent, corrupt or unlawful practices in connection with its securing or implementing the Contract; or (5) Contractor breaches its obligations under Article 28.14 (Improper Payments, Kickbacks, Gifts and Gratuities) or Article 28.15 (Compliance with Applicable Laws). (d) In no event may ORION terminate the Contract with respect to the ORION-Z Spacecraft after Intentional Ignition. (e) In the event ORION terminates the Contract in whole or in part as provided in this Article 17.2, then: 48 (1) ORION may require Contractor to transfer to ORION, in the manner and to the extent directed by ORION and at the expense of Contractor, 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 allocated to the Contract). The transfer to ORION of Work in progress and inventories allocated to the Contract not associated with a Payment Milestone that has been Successfully Completed, Conducted or Delivered (as defined in Article 5) shall be contingent upon Contractor being paid an amount mutually agreed upon by the Parties for such Work in progress and inventories allocated to the Contract, which amount shall in no event exceed Contractor's reasonable actual cost incurred therefor. ORION also may cause the ORION-Z Spacecraft to be completed by another party, and as damages (in addition to any applicable liquidated damages for delay levied pursuant to Article 6.2 up to the date of termination) may charge Contractor for any actual and reasonable increased cost for such completion incurred in connection therewith in excess of the Contract Price; provided that Contractor's liability for such additional damages shall not exceed [ ] * [ ], as may be adjusted under Article 28.4 * (without regard to any payments made to Contractor to the date of termination). The amount payable by Contractor shall be verified at Contractor's request and expense by an internationally recognized firm of accountants appointed by 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 termination under this Article 17.2 and must be paid within sixty (60) days after receipt of such verification. Contractor's right to verification shall be without prejudice to the rights of either Party under Article 16 (Dispute Resolution). The report issued by the accountants may be used by either Party during any arbitration proceeding, but the report shall not be binding on the arbitrator(s). By notice in writing received by ORION no later than sixty (60) days after receipt of ORION's invoice pursuant to this Article 17.2, Contractor may dispute the amount of said invoice. In the event Contractor does not so notify ORION that it disputes ORION's invoice, Contractor shall be deemed to have accepted said invoice; or (2) ORION shall return or dispose of any or all Work in progress (as requested by Contractor) and Contractor shall pay ORION (i) all amounts previously paid by ORION to Contractor, (ii) as damages, direct reasonable re-procurement costs in excess of the Contract Price, such damages not to exceed [ ] (as may be * adjusted under Article 28.4), and (iii) all applicable liquidated damages for delay levied pursuant to Article 6.2 up to the date of termination. Title to the Work in progress shall vest or remain vested in Contractor. 49 (f) If, after termination of the Contract under this Article 17.2, it is determined by mutual agreement of the Parties or in accordance with Article 16.2 (Arbitration) that Contractor was not in default under the provisions of this Article 17.2 or that the default was excusable under Article 6.2 (Excusable Delay), Contractor shall be entitled to its direct damages caused by the wrongful default termination. Payment shall be made within 30 days of ORION's receipt of an invoice for such damages with reasonable supporting evidence. 17.3 TERMINATION FOR EXCUSABLE DELAY. ORION may, upon written notice to Contractor terminate immediately all or any portion of the Contract if any Excusable Delay (other than Excusable Delay resulting from acts or omissions of ORION that unreasonably delay or hinder Contractor's performance or ORION's failure to meet its responsibilities under the Contract or its exercise of its rights under Article 25 (Ground Storage Option) due to circumstances caused by ORION) exist for a cumulative period of time exceeding twelve (12) months. If ORION so terminates the Contract, Contractor shall refund to ORION all amounts paid for non-Equipment Deliverable Items (such as Data and Documentation and Operations Training and software) and all undelivered Equipment Deliverable Items (excluding the ORION-Z Spacecraft if Launched prior to termination pursuant to this Article 17.3). 17.4 TERMINATION FOR ORION'S DEFAULT. (a) Contractor shall be entitled to terminate the Contract in whole or, where severable, in part, under the following circumstances: (1) if Contractor gives written notice to ORION of default in the payment of any Milestone Payment when the same shall have become due and payable and ORION fails to cure such event within thirty (30) days after receiving such written notice; or (2) if Contractor gives written notice to ORION that Contractor, solely as a result of ORION's failure (for reasons that do not constitute Excusable Delay) to perform its responsibilities as set forth in the Contract, is unable to substantially perform its obligations under the Contract for a period in excess of six (6) months; provided that: (i) Contractor has used commercially reasonable efforts to perform notwithstanding ORION's failure to perform; and (ii) Contractor's inability to perform could not have been prevented by reasonable precautions and cannot reasonably be circumvented by Contractor through the use of alternate sources, work-around plans or other means; or (3) ORION (i) files for bankruptcy, (ii) becomes or is declared insolvent, or is the subject of any proceedings related to its liquidation, insolvency or the appointment of receiver or similar officer for it, (iii) makes an assignment for 50 the benefit of all or substantially all of its creditors; or (iv) enters into an agreement for the composition, extension, or readjustment of substantially all of its obligations; or (4) ORION has resorted to fraudulent or corrupt practices in connection with its securing or implementing of the Contract. (b) Except as specified above, Contractor shall not have the right to terminate or suspend the Contract. (c) In the event of such termination, Contractor shall be entitled forthwith to take any or all of the following actions: (1) treat the 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; (2) withhold delivery of any of the items to be supplied hereunder until Contractor has received full payment under this Article and retain all sums then paid on account thereof, (3) cease or suspend performance of any of the services to be provided to ORION hereunder, except those services that are specifically intended to be provided in connection with a termination of the Contract; and (4) take payment of an amount equal to the Termination Liability Amount for the ORION-Z Spacecraft for the calendar month next following the calendar month in which the date of termination occurs, less the sum of the Milestone Payments actually received by Contractor, provided that, where such amount is a negative number, Contractor shall refund such amount promptly to ORION within twenty (20) days. Where Contractor is owed money by ORION, Contractor shall submit an Invoice to ORION within sixty (60) days after the termination date which shall specify the amount due to Contractor from ORION pursuant to this Article 17.4 and Contractor shall immediately be entitled to full payment by ORION immediately thereafter. (d) To the extent that full payment has been made therefor, ORION may require 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 allocated to the Contract), and Contractor shall, upon direction of ORION, protect and preserve property at ORION's expense in the possession of 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 51 terminated. Alternatively, ORION may request 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 Contractor for such efforts. (e) Nothing in this Article 17.4 shall affect ORION's remedies under Article 6.2. 17.5 MITIGATION OF DAMAGES. In all instances, the Party terminating or claiming other remedies shall take all reasonable steps available to it to mitigate any claim that it may have against the defaulting Party. 17.6 RESOLUTION EFFORTS. Except in the case of a default under Article 17.2(c)(3), Article 17.4(a)(1), and Article 17.4(a)(3), prior to either Party exercising its right to terminate the Contract under this Article, the Parties agree that ORION's Senior Executive and Contractor's Senior Executive, and if mutually agreed, an independent third party, will meet within fifteen (15) 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 Contractor's Senior Executive cannot agree on an appropriate resolution of the dispute within ten (10) days, then the Parties shall resolve their dispute in accordance with the provisions of Article 16; provided, however, in such circumstances, the Parties shall not be required to comply with Articles 16.1(a) - (b). 17.7 CONTINUED PERFORMANCE. Each Party shall continue the performance of its obligations under the Contract to the extent not terminated under the provisions of this Article. 18. KEY CONTRACTOR PERSONNEL 18.1 KEY POSITIONS. (a) "Key Contractor Positions" shall be the positions set forth as such in Part 1(C) (Key Contractor Positions). Contractor shall cause each of the personnel filling the Key Contractor Positions to devote such time and effort as is necessary to provide the Work. (b) The Contractor Program Manager shall be one of the Key Contractor Positions. The Contractor Program Manager shall serve as the single point of accountability for Contractor for the Work. 52 18.2 ASSIGNMENT OF KEY CONTRACTOR PERSONNEL. (a) With respect to Key Contractor Positions identified in Part 1(C) (Key Contractor Positions) as being subject to ORION approval, before assigning an individual to such a Key Contractor Position, whether as an initial assignment or a subsequent assignment, Contractor shall notify ORION of the proposed assignment, shall introduce the individual to appropriate ORION representatives (and, upon request, provide such representatives with the opportunity to interview the individual) and shall provide ORION with a resume and other information about the individual reasonably requested by ORION. If ORION in good faith objects to the proposed assignment, the Parties shall attempt to resolve ORION's concerns on a mutually agreeable basis. If the Parties have not been able to resolve ORION's concerns within five (5) Business Days, Contractor shall not assign the individual to that position and shall propose to ORION the assignment of another individual of suitable ability and qualifications. Personnel filling such Key Contractor Positions may not be transferred or re-assigned until a suitable replacement has been approved by ORION. (b) With respect to Key Contractor Positions identified in Part 1(C) (Key Contractor Positions) as being subject to ORION consultation, before assigning an individual to such a Key Contractor Position, whether as an initial assignment or a subsequent assignment, Contractor shall notify ORION of the proposed assignment, shall introduce the individual to appropriate ORION representatives (and, upon request, provide such representatives with the opportunity to interview the individual) and shall provide ORION with a resume and other information about the individual reasonably requested by ORION. If ORION in good faith objects to the proposed assignment, the Parties shall attempt to resolve ORION's concerns on a mutually agreeable basis. 18.3 APPROVED KEY CONTRACTOR PERSONNEL. The personnel approved as of the Effective Date to fill the Key Contractor Positions identified in Part 1(C) as subject to ORION approval, are listed in Part 1(C). 19. PERMITS, LICENSES AND GOVERNMENT APPROVALS 19.1 CONTRACTOR RESPONSIBILITY AND EXPENSES. (a) Contractor shall, at its own expense, secure and maintain all permits, licenses and approvals as may be required for the performance of the Work under the Contract, including any authorization or license relating to transfer or export of technology or technical data and any applicable launch licenses. Contractor shall, at its own expense, perform the Work in accordance with the conditions of all applicable permits and licenses. (b) Contractor shall submit an application to the appropriate United States Government entity for a Technical Assistance Agreement. Such application shall be made within 53 thirty (30) days after EDC provided ORION supports the application in a timely manner and shall identify ORION's Consultants. 19.2 ORION REVIEW OF GOVERNMENT APPLICATIONS. Contractor shall review with ORION any application Contractor makes to any government department, agency or entity for any permit, license, agreement or approvals, as may be required to meet Contractor's contractual obligations under the Contract, prior to the submission of such application. Contractor shall provide ORION a minimum of ten (10) Business Days to review such applications prior to submission to such governmental entity and Contractor shall in good faith consider any comments made by ORION and shall incorporate in such application all reasonable revisions to such application proposed by ORION. 19.3 COMPLIANCE WITH GOVERNMENT REQUIREMENTS. Notwithstanding any other Article in the 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 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 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. 20. ACCESS TO WORK IN PROGRESS 20.1 GENERAL. (a) The provisions of this Article 20 are subject to Article 19.3. (b) ORION Personnel shall have reasonable access to any premises of Contractor or Subcontractor on an "as needed" basis where Work is being performed under the Contract and may observe all of the Work, as well as any associated facilities and documentation, during regular business hours, or such other times as Work is being performed under the Contract, provided that such access does not unreasonably interfere with such Work. Contractor shall provide ORION Personnel reasonable assistance in the performance of such inspections. The Parties agree that non-escort badges to agreed work areas for the period from commencement of Work through Launch where ORION activities are being performed shall be made available to all ORION Personnel subject to adequate notice of personnel details being provided to Contractor and security and export clearance being granted. 54 20.2 OFFICE SPACE AND FACILITIES. (a) Contractor shall provide office space and facilities for the accommodation of up to four (4) ORION Personnel at Contractor's facilities and shall make reasonable work space available for such ORION Personnel at environmental test facilities (if located off site) and shall use best efforts to ensure that office space and facilities are provided for up to two (2) ORION Personnel at other selected Subcontractors' plants on a temporary basis to attend meetings or witness tests. At a minimum, Contractor shall provide desks, chairs, office supplies, local telephone service (long distance telephone usage to be charged to ORION), car parking facilities and access to meetings rooms, copying machines and facsimile equipment, and, as available, access to and use of video conferencing facilities at Contractor's facilities (in this connection, Contractor will take reasonable measures to facilitate video conferencing between Contractor's facilities and ORION's premises, provided the video conferencing facilities of both Parties are fundamentally compatible). (b) ORION Personnel visiting or resident at Contractor's or Subcontractors' facilities will abide by the applicable security and export regulations and will not disclose to any third party any information that is identified by Contractor or by Subcontractors to be of a proprietary nature. All ORION Personnel having access to Contractor's technical data or manufacturing facilities are required to be bound by a duly executed non-disclosure agreement. (c) Notwithstanding the fact that ORION Personnel visiting or resident at Contractor's or Subcontractors' facilities will be in consultation with Contractor's or Subcontractors' employees, such ORION Personnel shall remain employees of ORION, its Consultants , as applicable, and as such, compensation for their services and all liability for their actions remain the responsibility of ORION Personnel, as applicable. 20.3 DOCUMENTATION. (a) ORION Personnel will have reasonable access to (i) any drawings, circuit diagrams/schematics, specifications, standards or process descriptions available to Contractor and relevant to the ORION-Z Spacecraft, (ii) data and documentation provided to Contractor by its Subcontractors and relevant to the ORION-Z Spacecraft (to the extent permitted by the Subcontractors after Contractor has used best efforts to obtain such permission), and (iii) Data and Documentation. Contractor will make available to ORION Personnel copies of such documentation, at no charge to ORION, on the reasonable request of ORION Personnel where such documentation is 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, Final Acceptance or operation of the ORION-Z Spacecraft and its components. To facilitate their work in this respect, Contractor will allow ORION Personnel reasonable access to all indexes related to such drawings, circuit diagrams/schematics, and documents. 55 (b) With regard to electronically generated information, Contractor will copy ORION and/or provide ORION electronic access to that information necessary to keep ORION advised, on a current basis, of program issues, decisions and problems. To the extent Contractor establishes data links for general use between the facilities of Contractor and its customers, 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) (CDRL). Contractor will also provide ORION Personnel with "real time" access to all measured data taken at Contractor's and Subcontractors' facilities on a non-interference basis. (c) Subject to Article 9 (Changes in Scope of Work), the inspection, examination, agreement to, or approval, waiver or deviation by ORION (other than in accordance with Article 28.4 (Amendments)) with regard to any design, drawing, specification or other documentation produced under the Contract shall not relieve Contractor from fulfilling its contractual obligations or result in any liability being imposed on ORION. 20.4 MEETINGS AND REVIEWS. (a) ORION Personnel shall be entitled to attend all meetings and reviews (including meetings and reviews held by electronic means) of Contractor and of Contractor with any Subcontractors where such meetings and reviews are materially related to project schedule and management, engineering, design, manufacturing, integration, testing and launch and shall have the right to participate in and make recommendations, but not to control, give directions or assign actions, in all meetings and reviews at the system, subsystem and unit level, as well as internal program reviews. The Parties agree to work cooperatively in resolving issues that arise at the various meetings and, where ORION has an objection to a recommended resolution/ implementation, the Parties agree to discuss it at the Senior Executive level prior to implementation, but the final decision concerning implementation shall remain with Contractor who shall provide ORION with a written explanation for its decision. (b) In the event a meeting or review is convened at Contractor's or a Subcontractor's plant, Contractor shall provide reasonable advance notice to ORION (e.g., one week for regularly scheduled meetings) and shall make the necessary arrangements to facilitate the entry of ORION Personnel to the meeting place. 20.5 SUBCONTRACTS. Contractor shall require that any Subcontract entered into after EDC, contains a provision substantially similar to this Article 20 to ensure effectiveness of ORION's rights under the Contract. With respect to Subcontracts entered into before EDC, ORION's rights under this Article 20 shall be as permitted in such Subcontracts. 56 21. LICENSE RIGHTS 21.1 SOFTWARE, INVENTIONS AND DATA AND DOCUMENTATION. (a) License. Contractor grants to ORION an irrevocable, non-exclusive license to use and have used throughout the world (i) any software covered by any copyright or patent and any invention covered by any patent, now or hereafter owned by Contractor or for which 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 Contract, and (ii) the Data and Documentation. Such license shall, in connection with the operation, maintenance, redesign or modification of any Deliverable Items: (1) permit the copying of such software; and (2) in the event Contractor no longer elects, or is able, to maintain such software, permit the modification of such software by ORION (with Contractor releasing to ORION the source code for such software upon such event); and (3) permit the copying and modification of Data and Documentation by ORION; and (4) be deemed to be fully paid-up; and 57 (5) be on reasonable terms and conditions for other purposes. Such license shall be transferable to any other entity, subject to Contractor's approval, such approval not to be unreasonably withheld. Nothing herein shall be construed as (i) granting any rights of ownership in any intellectual property contained in ORION-made redesigns or modifications of Deliverable Items or (ii) conferring any liability on Contractor for such ORION-made redesigns or modifications. (b) No Limitation of Rights. This Article shall not be construed as limiting any rights of ORION or obligations of Contractor under the Contract, including specifically the right of ORION, without payment of additional compensation to Contractor, to use, have used, deliver, lease, sell or otherwise dispose of, any item or any part thereof, delivered under the Contract. 21.2 TECHNICAL DATA AND INFORMATION. (a) Definitions. The following definitions shall apply to the Contract: (1) "Technical Data and Information" includes but is not limited to technical writings, sound recordings, computer programs, pictorial reproductions, drawings, circuit diagrams/schematics and other graphic representations and works of similar nature, and any other data necessary to enable the manufacture of any item or the practice of any process manufactured or practiced pursuant to the Contract, whether or not copyrighted, to the extent that the same are of the type customarily retained in the normal course of business. The term does not include financial reports, costs analyses, and other information incidental to contract administration. (2) "Foreground Data" means any Technical Data and Information generated in the performance of the Work under the Contract or any Subcontract. (3) "Background Data" means Technical Data and Information, other than Foreground Data, directly utilized in the execution of the Work performed under the Contract or any Subcontract and necessary for the reconstruction, establishment, maintenance or operation of any item delivered under the Contract or any Subcontract or for the modification of any software delivered under the Contract (as permitted under the Contract by ORION) or any Subcontract. (b) Foreground Data. (1) Upon completion of the Work or upon termination of the Contract, and also upon written request of ORION not more often than quarterly during the term 58 of the Contract, Contractor shall notify ORION of any and all items of Foreground Data. Notification shall be in the form of a list setting forth the nature of the Foreground Data, the system, subsystem, or part to which each such item of Foreground Data relates, and the source of each such item. ORION shall be entitled to disclose any such list of Foreground Data furnished to it hereunder, in whole or in part, to any third party for the purposes of reconstructing, establishing, maintaining, marketing and operating the ORIONSAT System. (2) At any time after the Effective Date of the Contract and until the end of the twenty-fourth (24th) month after final payment under, or termination of, the Contract, or at any time thereafter so long as Contractor retains it, Contractor shall, upon written request of ORION, disclose to ORION any and all Foreground Data without payment of additional compensation to Contractor. ORION shall be entitled to disclose, without payment of additional compensation to Contractor, any and all Foreground Data disclosed to it hereunder to any third party for the purposes of or in connection with reconstructing, establishing, maintaining, marketing and operating the ORIONSAT System. (3) Contractor agrees to and does hereby grant to ORION or its assignees pursuant to Article 28.2 (Assignment) an irrevocable, non-exclusive, fully paid-up right and license to use and to authorize any third party to use, throughout the world and without payment of additional compensation to Contractor, Foreground Data for the purposes of, or in connection with, reconstructing, establishing, maintaining, marketing and operating the ORIONSAT System, together with the irrevocable, nonexclusive, fully paid-up and royalty-free right to have Contractor grant directly to such third party such right and license to use. As among all users under this Article 21, the terms and conditions of the rights of the use granted shall be nondiscriminatory. (c) Background Data. To the extent Contractor now is or subsequently becomes entitled to do so, Contractor agrees, at the written request of ORION, (i) to grant to ORION an irrevocable, non-exclusive, fully paid-up right and license to use Background Data throughout the world, and (ii) an irrevocable, royalty-free right to have Contractor grant directly to any third party the right and license to use Background Data throughout the world on a non-discriminatory basis, provided that, subject to Article 21.2(e) (Unconditional Use), such use by such third parties shall be on fair and reasonable terms and conditions to be negotiated directly between Contractor and such third party requesting the use of such Background Data. Any right or license to use granted pursuant to this Article shall be limited to that use necessary for the reconstruction, modification, establishment, maintenance and operation of (those portions of the ORIONSAT System delivered under the Contract). 59 (d) Copying Rights. (1) ORION and/or the person or entity to whom Technical Data and Information is furnished under the Contract shall have the irrevocable and non-exclusive right to copy for use authorized under the Contract in connection with any items delivered under the Contract, any Technical Data and Information that is required to be furnished to ORION and such others pursuant to the Contract; provided that if any of the foregoing Technical Data and Information is copyrighted, Contractor hereby grants to ORION and such others the royalty-free right to copy such copyrighted material to the extent that Contractor now has or hereafter acquires the authority to grant to others such right to make copies. ORION and such others shall apply an appropriate copyright notice to all copies of such copyrighted Technical Data and Information. (2) At the time that any Technical Data and Information is furnished under the Contract to ORION and such others, Contractor shall notify ORION and such others in writing of the inclusion in the furnished material of any such amount of copyrighted material or other material with respect to which Contractor is not entitled to grant the right to make copies to others. Any such copyrighted material that is marked by Contractor with an appropriate proprietary legend shall be protected by ORION and such others in the same manner as they protect their own proprietary information. (e) Unconditional Use. Notwithstanding any other provision of this Article, with respect to any Technical Data and Information any person or entity is authorized by the terms of this Article to use only under certain conditions or limitations, such use shall be free, unconditional and unlimited from and after the time such Technical Data and Information comes into the public domain or becomes otherwise lawfully available to such person or entity on such other terms. (f) Proprietary Markings. (1) All Foreground Data furnished pursuant to this Article shall be marked by Contractor with the following legend: "This document is furnished pursuant to a Contract between ORION and Contractor dated _________________ (adding, if appropriate, and a subcontract thereunder between ____________ and _____________). This document contains Foreground Data as defined in that Contract, which may be used only in the manner specified in that Contract, unless such Foreground Data is or lawfully becomes in the 60 public domain or is or lawfully becomes available to the user on other terms." (2) All Background Data furnished pursuant to this Article shall be marked by Contractor with the following legend: "This document is furnished pursuant to a Contract between ORION and Contractor dated (adding, if appropriate, and a subcontract thereunder between __________ and __________). This document contains Background Data as defined in that Contract, which may be used only in the manner specified in that Contract, and upon such terms as are agreed upon by _______________ and the user, unless such Background Data is or lawfully becomes in the public domain or is or lawfully becomes available to the user on other terms." (3) ORION and/or the person or entity to whom any Technical Data and Information is furnished under the Contract shall be entitled at any time to modify, remove, obliterate, or ignore any marking not authorized by this Article 21 on any piece of Technical Data or Information furnished under the Contract, but only after written notice and reasonable opportunity has been given to Contractor to defend such marking. (g) Subcontracts. Contractor shall, unless otherwise authorized or directed by ORION, use best efforts to include in each Subcontract hereunder a license rights clause pursuant to which each Subcontractor will grant license rights to ORION to the same extent as the license rights granted by Contractor in this Article. 22. CONFIDENTIALITY AND NONDISCLOSURE OF PROPRIETARY INFORMATION 22.1 DEFINITION AND EXEMPTIONS. (a) Definition. During the course of performance of the 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 61 considered proprietary and confidential information of the disclosing Party ("Proprietary Information"). (b) Exemptions. For the purpose of this Article 22, "Proprietary Information" shall not include any information that the receiving Party can establish (i) was, at the time of disclosure to it, in the public domain; (ii) after disclosure to it, is published or otherwise becomes part of the public domain through no fault of the receiving Party; (iii) was in the possession of the receiving party at the time of disclosure to it, as established by documentary evidence; (iv) was received after disclosure to it from a third party who had a lawful right to disclose such information; and (v) was independently developed by the receiving Party without reference to the Proprietary Information of the other, as established by documentary evidence. 22.2 PRIOR APPROVAL OF CERTAIN DISCLOSURES. (a) Contractor agrees that it will not, for the period specified in Article 22.3(a), disclose details of the Work to be provided to ORION, to the extent that such disclosure would reveal specific performance information regarding the ORIONSAT System and the ORION-Z Spacecraft or any other information that would materially affect ORION's commercial interests 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 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. (b) ORION agrees that it will not, for the period specified in Article 22.3 (a), disclose Proprietary Information of Contractor to the extent that such disclosure would reveal information to a direct competitor of Contractor that would materially affect the commercial interests of Contractor without the prior written consent of Contractor, which shall not be unreasonably withheld. Contractor agrees that for purposes of this Article 22, in the event that TELESAT and/or COMSAT are engaged as Consultants to ORION for purposes of the Contract, they shall not be deemed direct competitors of Contractor. 22.3 CONFIDENTIALITY OBLIGATIONS. (a) Both during and for a period of three (3) years after the termination or expiration of the Contract, each Party agrees to preserve and protect the confidentiality of the Proprietary Information of the other and all physical forms thereof. Neither Party shall disclose or disseminate Proprietary Information of the other to any third party, including employees, independent consultants, or Subcontractors unless each 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 marketing the ORIONSAT System. Neither Party shall use Proprietary Information of the other for its own benefit or for the 62 benefit of any third party, except as specifically provided under the terms and conditions of the Contract. (b) The foregoing shall not affect any right of ORION in respect of Data and Documentation provided for under the Contract nor shall either Party be prevented from using the general know-how and abilities gained during the performance of the Contract for any purpose whatsoever. 22.4 COPYING. (a) Either Party shall be entitled to make copies of any documents containing Proprietary Information under the terms and conditions outlined above. (b) Either Party 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 Contract where the legend is not in accordance with the Contract but only after notice to the other Party and reasonable opportunity for such Party to defend such legend. 23. YEAR 2000 COMPLIANCE Contractor represents and warrants that any and all software provided hereunder will accurately process date/time data (including, but not limited to, calculating, comparing, and sequencing) from, into, and between the twentieth and twenty-first centuries, and the years 1999 and 2000 and leap year calculations (hereinafter "Year 2000 Compliant"). Year 2000 Compliant information technology, when used in combination with other information technology, shall accurately process date/time data if the other information technology properly exchanges date/time data (hereinafter, collectively the "Year 2000 Warranty"). 24. CONTRACT MANAGEMENT 24.1 GENERAL. Contractor shall conduct and/or attend meetings, reviews and analyses and shall prepare and deliver reports (including progress reports) and documentation as required in Part 2(A) (SOW) and Part 2(B)(CDRL). 24.2 APPROVALS AND ACCEPTANCES. No approval, acceptance, waiver or deviation prior to Final Acceptance by ORION of any action or item under the Contract shall waive any of ORION's contractual rights with regard to Final Acceptance of any Deliverable Item or otherwise change or modify Contractor's obligation to meet the requirements of the Contract except to the extent a requirement is expressly and 63 specifically waived by a written instrument signed by an authorized representative of ORION and made an Amendment to the Contract pursuant to Article 28.4 (Amendment). 24.3 CONTRACT MONITORING. During the performance of the Contract, 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 Contractor from performing the Contract in accordance with its terms and shall not in any way detract from Contractor's position as an independent contractor. 24.4 ORION CONSULTANTS. ORION's Consultants shall not be employees of any entity in direct competition with Contractor's manufacturing operations and shall have no authority to change any part of the Contract, or to direct Contractor or to bind ORION. The Parties agree that TELESAT and COMSAT may be utilized by ORION as Consultants on the ORION-Z program. Any changes to the Contract shall be made only in accordance with Article 28.4 (Amendments), but ORION's Consultants may participate in discussions regarding such changes. Any action taken by Contractor prior to the resolution of any such question shall be at Contractor's own risk and expense. 24.5 SUBCONTRACTING. (a) Contractor shall provide ORION two (2) copies of all Subcontracts issued, either by Contractor or by a Major Subcontractor on an "as-needed basis" at ORION's request. Such copies shall not be required to contain any financial information. (b) To the extent practical, all Major Subcontracts issued at any time, including those Subcontracts entered into before EDC shall contain the provisions specified in the Articles of the Contract as appropriate to the particular Major Subcontract. (c) Major Subcontracts. (1) Contractor has represented that in the performance of the Work required by the Contract, it will be necessary for Contractor or its Subcontractors to enter into Major Subcontracts. Initially, the Major Subcontractors are as provided below: 64 - - -------------------------------------------------------------------------------- TABLE 24.5 MAJOR SUBCONTRACTORS - - -------------------------------------------------------------------------------- NAME OF MAJOR SUBCONTRACTOR DESCRIPTION OF WORK ------------- ------------------- Arianespace Launch Vehicle Narda Linearizers AEG/Thomson TWT Bosch EPC ComDev Switches, Diplexers Alenia Telemetry & Command RF Equipment TecStar Solar Array Panels MELCO Solar Array Panels NEC Earth Sensors Adcole Sun Sensors Eagle-Picher Battery Cells Sharp Solar Cells Lockheed Martin Federal Systems SCE Processors Pressure Systems Inc. Propellant Tanks Lincoln Composites Pressurant Tanks Kaiser Marquart 110 lb. Thrusters 65 Atlantic Research Corp. 5 lb. Thrusters Teldix Momentum Wheel Ferranti Digital Integrating Rate Assy MELCO Structural Panels, Comm Panels (2) In the event that Contractor or a Major Subcontractor selects or has a necessity to terminate any Major Subcontract or substitute Major Subcontractors on any Major Subcontract, Contractor shall consult with ORION and discuss any and all such actions prior to implementation. The foregoing shall also apply to Subcontracts and Subcontractors on an "as needed basis." Subject to Article 24.5(c)(3), ORION shall have no right or prior approval of Contractor's actions. (3) In the event that Contractor has a necessity to terminate or substitute any Major Subcontractor, Contractor shall first consult with and obtain the approval of ORION. If ORION does not approve such actions and Contractor deems such actions to be necessary to meet its performance obligations under the Contract, then Contractor may take such action without ORION's approval. (4) In the event that Contractor or a Subcontractor that 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 that will cause a material impact on the technical parameters of the ORION-Z Spacecraft as set forth in Part 3(A) (Technical Specifications), such variations shall be handled in accordance with Part 3(A) and shall require a formal Amendment to the Contract pursuant to Article 28.4. (d) Nothing in the Contract shall be construed as creating any contractual relationship between ORION and any Subcontractor. Contractor is fully responsible to ORION for the acts and omissions of Subcontractors and of all persons used by Contractor or a Subcontractor in connection with the performance of the Work under the Contract. Any failure by a Subcontractor to meet its obligations to Contractor shall not constitute a basis for excusable delay, except as provided in Article 6.3 (Excusable Delay), and shall not relieve Contractor from meeting any of its obligations under the Contract. 66 25. GROUND STORAGE OPTION 25.1 NOTIFICATION. ORION, at its option to be exercised no later than three (3) months prior to the projected shipment date of the ORION-Z Spacecraft to the launch site, may direct Contractor to provide ground storage for such Spacecraft for a period of up to eighteen (18) months. ORION's exercise of its rights under this Article 25 shall constitute an Excusable Delay as provided in Article 6.3 (Excusable Delay) provided ORION exercises such right due to circumstances caused by ORION. 25.2 STORAGE LOCATION. Ground storage shall be provided at a facility controlled by Contractor and shall be conducted in accordance with the satellite storage plan set forth in Part 5 (Satellite Storage Plan). 25.3 STORAGE PRICES. In the event that ORION, due to circumstances or Excusable Delay not caused by ORION, elects to exercise the ground storage option for the ORION-Z Spacecraft provided in this Article 25 from Contractor, then such ground storage (and reverification of system flight assurance and reverification testing) shall be provided at no charge to ORION. Otherwise: (i) such ground storage shall be provided for the firm fixed price of [ ] per month while * the ORION-Z Spacecraft is in ground storage and until ORION directs Contractor pursuant to Article 25.6 to remove such Spacecraft from ground storage, conduct the verification tests, and ship such Spacecraft to the launch site; and (ii) ORION shall pay directly or reimburse Contractor for reverification of system flight assurance and reverification testing (at [ ] * [ ] of Contractor's cost) and for such reasonable additional costs such as taxes, * tariffs, duties, transportation, insurance and launch-related expenses that Contractor would not have incurred had ORION not elected ground storage for the ORION-Z Spacecraft. 25.4 INVOICING AND PAYMENT. Contractor shall provide ORION an Invoice for amounts due under this Article 25 in arrears in accordance with Article 5.1. ORION shall pay such invoiced amounts in accordance with Article 5. 25.5 TITLE AND RISK OF LOSS. Title and risk of loss or damage to the ORION-Z Spacecraft shall, as provided in Article 8, remain with Contractor during ground storage and until Final Acceptance. 67 25.6 NOTIFICATION OF INTENTION TO LAUNCH A STORED SPACECRAFT. ORION shall direct Contractor by written notice to remove the ORION-Z Spacecraft from ground storage and Deliver the Spacecraft in-orbit subject to the availability of a Launch Vehicle. This notification must be received by Contractor no less than six (6) months prior to the revised Delivery Date for the ORION-Z Spacecraft. 25.7 IN-ORBIT PERFORMANCE WARRANTY AND PAYMENTS. (a) In the event that ORION, due to circumstances or Excusable Delay caused by ORION, elects to exercise the ground storage option provided in this Article 25, upon placement of the ORION-Z Spacecraft in ground storage, ORION shall pay to Contractor interest on the Orbital Incentive Amount at the rate specified in Article 5.4 for the period of ground storage until ORION provides Contractor the notice specified in Article 25.6. Upon Final Acceptance of the ORION-Z Spacecraft, the provisions of Article 12 shall apply. (b) In the event it is determined that the amount of the Advance Incentive Payment to which Contractor is entitled at Final Acceptance under Article 12 is less than one hundred percent (100%) of the Orbital Incentive Amount, then Contractor shall pay to ORION a refund in the amount of the difference between interest paid by ORION under (a) above and interest on the amount of the Advance Incentive Payment to which Contractor is entitled at Final Acceptance, such interest at the rate specified in Article 5.4 for the period specified in (a) above. 26. LAUNCH VEHICLE AGENCY 26.1 INSURANCE. Contractor shall require the Launch Agency to provide (and verify provision of) insurance as required by any governmental agency, for loss or damage to its property resulting from activities to be carried out in connection with launches to be provided under the Contract. In consideration of and conditioned upon a reciprocal waiver by the applicable government, both ORION and Contractor agree to waive any claim against that 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. 26.2 COMPLIANCE WITH LAWS AND REGULATIONS. The Launch Agency has executed agreements with various government agencies for use of government-owned property and facilities relating to the production of launch vehicles and launch operations. ORION agrees that it will comply with the applicable government's laws and regulations as they relate to ORION-furnished property and personnel. Contractor will request the Launch Agency to furnish copies of such agreements to ORION upon ORION's request. ORION will indemnify Contractor for any ORION violation of the laws, regulations or 68 agreements as specified herein. In furtherance of the foregoing, the Parties shall, before launch, execute and deliver an agreement for waiver of claims and assumption of responsibility, if the execution of which is required by the applicable government as a condition of granting Contractor's license to conduct launch activities and launch the ORION-Z Spacecraft. 27. RESPONSIBILITY FOR THE CONTRACT 27.1 ABILITY TO PERFORM. Contractor, by having submitted a tender to perform the Work and by executing the Contract, shall be deemed to have satisfied itself as to: (a) all the conditions and circumstances which may affect the Contract Price, as defined in Article 5; and (b) the feasibility of the Work to be performed in accordance with the terms and conditions of the Contract. Accordingly, Contractor warrants that it has the necessary skills, facilities and capacity to perform the Work in accordance with the terms and conditions of the Contract. 27.2 FIXED CONTRACT PRICE. 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 Contract, will be charged over and above the Contract Price. 27.3 INCONSISTENCIES IN CONTRACT. (a) By executing the Contract, the Parties acknowledge that they have thoroughly examined all parts of the Contract, and agree that they are complete, consistent and accurate. If Contractor decides, during the performance of the Work, that any portion of the 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 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 6. If 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 and at its own expense, follow the course of action directed by ORION and make all readjustments that may be required. 69 (b) ORION shall within twenty (20) days after written notification by Contractor pursuant to Article 27.3(a) provide a response and resolution of the issues raised by Contractor. 27.4 SUBCONTRACTOR COOPERATION. Contractor covenants that it will cooperate fully with all Subcontractors, and will use reasonable efforts to ensure the full cooperation of all Subcontractors with ORION in order to achieve due performance of the Contract. 28. GENERAL 28.1 EFFECTIVE DATE OF CONTRACT. The effective date of the Contract ("EDC") shall be the date as of which the Contract as been duly signed by both Parties. On the Effective Date, Contractor will be paid the Initial Payment. 28.2 ASSIGNMENT. (a) This Contract shall be binding on the Parties and their successors and assigns. Assignment of this 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 Contract. (b) 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 Contract or any part thereof, any of its rights, duties, or obligations hereunder, the Work or any monies payable or to become payable under the Contract, to any person, except to a parent or a wholly-owned direct or indirect subsidiary company of Contractor, or for the purpose of corporate merger, recapitalization or reconstruction. (c) ORION shall have the right to assign, mortgage, charge or encumber its rights, duties or obligations under the Contract to any entity, including any Financing Entity, subject to prior notice to Contractor. 28.3 ENTIRE AGREEMENT. This Contract contains the entire Agreement between the Parties regarding the Work hereunder and supersedes all communications, negotiations, and other agreements either written or oral, relating to the Work and made prior to the Effective Date of the Contract unless the same are expressly incorporated by reference into the Contract. 70 28.4 AMENDMENTS. The Contract, including Parts, may not be modified except by written instrument of subsequent date 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 Contractor by its Executive Vice President, Business or Vice President and Chief Financial Officer (or another person designated by either in writing to sign such agreement) which agreement expressly states that it is an "Amendment to the ORION-Z Contract." 28.5 WAIVER OF BREACH OF CONTRACT. A waiver of any breach of a provision of the Contract shall not be binding upon either Party unless the waiver is in writing, signed by a duly authorized representative of the Party, as applicable, and such waiver shall not affect the rights of the Party not in breach with respect to any other or future breach. 28.6 CUMULATIVE REMEDIES. Except as otherwise expressly provided herein, all remedies provided for in the Contract shall be cumulative. 28.7 SEVERABILITY. In the event any one or more of the provisions of the Contract shall for any reason be held to be invalid or unenforceable, the remaining provisions of the Contract shall be unimpaired and the invalid or unenforceable provision shall be deemed to be restated to reflect as nearly as possible the original intention of the Parties in accordance with applicable law. 28.8 APPLICABLE LAW. Except as provided in Article 16.2(e), the Contract and performance under it shall be governed by, construed and enforced in accordance with the laws in force in the State of Maryland, U.S.A., without regard to conflict of laws provisions thereof. 28.9 NOTICES. (a) All notices, requests, demands, and determinations under the Contract (other than routine operational communications), shall be in writing and shall be deemed duly given (i) when delivered by hand, (ii) two (2) days after being given to an express courier with a reliable system for tracking delivery, (iii) when sent by facsimile confirmed by the specific addressee with a copy sent by another means specified in this Article 28.9, or (iv) six (6) days after the day of mailing, when mailed by United States mail, registered or certified, return receipt requested, postage prepaid, and addressed as follows: 71 ORION 2440 Research Boulevard Suite 400 Rockville, Maryland 20850 United States of America Attention: Richard Shay, Esq. Sr. Vice President and General Counsel Telephone No.: 301-258-8101 Facsimile No.: 301-258-3360 Attention: Dr. Denis Curtin Senior Vice President Telephone No.: 301-258-3210 Facsimile No.: 301-258-3330 SPACE SYSTEMS/LORAL 3825 Fabian Way Palo Alto, California 94303 Attention: Linda Zumdahl, PS1 Contract Manager Telephone No.: 650-852-5482 Facsimile No.: 650-852-7508 Attention: Josephine Stiles Program Manager Telephone No.: (650) 852-6728 Facsimile No.: (650) 852-6686 (b) A Party may from time to time change its address or designee for notification purposes by giving the other Party prior notice of the new address or designee and the date upon which it will be effective. 28.10 CONTRACTOR NOT AGENT. Contractor, in performing the Work hereunder, is acting as an independent contractor, and Contractor has the sole right and obligation to supervise, manage, contract, direct, procure, perform or cause to be performed, all Work to be performed by Contractor under the Contract. None of the provisions of the Contract, including any of its Parts, shall be construed to mean that Contractor is appointed or is in any way authorized to act as an agent of ORION. 28.11 SURVIVAL. Any provision of the Contract that can be reasonably construed to survive the expiration or termination of the Contract for any reason, including Article 11 (Representations and 72 Warranties), Article 12 (In-Orbit Performance Warranty and Incentive Payments), Article 13 (Insurance), and Article 15 (Indemnification) shall survive such expiration or termination of the Contract. 28.12 RELEASE OF INFORMATION. (a) Release of Information. Neither Contractor nor ORION, nor any of their Associates, contractors, or Subcontractors, shall release or publish any material (including articles, films, brochures, advertisements and photographs), or authorize other persons to publish such material, or deliver speeches (collectively, "Release") about the Work that is marked "Confidential", "Proprietary", or with similar designation without the prior written approval of the other Party, which approval shall not be unreasonably withheld. This obligation shall not apply to (i) ORION's Release of any sort relating to ORION's intellectual property, including the Technical Specifications and Statement of Work, and may be Released as ORION so determines, or (ii) information that is publicly available from any governmental agency or that is or otherwise becomes publicly available without breach of this Agreement. (b) The application for approval to Release material required by this Article 28.12 shall be submitted to the other Party in writing and shall include full particulars of any intended Release. Upon receipt of the other Party's agreement in principle to the proposed Release, the applicant shall submit for final approval by the other Party any material to be in the form and context in which it is intended to be used. The other Party may then approve or decline to approve Release in whole or in part of the material and at its discretion may specify a time for Release. 28.13 GOVERNMENT FILINGS. Notwithstanding any other provision of the Contract, Contractor and ORION may make any public release or filings that Contractor or ORION considers advisable or necessary under 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 United States. Prior to making any such filing containing proprietary information of the other Party, the filing 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 a Party 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 first Party in obtaining confidential treatment for such information. 28.14 IMPROPER PAYMENTS, KICKBACKS, GIFTS, AND GRATUITIES. Each Party agrees that in carrying out its obligations under the Contract it will not make payments of any salary, fee, commission or compensation of any kind or the granting of any 73 unlawful or improper gift or gratuity of any kind either directly or indirectly, to any officer, employee, agent or representative of ORION. 28.15 COMPLIANCE WITH APPLICABLE LAWS. (a) Subject to Article 19 (Permits, Licenses and Government Approvals), each Party 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. (b) Subject to Article 19 (Permits, Licenses and Government Approvals), neither Party shall be responsible in any way for the consequences, direct or indirect, of any violation by the other Party or its Subcontractors or Consultants, or their officers, employees, agents or servants of any law of a country in which the Work is performed, or of any country whatsoever. 28.16 FINANCING. The Parties recognize that the Contract may be financed through external sources. Contractor agrees to work cooperatively to negotiate and execute such documents as may be reasonably required to implement such financing to the extent it does not adversely affect Contractor's rights. IN WITNESS WHEREOF the Contract has been issued in two (2) counterparts, executed and sealed on behalf of ORION by persons authorized in that behalf, and has also been executed and sealed on behalf of CONTRACTOR by persons authorized in that behalf. SPACE SYSTEMS/LORAL, INC LORAL ORION NETWORK SYSTEMS, INC. BY: BY: ---------------------------------------- ------------------------------- TITLE: Executive Vice President, Business TITLE: Sr. Vice President ------------------------------------- ---------------------------- DATE: May 15, 1998 DATE: May 15, 1998 -------------------------------------- ----------------------------- 74 CONFIDENTIAL ANNEX A MILESTONE ACHIEVEMENT CERTIFICATE [Date] Orion Network Services, Inc. 2440 Research Boulevard Suite 400 Rockville, Maryland 20850 United States of America Attention: Al Ramos RE: ORION-Z Spacecraft Purchase Contract, dated as of May 15, 1998 (as amended, supplemented or modified from time to time, the "ORION-Z Contract"), between Orion Network Services, Inc. ("ORION") and Space Systems/Loral, Inc. ("Contractor") Ladies and Gentlemen: This Invoice is delivered to ORION pursuant to Article 5 of the ORION-Z Contract and constitutes Contractor's Invoice for the amount of $[...] for Milestone Payment No. ____ and $[...] for ___________________________. We hereby certify that the above Milestone has been Successfully Completed, Conducted, or Delivered (as each term is defined in Article 5.2(e) of the ORION-Z Contract). Very truly yours, SPACE SYSTEMS/LORAL, INC. Agreed to on behalf of ORION: By: By: --------------------------------- --------------------------------- Name: Name: ------------------------------- ------------------------------- Title: Title: ------------------------------ ------------------------------ Date: ------------------------------- PART 1(B) PAYMENT SCHEDULE [CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR THIS PART] PART 1(B) TERMINATION LIABILITY [CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR THIS PART] LORAL ORION NETWORK SYSTEMS, INC. ORION 2 STATEMENT OF WORK PART 2(A) DATED: 11 MAY 1998 - - -------------------------------------------------------------------------------- This document contains data and information proprietary to Space Systems/Loral. This data shall not be disclosed, disseminated, or reproduced, in whole or in part, without the express prior written consent of Space Systems/Loral. - - -------------------------------------------------------------------------------- i Use or disclosure of the data contained on this sheet is subject to the restriction on the title page. CONTENTS
SECTION PAGE 1 --INTRODUCTION...................................................................................1-1 1.1 SCOPE.................................................................................1-1 1.2 RESPONSIBILITIES......................................................................1-1 1.3 APPLICABLE PROGRAM DOCUMENTS..........................................................1-2 2 --EQUIPMENT, DOCUMENTATION, AND SERVICES.........................................................2-1 2.1 INTRODUCTION..........................................................................2-1 2.2 DELIVERABLE EQUIPMENT.................................................................2-1 2.2.1 Flight Spacecraft..........................................................2-1 2.2.2 Mission Specific Hardware and Software.....................................2-2 2.2.3 TT&C Simulator.............................................................2-2 2.2.4 Dynamic Software Simulator.................................................2-2 2.3 DELIVERABLE DOCUMENTATION.............................................................2-2 2.4 SERVICES..............................................................................2-3 2.4.1 Launch Support Services....................................................2-3 2.4.2 Launch Services............................................................2-3 2.4.3 Insurance..................................................................2-3 2.4.4 Mission Support Services...................................................2-3 2.4.5 Operations Training........................................................2-4 2.4.6 Post Acceptance In-Orbit Support...........................................2-4 2.5 PURCHASER FURNISHED ITEMS FOR IOT.....................................................2-4 2.5.1 Equipment and Personnel....................................................2-4 2.5.2 Data.......................................................................2-5 3 --PROGRAM MANAGEMENT.............................................................................3-1 3.1 INTRODUCTION..........................................................................3-1 3.1.1 Scope......................................................................3-1 3.1.2 Responsibilities...........................................................3-1 3.1.3 Program Management Plan....................................................3-1 3.2 PROGRAM MANAGEMENT INTERFACE..........................................................3-2 3.3 DOCUMENTATION AND DATA MANAGEMENT.....................................................3-2 3.3.1 General....................................................................3-2 3.3.2 Documentation Center.......................................................3-2 3.3.3 Data Management Plan.......................................................3-2 3.3.4 Documentation Submission Criteria..........................................3-2 3.3.5 Revision and Maintenance of Documentation..................................3-2 3.3.6 Monthly Documentation Status Report........................................3-3 3.4 MEETINGS..............................................................................3-3
ii 3.4.1 Progress Meetings..........................................................3-3 3.4.2 Senior Management Meetings.................................................3-3 3.4.3 Quarterly Progress Meetings................................................3-3 3.4.4 Kick-Off Meeting...........................................................3-4 3.4.5 Agenda Coordination Procedure..............................................3-4 3.4.6 Minutes....................................................................3-4 3.4.7 System and Major Subsystems Integration and Test Weekly Meeting............3-4 3.4.8 Major Subcontractor Progress Meetings and Other Meetings....................-5 3.5 REVIEWS...............................................................................3-5 3.5.1 Design Reviews.............................................................3-5 3.5.1.1 Review Chairperson and Review Board............................3-5 3.5.1.2 Review Notification............................................3-6 3.5.1.3 Data Packages..................................................3-6 3.5.1.4 Review Procedures..............................................3-6 3.5.1.5 Review Summary.................................................3-6 3.5.1.6 Review Completion..............................................3-6 3.5.1.7 Spacecraft System/Subsystem CDR................................3-6 3.5.2 System/Subsystem Test Reviews..............................................3-7 3.5.3 Preshipment Review.........................................................3-8 3.5.4 Design Review Documentation................................................3-8 3.5.5 Test Review Documentation..................................................3-8 3.6 ACTION ITEM CONTROL...................................................................3-8 3.7 MANAGEMENT OF CONTRACT CHANGES........................................................3-9 3.7.1 Change Classification......................................................3-9 3.7.2 Preliminary Change Assessment.............................................3-10 3.7.3 Change Request (CR).......................................................3-10 3.7.4 Contract Change Notice (CCN)..............................................3-10 3.7.5 Review and Approval of a Change...........................................3-11 3.7.6 Change Review Board.......................................................3-12 3.7.7 Implementation of a Change by the Contractor..............................3-12 3.7.8 Directed Changes..........................................................3-12 3.7.9 Go Ahead Procedure........................................................3-12 3.7.10 CR/CCN Log...............................................................3-13 3.8 PROGRAM PLANNING AND STATUS INFORMATION..............................................3-14 3.8.1 Spacecraft Hardware Matrix................................................3-14 3.8.2 Qualification Status List.................................................3-14 3.8.3 Critical Items List.......................................................3-14 3.8.4 Program Schedules.........................................................3-14 3.8.5 Monthly Program Progress Report...........................................3-15
iii 3.8.6 Executive Quarterly Summary...............................................3-16 3.9 PROGRAM MONITORING AND NOTIFICATION REQUIREMENTS.....................................3-16 3.9.1 ORION Representatives.....................................................3-16 3.9.2 Office Accommodation and Facilities.......................................3-16 3.9.3 Attendance at Meetings....................................................3-17 3.9.4 Access to Data and Documentation..........................................3-17 3.9.5 ORION Presence During Development, Qualification, and Acceptance Tests....3-17 3.9.6 Notification Requirements.................................................3-17 3.9.7 Material Review Board (MRB) and Failure Review Board (FRB)................3-18 4 --DESIGN ACTIVITIES..............................................................................4-1 4.1 GENERAL...............................................................................4-1 4.2 SYSTEM SPECIFICATION..................................................................4-1 4.3 DESIGN REVIEWS........................................................................4-1 4.4 DESIGN ANALYSES.......................................................................4-2 4.4.1 Analyses at Spacecraft System Level........................................4-2 4.4.1.1 Spacecraft Failure Analysis....................................4-3 4.4.1.2 Dynamic Analysis...............................................4-3 4.4.1.3 Antenna Pointing Error Analysis................................4-3 4.4.1.4 Propellant Budget Analysis.....................................4-4 4.4.1.5 Mass Properties Analysis.......................................4-5 4.4.1.6 Power Budget Analysis..........................................4-5 4.4.1.7 Mission Analysis...............................................4-5 4.4.1.8 Environmental Effects Analyses.................................4-6 4.4.1.9 Worst Case Performance Analysis................................4-7 4.4.1.10 Autonomous Commands Analysis..................................4-8 4.4.2 Subsystem Level Analyses...................................................4-8 4.4.2.1 Communications Subsystem Analyses..............................4-8 4.4.2.2 Telemetry, Tracking, and Command (TT&C) Subsystem Analyses...4-11 4.4.2.3 Attitude and Dynamics Control Subsystem (ADCS) Analysis.................................................4-12 4.4.2.4 Propulsion Subsystem Analyses.................................4-13 4.4.2.5 Power Subsystem Analyses......................................4-13 4.4.2.6 Thermal Subsystem Analyses....................................4-15 4.4.2.7 Structure Analyses............................................4-15 5 --PRODUCT ASSURANCE..............................................................................5-1 5.1 PRODUCT ASSURANCE REQUIREMENTS........................................................5-1 5.2 QUALITY ASSURANCE TASKS...............................................................5-1 6 --MANUFACTURING, ASSEMBLY, INTEGRATION AND TEST..................................................6-1
iv 6.1 GENERAL...............................................................................6-1 6.2 TEST PLAN.............................................................................6-1 6.3 TEST PROCEDURES, DATA, AND REPORTS....................................................6-2 6.3.1 Unit and Subsystem Level Test Procedures and Reports.......................6-2 6.3.2 Spacecraft Level Test Procedures and Reports...............................6-2 6.3.3 Test Data..................................................................6-2 6.3.4 Spacecraft Log Book........................................................6-3 6.4 TEST REVIEWS..........................................................................6-3 6.5 PRESHIPMENT REVIEW (PSR)..............................................................6-4 6.6 FAILURE NOTIFICATION..................................................................6-4 6.7 ELECTRICAL AND MECHANICAL GROUND SUPPORT EQUIPMENT (EGSE/MGSE)........................6-4 6.8 TEST EQUIPMENT REQUIREMENTS...........................................................6-5 6.9 SOFTWARE REQUIREMENTS.................................................................6-5 6.10 DELIVERY OF DRAWINGS AND ENGINEERING CONTROL DOCUMENTS FOR SPACECRAFT OPERATION AND IN ORBIT CONTROL............................................6-5 6.11 SECURE COMMAND SYSTEM AND CERTIFICATION..............................................6-6 7 --LAUNCH AND MISSION SUPPORT SERVICES............................................................7-1 7.1 SCOPE.................................................................................7-1 7.2 LAUNCH VEHICLE COMPATIBILITY..........................................................7-1 7.3 LAUNCH SUPPORT SERVICES...............................................................7-2 7.3.1 Spacecraft Preparation at the Launch Sites.................................7-2 7.3.2 Spacecraft Propellant and Pressurant.......................................7-2 7.3.3 Support of Meetings and Reviews............................................7-2 7.4 SAFETY................................................................................7-3 7.5 LAUNCH SERVICES.......................................................................7-3 7.6 MISSION SUPPORT.......................................................................7-3 7.6.1 Scope......................................................................7-3 7.6.2 Mission Support Activities.................................................7-4 7.6.2.1 Preparation and Definition of Mission Support Documents........7-4 7.6.2.2 World-Wide Ground Segment......................................7-7 7.6.2.3 Mission Support Procedures and Sequence of Events..............7-7 7.6.2.4 Spacecraft/ORION SCF Compatibility.............................7-7 7.6.2.5 In Orbit Test Plan and Procedure...............................7-9 7.6.2.6 Mission Reviews................................................7-9 7.6.2.7 Spacecraft and Operations Training.............................7-9 7.6.2.8 Real-Time Mission Operations..................................7-10 7.6.2.9 Post-Mission Review...........................................7-11 7.6.2.10 In Orbit Testing and Test Report.............................7-11 7.6.2.11 Spacecraft Acceptance Review.................................7-11
v 7.6.2.12 Post Acceptance Operational Support..........................7-12 7.7 LAUNCH VEHICLE.......................................................................7-12 7.7.1 Launch vehicle Program Management.........................................7-12 7.7.2 Reviews...................................................................7-12 7.7.2.1 Mission Specific Critical Design Review (CDR).................7-12 7.7.2.2 System Review.................................................7-13 7.7.2.3 Launch Vehicle Quality Review.................................7-13 7.7.2.4 Launch Readiness Review.......................................7-13 7.7.2.5 Review Summary and Action Items...............................7-13 8 --SHIPPING AND STORAGE...........................................................................8-1 8.1 SHIPPING, TRANSPORTATION, AND STORAGE PLAN............................................8-1 8.2 SPACECRAFT SHIPMENT...................................................................8-1 8.3 SPACECRAFT STORAGE....................................................................8-1 9 --MISSION SPECIFIC HARDWARE AND SOFTWARE.........................................................9-1 9.1 TT&C SIMULATOR........................................................................9-1 9.2 PROPULSION MODEL......................................................................9-1 9.3 PROPELLANT GAUGING....................................................................9-1 9.4 SENSOR BLINDING PREDICTION MODEL......................................................9-1 9.5 SATELLITE CONTROL FACILITY (SCF) UPGRADE EQUIPMENT AND SOFTWARE.......................9-1 9.6 DYNAMIC software SIMULATOR............................................................9-1 9.7 SPACECRAFT SPECIFIC CONTROL AND MONITORING SOFTWARE...................................9-1 ANNEX A -- GROUND SYSTEM STATEMENT OF WORK
vi [CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PAGES 1-1 THROUGH 9-1 OF THIS PART] LORAL ORION NETWORK SYSTEMS, INC. ORION 2 GROUND SYSTEM STATEMENT OF WORK ANNEX PART 2(A) ANNEX A DATED: 11 MAY 1998 - - -------------------------------------------------------------------------------- This document contains data and information proprietary to Space Systems/Loral. This data shall not be disclosed, disseminated, or reproduced, in whole or in part, without the express prior written consent of Space Systems/Loral. - - -------------------------------------------------------------------------------- i Use or disclosure of the data contained on this sheet is subject to the restriction on the title page. CONTENTS SECTION PAGE 1 --PURPOSE AND SCOPE........................................................1-1 2 --DESIGN OVERVIEW..........................................................2-1 2.1 ROCKVILLE OVERVIEW..............................................2-1 2.2 MT. JACKSON OVERVIEW............................................2-2 2.3 HAWLEY OVERVIEW.................................................2-2 3 --DELIVERABLE EQUIPMENT AND SERVICES.......................................3-1 3.1 GROUND EQUIPMENT...............................................3-1 3.1.1 Design Activities....................................3-1 3.1.2 Design Reviews.......................................3-1 3.1.3 Ground Facilities Interface Coordination Meetings....3-2 3.1.4 Non-Impact to Existing Operations....................3-2 3.1.5 Acceptance Tests.....................................3-2 3.1.6 Site System Acceptance Test..........................3-2 3.1.7 Shipping and Installation............................3-3 3.1.8 Ground Equipment Documentation.......................3-3 3.1.9 Warranty.............................................3-3 3.1.10 Special Warranty....................................3-3 3.2 DOCUMENTATION...................................................3-3 4 --CUSTOMER FURNISHED EQUIPMENT AND SERVICES................................4-1 4.1 OVERALL CUSTOMER FURNISHED EQUIPMENT AND SEVICES................4-1 4.1.1 Sites................................................4-1 4.1.2 Other Support Facilities Furnished By ORION..........4-1 4.1.3 Equipment Racks......................................4-1 4.1.4 Uninterruptible Power Systems (UPS)..................4-1 4.1.5 AC power.............................................4-1 4.1.6 RF and Antenna.......................................4-1 4.1.7 Orbital Analysis and Orbit Determination.............4-2 4.1.8 Tracking Data Transfer for Orbit Raising and IOT.....4-2 4.1.9 ORION Network Responsibilities.......................4-2 4.1.10 ORION Control Center Responsibilities...............4-2 4.2 MT. JACKSON REQUIREMENTS........................................4-2 4.3 CUSTOMER FURNISHED EQUIPMENT AT HAWLEY..........................4-2 5 --DESIGN ACTIVITIES........................................................5-1 5.1 DESIGN REVIEWS..................................................5-1 5.2 DESIGN DOCUMENTATION............................................5-1 ii 6 --SERVICES.................................................................6-1 6.1 GROUND TT&C SERVICES............................................6-1 6.2 Equipment Installation.................................6-1 6.1.2 Spacecraft Compatibility Test........................6-1 6.2 TRAINING OF PERSONNEL...........................................6-1 6.2.1 Classroom Training...................................6-1 6.2.2 Hands-On Training....................................6-1 7 --GROUND PROGRAM MANAGEMENT................................................7-1 7.1 GROUND MANAGEMENT PROGRAM.......................................7-1 7.2 PROGRAM REVIEWS.................................................7-1 7.2.1 Monthly Review.......................................7-1 7.2.2 Ground Progress Reports..............................7-1 8 --DOCUMENTATION REQUIREMENTS...............................................8-1 9 --DELIVERY DATE............................................................9-1 ILLUSTRATIONS FIGURE PAGE 2-1 Overview of ORION 2 System..........................................2-1 2-2 Rockville Facility..................................................2-2 2-3 Mt. Jackson Facility................................................2-3 2-4 Hawley Facility.....................................................2-4 TABLES TABLE PAGE 3-1 Deliverable Ground Equipment........................................3-1 9-1 Ground Contract Documentation Requirement List (CDRL)...............9-2 iii [CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PAGES 1-1 THROUGH 9-3 OF THIS PART] LORAL ORION NETWORK SYSTEMS, INC. ORION 2 CONTRACT DOCUMENTATION REQUIREMENTS LIST (CDRL) PART 2(B) DATED: 11 MAY 1998 - - -------------------------------------------------------------------------------- This document contains data and information proprietary to Space Systems/Loral. This data shall not be disclosed, disseminated, or reproduced, in whole or in part, without the express prior written consent of Space Systems/Loral. - - -------------------------------------------------------------------------------- Use or disclosure of the data contained on this sheet is subject to the restriction on the title page. CONTENTS SECTION PAGE PART 2(B) CONTRACT DOCUMENTATION REQUIREMENTS LIST (CDRL)......................1 TABLES TABLE PAGE Table 1(a) Program Management Documentation....................................3 Table 1(b) Engineering Documentation...........................................4 Table 1(c) Test Documentation..................................................9 Table 1(d) Product Assurance Documentation....................................15 [CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PAGES 1 THROUGH 18 OF THIS PART] LORAL ORION NETWORK SYSTEMS, INC. ORION 2 TECHNICAL SPECIFICATIONS FOR ORION 2 SPACECRAFT PART 3(A) DATED: 11 MAY 1998 - - -------------------------------------------------------------------------------- This document contains data and information proprietary to Space Systems/Loral. This data shall not be disclosed, disseminated, or reproduced, in whole or in part, without the express prior written consent of Space Systems/Loral. - - -------------------------------------------------------------------------------- Use or disclosure of the data contained on this sheet is subject to the restriction on the title page. CONTENTS
SECTION PAGE 1 --INTRODUCTION....................................................................................................1-1 1.1 SCOPE AND PURPOSE......................................................................................1-1 1.2 GENERAL REQUIREMENTS...................................................................................1-1 2 --MISSION REQUIREMENTS............................................................................................2-1 2.1 LIFE 2-1 2.1.0 Propellant Life.............................................................................2-1 2.1.1 Maneuver Life...............................................................................2-1 2.1.2 Orbital Life................................................................................2-1 2.2 LAUNCH CONFIGURATION AND MASS..........................................................................2-2 2.3 AIRBORNE SUPPORT EQUIPMENT (ASE).......................................................................2-2 2.4 SPACECRAFT RELIABILITY AND QUALITY ASSURANCE REQUIREMENTS......................................................................................2-2 2.4.1 Piece Parts, Components and Subassemblies...................................................2-2 2.4.2 Parts Locations For Testing.................................................................2-4 2.5 DESIGN REQUIREMENTS....................................................................................2-4 2.5.1 Reserved....................................................................................2-4 2.5.2 Reserved....................................................................................2-4 2.5.3 Mechanical Design Criteria for Units and Assemblies.........................................2-4 2.5.4 Thermal Design Criteria for Units and Assemblies............................................2-4 2.5.5 Design Criteria for Electronic Units and Onboard Software...................................2-5 2.5.6 Use of Connectors...........................................................................2-5 2.5.7 Spacecraft Testing Via the Telemetry System.................................................2-5 2.5.8 Hard-Line Connections for Communications and TT&C Subsystem Testing.........................2-6 2.5.9 Insulation of Conductors....................................................................2-6 2.5.10 Radiation Environment......................................................................2-6 2.5.11 Design Considerations Associated with Charging Phenomena...................................2-7 2.5.12 Zero-g Testing.............................................................................2-8 2.5.13 Operation Following Storage................................................................2-8 2.5.14 Launch Windows and Mission Profile Constraints.............................................2-8 2.5.15 Telemetry Transmitters Status During Launch................................................2-8 2.5.16 Helium Pressurant Venting (if applicable)..................................................2-9 2.5.17 Orbit Control Maneuvers....................................................................2-9 2.5.18 Operation in Inclined Orbit................................................................2-9 2.5.19 Attitude Control Failure Mode Recovery and Continued Operation.............................2-9 2.6 DEFINITION OF COORDINATE AXES AND ATTITUDE ANGLES......................................................2-9 2.7 ANTENNA BEAM POINTING ACCURACY........................................................................2-10
ii 3 --COMMUNICATION SUBSYSTEM.........................................................................................2-1 3.1 GENERAL................................................................................................3-1 3.1.2 Conditions for Specification................................................................3-3 3.1.3 Primary Transmission Modes (For Information Only)..........................................3-3 3.2 COVERAGE...............................................................................................3-5 3.2.1 Coverage Regions............................................................................3-5 3.3 POLARIZATION..........................................................................................3-10 3.3.1 Receive Isolation and Discrimination.......................................................3-10 3.3.2 Cross-Polar Transmit Discrimination........................................................3-11 3.4 CAPACITY..............................................................................................3-11 3.5 FREQUENCY PLAN........................................................................................3-12 3.6 COMMUNICATION SUBSYSTEM AND ANTENNA BEAM INTERCONNECTIVITY............................................3-12 3.6.1 Communications Subsystem Configuration.....................................................3-12 3.6.2 Interconnectivity..........................................................................3-14 3.7 INPUT CHARACTERISTICS.................................................................................3-16 3.7.1 Receive Sensitivity (G/T)..................................................................3-16 3.7.2 Gain and Level Control.....................................................................3-16 3.7.2.1 Fixed Gain Mode................................................................3-16 3.7.2.2 Automatic Level Control Mode...................................................3-17 3.7.3 Saturation Flux Density (SFD)..............................................................3-18 3.7.4 Drive Conditions...........................................................................3-19 3.7.4.1 Overdrive Conditions...........................................................3-19 3.7.4.2 Pulsed Transient Response......................................................3-19 3.7.5 Receive Rejection..........................................................................3-20 3.7.6 Linearity of the Common Input Section......................................................3-20 3.7.7 Interference from Command Carrier..........................................................3-20 3.8 OUTPUT CHARACTERISTICS................................................................................3-20 3.8.1 Effective Isotropic Radiated Power (EIRP)..................................................3-20 3.8.2 Spurious Outputs...........................................................................3-23 3.8.3 Spurious Modulation........................................................................3-24 3.8.4 Passive Intermodulation....................................................................3-26 3.8.5 Multipaction...............................................................................3-26 3.9 TRANSFER CHARACTERISTICS..............................................................................3-26 3.9.1 Gain Versus Frequency......................................................................3-26 3.9.2 Gain Slope.................................................................................3-26 3.9.3 Group Delay Versus Frequency...............................................................3-29 3.9.4 Group Delay Slope..........................................................................3-29 3.9.5 Group Delay Stability......................................................................3-29
iii 3.9.6 Group Delay Ripple.........................................................................3-29 3.9.7 Phase Linearity and AM/PM Conversion Coefficient...........................................3-29 3.9.8 AM/PM Transfer Coefficient.................................................................3-31 3.9.9 Amplitude Linearity........................................................................3-32 3.9.10 Frequency Stability.......................................................................3-32 3.9.11 Out-Of-Band Response......................................................................3-33 3.10 RESERVED.............................................................................................3-33 3.11 TRAFFIC ROUTING......................................................................................3-33 3.12 REDUNDANCY...........................................................................................3-33 3.13 HIGH POWER AMPLIFIERS................................................................................3-34 3.13.1 Linearized TWTAs..........................................................................3-34 3.13.2 TWTA Auto-Restart Capability..............................................................3-34 3.14 TT&C INTERFACE.......................................................................................3-34 3.14.1 Command Requirements......................................................................3-34 3.14.2 Telemetry Requirements....................................................................3-35 4 --TELEMETRY, TRACKING. AND COMMAND (TT&C).........................................................................4-1 4.1 TELEMETRY..............................................................................................4-1 4.1.1 Functional Requirements.....................................................................4-1 4.1.1.1 Purpose.........................................................................4-1 4.1.1.2 Function........................................................................4-1 4.1.1.3 Operation.......................................................................4-2 4.1.1.4 Interaction with the Communications Subsystem...................................4-2 4.1.1.5 Redundancy......................................................................4-2 4.1.1.6 Interfaces......................................................................4-2 4.1.1.7 Accuracy........................................................................4-7 4.1.1.8 Data Channel Dynamic Range......................................................4-8 4.1.1.9 Spare Capacity..................................................................4-8 4.1.2 RF Parameters...............................................................................4-8 4.2 COMMAND...............................................................................................4-9 4.2.1 Functional Requirements.....................................................................4-9 4.2.1.1 Purpose.........................................................................4-9 4.2.1.2 Function........................................................................4-9 4.2.1.3 Operation.......................................................................4-9 4.2.1.4 Isolation.......................................................................4-9 4.2.1.5 Redundancy.....................................................................4-10 4.2.1.6 Interfaces.....................................................................4-10 4.2.1.7 System Test Considerations.....................................................4-10 4.2.1.8 Spare Capacity.................................................................4-11 4.2.2 RF Parameters..............................................................................4-11
iv 4.2.3 Baseband Characteristics...................................................................4-11 4.2.3.1 Error Prevention and Detection.................................................4-12 4.2.3.2 Command Security...............................................................4-13 4.2.3.3 Command Acceptance Probability.................................................4-13 4.3 RANGING...............................................................................................4-13 4.3.1 Functional Requirement.....................................................................4-13 4.3.1.1 Purpose........................................................................4-13 4.3.1.2 Function.......................................................................4-14 4.3.13 Operation.......................................................................4-14 4.3.1.4 Isolation......................................................................4-14 4.3.1.5 Redundancy.....................................................................4-14 4.3.2 Performance Requirements...................................................................4-14 5 --ATTITUDE DYNAMICS CONTROL SUBSYSTEM (ADCS)......................................................................5-1 5.1 FUNCTIONAL DESCRIPTION.................................................................................5-1 5.2 SUBSYSTEM PERFORMANCE AND DESIGN REQUIREMENTS..........................................................5-1 5.2.1 Attitude Determination......................................................................5-1 5.2.1.1 Orbit Raising...................................................................5-1 5.2.1.2 Synchronous Orbit...............................................................5-1 5.2.2 Attitude Control............................................................................5-2 5.2.2.1 Transfer to Geosynchronous Orbit and Initial Acquisition........................5-2 5.2.2.2 On Orbit Control................................................................5-2 5.2.3 Reacquisition..............................................................................5-2 5.2.4 Ground Control Command Capability...........................................................5-2 5.2.5 Control Safety Systems......................................................................5-3 5.2.6 Special Features............................................................................5-3 5.2.6.1 Antenna Pattern Measurement Capability..........................................5-3 5.2.6.2 Control Bias Capability.........................................................5-4 5.2.6.3 ADCS Switching..................................................................5-4 5.2.6.4 Control Electronics Fault Protection............................................5-4 5.2.7 Subsystem Configuration and Interfaces......................................................5-4 5.2.7.1 Redundancy......................................................................5-4 5.2.7.2 TT&C Interfaces.................................................................5-5 5.2.7.3 Propulsion Interfaces...........................................................5-5 6 --PROPULSION SUBSYSTEM............................................................................................6-1 6.1 FUNCTIONAL DESCRIPTION.................................................................................6-1 6.2 DESIGN REQUIREMENTS....................................................................................6-1 6.3 REDUNDANCY.............................................................................................6-3 6.4 MANEUVER LIFE AND PROPELLANT LOADING...................................................................6-3 6.4.1 General Requirements........................................................................6-3
v 6.4.2 Propellant Budgeting Methodology............................................................6-4 6.4.2.1 Actual Hardware Performance Test Data...........................................6-4 6.4.2.2 Inefficiencies of Operation.....................................................6-4 6.4.2.3 Inflight Performance............................................................6-5 6.4.2.4 Specific Maneuver Requirements..................................................6-5 6.5 TT&C INTERFACES........................................................................................6-5 7 --POWER SUBSYSTEM.................................................................................................7-1 7.1 FUNCTIONAL DESCRIPTION.................................................................................7-1 7.2 GENERAL REQUIREMENTS...................................................................................7-1 7.3 ENERGY GENERATION......................................................................................7-2 7.3.1 Solar Cells.................................................................................7-2 7.3.2 Power Output................................................................................7-2 7.3.3 Power Transfer Assembly.....................................................................7-2 7.4 ENERGY STORAGE.........................................................................................7-3 7.4.1 Batteries...................................................................................7-3 7.4.2 Battery Charge Management...................................................................7-3 7.4.3 Cell Failure................................................................................7-4 7.4.4 Battery Removal and Storage.................................................................7-4 7.5 POWER CONDITIONING AND CONTROL.........................................................................7-5 7.5.1 Bus Configuration...........................................................................7-5 7.5.2 Failure Modes and Shutdown Sequence.........................................................7-5 7.5.3 Bus Undervoltage and Overvoltage............................................................7-6 7.5.4 Interaction Between the Communications and Power Subsystems.................................7-6 7.6 TT&C INTERFACES........................................................................................7-6 8 --THERMAL CONTROL SUBSYSTEM.......................................................................................8-1 8.1 FUNCTIONAL DESCRIPTION.................................................................................8-1 8.2 PERFORMANCE REQUIREMENTS...............................................................................8-1 8.3 SUBSYSTEM DESIGN REQUIREMENTS..........................................................................8-5 8.3.1 Junction Temperature........................................................................8-5 8.3.2 Instrumentation.............................................................................8-5 8.3.3 Materials...................................................................................8-6 8.3.4 Venting.....................................................................................8-6 8.3.5 Grounding...................................................................................8-6 8.3.6 Multi-Layer Insulating Blanket (MLI)........................................................8-6 8.3.7 Contamination Control.......................................................................8-7 8.4 TT&C INTERFACES........................................................................................8-7 9 --STRUCTURE SUBSYSTEM.............................................................................................9-1 9.1 FUNCTIONAL DESCRIPTION.................................................................................9-1 9.2 PERFORMANCE REQUIREMENTS...............................................................................9-1
vi 9.3 DESIGN REQUIREMENTS....................................................................................9-1 10 --MECHANISMS....................................................................................................10-1 10.1 DESIGN REQUIREMENTS..................................................................................10-1 10.2 TT&C INTERFACES......................................................................................10-2 11 --PYROTECHNIC AND ELECTRO EXPLOSIVE DEVICES.....................................................................11-1 ILLUSTRATIONS FIGURE PAGE Figure 3-1. Illustration of Europe Coverage from 12(degree)West....................................................3-9 Figure 3-2. Illustration of American Coverage at 12(degree)West...................................................3-10 Figure 3-3. Frequency Plan........................................................................................3-14 Figure 3-4. Spurious Frequency Modulation Limits..................................................................3-25 Figure 3-5. Spurious Frequency Modulation Limits..................................................................3-25 Figure 3-6. In-Band Gain Vs. Frequency Limits For Input Section...................................................3-27 Figure 3-7. In-Band Gain Vs. Frequency Limits For Overall Transponder.............................................3-28 Figure 3-8. Group Delay Vs. Frequency Limits For Input Section....................................................3-30 Figure 3-9. Group Delay Vs. Frequency Limits For Overall Transponder..............................................3-31 Figure 8-1. Temperature Margins for Internal Mainbody and Thermally Coupled........................................8-2 Figure 8-2. Temperature Margins for Exterior Thermally Isolated Equipment..........................................8-3
vii TABLES
TABLE PAGE Table 2-1. Estimated Probability of Survival.......................................................................2-2 Table 3-1. Definition of Europe Coverage Zones.....................................................................3-6 Table 3-2. Definition of American Coverage.........................................................................3-7 Table 3-3. The Minimum Co-Polar Receive Isolations................................................................3-11 Table 3-4. The Minimum Cross-Polar Receive Isolations.............................................................3-11 Table 3-5. The Minimum Cross-Polar Discriminations (Transmit & Receive)...........................................3-11 Table 3-6. Frequency Plan.........................................................................................3-13 Table 3-7. Transponder Cconnectivity Matrix.......................................................................3-15 Table 3-8. Minimum G/T Performance................................................................................3-17 Table 3-9. Maximum Allowable G/T Variation........................................................................3-17 Table 3-10. SFD Variation.........................................................................................3-18 Table 3-11. Receive Rejection.....................................................................................3-20 Table 3-12. Minimum EIRP Performance..............................................................................3-21 Table 3-13. Key City List.........................................................................................3-22 Table 3-14. EIRP Variation........................................................................................3-23 Table 3-15. Spurious Output Levels................................................................................3-24 Table 3-16. Maximum Gain Slope....................................................................................3-29 Table 3-17. Group Delay Slope.....................................................................................3-31 Table 3-18. Third Order Intermodulation Products..................................................................3-32 Table 3-19. Noise Power Ratio*....................................................................................3-32 Table 3-20. Out-Of-Band Response..................................................................................3-33 Table 4-1. Accuracy Requirements...................................................................................4-8
[CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PAGES 1-1 THROUGH 11-1 OF THIS PART] LORAL ORION NETWORK SYSTEMS, INC. ORION 2 RADIATION ENVIRONMENT SPECIFICATION PART 3(A) ANNEX A DATED: 11 MAY 1998 - - -------------------------------------------------------------------------------- This document contains data and information proprietary to Space Systems/Loral. This data shall not be disclosed, disseminated, or reproduced, in whole or in part, without the express prior written consent of Space Systems/Loral. - - -------------------------------------------------------------------------------- Use or disclosure of the data contained on this sheet is subject to the restriction on the title page. CONTENTS SECTION PAGE 1 INTRODUCTION..........................................................1 2 SYNCHRONOUS ORBIT CONDITIONS..........................................2 2.1 ELECTRONS....................................................2 2.2 PROTONS......................................................4 2.3 ALPHA PARTICLES..............................................6 2.4 COSMIC RAY RADIATION.........................................6 2.5 ULTRAVIOLET RADIATION........................................7 2.6 PLASMA.......................................................9 2.7 MICROMETEROIDS..............................................10 3 TRANSFER ORBIT CONDITIONS............................................11 3.1 TRANSFER ORBIT ELECTRON FLUX VALUES.........................11 3.2 TRANSFER ORBIT PROTON FLUX VALUES...........................11 ILLUSTRATIONS FIGURE PAGE 3.1-1 Transfer Orbit Electron Flux....................................12 3.2-1 Transfer Orbit Proton Flux......................................13 TABLES TABLE PAGE 2.1-1 Time - Averaged Integral Flux Spectrum...........................2 2.1-1a Time-Averaged Integral Flux Spectrum For Trapped Electrons (For Solar Array) (12 W).........................................3 2.2-1 Time Averaged Integral Flux Spectrum For Trapped Protons.........4 2.2-2 Proton Fluence (Including solar Flares) and Alpha Particles......5 2.2-3 Solar Flare Proton Models To Use For Solar Array Designs........5 2.4-1 GCR Constants For GCR Energy Distribution........................6 2.4-2 Relative Abundance Of Cosmic Rays................................8 2.5-1 UV Spectrum......................................................9 2.7-1 Flux Of Penetrating Micrometeroids..............................10 [CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PAGES 1 THROUGH 13 OF THIS PART] LORAL ORION NETWORK SYSTEMS, INC. ORION 2 SPACECRAFT PRODUCT ASSURANCE REQUIREMENTS PART 3(B) Dated: 11 May 1998 - - -------------------------------------------------------------------------------- This document contains data and information proprietary to Space Systems/Loral. This data shall not be disclosed, disseminated, or reproduced, in whole or in part, without the express prior written consent of Space Systems/Loral. - - -------------------------------------------------------------------------------- i Use or disclosure of the data contained on this sheet is subject to the restriction on the title page. CONTENTS
SECTION PAGE 1 INTRODUCTION....................................................................1-1 1.1 SCOPE..................................................................1-1 1.2 PRODUCT ASSURANCE OBJECTIVES...........................................1-1 2 PRODUCT ASSURANCE REQUIREMENTS..................................................2-1 2.1 PRODUCT ASSURANCE PLAN.................................................2-1 2.2 ORGANIZATION AND MANAGEMENT............................................2-1 2.3 REPORTING..............................................................2-1 2.4 NON-CONFORMANCE........................................................2-2 2.5 WAIVERS AND DEVIATIONS.................................................2-2 3 REVIEWS AND AUDITS..............................................................3-1 3.1 MRBsAND FRBs...........................................................3-1 3.2 MRB AND FRB DOCUMENTATION..............................................3-1 3.3 PROGRAM AUDITS.........................................................3-2 3.4 ORION RIGHT OF ACCESS..................................................3-2 4 SUBCONTRACTOR AND SUPPLIER MANAGEMENT...........................................4-1 4.1 SUBCONTRACTOR/SUPPLIER PRODUCT ASSURANCE PLAN..........................4-1 4.2 REQUIREMENTS...........................................................4-1 4.3 REVIEWS AND CONTROLS...................................................4-1 5 RELIABILITY ASSURANCE...........................................................5-1 5.1 RELIABILITY ASSESSMENT.................................................5-1 5.2 PARTS DERATING AND STRESS ANALYSIS.....................................5-2 5.3 FAILURE MODES, EFFECTS, AND CRITICALITY ANALYSES.......................5-2 5.4 WORST-CASE ANALYSIS (WCA)..............................................5-2 5.5 LIFETIME...............................................................5-3 5.6 CRITICAL ITEMS CONTROL.................................................5-3 5.7 RESERVED...............................................................5-4 5.8 QUALIFICATION STATUS LIST REPORT (QSLR)................................5-4 6 QUALITY ASSURANCE...............................................................6-1 6.1 QUALITY ASSURANCE......................................................6-1 6.2 PROCUREMENT AND FABRICATION............................................6-1 6.3 TEST AND INSPECTION....................................................6-1 6.4 WORKMANSHIP STANDARDS..................................................6-2 6.5 QUALITY RECORDS AND TRACEABILITY.......................................6-2 6.6 NON-CONFORMANCE CONTROL................................................6-2
ii 6.6.1 Non-Conformance Reporting....................................6-2 6.6.2 Non-Conformance/Failure Review and Disposition...............6-3 6.6.3 Failure Analysis and Corrective Action.......................6-3 6.6.4 Trend Analysis...............................................6-3 6.7 QUALITY PROGRESS REPORTING.............................................6-3 7 PARTS PROCUREMENT...............................................................7-1 7.1 PARTS PROCUREMENT AND CONTROL..........................................7-1 7.2 ORGANIZATION AND RESPONSIBILITIES......................................7-1 7.3 SELECTION AND APPLICATION..............................................7-1 7.4 QUALITY PROVISIONS.....................................................7-2 7.5 RADIATION..............................................................7-3 7.6 TRACEABILITY...........................................................7-3 7.7 HYBRIDS, BATTERY CELLS, TWTS, AND MAGNETICS............................7-3 7.8 PARTS DOCUMENTATION....................................................7-3 8 MATERIALS AND PROCESSES.........................................................8-1 8.1 MATERIALS AND PROCESS CONTROL..........................................8-1 8.2 ORGANIZATION...........................................................8-1 8.3 CRITICAL MATERIALS AND PROCESSES.......................................8-1 8.4 MATERIALS AND PROCESS SELECTION........................................8-1 8.5 MATERIALS AND PROCESS DOCUMENTATION....................................8-1 9 SOFTWARE QUALITY ASSURANCE......................................................9-1 9.1 SOFTWARE QUALITY ASSURANCE PLAN........................................9-1 9.2 SOFTWARE DEVELOPMENT...................................................9-1 9.3 CONFIGURATION CONTROL..................................................9-1 9.4 VERIFICATION AND ACCEPTANCE TESTING....................................9-1 9.5 NON-CONFORMANCE CONTROL................................................9-2 10 CONFIGURATION MANAGEMENT.......................................................10-1 10.1 CONFIGURATION MANAGEMENT..............................................10-1 10.2 CONFIGURATION IDENTIFICATION AND CONTROL..............................10-1 10.3 CHANGE CONTROL........................................................10-2 10.4 CONFIGURATION VERIFICATION............................................10-2 10.5 CONFIGURATION STATUS ACCOUNTING AND DOCUMENTATION.........................................................10-2 11 SAFETY.........................................................................11-1 11.1 SYSTEM SAFETY.........................................................11-1 11.2 HAZARDOUS CONDITIONS..................................................11-1 11.3 SAFETY AND HAZARD ANALYSES............................................11-1
iii [CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PAGES 1-1 THROUGH 11-1 OF THIS PART] LORAL ORION NETWORK SYSTEMS INC. ORION 2 SPACECRAFT ON-GROUND TEST REQUIREMENTS PART 3(C) Dated: 11 May 1998 - - -------------------------------------------------------------------------------- This document contains data and information proprietary to Space Systems/Loral. This data shall not be disclosed, disseminated, or reproduced, in whole or in part, without the express prior written consent of Space Systems/Loral. - - -------------------------------------------------------------------------------- CONTENTS
SECTION PAGE 1 --INTRODUCTION....................................................................................................1-1 2 --GENERAL COMMENTS................................................................................................2-1 2.1 TEST PHILOSOPHY........................................................................................2-1 2.2 DEFINITIONS............................................................................................2-1 2.3 GENERAL TEST REQUIREMENTS..............................................................................2-2 2.3.1 Basic Requirements..........................................................................2-2 2.3.2 Test Equipment and Test Facility Requirements...............................................2-4 2.3.3 Zero-G Testing..............................................................................2-4 2.3.4 Acceptance Tests............................................................................2-4 2.3.5 Protoflight Tests...........................................................................2-5 2.3.6 Qualification Tests.........................................................................2-5 2.4 WITNESSING OF TESTS....................................................................................2-6 2.5 UNIT/SUBSYSTEM/SYSTEM TEST DATA........................................................................2-6 2.6 SUBSYSTEM/SYSTEM TEST REVIEWS..........................................................................2-7 2.7 DOCUMENTATION..........................................................................................2-7 2.8 ORGANIZATION...........................................................................................2-7 3 --UNIT, SUBSYSTEM AND SPACECRAFT TEST PROGRAM.....................................................................3-1 3.1 EQUIPMENT CATEGORIZATION...............................................................................3-1 3.2 TEST PROGRAM OVERVIEW..................................................................................3-2 4 --PROTOFLIGHT TESTS...............................................................................................4-1 4.1 UNIT PROTOFLIGHT TESTS.................................................................................4-1 4.2 SUBSYSTEM PROTOFLIGHT TESTS............................................................................4-7 4.2.1 Repeater Subsystem..........................................................................4-7 4.2.2 Antenna Subsystem...........................................................................4-7 4.2.3 Telemetry, Tracking, and Command (TT&C) Subsystem..........................................4-10 4.2.4 ADCS Subsystem Protoflight Test............................................................4-10 4.2.4.1 ADCS SCE In-the-Loop Test......................................................4-10 4.2.4.2 ADCS Servo Table Test (Already Completed)......................................4-11 4.2.5 Propulsion Subsystem.......................................................................4-11 4.2.6 Power Subsystem............................................................................4-12 4.2.6.1 Solar Array....................................................................4-12 4.2.6.2 Battery Assembly...............................................................4-12 4.2.7 Structure Subsystem Protoflight Test.......................................................4-13 4.2.8 Thermal Subsystem Protoflight Test.........................................................4-13 4.3 SPACECRAFT PROTOFLIGHT TEST...........................................................................4-14
4.3.1 Integration Tests..........................................................................4-14 4.3.2 Initial Reference Performance Test.........................................................4-14 4.3.3 Thermal Balance/Thermal Vacuum Test........................................................4-16 4.3.4 Spacecraft Alignments......................................................................4-20 4.3.5 Sinusoidal Vibration.......................................................................4-20 4.3.6 Acoustic Vibration Test....................................................................4-21 4.3.7 Shock and Deployment Tests.................................................................4-21 4.3.8 Spacecraft Mass Properties Measurements....................................................4-21 4.3.9 Final Performance Testing..................................................................4-22 4.3.10 RF Range Test.............................................................................4-22 4.3.11 Electro Magnetic Compatibility (EMC) Test.................................................4-23 5 --FLIGHT ACCEPTANCE TESTS.........................................................................................5-1 5.1 UNIT ACCEPTANCE TESTS..................................................................................5-1 5.1.1 Power Handling and Passive Intermodulation (PIM)............................................5-2 5.1.2 Traveling Wave Tube Amplifiers Burn-In......................................................5-2 5.2 SUBSYSTEM ACCEPTANCE TESTS............................................................................5-3 5.2.1 Antenna Subsystem...........................................................................5-3 5.2.2 ADCS........................................................................................5-4 5.2.3 Power Subsystem.............................................................................5-4 5.2.4 Structure Subsystem Acceptance Tests........................................................5-4 5.2.5 Thermal Subsystem...........................................................................5-4 5.2.6 Spacecraft Harness.........................................................................5-4 5.3 SPACECRAFT ACCEPTANCE TEST.............................................................................5-4 6 --LIFE TESTS......................................................................................................6-1 7 --DEVELOPMENT AND QUALIFICATION TEST..............................................................................7-1 7.1 COMMUNICATIONS SUBSYSTEM TESTS.........................................................................7-1 7.1.1 Antenna Unit and Subsystem Test.............................................................7-1 7.1.2 Thermal Distortion..........................................................................7-1 7.1.3 Repeater Tests..............................................................................7-2 7.2 STRUCTURE SUBSYSTEM QUALIFICATION TESTS................................................................7-2 7.3 ATTITUDE DETERMINATION AND CONTROL SUBSYSTEM (ADCS) QUALIFICATION TESTS................................7-2 7.4 PROPULSION SUBSYSTEM QUALIFICATION TESTS...............................................................7-2 7.4.1 General.....................................................................................7-2 7.4.2 Thrusters...................................................................................7-3 7.4.3 Main Spacecraft Thruster....................................................................7-3 7.4.4 Propellant Tanks............................................................................7-3 7.5 THERMAL SUBSYSTEM QUALIFICATION TESTING................................................................7-3 7.6 MECHANISMS.............................................................................................7-3
8 --INTERFACE COMPATIBILITY TEST....................................................................................8-1 8.1 GROUND CONTROL SYSTEM COMPATIBILITY....................................................................8-1 8.2 LAUNCH VEHICLE COMPATIBILITY...........................................................................8-1 9 --LAUNCH PREPARATION TEST.........................................................................................9-1 9.1 GENERAL................................................................................................9-1 9.2 LAUNCH BASE SPACECRAFT FUNCTIONAL TESTS (IN PPF).......................................................9-1 9.3 SPACECRAFT-LAUNCH VEHICLE COMBINED OPERATIONS..........................................................9-2 9.4 LAUNCH COMPLEX OPERATIONS..............................................................................9-2 10 -- COMPLIANCE MATRIX............................................................................................10-1 11 --PAYLOAD TEST CONFIGURATION MATRICES REQUIREMENT...............................................................11-1 11.1 INTRODUCTION.........................................................................................11-1 11.2 OVERALL REQUIREMENTS.................................................................................11-1 11.2.1 Payload Panel.............................................................................11-1 11.2.2 Spacecraft Level..........................................................................11-1 11.2.3 RF Link Calibrations......................................................................11-2 11.2.4 Performance Parameters....................................................................11-2 11.3 ANTENNA TEST CONFIGURATIONS..........................................................................11-3 11.3.1 Unit/Subsystem Level......................................................................11-3 11.3.2 Spacecraft Level..........................................................................11-4 ILLUSTRATIONS FIGURE PAGE 3-1 ORION 2 Protoflight Spacecraft Assembly, Integration and Test Flow....................................3-8 4-1 ORION 2 Antenna Subsystem Test Flow...................................................................4-9 4-2 Temperature Profile during Spacecraft Level Thermal Vacuum Testing...................................4-17 TABLES TABLE PAGE 3-1 Unit Qualification Matrix.............................................................................3-3 6-1 Unit Life Test/Orbit Life Comparison..................................................................6-2 10-1 Compliance Matrix....................................................................................10-2 10-2 System Test Matrix..................................................................................10-15 10-3 Test Procedure......................................................................................10-20 10-4 Mechanical Test Decriptions........................................................................10-29a
[CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PAGES 1-1 THROUGH 11-4 OF THIS PART] LORAL ORION NETWORK SYSTEMS, INC. ORION 2 IN-ORBIT COMMISSIONING AND ACCEPTANCE TEST REQUIREMENTS PART 3(D) Dated: 11 May 1998 - - -------------------------------------------------------------------------------- This document contains data and information proprietary to Space Systems/Loral. This data shall not be disclosed, disseminated, or reproduced, in whole or in part, without the express prior written consent of Space Systems/Loral. - - -------------------------------------------------------------------------------- Use or disclosure of the data contained on this sheet is subject to the restriction on the title page. CONTENTS
SECTION PAGE 1 --SCOPE.............................................................................................................i 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.............................................................................7 5.3 DETERMINATION OF OTHER SPACECRAFT PARAMETERS............................................................10 5.3.1 Battery Capacity.............................................................................10 5.3.2 Predicted Propellant Life....................................................................11 5.3.3 Solar Array Power............................................................................11 5.4 DOCUMENTATION...........................................................................................13 5.4.1 In-Orbit Acceptance Test Plan................................................................13 5.4.2 In-Orbit Facility Definition Document........................................................13 5.4.3 In-Orbit Acceptance Test Procedure...........................................................14 5.4.4 In-Orbit Acceptance Test Report..............................................................14 5.4.5 Spacecraft In-Orbit Configuration............................................................15 6 --POST-ACCEPTANCE TRANSPONDER TESTING..............................................................................16 ANNEX A COMMISSIONING ACTIVITIES.................................................................................17 ANNEX B TRANSPONDER PERFORMANCE TESTS...........................................................................22 ILLUSTRATIONS FIGURE PAGE 5-1 Illustration of the Assessment of the Aggregate Predicted Transponder Life.............................7 5-2 Illustration of the variation in the number of operating Transponders which the available array power will support.....................................................................................12 TABLES TABLE PAGE 5-1 Transponder Acceptance Test Program.....................................................................9 6-1 Post Acceptance Transponder Test Program...............................................................16 A-1 Primary Transponder Commissioning Tests................................................................18 A-2 Platform Commissioning Activities......................................................................19
[CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PAGES 1 THROUGH 24 OF THIS PART] LORAL ORION NETWORK SYSTEMS, INC. ORION 2 DYNAMIC SPACECRAFT SIMULATOR SPECIFICATION PART 3(E) DATED: 11 MAY 1998 - - -------------------------------------------------------------------------------- This document contains data and information proprietary to Space Systems/Loral. This data shall not be disclosed, disseminated, or reproduced, in whole or in part, without the express prior written consent of Space Systems/Loral. - - -------------------------------------------------------------------------------- Use or disclosure of the data contained on this sheet is subject to the restriction on the title page. CONTENTS SECTION PAGE 1 --DYNAMIC SPACECRAFT SIMULATOR GENERAL CHARACTERISTICS.....................1-1 2 --REAL-TIME SIMULATION COMPUTER AND PERIPHERALS............................2-1 3 --GROUND STATION INTERFACE.................................................3-1 4 --SIMULATOR MODELING.......................................................4-1 4.1 ADCS PROCESSOR EMULATION........................................4-1 4.2 ATTITUDE DYNAMIC MODELING.......................................4-1 4.3 PROPULSION MODEL................................................4-2 4.4 T&C SUBSYSTEM MODEL.............................................4-2 4.4.1 Caribou Decryptor Modeling...........................4-3 4.5 ORBIT & EPHEMERIS MODEL.........................................4-3 4.6 EMULATION OF THE SECOND SPACECRAFT SCE PROCESSOR................4-4 4.7 DYNAMIC POWER MODEL.............................................4-4 4.8 DYNAMIC THERMAL MODEL...........................................4-4 4.9 COMMUNICATIONS PAYLOAD MODEL....................................4-5 4.10 FAILURE MODELS.................................................4-5 5 --FAST MODE SIMULATION.....................................................5-1 6 --SIMULATOR USER INTERFACE.................................................6-1 7 --POST-PROCESSING PLOTTING.................................................7-1 8 --DESIGN REVIEWS...........................................................8-1 9 --SIMULATOR TEST AND VALIDATION............................................9-1 10 --DOCUMENTATION..........................................................10-1 11 --DELIVERY AND INSTALLATION..............................................11-1 12 --TRAINING...............................................................12-1 13 --WARRANTY & MAINTENANCE.................................................13-1 [CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PAGES 1-1 THROUGH 13-1 OF THIS PART] ================================================================================ SPACE SYSTEMS/LORAL DOC CODE SE 3825 Fabian Way Specification No. E191269 Palo Alto, California 94303-4697 Revision N/C CAGE ODJH2 PART 3 (F) ORION 2 SPACECRAFT SCF AND SOFTWARE REQUIREMENTS SPECIFICATION LORAL PROPRIETARY INFORMATION This data is being furnished pursuant to the provisions of the ORION 2 Purchase Contract. ORION shall have the right to duplicate, use or disclose the data to the extent specified in the Purchase Contract. ================================================================================ PROGRAM PRIME CONTRACT NUMBER ORION 2 - - -------------------------------------------------------------------------------- TCR SIMULATOR ENGINEER TECHNICAL DIRECTOR Kam Wong James Marshburn - - -------------------------------------------------------------------------------- GROUND SYSTEM ENGINEER PROGRAM OFFICE Howard Silsdorf Jo Stiles - - -------------------------------------------------------------------------------- GROUND SYSTEMS HW SUPERVISOR PRODUCT ASSURANCE Joe Hauser Thuy Thi Do - - -------------------------------------------------------------------------------- GROUND SYSTEM ENG. MGR RELEASE Rich Yarrington DATE Page 1 of 77 ================================================================================ 1-i DOCUMENT CHANGE RECORD ================================================================================ CHANGE REASON FOR CHANGE AFFECTED PAGES NUMBER - - -------------------------------------------------------------------------------- - - -------------------------------------------------------------------------------- - - -------------------------------------------------------------------------------- - - -------------------------------------------------------------------------------- - - -------------------------------------------------------------------------------- - - -------------------------------------------------------------------------------- - - -------------------------------------------------------------------------------- - - -------------------------------------------------------------------------------- - - -------------------------------------------------------------------------------- - - -------------------------------------------------------------------------------- - - -------------------------------------------------------------------------------- ================================================================================ 1-ii CONTENTS
SECTION PAGE 1 SCOPE..........................................................................................1-1 1.1 STANDARDS.............................................................................1-1 2 APPLICABLE DOCUMENTS...........................................................................2-1 2.1 DATA TRANSMISSION STANDARD............................................................2-1 2.2 SPACE SYSTEMS/LORAL DOCUMENTS.........................................................2-1 2.3 TIME GENERATION AND FREQUENCY REFERENCING STANDARDS...................................2-1 2.4 PROTOCOLS.............................................................................2-1 3 TELEMETRY & COMMAND SIMULATOR..................................................................3-1 3.1 SECTION SCOPE.........................................................................3-1 3.2 REQUIREMENTS..........................................................................3-1 3.2.1 Functional Requirements.....................................................3-1 3.2.1.1 General Telemetry Simulation Functions.........................3-3 3.2.1.2 System Functions...............................................3-5 3.2.2 Interface Requirements......................................................3-5 3.2.2.1 General User Interface Requirements............................3-5 3.2.2.2 Information Organization Requirements..........................3-6 3.2.2.3 General Remote Interface Requirements.........................3-18 3.2.2.4 Local Area Network Interface Requirements.....................3-19 3.2.2.5 Signal Interface Requirements.................................3-19 3.3 CHARACTERISTICS......................................................................3-20 3.3.1 Performance Requirements...................................................3-20 3.3.1.1 IF Command and Ranging Requirements...........................3-20 3.3.1.2 IF Telemetry and Ranging Requirements.........................3-21 3.3.1.3 Baseband Telemetry Requirements...............................3-22 3.3.1.4 Command Decryptor Interface Requirements......................3-22 3.3.1.5 Ethernet Requirements.........................................3-23 3.3.1.6 Power Requirements............................................3-23 3.3.2 Physical Requirements......................................................3-24 3.3.3 Reliability................................................................3-24 3.3.4 Maintainability............................................................3-24 3.3.5 Environmental Characteristics..............................................3-24 3.3.6 Transportability...........................................................3-24 3.4 DESIGN AND CONSTRUCTION..............................................................3-24 3.4.1 Parts, Materials, and Processes............................................3-24 3.4.2 Electrical Design..........................................................3-25 3.4.3 Mechanical Design..........................................................3-25
1-iii 3.4.4 Workmanship................................................................3-25 3.4.5 Safety.....................................................................3-26 3.4.6 Interchangability..........................................................3-26 3.4.7 Human Engineering..........................................................3-26 3.5 DOCUMENTATION........................................................................3-27 3.5.1 Drawings...................................................................3-27 3.5.2 Technical Manuals..........................................................3-27 3.5.3 Firmware Documentation.....................................................3-27 3.5.4 Operational Support Documentation..........................................3-27 4 BASEBAND SUBSYSTEM.............................................................................4-1 4.1 EQUIPMENT OVERVIEW....................................................................4-1 4.2 PERFORMANCE SPECIFICATIONS............................................................4-1 4.2.1 TCRU........................................................................4-1 4.2.1.1 Downlink PM Signal Reception...................................4-2 4.2.1.2 Uplink Signal Generation.......................................4-2 4.2.1.3 Normal Telemetry Processing....................................4-4 4.2.1.4 Dwell Telemetry Stream Processing..............................4-5 4.2.1.5 Satellite Telecommanding.......................................4-5 4.2.1.6 Satellite Ranging..............................................4-7 4.2.1.7 Telemetry Simulation...........................................4-7 4.2.2 Interfaces to the RF/Antenna Subsystem......................................4-9 4.2.3 Interfaces with the SCC.....................................................4-9 4.2.4 TCRU Maintainability........................................................4-9 4.2.5 GPS Receiver and Time Code Generator........................................4-9 4.2.6 Maintainability.............................................................4-9 4.3 ENVIRONMENTAL SPECIFICATIONS..........................................................4-9 4.3.1 Operating Temperature.......................................................4-9 4-4.3.2 Humidity....................................................................4-9 4.4 POWER REQUIREMENTS....................................................................4-9 5 ORION 2 COMMAND AND CONTROL SYSTEM AUGMENTATION (CCSA).........................................4-1 5.1 CCSA OVERVIEW.........................................................................5-1 5.2 TELEMETRY REQUIREMENTS................................................................5-1 5.2.1 Telemetry Overview..........................................................5-1 5.2.2 Telemetry Reception.........................................................5-1 5.2.3 Raw Telemetry Archiving and Retrieval.......................................5-2 5.2.3.1 Rockville......................................................5-2 5.2.3.2 Mt. Jackson....................................................5-2 5.2.3.3 Hawley.........................................................5-3 5.2.4 Summary Data Archival.......................................................5-3
1-iv 5.2.5 Telemetry Data Conversion...................................................5-3 5.2.6 Pseudo PIDS.................................................................5-4 5.2.7 Data Export.................................................................5-4 5.3 COMMANDING............................................................................5-4 5.3.1 Automated Command Procedures................................................5-4 5.3.2 Command Execution...........................................................5-4 5.4 RANGING...............................................................................5-5 5.5 GROUND MONITOR AND CONTROL (M&C)......................................................5-5 5.6 DYNAMIC SATELLITE SIMULATOR (DSS) INTERFACE...........................................5-6 5.7 CCSA USER INTERFACE PRESENTATION......................................................5-6 5.8 PRESENTATION FUNCTIONS................................................................5-6 5.8.1 Multi-window monitor displays...............................................5-6 5.8.2 Printing Function...........................................................5-7 6 VERIFICATION OF REQUIREMENTS...................................................................6-1 6.1 FACTORY ACCEPTANCE TEST...............................................................6-1 6.2 SS/L ACCEPTANCE TEST..................................................................6-1 7 QUALITY ASSURANCE PROVISIONS...................................................................7-1 7.1 GENERAL...............................................................................7-1 7.2 TEST READINESS REVIEW.................................................................7-1 7.3 TEST NOTIFICATION.....................................................................7-1 7.4 ADJUSTMENT AND/OR REPAIR..............................................................7-1 7.5 CHANGES TO TEST PROCEDURES............................................................7-1 7.5.1 Authority...................................................................7-1 7.6 NON-CONFORMANCE REPORTING.............................................................7-2 7.6.1 Test Failures...............................................................7-2 7.6.2 Test Failure Definition.....................................................7-2 7.6.3 Test Failure Procedures.....................................................7-2 7.7 TEST ACCEPTANCE.......................................................................7-3 7.7.1 Engineering Review..........................................................7-3 7.7.2 Product Assurance Review....................................................7-3 7.8 DISPOSITION OF TEST DATA..............................................................7-3 8 PREPARATION FOR DELIVERY.......................................................................8-1 9 -- ABBREVIATIONS AND ACRONYMS LIST................................................................9-1
1-v [CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PAGES 1-1 THROUGH 9-2 OF THIS PART] LORAL ORION NETWORK SYSTEMS, INC. ORION 2 SATELLITE STORAGE PLAN PART 5 Dated: 11 May 1998 - - -------------------------------------------------------------------------------- This document contains data and information proprietary to Space Systems/Loral. This data shall not be disclosed, disseminated, or reproduced, in whole or in part, without the express prior written consent of Space Systems/Loral. - - -------------------------------------------------------------------------------- Use or disclosure of the data contained on this sheet is subject to the restriction on the title page. CONTENTS
SECTION PAGE 1 STORAGE AND POST-STORAGE PLAN..........................................................1-1 1.1 GENERAL REQUIREMENTS..........................................................1-1 1.2 ENVIRONMENTAL CONDITIONS......................................................1-1 1.3 ACCESS CONTROL................................................................1-2 1.4 MONITORING....................................................................1-2 1.5 DOCUMENTATION.................................................................1-2 2 FACILITIES AND EQUIPMENT...............................................................2-1 2.1 FACILITIES....................................................................2-1 2.2 STORAGE EQUIPMENT.............................................................2-1 3 STORAGE OPERATIONS.....................................................................3-1 3.1 SATELLITE CONFIGURATION FOR STORAGE...........................................3-1 3.2 SATELLITE PREPARATION FOR SHORT-TERM STORAGE..................................3-2 3.3 SATELLITE PREPARATION FOR LONG-TERM STORAGE...................................3-2 3.3.1 Satellite Preparation...............................................3-2 3.3.2 Storage Container Preparation.......................................3-2 3.3.3 Satellite Installation into Protective Cover........................3-2 3.3.4 Final Storage Preparation...........................................3-2 3.4 SATELLITE MONITORING..........................................................3-3 3.5 FLIGHT BATTERY STORAGE........................................................3-3 3.6 SOLAR ARRAY STORAGE...........................................................3-3 3.7 GROUND SUPPORT EQUIPMENT......................................................3-3 4 POST-STORAGE OPERATIONS................................................................4-1 4.1 CALLUP SCHEDULE...............................................................4-1 4.2 UNIT PREPARATION..............................................................4-1 4.3 SATELLITE PREPARATION.........................................................4-2 4.4 SATELLITE INTEGRATION AND TEST ACTIVITY.......................................4-2 4.4.1 One Month to Six Months Satellite Post Storage Operations...........4-2 4.4.2 Greater Than Six Months Satellite Post Storage Operations...........4-2 TABLES TABLE PAGE 1 Storage Facilities................................................................1-1 2 Storage Monitoring Matrix.........................................................2-1
[CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PAGES 1-1 THROUGH 4-2 OF THIS PART] AMENDMENT NO. 1 TO THE ORION-Z SPACECRAFT PURCHASE CONTRACT BETWEEN LORAL ORION SERVICES, INC. AND SPACE SYSTEMS/LORAL, INC. THIS AMENDMENT No. 1 to the ORION-Z Spacecraft Purchase Contract (the "Amendment") effective this 29th day of December, 1998, by and between Loral Orion Services, Inc. (formerly known as Loral Orion Network Services, Inc."), a corporation organized and existing under the laws of Delaware, U.S.A. ("ORION") and Space Systems/Loral, Inc., a corporation organized and existing under the laws of Delaware, U.S.A. ("Contractor"). W I T N E S S E T H: WHEREAS, the Parties entered into the ORION-Z Spacecraft Purchase Contract dated May 15, 1998 (the "Contract"), for Contractor's in-orbit provision to ORION of the ORION-Z Spacecraft consisting of thirty-either (38) 54 MHz Ku-band transponders; and WHEREAS, ORION and Contractor have agreed to increase the Contract Price as set forth herein for the scope of work described in the Contract; NOW, THEREFORE, in consideration of the foregoing, the covenants, and agreements set forth herein and intending to be legally bound, ORION and Contractor agree to amend the Agreement as follows: 1. Unless otherwise defined herein, all capitalized terms used herein shall have the meanings given those terms in the Contract. 2. Paragraph 4.2, Contract Price. The Contract Price for the ORION-Z Spacecraft delivered in-orbit (including cost of Ariane 44LP Launch Vehicle, any Launch Services, Data and Documentation, Operations Training, Mission Specific Hardware and Software, and the Dynamic Software Simulator) shall be increased by Fifty-Eight Million Seven Hundred Eighty One Thousand Dollars ($58,781,000) (the "Contract Price Increase") to a total Contract Price of Two Hundred Fourteen Million Three Hundred Eleven Thousand Dollars ($214,311,000). The Parties agree to negotiate in good faith a reasonable payment schedule for the Contract Price Increase, the terms of which will thereafter be incorporated, as appropriate, into a revised Part 1(B), Payment Schedule and Part 1(C), Termination Liability. 3. ORION and Contractor have participated jointly in the negotiation and drafting of this Amendment. If an ambiguity or question of intent or interpretation arises, this Amendment shall be construed as if drafted jointly by both Parties and no presumption or burden of proof shall arise favoring or disfavoring either Party because of the authorship of any of the provisions of this Amendment. Any reference to any law shall be deemed also to refer to all rules, regulations, orders or decrees promulgated thereunder, unless the context requires otherwise. The word "including" shall mean including without limitation. Each representation, warranty and covenant contained herein shall have independent significance. If either Party breaches in any respect any representation, warranty, covenant, or other obligation contained herein or created hereby, the fact that there exists another representation, warranty, covenant, or obligation relating to the same subject matter (regardless of the relative levels of specificity) which has not been breached shall detract from or mitigate the consequences of such breach. The Parts specified in this Amendment are incorporated herein by reference and made a part hereof. 4. Except as amended herein, the Contract and any prior amendments thereto, shall remain in full force and effect in all respects, including but not limited to price, delivery, schedule, and performance. IN WITNESS WHEREOF, ORION and Contractor have each duly executed this Amendment No. 1 to the ORION-Z Spacecraft Purchase Contract as of the day and year first written above. LORAL ORION SERIVCE, INC. SPACE SYSTEMS/LORAL, INC. By: /s/ Denis J. Curtin By: /s/ R.O. Hel ---------------------------- ---------------------------- Date: 1/27/99 Date: 1/11/99 -------------------------- -------------------------- EX-10.18 7 EXHIBIT 10.18 EXHIBIT 10.18 AGREEMENT BETWEEN LORAL ORION SERVICES, INC. AND LORAL SPACECOM CORPORATION CONCERNING PROFESSIONAL SERVICES This Agreement shall become effective on the date of its final signature by and between Loral Orion Services, Inc., a corporation organized and existing under the laws of the State of Delaware and having its primary place of business at 2440 Research Boulevard, Suite 400, Rockville, MD 20850 (hereinafter referred to as "LORAL ORION" which expression shall include its successors and permitted assigns) and Loral SpaceCom Corporation, a corporation organized and existing under the laws of the State of Delaware doing business as Loral Skynet(R) 2 and having a place of business at 500 Hills Drive, Bedminster, New Jersey 07921 (hereinafter referred to as "SKYNET" which expression shall include its successors and permitted assigns). WITNESSETH: WHEREAS, SKYNET and LORAL ORION are both subsidiaries of Loral Space & Communications Corporation; WHEREAS, SKYNET has many years experience and expertise in the management of communications satellite services and transponders, including performing tracking, telemetry and control services; and WHEREAS, LORAL ORION desires to take advantage of SKYNET'S experience and expertise for the benefit of LORAL ORION'S business. NOW, THEREFORE, LORAL ORION and SKYNET, in consideration of the mutual covenants expressed herein, agree as follows: - - ---------------- 1 Skynet is a registered trademark of Loral SpaceCom Corporation. ARTICLE 1 APPOINTMENT, AUTHORITY OF CONTRACTOR AND DUTIES OF CONTRACTOR A. APPOINTMENT - LORAL ORION hereby engages SKYNET to perform the services provided for herein including but not necessarily limited to Telemetry Tracking & Control (TT&C) Services and the Program Performance Review Services set forth in Exhibit A, Statement of Work (hereinafter referred to as "Service" or "Services"), attached hereto and made a part hereof, in connection with the satellites known as Orion 1, 2 and 3 and such other satellites as the parties shall mutually agree (hereinafter referred to as "Satellite" or "Satellites") and SKYNET accepts such engagement to render such Services for the compensation herein provided. Notwithstanding the foregoing, Performance Review Services are only applicable to satellites know as Orion 2 and 3. B. AUTHORITY OF CONTRACTOR - LORAL ORION hereby engages SKYNET on the terms and conditions set forth herein as an independent contractor. SKYNET and LORAL ORION hereby acknowledge and agree that SKYNET is engaged solely as an independent contractor and that SKYNET shall have no authority to bind LORAL ORION in connection with the Services provided hereunder. C. DUTIES OF CONTRACTOR - SKYNET shall provide the Services set forth herein and in Exhibit A, Statement of Work, to LORAL ORION. ARTICLE 2 COMPENSATION The charge for providing the Services hereunder shall be SKYNET'S cost plus five (5) percent on top of such costs per month provided that the cost shall have been reasonably incurred by SKYNET in connection with its performance of Services hereunder. ARTICLE 3 INVOICING, PAYMENT AND AUDIT SKYNET shall invoice LORAL ORION for the Services provided hereunder on the first business day of each month for the compensation for the Services provided hereunder set forth in Article 2 and LORAL ORION shall pay such invoice on or before thirty (30) days from the date specified on such invoices. SKYNET shall use reasonable commercial efforts to maintain accurate records of all the costs billed hereunder. LORAL ORION, once per calendar year, at its sole expense, during normal business hours, upon thirty (30) days' prior written notice to SKYNET, shall have the right to conduct a financial audit of all such records. ARTICLE 4 DOCUMENTS FORMING THE CONTRACT This Agreement consists of the following: A. The provisions in ARTICLES 1 through 9 in Section I of this Agreement and ARTICLES 1 through 17 in Section II of this Agreement. B. EXHIBIT A - Statement of Work In the event of any inconsistency among or between the parts of this Agreement set forth above, such inconsistency shall be resolved by giving precedence in the order of the parts set forth above. ARTICLE 5 DURATION This Agreement applies to all the Services performed by SKYNET that are described in EXHIBIT A, beginning on the date of its final signature ("Effective Date"), whether performed in anticipation of or following the execution of this Agreement, and shall, subject to the provisions of Articles 11 and 12 of the General Terms and Conditions appended hereto, continue through the End Of Life ("EOL") of the Satellites that are the subject of this Agreement. For the purposes of this Agreement End Of Life or EOL shall mean: i) the ejection of the Satellite from the orbital arc; or ii) the failure of the Satellite; or (iii) the sale of the Satellite, whichever occurs first. ARTICLE 6 PARTY REPRESENTATIVES AND NOTICES SKYNET'S Technical Representative is: Mr. John Brown Vice President, Satellite Engineering and Operations 500 Hills Drive P. O. Box 7018 Room 3A24 Bedminster, NJ 07921 Phone 908 470-2305 Fax 908 470-2457 SKYNET'S Contract Representative is: Mr. R. J. DeMartini, C.P.M. Director, Contracts 500 Hills Drive P.O. Box 7018 Room 3A15 Bedminster, New Jersey 07921 Phone 908 470-2360 Fax 908 470-2453 LORAL ORION'S Technical Representative is: Mr. Dennis Curtin Senior Vice President, Engineering 2440 Research Boulevard Rockville, MD 20850 Suite 400 Phone 301 258-3201 Fax 301 258-3222 LORAL ORION'S Contract Representative is: Mr. Dick Shay Senior Vice President and General Counsel 2440 Research Boulevard Rockville, MD 20850 Suite 400 Phone 301 258-3209 Fax 301 258-3360 Any notice or demand which under the terms of this Agreement or under any statute must or may be given or made by LORAL ORION or SKYNET shall be in writing and shall be given or made by telegram, tested telex, confirmed facsimile, or similar communication or by certified or registered mail addressed to the Contract Representatives designated in this Agreement, as amended from time to time. ARTICLE 7 INDEPENDENT CONTRACTORS STATUS This Agreement is intended to create, and creates, a contractual relationship for Services to be rendered by SKYNET acting in the ordinary course of its business as an independent contractor and is not intended to create, and does not create, a partnership, joint venture, agency or any like relationship between the parties hereto. Moreover, nothing herein shall be construed to imply a partnership, joint venture, commercial agency, or employer/employee relationship between the parties. All persons employed by SKYNET in connection with this Agreement shall be considered employees or agents of SKYNET only, and shall in no way, either directly or indirectly, be considered employees or agents of LORAL ORION. LORAL ORION shall not be obligated to pay commissions, salaries or other payments or benefits to parties with whom SKYNET may deal in connection with its Services hereunder, and SKYNET hereby agrees not to make any representations, directly or by implication, that any such obligation on the part of LORAL ORION exists or will exist. ARTICLE 8 TAXES A. Except as set forth in the following sentence, SKYNET shall be financially responsible for, and shall pay, any Tax liability arising in connection with any payment made by LORAL ORION to SKYNET pursuant to Article 3 herein. LORAL ORION shall be financially responsible for all sales, use, transfer or similar consumption-type tax arising in connection with any payment made by LORAL ORION to SKYNET pursuant to Article 3 herein. B. LORAL ORION and SKYNET shall cooperate and use their respective best efforts in connection with contesting any Tax liability imposed in connection with the Services or the Satellite capacity. C. For purposes of this Section 14, the term Tax or Taxes includes, without limitation, any federal, state, local, or foreign income (including income tax or amounts on account of income tax required to be deducted or withheld from or accounted for in respect of any payment), gross receipts, corporation, advance corporation, license, payroll, employment, wage, excise, severance, stamp, occupation, premium, windfall, profits, environmental, customs duties, capital stock, franchise, withholding, social security (or similar), unemployment, disability, real property, personal property, sales, use, transfer, registration, value added, alternative or add-on minimum, estimated, capital gains, development land, inheritance, national insurance contributions, capital duty, stamp duty, stamp duty reserve tax, duties or customs and excise, all taxes, duties or charges replaced by or replacing any of them, and all levies, imposts, duties, charges or withholdings of any nature whatsoever chargeable by any Governmental Authority, together with all penalties, charges and interest relating thereto. For purposes of this Article 8, the term Governmental Authority shall mean any federal, state, provincial, local, tribal, foreign or other governmental agency, department, branch, commission, board, bureau, court, instrumentality or body, including, without limitation, any taxing or other authority (whether within or without the United States) competent to impose any tax liability. ARTICLE 9 ENTIRE AGREEMENT This Agreement , shall constitute the entire agreement between the parties with respect to the subject matter of this Agreement and shall not be modified or rescinded, except by a writing signed by LORAL ORION and SKYNET. Additional or different terms inserted in this Agreement by LORAL ORION, or deletions thereto, whether by alterations, addenda, or otherwise, shall be of no force and effect, unless expressly consented to by SKYNET in writing. The provisions of this Agreement supersede all contemporaneous oral agreements and all prior oral and written quotations, communications, agreements and understandings of the parties with respect to the subject matter of this Agreement. ACCEPTED: LORAL ORION SERVICES, INC. LORAL SPACECOM CORPORATION By: ________________________ By: _______________________ Name: Mr. W. Neil Bauer Name: Mr. Terry J. Hart Title: President & CEO Title: President Date: Date: GENERAL TERMS AND CONDITIONS ARTICLE I ARBITRATION All disputes arising in connection with the present Agreement shall be finally settled under the Rules of Conciliation and Arbitration of the American Arbitration Association ("AAA Rules") by one or more arbitrators appointed in accordance with said Rules. The arbitration shall take place in New York City, United States of America, and shall be conducted in English. The arbitrator shall apply the substantive (not the conflicts) law of the state specified in the choice of law provision set forth elsewhere in this Agreement. The arbitrator shall not limit, expand or modify the terms of the Agreement nor award damages in excess of compensatory damages, and each party waives any claim to such excess damages. The award shall be in United States dollars. Judgment upon the award rendered in the arbitration may be entered in any court having jurisdiction thereof. Each Party shall bear its own expenses (including attorney's fees) and an equal share of the expenses of the arbitrator and the fees of the arbitration. Nothing in the Agreement shall be construed to preclude any party from seeking injunctive relief in order to protect its rights pending arbitration. A request by a party to a court for such injunctive relief shall not be deemed a waiver of the obligation to arbitrate. ARTICLE 2 ASSIGNMENT LORAL ORION acknowledges and agrees that notwithstanding anything to the contrary contained in the Agreement, LORAL ORION shall not transfer or assign any of its rights or obligations under the Agreement to any third parties without SKYNET'S consent, which may be given or withheld at SKYNET'S sole discretion. SKYNET expressly shall have the right to subcontract any of the Services required hereunder to a third party and/or assign this Agreement including its rights, duties and obligations hereunder, to its parent corporation or any present or future affiliate or subsidiary of SKYNET capable of fully providing the Services hereunder, or in connection with its merger or acquisition. All the Services performed hereunder by SKYNET'S subcontractor(s) at any tier shall be deemed to be Services performed by SKYNET for purposes of this Agreement. ARTICLE 3 CAPTIONS The captions in this Agreement are included for convenience only and shall not be construed to define or limit any of the provisions contained herein. ARTICLE 4 CHANGES LORAL ORION may at any time during the term of this Agreement require additions to or alterations of or deductions or deviations (all hereinafter referred to as a "Change") from the Services called for by EXHIBIT A. No Change shall be considered as an addition or alteration to or deduction or deviation from the Services called for by EXHIBIT A nor shall SKYNET be entitled to any compensation for the Services done pursuant to or in contemplation of a Change, unless made pursuant to a written Change Order issued by LORAL ORION. Within twenty (20) days after a request for a Change, SKYNET shall submit a proposal to LORAL ORION that includes any increases or decreases in LORAL ORION'S costs or changes in the delivery schedule necessitated by the Change. LORAL ORION shall, within ten (10) days of receipt of the proposal, either (i) accept the proposal, in which event LORAL ORION shall issue a written Change Order directing SKYNET to perform the Change or (ii) advise SKYNET not to perform the Change in which event SKYNET shall proceed with the Services as originally described in EXHIBIT A. SKYNET at its sole discretion reserves the right to reject any such request for Change. ARTICLE 5 CHOICE OF LAW The construction, interpretation and performance of this Agreement and all transactions under it shall be governed by the laws of the State of New York excluding its choice of laws rules and excluding the Convention for the International Sales of Goods. ARTICLE 6 FORCE MAJEURE SKYNET shall not be liable for any loss, damage, or delay caused by strikes, picketing, labor disturbances, riots, fires, insurrection, or the elements, embargoes, failure of carriers, inability to obtain facilities or to obtain materials, Government Regulations or requirements, acts of God or the public enemy, or any cause beyond its control whether or not similar to the foregoing ("Force Majeure Condition"). Notwithstanding the foregoing, SKYNET agrees to use reasonable commercial efforts to continue to perform the TT&CServices that it is required to furnish hereunder. Such efforts will be no less in scope then the efforts that SKYNET will employ to perform the TT&C Services for its own spacecraft, in the event that any such Force Majeure Condition may occur and impede SKYNET'S ability to perform such telemetry, tracking and control services for such spacecraft. ARTICLE 7 PUBLICITY LORAL ORION agrees to submit to SKYNET all advertising, sales promotion, press releases, and other publicity matters relating to the material furnished or the Services performed by SKYNET under this Agreement wherein SKYNET'S names or marks are mentioned or language from which connection of said names or marks therewith may be inferred or implied; and LORAL ORION further agrees not to publish or use such advertising, sales promotion, press releases, or publicity matters without SKYNET'S prior written approval. ARTICLE 8 RELEASES VOID Neither party shall require (i) waivers or releases of any personal rights or (ii) execution of documents in conflict with the terms of this Agreement, from employees, representatives of the other in connection with visits to its premises and both parties agree that no such releases, waivers or documents shall be pleaded by them or third persons in any action or proceeding. ARTICLE 9 RIGHT OF ENTRY AND PLANT RULES Each party shall have the right to enter premises of the other party during normal business hours with respect to the performance of this Agreement, subject to all plant rules and regulations, security regulations and procedures and U.S. Government clearance requirements if applicable. ARTICLE 10 SEVERABILITY In the event that any one or more of the provisions contained herein shall for any reason be held to be unenforceable in any respect under the law of any state or of the United States of America, such unenforceability shall not affect any other provision of this Agreement, but this Agreement shall then be construed as if such unenforceable provision or provisions had never been contained herein. ARTICLE 11 TERMINATION [ * ] ARTICLE 12 TERMINATION FOR DEFAULT [ * ] ARTICLE 13 NONDISCLOSURE OF INFORMATION 13.1 Each party to this Agreement may find it beneficial to disclose to the other party documentation or other information which the disclosing party considers proprietary ("Information"). Such Information may include but is not limited to, its engineering, hardware, software or other technical information, and financial, accounting or marketing reports, analysis, forecasts, predictions or projections. 13.2 It is specifically understood and agreed that Information disclosed pursuant to this Agreement shall be considered proprietary either because 1) it has been developed internally by the disclosing party, or because 2) it has been received by the disclosing party subject to a continuing obligation to maintain the confidentiality of the Information. 13.3 Information that is provided in a tangible form shall be marked in a manner to indicate that it is considered proprietary or otherwise subject to limited distributions provided herein. If the Information is provided orally, the disclosing party shall clearly identify it as being proprietary at the time of disclosure, and within fifteen (15) working days of such disclosure, confirm the disclosure in writing to the other party. With respect to Information, the party to whom the Information is disclosed and its employees shall: a. hold the Information in confidence and protect it in accordance with the security regulations by which it protects its own proprietary or confidential information, which it does not wish to disclose; b. restrict disclosure of the Information solely to those employees with a need to know and not disclose it to any other persons; c. advise those employees of their obligations with respect to the Information; and d. use the Information only in connection with implementing this Agreement and in continuing discussions and negotiations between the parties concerning the Service, except as may otherwise be agreed upon in writing. 13.4 In the event a party to whom Information has been disclosed proposes to disclose that Information to an outside consultant or agent, it shall obtain the written consent of the party from whom the Information was originally received and arrange for the execution by the consultant or agent for a nondisclosure agreement in a form reasonably satisfactory to the party from whom the Information was originally received. 13.5 The party to whom Information is disclosed shall have no obligations to preserve the proprietary nature of any Information that: a. was previously known to it free of any obligations to keep it confidential; b. is disclosed to third parties by the disclosing party without restriction; c. is or becomes publicly available by other than unauthorized disclosure; or d. is independently developed by the receiving party. The Information shall be deemed the property of the disclosing party and, upon request the other party will promptly return all Information that is in tangible form to the disclosing party or destroy all such information. ARTICLE 14 LIMITATION OF LIABILITY OTHER THAN for damages resulting from skynet's willfull misfeasance, bad faith, or gross negligence, SKYNET SHALL HAVE NO Liability With respect to any claim or suit, by LORAL ORION or by any others, for damages associated with the MATERIAL or SERVICES FURNISHED HEREUNDER. FURTHER, SKYNET WILL NOT BE LIABLE FOR INCIDENTAL, CONSEQUENTIAL, SPECIAL, DIRECT OR INDIRECT DAMAGES WHETHER ARISING OUT OF BREACH OF WARRANTY, BREACH OF CONTRACT, NEGLIGENCE, STRICT TORT LIABILITY, OR OTHERWISE. IN NO EVENT SHALL SKYNET BE LIABLE FOR DAMAGES IN EXCESS OF THE PURCHASE PRICE STATED IN THIS AGREEMENT. ARTICLE 15 DISCLAIMER OF WARRANTIES SKYNET WARRANTS TO LORAL ORION THAT SKYNET WILL PERFORM THE SERVICES DEFINED HEREIN IN ACCORDANCE WITH GENERALLY ACCEPTED INDUSTRY STANDARDS AND THAT SUCH SERVICE SHALL BE FIT FOR ITS INTENDED PURPOSE AS IDENTIFIED IN EXHIBIT A, STATEMENT OF WORK. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED FOR IN THIS AGREEMENT, SKYNET, ITS PARENT, THEIR SUBSIDIARIES AND THEIR AFFILIATES, SUBCONTRACTORS AND SUPPLIERS MAKE NO WARRANTY, EXPRESS OR IMPLIED, REGARDING THE PERFORMANCE OF THE SERVICE OR WARRANTY AGAINST PATENT, TRADEMARK, COPYRIGHT, OR TRADE SECRET INFRINGEMENT, AND SPECIFICALLY DISCLAIM ANY WARRANTY OF MERCHANTABILITY. ARTICLE 16 INDEMNIFICATION LORAL ORION shall indemnify and save harmless SKYNET and its affiliates and its customers and their respective officers, directors, employees, successors and assigns from and against, any and all losses, claims, damages, liabilities or expenses (including reasonable attorneys' fees and expenses) (collectively "Losses") resulting from any claim, demand, action, or suit resulting from the performance of Services by SKYNET under this Agreement, other than Losses resulting from SKYNET'S willful misfeasance, bad faith or gross negligence. ARTICLE 17 WAIVER The failure of either party at any time to enforce any right or remedy available to it under this Agreement with respect to any breach or failure by the other party shall not be construed to be a waiver of such right or remedy with respect to any other breach or failure by the other party. ================================================================================ Statement of Work LORAL ORION FLEET PART 1, TRACKING, TELEMETRY & CONTROL SERVICES ================================================================================ Overview SKYNET'S technical support is comprised of three main areas: o Planning Support SKYNET will perform all necessary SATELLITE coordination with the proper regulatory authorities, including but not limited to the Federal Communications Commission (FCC) and the International Telecommunications Union (ITU). o GCE/Satellite TT&C Baseband Maintenance and Support SKYNET will provide maintenance support for the GCE hardware and SATELLITE TT&C baseband hardware and software located on SKYNET property and at remote earth stations used to support the TT&C services associated with this program. o TT&C Services & Payload Management SKYNET will provide TT&C services upon take over of the SATELLITE(S) from the LORAL ORION and the Spacecraft manufacturer. Primary TT&C responsibilities will remain with SKYNET, as well as management of the Satellite payload. The following provides more detail on each of the three areas of SKYNET'S support: PLANNING SUPPORT SKYNET will, perform the payload coordination of the LORAL ORION SATELLITE fleet with all applicable regulatory agencies, including but not limited to the FCC and the ITU. GCE/SATELLITE TT&C BASEBAND MAINTENANCE AND SUPPORT Under the provisions of this Statement of Work, SKYNET will assume responsibility for maintenance of GCE and SATELLITE TT&C baseband equipment directly or through subcontractors. Such maintenance activities will include but not be limited to: o Monitor the performance of the equipment twenty-four hours per day, seven days per week. o Upon detection of a fault, isolate the cause of the fault and repair the GCE and SATELLITE TT&C baseband equipment as needed. o Perform preventative maintenance on the equipment per the manufacturer's specifications. SKYNET will be responsible for operating all GCE and SATELLITE TT&C baseband equipment located on SKYNET property and at the remote TT&C stations, in an environment that follows manufacturer specifications and/or SKYNET'S operational guidelines. For that equipment, SKYNET will provide both protected and unprotected electrical power and conditioned environments, that meets the needs of the equipment. TT&C SERVICES SKYNET will provide LORAL ORION spacecraft operations services in the form of spacecraft payload and bus analysis and configuration management, SATELLITE control, and orbital determination and analysis. LORAL ORION'S Spacecraft operations will be performed on a day-by-day basis by an experienced SKYNET staff. This staff will operate the SATELLITE(S) with the same procedures and diligence SKYNET applies to its Telstar fleet. The entire SATELLITE control staff from both the Hawley and Three Peaks facilities will be trained to control the LORAL ORION fleet. The LORAL ORION SATELLITES will be integrated into the SKYNET fleet and enjoy the same coverage, from both Hawley and Three Peaks, that the Telstar fleet does. The demonstration of this diligence will be through periodic health and status reports provided to LORAL ORION. The SKYNET satellite control staff will develop appropriate plans and procedures for maintaining the proper Spacecraft orbits, monitoring the telemetry, responding to alarms, investigating and resolving Spacecraft anomalies and commanding the SATELLITE to the proper configuration for service. SKYNET will provide TT&C services, as described below, after SKYNET takes over LORAL ORION'S first SATELLITE and additional SATELLITE(S) from the manufacturer. The following provides details of the TT&C service that SKYNET will initiate and continue to provide throughout the life of the SATELLITE(S): o PAYLOAD AND BUS ANALYSIS AND CONFIGURATION MANAGEMENT SKYNET will execute the following tasks on each of the LORAL ORION SATELLITES: 1. ANALYSIS OF SATELLITE TELEMETRY DATA TO DETERMINE SHORT-TERM AND LONG-TERM TRENDS IN THE PERFORMANCE OF EACH OF THE SATELLITE SUB-SYSTEMS. 2. Review and analysis of any SATELLITE anomalies. The SKYNET staff will work with LORAL ORION and the manufacturer, if necessary, in the resolution of any Spacecraft anomalies. 3. SKYNET will determine, establish and administer all operating limits and deltas necessary for the quality operation of the Spacecraft(s). o Satellite Control SKYNET Satellite Controllers will be available on a twenty-four (24) hour per day, seven (7) day per week basis to continually monitor the performance of LORAL ORION'S SATELLITE(S). During the course of this monitoring the Satellite Controller will: 1. Continually scan for Spacecraft alarms and check the health and status of LORAL ORION'S Spacecraft by reviewing telemetry data received from the Spacecraft. 2. Execute spacecraft procedures as designed and specified by spacecraft engineer(s) and Orbital Analyst(s) assigned to the LORAL ORION spacecraft(s). The LORAL ORION SATELLITE(S) will be routinely assigned to different analysts and engineers on the SKYNET staff to ensure our entire staff is always familiar with the configuration and operations of the LORAL ORION SATELLITE(S). 3. Execute spacecraft procedures and payload configuration changes. 4. Execute spacecraft procedures as needed in response to spacecraft alarms. 5. Generate ranging data as required. o Maneuver Planning, Orbital Determination And Analysis SKYNET will see that each LORAL ORION SATELLITE operated by SKYNET will have the following activities conducted by the SKYNET orbital analysis staff. 1. Analysis of SATELLITE ranging data and determination of all orbital elements associated with current and projected SATELLITE positioning. 2. Design all maneuvers for the SATELLITE(S) to see that SATELLITE(S) are kept within limits authorized per the SATELLITE operating license, FCC requirements, ITU requirements and LORAL ORION'S reasonable and written expectations. 3. Monitor all SATELLITE flight dynamics during maneuvers to see that maneuver plans were executed as designed. 4. Perform post-maneuver analysis of SATELLITE(S) to determine fuel consumption during maneuver and prepare semi-annual end of life estimates for each SATELLITE. 5. Monitor short-term and long-term performance trends of each Spacecraft's attitude control and propulsion subsystems. SKYNET will also perform management of the payload including Satellite access. Each maneuver will have a primary analyst who has the support of the entire staff. Again, the entire orbital dynamics staff will receive all necessary training to conduct operations for the LORAL ORION fleet. In order to provide the TT&C services described above, SKYNET will augment its present staff with sufficient payload and bus analysis and configuration managers, orbital analysts and satellite controllers to operate LORAL ORION'S SATELLITES in the same SKYNET operates its satellites. Depending upon the context, in this Part 1 of this Exhibit A "Spacecraft" shall have the same meaning as ascribed to the term "Satellite" in Article 1. A. of Section I of this Contract. ================================================================================ PART 2, SATELLITE PROGRAM PERFORMANCE REVIEW ================================================================================ OVERVIEW This Section 2 defines all services, data and documentation to be performed by SKYNET on behalf of LORAL ORION for the Orion satellite(s) (depending on the context, hereinafter referred to as "Satellite, Satellites, Spacecraft or Spacecrafts") programs. SKYNET will be responsible for review and confirmation of deliverance of the Satellites in accordance with the specifications agreed to between the manufacturer and LORAL ORION. BASIC PROGRAM CONTENT SKYNET will provide experienced and competent personnel to review, analyze and report to LORAL ORION via written reports concerning: 1. The acceptability of unit level performance data received directly from the manufacturer or from the manufacturer's subcontractors for items associated with the Spacecrafts' antenna subsystem, communications subsystem, telemetry command and ranging subsystems, buses subsystems, spacecraft control electronics, propulsion subsystems, electrical power subsystems, thermal control subsystems, structures and mechanisms subsystems. 2. Support LORAL ORION in arriving at a satisfactory resolution of any unit level tests that suggest the Satellites will not meet performance specifications as outlined in the technical specifications section of the contract between the manufacturer and LORAL ORION. 3. The acceptability of subsystem level performance data received from the manufacturer during the integration and assembly of subsystems for items associated with the Spacecrafts' antenna subsystems, communications subsystems, telemetry command and ranging subsystems, buses subsystems, spacecraft control electronics, propulsion subsystems, electrical power subsystems, thermal control subsystems, structures and mechanisms subsystems. 4. Support LORAL ORION in arriving at a satisfactory resolution of any subsystem level performance tests that suggest the Satellites will not meet performance specifications as outlined in the technical specifications section of the contract between the manufacturer and LORAL ORION. 5. The acceptability of system level performance data received from the manufacturer during the thermal vacuum and temperature cycling of the Satellites for items associated with the Spacecrafts' antenna subsystems, communications subsystems, telemetry command and ranging subsystems, buses subsystems, spacecraft control electronics, propulsion subsystems, electrical power subsystems, thermal control subsystems, structures and mechanisms subsystems. 6. Support LORAL ORION in arriving at a satisfactory resolution of any system level performance tests that suggest the Satellites will not meet performance specifications as outlined in the technical specifications section of the contract between the manufacturer and LORAL ORION. PROGRAM OPTIONS LORAL ORION, at its option may request that SKYNET provide experienced and competent personnel to review, analyze and report to LORAL ORION via written report on the health and status of the Satellites: 1. During pre-launch activities. 2. During in orbit testing (IOT) of the Spacecrafts' buses and communications payloads. LORAL ORION, at its option may also request that SKYNET provide experienced and competent personnel to review, analyze and report to LORAL ORION via written report on the health and status of the Satellites' launch programs. SKYNET, in undertaking this task would: 1. Review pre-launch plans and procedures of the launch vehicle provider and recommend corrective actions to prevent or eliminate performance problems and protect schedules. 2. Track activities of launch vehicle provider. 3. Review final launch vehicle readiness to launch of the LORAL ORION Spacecrafts. 4. Review mission plans and procedures including orbit raising and deployment of solar arrays and antennas. DELIVERABLES The services, data and documentation to be provided by SKYNET are provided herein. Such services data and documentation provided by SKYNET will include but not be limited to written reports and compliance matrices which document results of analysis, and summary descriptions of the necessary resolution. SKYNET will also provide written reports and compliance matrices which document results of all scheduled testing. o UNIT AND SUB ASSEMBLIES SKYNET will provide in-process inspections or witness unit assembly at subcontractor. Data, if provided by a subcontractor of the manufacturer, would accompany the unit as an associated data package or be obtained at the subcontractor's facility. Data for units and sub-assemblies directly manufactured by the manufacturer would be found at the manufacturing facility. All data for analysis must be made available through the manufacturer's Program Office. o SPACECRAFT INTEGRATION TEST RESULTS Such tests will be performed at the manufacturer's facility. SKYNET will be present during the performance of such tests. SKYNET will support LORAL ORION in reviewing test procedures and witnessing the vendors (the manufacturer) performance of such tests and data collected. Such tests will include but not be limited to: panel integration tests, reference performance tests, thermal vacuum testing, sine vibration and acoustic testing, compact antenna range testing (CATR) and final bus testing. In addition to supporting the above tests, SKYNET will also provide the following: 1. COMMUNICATIONS SUBSYSTEMS ANALYSIS SKYNET will prepare a complete and comprehensive Communications Subsystems Performance report. This report will summarize important characteristics and parameters of the Communications Subsystems as it relates to the performance specifications found in the contract between the manufacturer and LORAL ORION for the construction of the Satellites. 2. ELECTRICAL POWER SYSTEMS ANALYSIS SKYNET will prepare a complete and comprehensive Electrical Power Subsystems Analysis report. This report will summarize important characteristics and parameters of the electrical power subsystems as it relates to the performance specifications found in the contract between the manufacturer and LORAL ORION for the construction of the Satellites. 3. SPACECRAFT PRE-SHIPMENT REVIEW SKYNET will witness pre-shipment review conducted by the manufacturer to assure that all of the Satellites' subsystems are in conformance with all requirements of the performance specifications found in the contract between the manufacturer and LORAL ORION for the construction of the Satellites. 4. SATELLITE POST SHIPMENT INSPECTION SKYNET will review or witness post-shipment validation tests conducted by the manufacturer to demonstrate that all of the Satellites' subsystems are in conformance with all requirements of the performance specifications found in the contract between the manufacturer and LORAL ORION for the construction of the Satellites and has not degraded as a result of shipment to the launch site. 5. SATELLITE LAUNCH READINESS REVIEW SKYNET will participate in the Launch Readiness Review of the Satellites which will be held not later than ten (10) working days prior to the launch date of the Satellites. SKYNET will expressly concentrate on the readiness of satellite subsystems. SKYNET, in performance of this review along with the manufacturer, will advise LORAL ORION on the condition of the Spacecrafts prior to LORAL ORION giving final GO/NOGO authority to the manufacturer. 6. IN-ORBIT TEST REVIEW/SATELLITE ACCEPTANCE SKYNET will participate in the In-Orbit Test review of the Satellites that will be held at a location to be selected by LORAL ORION. SKYNET will expressly concentrate on the in orbit performance of all of the Satellites' Subsystems. SKYNET, in performance of this review along with the manufacturer, will advise LORAL ORION on the condition of the Spacecrafts prior to final acceptance of the Satellites by LORAL ORION. EX-10.19 8 EXHIBIT 10.19 EXHIBIT 10.19 AGREEMENT BETWEEN LORAL ORION SERVICES, INC. AND LORAL SPACECOM CORPORATION CONCERNING PROFESSIONAL SERVICES This Agreement shall become effective on the date of its final signature by and between Loral Orion Services, Inc., a corporation organized and existing under the laws of the State of Delaware and having its primary place of business at 2440 Research Boulevard, Suite 400, Rockville, MD 20850 (hereinafter referred to as "LORAL ORION" which expression shall include its successors and permitted assigns) and Loral SpaceCom Corporation, a corporation organized and existing under the laws of the State of Delaware doing business as Loral Skynet(R) 1 and having a place of business at 500 Hills Drive, Bedminster, New Jersey 07921 (hereinafter referred to as "SKYNET" which expression shall include its successors and permitted assigns). WITNESSETH: WHEREAS, SKYNET and LORAL ORION are both subsidiaries of Loral Space & Communications Corporation; WHEREAS, SKYNET has many years experience and expertise in the marketing and sales of communications satellite services and transponders; and WHEREAS, LORAL ORION desires to take advantage of SKYNET'S experience and expertise for the benefit of LORAL ORION'S business. NOW, THEREFORE, LORAL ORION and SKYNET, in consideration of the mutual covenants expressed herein, agree as follows: - - ------------- 1 Skynet is a registered trademark of Loral SpaceCom Corporation. ARTICLE 1 APPOINTMENT, AUTHORITY OF CONTRACTOR AND DUTIES OF CONTRACTOR A. APPOINTMENT - LORAL ORION hereby engages SKYNET to perform the services provided for herein including but not necessarily limited to sales and marketing set forth in Exhibit A, Statement of Work (hereinafter referred to as "Service" or "Services"), attached hereto and made a part hereof, in connection with the satellites known as Orion 1, 2 and 3 and such other satellites as the parties shall mutually agree (hereinafter referred to as "Satellite" or "Satellites") and SKYNET accepts such engagement to render such Services for the compensation herein provided. SKYNET may, at its sole discretion, perform the Services pursuant to this Agreement as a disclosed agent or an undisclosed agent. B. AUTHORITY OF CONTRACTOR - LORAL ORION hereby engages SKYNET on the terms and conditions set forth herein as an independent contractor. SKYNET and LORAL ORION hereby acknowledge and agree that SKYNET is engaged solely as an independent contractor and that SKYNET shall have authority to bind LORAL ORION and to execute contracts or other documents in the name of, or on behalf of, LORAL ORION in connection with the Services provided hereunder, provided that, such authority shall be exercisable by SKYNET only in the United States. C. DUTIES OF CONTRACTOR - SKYNET shall provide the Services set forth herein and in Exhibit A, Statement of Work, to LORAL ORION. ARTICLE 2 COMPENSATION The charge to LORAL ORION for providing the Services hereunder shall be SKYNET'S cost plus five (5) percent on top of such costs per month provided that the cost shall have been reasonably incurred by SKYNET in connection with its performance of Services hereunder. ARTICLE 3 INVOICING, PAYMENT AND AUDIT SKYNET shall invoice LORAL ORION for the Services provided hereunder on the first business day of each month for the compensation for the Services provided hereunder set forth in Article 2 and LORAL ORION shall pay such invoice on or before thirty (30) days from the date specified on such invoices. SKYNET shall use reasonable commercial efforts to maintain accurate records of all the costs billed hereunder. LORAL ORION, once per calendar year, at its sole expense, during normal business hours, upon thirty (30) days' prior written notice to SKYNET, shall have the right to conduct a financial audit of all such records. ARTICLE 4 DOCUMENTS FORMING THE CONTRACT This Agreement consists of the following: A. The provisions in ARTICLES 1 through 10 in Section I of this Agreement and ARTICLES 1 through 17 in Section II of this Agreement. B. EXHIBIT A - Statement of Work. In the event of any inconsistency among or between the parts of this Agreement set forth above, such inconsistency shall be resolved by giving precedence in the order of the parts set forth above. ARTICLE 5 DURATION This Agreement applies to all the Services performed by SKYNET that are described in EXHIBIT A, beginning on the date of its final signature (Effective Date"), whether performed in anticipation of or following the execution of this Agreement, and shall, subject to the provisions of Articles 11 and 12 of the General Terms and Conditions appended hereto, continue through the End Of Life ("EOL") of the Satellites that are the subject of this Agreement. For the purposes of this Agreement, End Of Life or EOL shall mean: i) the ejection of the Satellite from the orbital arc; or ii) the failure of the Satellite; or (iii) the sale of the Satellite, whichever occurs first. ARTICLE 6 PARTY REPRESENTATIVES AND NOTICES SKYNET'S Technical Representative is: Ms. Joan Byrnes Vice President, Sales 500 Hills Drive P.O. Box 7018 Room 3B28 Bedminster, NJ 07921 Phone 908 470-2323 FAX 908 470-2451 SKYNET'S Contract Representative is: Mr. R. J. DeMartini, C.P.M. Director, Contracts 500 Hills Drive P.O. Box 7018 Room 3A15 Bedminster, New Jersey 07921 Phone 908 470-2360 FAX 908 470-2453 LORAL ORION'S Technical Representative is: Mr. Edward DiCarlo Vice President, Marketing 2440 Research Boulevard Rockville, MD 20850 Suite 400 Phone 301 670-6598 Fax 301 590-7430 LORAL ORION'S Contract Representative is: Mr. Dick Shay Senior Vice President and General Counsel 2440 Research Boulevard Rockville, MD 20850 Suite 400 Phone 301 258-3209 Fax 301 258-3360 Any notice or demand which under the terms of this Agreement or under any statute must or may be given or made by LORAL ORION or SKYNET shall be in writing and shall be given or made by telegram, tested telex, confirmed facsimile, or similar communication or by certified or registered mail addressed to the Contract Representatives designated in this Agreement, as amended from time to time. ARTICLE 7 INDEPENDENT CONTRACTORS STATUS This Agreement is intended to create, and creates, a contractual relationship for Services to be rendered by SKYNET acting in the ordinary course of its business as an independent contractor and is not intended to create, and does not create, a partnership, joint venture, agency or any like relationship between the parties hereto. Moreover, nothing herein shall be construed to imply a partnership, joint venture, commercial agency, or employer/employee relationship between the parties. All persons employed by SKYNET in connection with this Agreement shall be considered employees or agents of SKYNET only, and shall in no way, either directly or indirectly, be considered employees or agents of LORAL ORION. LORAL ORION shall not be obligated to pay commissions, salaries or other payments or benefits to parties with whom SKYNET may deal in connection with its Services hereunder, and SKYNET hereby agrees not to make any representations, directly or by implication, that any such obligation on the part of LORAL ORION exists or will exist. ARTICLE 8 TAXES A. Except as set forth in the following sentence, SKYNET shall be financially responsible for, and shall pay, any Tax liability arising in connection with any payment made by LORAL ORION to SKYNET pursuant to Article 3 herein. LORAL ORION shall be financially responsible for all sales, use, transfer or similar consumption-type Tax arising in connection with any payment made by LORAL ORION to SKYNET pursuant to Article 3 herein. B. LORAL ORION shall be financially responsible for, and shall pay, all Taxes not payable by a customer attributable to the Satellite capacity. Without limiting the generality of the foregoing, SKYNET shall (i) include in all customer contracts that customer shall be financially responsible for, and shall pay, any sales, use, transfer, VAT or other consumption-type Tax and (ii) use its best efforts to structure customer contracts for Satellite capacity in such a way as to minimize the potential imposition of any Taxes on LORAL ORION. C. LORAL ORION and SKYNET shall cooperate and use their respective best efforts in connection with contesting any Tax liability imposed in connection with the Services or the Satellite capacity. D. For purposes of this Section 14, the term Tax or Taxes includes, without limitation, any federal, state, local, or foreign income (including income tax or amounts on account of income tax required to be deducted or withheld from or accounted for in respect of any payment), gross receipts, corporation, advance corporation, license, payroll, employment, wage, excise, severance, stamp, occupation, premium, windfall, profits, environmental, customs duties, capital stock, franchise, withholding, social security (or similar), unemployment, disability, real property, personal property, sales, use, transfer, registration, value added, alternative or add-on minimum, estimated, capital gains, development land, inheritance, national insurance contributions, capital duty, stamp duty, stamp duty reserve tax, duties or customs and excise, all taxes, duties or charges replaced by or replacing any of them, and all levies, imposts, duties, charges or withholdings of any nature whatsoever chargeable by any Governmental Authority, together with all penalties, charges and interest relating thereto. For purposes of this Article 8, the term Governmental Authority shall mean any federal, state, provincial, local, tribal, foreign or other governmental agency, department, branch, commission, board, bureau, court, instrumentality or body, including, without limitation, any taxing or other authority (whether within or without the United States) competent to impose any tax liability. ARTICLE 9 CUSTOMER BILLING SKYNET will assign a unique Master Customer/Account No. to each LORAL ORION customer and invoice each customer monthly. Monthly charges will be billed in advance, except where prohibited by law. For billing purposes, each month will be considered to have thirty (30) days. Payment will be due on or before the first day of each month for services to be provided in that month, as specified on the bill. Service may be discontinued for nonpayment of a bill ten (10) days beyond notice. The bill form will contain essentially the same information as the bills previously issued to customers by LORAL ORION. The customer will have an option to forward their payment to a lock box by mail or by overnight carrier or electronically by wire transfer. LORAL ORION shall have sole authority to withdraw amounts from the lock box. Any late payments by customer of amounts due and payable (including, but not limited to, specified payments, damages, and indemnification) will be with interest at the rate specified in the customer contract, or the highest legally permissible rate of interest, whichever is lower, and all interest or discounting shall be compounded on a monthly basis. Such late payments, including interest, will be payable with the amount due and calculated from the date payment was due until the date it is received in the lock box. SKYNET will report the total amount of collected receivables to LORAL ORION on a monthly basis. SKYNET shall use its commercially reasonable efforts to collect overdue invoice amounts from LORAL ORION customers provided that LORAL ORION hereby acknowledges and agrees that SKYNET shall have no liability or obligation to LORAL ORION or any other person for customer payment defaults. ARTICLE 10 ENTIRE AGREEMENT This Agreement, shall constitute the entire agreement between the parties with respect to the subject matter of this Agreement and shall not be modified or rescinded, except by a writing signed by LORAL ORION and SKYNET. Additional or different terms inserted in this Agreement by LORAL ORION, or deletions thereto, whether by alterations, addenda, or otherwise, shall be of no force and effect, unless expressly consented to by SKYNET in writing. The provisions of this Agreement supersede all contemporaneous oral agreements and all prior oral and written quotations, communications, agreements and understandings of the parties with respect to the subject matter of this Agreement. ACCEPTED: LORAL ORION SERVICES, INC. LORAL SPACECOM CORPORATION By: _______________________ By: ______________________ Name: Mr. W. Neil Bauer Name: Mr. Terry J. Hart Title: President & CEO Title: President Date: Date: GENERAL TERMS AND CONDITIONS ARTICLE I ARBITRATION All disputes arising in connection with the present Agreement shall be finally settled under the Rules of Conciliation and Arbitration of the American Arbitration Association ("AAA Rules") by one or more arbitrators appointed in accordance with said Rules. The arbitration shall take place in New York City, United States of America, and shall be conducted in English. The arbitrator shall apply the substantive (not the conflicts) law of the state specified in the choice of law provision set forth elsewhere in this Agreement. The arbitrator shall not limit, expand or modify the terms of the Agreement nor award damages in excess of compensatory damages, and each party waives any claim to such excess damages. The award shall be in United States dollars. Judgment upon the award rendered in the arbitration may be entered in any court having jurisdiction thereof. Each Party shall bear its own expenses (including attorney's fees) and an equal share of the expenses of the arbitrator and the fees of the arbitration. Nothing in the Agreement shall be construed to preclude any party from seeking injunctive relief in order to protect its rights pending arbitration. A request by a party to a court for such injunctive relief shall not be deemed a waiver of the obligation to arbitrate. ARTICLE 2 ASSIGNMENT LORAL ORION acknowledges and agrees that notwithstanding anything to the contrary contained in the Agreement, LORAL ORION shall not transfer or assign any of its rights or obligations under the Agreement to any third parties without SKYNET'S consent, which may be given or withheld at SKYNET'S sole discretion. SKYNET expressly shall have the right to subcontract any of the Services required hereunder to a third party and/or assign this Agreement including its rights, duties and obligations hereunder, to its parent corporation or any present or future affiliate or subsidiary of SKYNET capable of fully providing the Services hereunder, or in connection with its merger or acquisition. All the Services performed hereunder by SKYNET'S subcontractor(s) at any tier shall be deemed to be Services performed by SKYNET for purposes of this Agreement. ARTICLE 3 CAPTIONS The captions in this Agreement are included for convenience only and shall not be construed to define or limit any of the provisions contained herein. ARTICLE 4 CHANGES LORAL ORION may at any time during the term of this Agreement require additions to or alterations of or deductions or deviations (all hereinafter referred to as a "Change") from the Services called for by EXHIBIT A. No Change shall be considered as an addition or alteration to or deduction or deviation from the Services called for by EXHIBIT A nor shall SKYNET be entitled to any compensation for the Services done pursuant to or in contemplation of a Change, unless made pursuant to a written Change Order issued by LORAL ORION. Within twenty (20) days after a request for a Change, SKYNET shall submit a proposal to LORAL ORION that includes any increases or decreases in LORAL ORION'S costs or changes in the delivery schedule necessitated by the Change. LORAL ORION shall, within ten (10) days of receipt of the proposal, either (i) accept the proposal, in which event LORAL ORION shall issue a written Change Order directing SKYNET to perform the Change or (ii) advise SKYNET not to perform the Change in which event SKYNET shall proceed with the Services as originally described in EXHIBIT A. SKYNET at its sole discretion reserves the right to reject any such request for Change. ARTICLE 5 CHOICE OF LAW The construction, interpretation and performance of this Agreement and all transactions under it shall be governed by the laws of the State of New York excluding its choice of laws rules and excluding the Convention for the International Sales of Goods. ARTICLE 6 FORCE MAJEURE SKYNET shall not be liable for any loss, damage, or delay caused by strikes, picketing, labor disturbances, riots, fires, insurrection, or the elements, embargoes, failure of carriers, inability to obtain facilities or to obtain materials, Government Regulations or requirements, acts of God or the public enemy, or any cause beyond its control whether or not similar to the foregoing ("Force Majeure Condition"). ARTICLE 7 PUBLICITY LORAL ORION agrees to submit to SKYNET all advertising, sales promotion, press releases, and other publicity matters relating to the material furnished or the Services performed by SKYNET under this Agreement wherein SKYNET'S names or marks are mentioned or language from which connection of said names or marks therewith may be inferred or implied; and LORAL ORION further agrees not to publish or use such advertising, sales promotion, press releases, or publicity matters without SKYNET'S prior written approval. ARTICLE 8 RELEASES VOID Neither party shall require (i) waivers or releases of any personal rights or (ii) execution of documents in conflict with the terms of this Agreement, from employees, representatives of the other in connection with visits to its premises and both parties agree that no such releases, waivers or documents shall be pleaded by them or third persons in any action or proceeding. ARTICLE 9 RIGHT OF ENTRY AND PLANT RULES Each party shall have the right to enter premises of the other party during normal business hours with respect to the performance of this Agreement, subject to all plant rules and regulations, security regulations and procedures and U.S. Government clearance requirements if applicable. ARTICLE 10 SEVERABILITY In the event that any one or more of the provisions contained herein shall for any reason be held to be unenforceable in any respect under the law of any state or of the United States of America, such unenforceability shall not affect any other provision of this Agreement, but this Agreement shall then be construed as if such unenforceable provision or provisions had never been contained herein. ARTICLE 11 TERMINATION [ * ] ARTICLE 12 TERMINATION FOR DEFAULT [ * ] ARTICLE 13 NONDISCLOSURE OF INFORMATION 13.1 Each party to this Agreement may find it beneficial to disclose to the other party documentation or other information which the disclosing party considers proprietary ("Information"). Such Information may include but is not limited to, its engineering, hardware, software or other technical information, and financial, accounting or marketing reports, analysis, forecasts, predictions or projections. 13.2 It is specifically understood and agreed that Information disclosed pursuant to this Agreement shall be considered proprietary either because 1) it has been developed internally by the disclosing party, or because 2) it has been received by the disclosing party subject to a continuing obligation to maintain the confidentiality of the Information. 13.3 Information that is provided in a tangible form shall be marked in a manner to indicate that it is considered proprietary or otherwise subject to limited distributions provided herein. If the Information is provided orally, the disclosing party shall clearly identify it as being proprietary at the time of disclosure, and within fifteen (15) working days of such disclosure, confirm the disclosure in writing to the other party. With respect to Information, the party to whom the Information is disclosed and its employees shall: a. hold the Information in confidence and protect it in accordance with the security regulations by which it protects its own proprietary or confidential information, which it does not wish to disclose; b. restrict disclosure of the Information solely to those employees with a need to know and not disclose it to any other persons; c. advise those employees of their obligations with respect to the Information; and d. use the Information only in connection with implementing this Agreement and in continuing discussions and negotiations between the parties concerning the Service, except as may otherwise be agreed upon in writing. 13.4 In the event a party to whom Information has been disclosed proposes to disclose that Information to an outside consultant or agent, it shall obtain the written consent of the party from whom the Information was originally received and arrange for the execution by the consultant or agent for a nondisclosure agreement in a form reasonably satisfactory to the party from whom the Information was originally received. 13.5 The party to whom Information is disclosed shall have no obligations to preserve the proprietary nature of any Information that: a. was previously known to it free of any obligations to keep it confidential; b. is disclosed to third parties by the disclosing party without restriction; c. is or becomes publicly available by other than unauthorized disclosure; or d. is independently developed by the receiving party. The Information shall be deemed the property of the disclosing party and, upon request the other party will promptly return all Information that is in tangible form to the disclosing party or destroy all such information. ARTICLE 14 LIMITATION OF LIABILITY OTHER THAN for damages resulting from skynet's willfull misfeasance, bad faith, or gross negligence, SKYNET SHALL HAVE NO Liability With respect to any claim or suit, by LORAL ORION or by any others, for damages associated with the MATERIAL or SERVICES FURNISHED HEREUNDER. FURTHER, SKYNET WILL NOT BE LIABLE FOR INCIDENTAL, CONSEQUENTIAL, SPECIAL, DIRECT OR INDIRECT DAMAGES WHETHER ARISING OUT OF BREACH OF WARRANTY, BREACH OF CONTRACT, NEGLIGENCE, STRICT TORT LIABILITY, OR OTHERWISE. IN NO EVENT SHALL SKYNET BE LIABLE FOR DAMAGES IN EXCESS OF THE PURCHASE PRICE STATED IN THIS AGREEMENT. ARTICLE 15 DISCLAIMER OF WARRANTIES SKYNET WARRANTS TO LORAL ORION THAT SKYNET WILL PERFORM THE SERVICES DEFINED HEREIN IN ACCORDANCE WITH GENERALLY ACCEPTED INDUSTRY STANDARDS. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED FOR IN THIS AGREEMENT, SKYNET, ITS PARENT, THEIR SUBSIDIARIES AND THEIR AFFILIATES, SUBCONTRACTORS AND SUPPLIERS MAKE NO WARRANTY, EXPRESS OR IMPLIED, REGARDING THE PERFORMANCE OF THE SERVICE OR WARRANTY AGAINST PATENT, TRADEMARK, COPYRIGHT, OR TRADE SECRET INFRINGEMENT, AND SPECIFICALLY DISCLAIM ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. ARTICLE 16 INDEMNIFICATION LORAL ORION shall indemnify and save harmless SKYNET and its affiliates and its customers and their respective officers, directors, employees, successors and assigns from and against, any and all losses, claims, damages, liabilities or expenses (including reasonable attorneys' fees and expenses) (collectively "Losses") resulting from any claim, demand, action, or suit resulting from the performance of Services by SKYNET under this Agreement, other than Losses resulting from SKYNET'S willful misfeasance, bad faith or gross negligence. ARTICLE 17 WAIVER The failure of either party at any time to enforce any right or remedy available to it under this Agreement with respect to any breach or failure by the other party shall not be construed to be a waiver of such right or remedy with respect to any other breach or failure by the other party. STATEMENT OF WORK MARKETING AND SALES FOR LORAL ORION'S SPACE SEGMENT CAPACITY ON THE SATELLITES AS FOLLOWS: MARKETING SUMMARY Plans, directs, and coordinates the marketing of LORAL ORION'S organization's products and/or services in consideration with appropriate LORAL ORION management by performing the following duties. ESSENTIAL DUTIES AND RESPONSIBILITIES o Establish marketing goals to ensure share of market and profitability of products and/or services. o Ensure revenue commitments and customer satisfaction goals are met through effective marketing and planning. o Develop and execute marketing plans and programs, both short and long range, including market segment plans and strategy, to ensure the profit growth and expansion of company products and/or services. o Identify and develop effective channels for distribution and sales strategy. o Research, analyze, and monitor financial, technological, and demographic factors so that market opportunities may be capitalized on and the effect of competitive activity may be minimized . o Conduct marketing surveys on current and new product concepts. o Develop and recommend pricing strategy for the organization which will result in the greatest share of the market over the long run. o Define service offers from customer requirements, competitive models and market demand. o Achieve satisfactory profit/loss ratio and share of market performance in relation to pre-set standards and to general and specific trends within the industry and the economy. o Identify and develop trade show participation globally, as required. o Evaluate market reactions to advertising programs, merchandising policy, and product packaging and formulation to ensure the timely adjustment of marketing strategy and plans to meet changing market and competitive conditions. o Identify requirements for press releases and public messages. Prepare external executive and marketing presentations. o Identify opportunities for industry positioning and speaker opportunities. o Develop and execute the communications plan for the company in concert with other marketing team members. o Ensure effective control of marketing results and that corrective action takes place to be certain that the achievement of marketing objectives are within designated budgets. o Recommend changes in basic structure and organization of marketing group to ensure the effective fulfillment of objectives assigned to it and provide the flexibility to move swiftly in relation to marketing problems and opportunities. o Prepare marketing activity reports, revenue reports and all marketing budgets. Act as interface to the business manager on sales and marketing metrics. SALES SUMMARY Manages all sales activities, after consultation with appropriate LORAL ORION management, primarily on the LORAL ORION fleet, by performing the following duties. ESSENTIAL DUTIES AND RESPONSIBILITIES o Develop and update all account plans for customers in assigned market segment. o Update sales funnel weekly. Ensure sales funnel adequately represents sales opportunities and quota attainment. o Prepare sales call plans prior to every customer meeting. o Develop and deliver comprehensive account reviews for Loral senior management to enhance executive positioning within the segment. o Effectively utilize sales automation tools to ensure successful management of sales segment. o Prepare comprehensive proposals for sales opportunities or as responses to formal Requests for Proposals (RFP's) or Requests for Information (RFI's). o Prepare and present executive level proposals to clients and senior Loral executives. o Attain revenue commitment and sales quota. o Lead complex negotiations and provide leadership and direction to the customer focused team in contract completion and implementations. o Direct the activities of the customer focused team to address customer needs, develop customer specific offers, discuss and analyze customer and industry trends and opportunities, and resolve issues. o Direct staffing, training, and performance evaluations to develop and manage sales program. o Coordinate sales distribution by establishing segments, quotas, and goals, and work with marketing team to advise distribution channels about sales and promotional techniques. o Assign segment responsibility and provide sales leadership to sales directors. o Analyze sales statistics to formulate policy and to assist in promoting sales. o Review market analyses to determine customer needs, volume potential and develop sales campaigns to accommodate goals of company. o Articulate customer requirements to other departments in the company. o Represent company at trade association meetings to promote satellite services. o Analyze and control expenditures to conform to budgetary requirements. o Assist other departments within organization to prepare manuals and technical publications, as well as sales tools, customer and marketing communications documentation. o Prepare periodic sales report showing sales volume and potential sales. o Recommend or approve, in consultation with appropriate LORAL ORION management, budget, expenditures, and appropriations for service development work. EX-27 9 FDS --
5 (Replace this text with the legend) 0001029850 Loral Orion 1,000 US$ 12-MOS DEC-31-1998 JAN-01-1998 DEC-31-1998 1 35,861 0 16,311 1,019 0 105,632 639,446 (38,706) 1,417,504 86,603 931,669 0 0 0 399,091 1,417,504 0 83,398 0 151,066 120 0 52,905 (120,693) (1,033) (119,660) 0 0 0 (119,660) 0 0
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